Read Double or Nothing: How Two Friends Risked It All to Buy One of Las Vegas' Legendary Casinos Online
Authors: Tom Breitling,Cal Fussman
Tags: #===GRANDE===, #-OVERDRIVE-, #General, #Business, #Businessmen, #Biography & Autobiography, #-TAGGED-, #Games, #Nevada, #Casinos - Nevada - Las Vegas, #Las Vegas, #Golden Nugget (Las Vegas; Nev.), #Casinos, #Gambling, #-shared tor-
In October of 1997, Tim and I went to the Notre Dame-USC football game with the Fertittas. Lorenzo's dad was old school and didn't understand or appreciate the Internet at the time. But we really valued his wisdom and counsel. He'd come to Las Vegas from Texas in 1960 with $160 in his pocket and built a multibillion dollar company of casinos that were favorites among the locals. His sons, Frank and Lorenzo, had bought a huge piece of LVRS when Tim needed money at the outset. And they later sold it back to us when LVRS became an impediment to Station Casinos going public. The Fertittas were always there for us.
I explained the possibilities of the Internet to Mr. Fertitta on the ride back from the game. “It might be a great opportunity,” he said. “Just don't put yourself in a position where you'll go out
of business if it doesn't work. Put half of this year's profit in it and give it a real shot. If it doesn't work, it won't bury you.”
I was off and running, and it was a good thing. Because business was changing so fast during those days that a couple of weeks meant the difference between becoming the industry leader with a powerful foothold and a Johnny-come-lately that was lost in the pack.
I sketched out an easy-to-use reservation process with Richie Rich that would take five clicks or less. I wanted each page to load in just a few seconds. Being the fastest travel Web site was important.
Five months and $11,000 later, on February 26, 1998, we launched.
When I came into the office the next day, there was a long queue of reservations listed on the screen. Next to each one was a single word. Charge.
That meant all we had to do was hit a key and the customer's credit card account would be charged.
This six-letter word dropped in a column all the way down the screen.
I hit the Charge key and thirty seconds later a message came back from the credit card company indicating the transaction had been approved. I moved on to the next reservation and again hit the Charge key. Thirty seconds later, that one was approved. I sat down and kept hitting the Charge key over and
over. It was like money falling from the heavens. All you had to do was hit a key.
I couldn't hit the key fast enough. The queue of reservations was so long I could never catch upâand it was constantly getting longer. I stayed up all night hitting the Charge key.
When he saw what I was doing, Tim's jaw dropped. By the time he picked it up, he already understood the enormity of what had just taken place.
“Tom,” he roared, “we can hire somebody else to hit the Charge key! Quick! Let's get some more rooms!”
Neither one of us could sleep. I had the system automated so that we didn't even have to hit the Charge key at all and then went out to hustle up accommodations. If my foot was on the gas, Tim's was pushing the pedal through the floorboards. Search engines like Yahoo, Infoseek, Excite, Lycos, and Alta Vista were now becoming popular. Tim started buying every Las Vegasâbased keyword he could get his hands onâeven with misspellings of the words “Las Vegas.”
“Every quarter we put in,” Tim howled, “comes back dressed up as a dollar!”
We were no longer in that place where when you think you've got the best of it, you take dead aim and hold onto your balls. We were now like gamblers at a craps table who knew that every first roll of the dice would come up seven. Tim was pushing all our chips out on the table. Not only that, but he was frantic to get more chips so we could move to a table with higher limits.
“Tom, this doesn't just work for Las Vegas,” he said. “It'll work for hotels all around America. It'll work for the entire world!”
“Let's go for it,” I said.
A new company was formed. We decided to call it Travelscape.
“I gotta go see Lorenzo,” Tim said, bolting out the door.
Once again, Lorenzo was there for us. He loved the idea, and when he bought 10 percent of the company we had an infusion of cash.
But we were growing so fast we needed much more. The beauty of being connected in Las Vegas is there's always a chance you'll find it. When Tim told Uncle Jack about our situation, Uncle Jack made a suggestion. Uncle Jack could always be counted on to come up with money even if it was passed along in unusual ways. When Tim was in college and running low on funds, Uncle Jack sent money through a bookmaker in L.A. known as The Roadrunner. The Roadrunner lived in a huge apartment building, but he wouldn't let Tim come through the doorman to make a quick pickup. The Roadrunner thought that might look suspicious. Instead, at obscure times, he threw manila envelopes containing cash and clasped tight with string out the window of his high-rise. Tim would stand below waiting, and on some windy days looked like a comical outfielder trying to make a catch as the envelope blew back and forth on the currents and dropped into the hedges below.
This time, Uncle Jack suggested that Tim go see an old friend on the East Coast: The Captain.
Captain John Kassap is the great uncle that everybody wishes they had. A guy who sailed around the world as a young man with the Merchant Marines, who could tell you stories about Shanghai in the '40s, who landed in Baltimore, bought a bar, ran junkets to Las Vegas, and over time evolved into an investment guru who could keep up with the sharpest minds at Goldman Sachs. The Captain had no airs, and walked around in a cab driver's cap. His investment record was so good over decades that friends of his put money into projects simply because The Captain recommended them. On the surface, The Captain
was not the best candidate to fund a fledgling Internet travel company. He was approaching seventy, and he didn't know anything about computers. To this day, he does his spreadsheets in pencil. And he's not the type to invest over the long haul. No quarterly interest payments for The Captain and his investors. Oh, no. “Me and my guys don't buy green bananas,” he liked to say. “We want our interest payments monthly.”
But The Captain immediately intuited that travel and the Internet were a perfect partnership. He invited Tim to make a presentation to a group of his pals in Baltimore.
When Tim told Lorenzo that he was going to Baltimore to raise money, Lorenzo's eyelids lifted.
Lorenzo had been to the dance before when his own company went public back in 1993. He knew how the game was played. You give your pitch at a meeting in New York with investment bankers who'll do their due diligence, who'll make twenty additional phone calls with plenty of questions, and then, if they like the deal, will start negotiating the terms.
Things were a little different in Baltimore. Tim and Lorenzo stepped into a banquet room at a restaurant on the waterfront. There were about thirty guys eating and drinking. Tim went up to the podium and gave his PowerPoint presentation. As soon as he was done, before a single question could be asked, The Captain grabbed the microphone, looked out into the crowd, and said, “All right, now, listen to me! I'm passing around a clipboard. I want you all to write your name down and how much you're in forâand don't embarrass yourself!”
As the evening wound down, Lorenzo stood by in disbelief as people came up to Tim and said, “Oh, I remember going to the racetrack with your Uncle Jack back inâ¦must've been 1949. If you're okay with The Captain, you're okay with me, kid. You need money, you can have whatever you need.”
After it was over, the bill came to Tim. “Twelve thousand dollars!” he yelped.
“So my guys had a few glasses of wine,” The Captain said. “What are you complaining about? We just raised $8 million. Just sign the damn check.”
That $8 million built up our infrastructure and propelled our numbers through the roof. In a single year, our sales climbed 60 percent.
The year before the Internet, 1997: $12 million.
The year of the Internet, 1998: $20 million.
Once again, our timing was perfect. The entire travel agency business was being flipped upside down by the Internet. At first, United Airlines cut the standard airline commission to travel agencies from 10 percent down to 8 percent. The other airlines followed suit, and soon commissions were slashed to 5 percent. Then down to $20 maximum per ticket. Eventually, they were cut to nothing at all.
Brick-and-mortar travel agencies with fixed costs that relied on traffic off the streets and phone calls just couldn't compete with five clicks on a computer. We were like the telegraph in the day of the Pony Express. Two days after the last telegraph wire was strung, the Pony Express went out of business.
We threw millions into advertising with search engines and partners. And even with so many reservations coming through the Internet, our phone traffic
We hired Mr.
credibleâEdward Munceyâaway from the Bellagio to bring in hotel rooms around the country. We'd set a goal. Twenty-five cities and 250 hotels.
“How ya doin', Edward?”
-credible!” he'd say.
We'd set a new goal. Fifty cities and 500 hotels.
“How ya doin', Edward?”
A hundred cities and 2,500 hotels.
“How ya doin', Edward?”
Our revenues shot to the heavens.
The ringing phone that I'd casually picked up in Tim's tiny office back in the days when I was trying to be the next Bob Costas had led to $20 million in revenues by 1998.
By 1999, the revenues that had grown out of the sandwich that Tim bought me on the day we first met reached $100 million.
f you're going to be David in an arena of Goliaths, you'd better have some rocks for your slingshot.
We were no longer a niche company selling hotel rooms in Las Vegas. We were now a travel company competing in a global market against others run by giants like Microsoft, AOL, and American Airlines. We needed big-time cash. The $8 million dinner with The Captain in Baltimore was great. But now it was time to go to Wall Street.
When I first traveled to New York City just out of college to catch the Big East basketball tournament with Tim, Uncle Jack, and their pals, they loved seeing my head swivel between skyscrapers so they could tease. “Get your head out of the clouds, ya hayseed!” But the reality is that Tim had had a similar sort of experience only a few years earlier. Once, during his college years, he took a trip to New York City with Lorenzo and Lorenzo's
mom. The Fertittas booked a hotel room for Tim where they were stayingâalthough Tim insisted upon paying his own way. When Tim checked in at the front desk of the Peninsula, he glanced at the bill and assumed it meant he was supposed to take the elevator to room 375. He asked the clerk, just to make sure, and was informed that 375 was the daily room rate. This was back in the day when $375 was like $675 would be to a college kid now. It was an amount that Tim didn't have, and he couldn't hold back a gasp.
More than a decade had passed since that day. We were now in the summer of 1999. Our company was growing fast. We were young and gung ho. And we couldn't help but feel we belonged in the big time. It's every entrepreneur's dream to go public and see his company listed on the stock exchange. We were embracing the dream. We were such novices to the world of Wall Street that we were too naÃ¯ve to even realize it.
Fortunately, we had The Captain to look out for us. He came through immediately in a meeting with Goldman Sachs. There's a cachet to doing business with Goldman Sachs. You might have to pay a little more, but it's often worth it to associate your company with the gold standard. The terms that Goldman Sachs was offering, though, were ridiculously loaded down with fees.
“Good morning,” the executive at Goldman Sachs cordially greeted Tim and The Captain.
“Good morning???” The Captain shot back at the banker. “With the terms you guys are offering, I don't know what the hell is so good about it!”
If Tim or I had voiced the same opinion, we might've been pitched out to the sidewalk on our thirty-something asses. But having the words come from a guy who'd been to Shanghai and back before the banker was even born gave them credibility.
When Tim and I got in way over our heads, we could always count on The Captain to guide us.
Trouble was, we were navigating our way through a time period that nobodyâand I mean
âcould understand. Most people remember the time as the Internet Bubble, though the guy who looked after our finances, Ed Borgato, called it something else. He called it The Crazy.
He called it The Crazy not only because the numbers on Wall Street were insane in early 1999, but also because in a normal world the idea behind running a business is to make a profit. During The Crazy, all you needed to make millions was an idea in a garage. Any young entrepreneur in a T-shirt could float up an Internet concept, and immediately the scent of money was wafting over Wall Street. None of the suits wanted to be left out of the future. Never mind that the company connected to the idea coming from the genius in a T-shirt might have little chance of success. To many of the bankers on Wall Street, it seemed like more of a risk to be left behind.
A big-time analyst like Oppenheimer's Henry Blodget would make an outrageous assessment of a youngster like Amazon. com, predicting in December 1998 that its stock would hit $400 a share. A month later, after a feeding frenzy of investment, the stock had soared 128 percent, and it
pass $400! When Amazon grew in leaps and bounds, it spread hope that every company would do the same. It
crazy. Without showing a hint of ever having been profitable, an online procurement company called PurchasePro that was started by a guy who showed Steve Wynn workout techniques actually surpassed the value of Wynn's Mirage!
I guess you could compare it to an untested athlete out of high school getting drafted and signed for way more money than a professional who'd proven himself as an all-star for a decade.
The kid out of high school had the power to shape the future. The kid wearing a T-shirt in a garage suddenly had enough money to buy a mansion in Silicon Valley and an original copy of the Declaration of Independence.
Only time can provide true perspective of what we were living through. Hundeds of books have been written about the Internet Bubble, but as I look back now it still boggles the mind. The dot-com valuations were so out of whack during this speculative frenzy that seven years later the NASDAQ Composite would have to appreciate 105 percent to climb back to where it was at the height of The Crazy. Ed watched in disbelief as companies that had nothing to do with the Internet sent their stock climbing simply by changing their names to include a dot-com at the end. Again and again, he issued warnings in his quarterly letter to investors that a day of reckoning was coming. But amateur investors were becoming instant millionaires, and even the savvy were seduced. At the height of the hysteria, Ed wondered how The Crazy could get any crazier. He picked up a business magazine and found out. Barbra Streisand had jumped into The Crazy and was now making a fortune herself as a day trader of Internet stocks. At first, Ed could only shake his head in ridicule when he read that the diva was buying the same stocks that he was shunning. But when he reached the part where fashion designer Donna Karan had pushed aside her money manager and turned to Barbra, he actually hurled the magazine across his office and into the trash.
Ed saw the Internet Bubble for what it was: a new type of gold rush. Wall Street was simply sifting through the different ideas and companies to find the ones with real value. Like in any gold rush, the people who are sure to get rich are the ones selling the picks and the shovels. It was lucrative for Wall Street when an analyst like Henry Blodget dreamed up and affixed an
astronomical value to Amazon or any other Internet company. The higher the value, the greater the fee his bank would collect when it launched an initial public offering.
So it was both the best time to go public and the worst. Hundreds of millions of dollars were being handed out on Wall Street as casually as drinks at a bar. Just get in line. If you owned any sort of company linked to the Internet during The Crazy, you were insane if you
go public. But there would be consequences for those companies that couldn't produce later on, not to mention for the people who'd invested in them.
All the old rules of business were changed overnight by the Internet. Value was no longer based on performance in the present, but on potential performance in the distant future. This was a little complicated for us. Our company was founded
the Internet. We were more than just an idea in a garage. We were an actual business that was using the Internet to sell rooms. So we had to understand how Wall Street's new rules varied from the old and how they might affect us.
The concept that the bankers put forth made sense. Yet at the same time it went against everything I always thought a business was supposed to do. How much money your company was making no longer mattered. You were not being judged upon a multiple of your earnings. The analysts wanted the Internet companies that they were taking public to spend so much on marketing that they couldn't possibly make money. The important thing was to use that marketing money to make your company the leader in its niche. In the short term, there would be losses. But when your company became wildly popular, the initial marketing costs would subside. Down the road, your company would reap enormous profits.
In January 1999, Tim and Captain John sat down with vice
presidents from CIBC Oppenheimer. Blodget, the bank's big-time analyst, valued the company that Tim had started with a desk, a chair, a phone, and a pillow at $400 million.
We knew Blodget's numbers were crazy, but if he was willing to give us this sort of valuation, how could we not take it? During The Crazy, you could only wonder if a bank down the street would come up with a figure that was even crazier.
“What the hell,” Captain John said to Tim. “Let's walk down the street and listen to Prudential.” There, Tim and Captain John heard that our company was worth only $200 million. “Holy mackerel,” Captain John said, “we just lost $200 million walking down the street.”
When Tim told Prudential about our $400 million valuation, the guy at Prudential threw up its hands. “Whoa, wait a minute, don't do anything yet. Let me talk to
analyst. He's in the Far East.” Next thing Tim knew, a ringing phone woke him at 3:30
. After quickly sharpening his pencil, the analyst in Asia apologized for overlooking certain aspects of our business, and corrected the valuation to $350 million.
“Are you ready for this?” Tim told us the next morning.
“One phone call,” Captain John marveled, “and we found $150 million!”
We decided to go with CIBC Oppenheimer and a second-tier bank, Piper Jaffray. The highest number usually won during The Crazy, and we liked Oppenheimer's vice-chairman, Nate Gantcher. Nate seemed at home when he visited us in Las Vegas. Our rottweiler, Bally, had taken a nap with her head on Nate's shoe during a talk in our office. Moments like those meant something to Tim and me. Even when Blodget was lured away by a rival bank and replaced by a young guy who seemed a little jittery in his presentations, we stuck with Nate. We'd shaken Nate's hand. Once we'd given our word, we'd never go
back on it. In the city that grew up outside the law, a man's word is all he's worth.
But in the end, the loss of Blodget was a blow. Things became even more complicated when the market grew choppy. The pressure was on Tim when he headed east toward New York and over to Europe to help the bank raise funds for the IPO.
Lorenzo's brother, Frank, told Tim if he wanted to go up against the Goliaths, he needed to look the part. “Request a private plane from the banks in order to help arrange financing,” Frank advised. “That will make them take you seriously. The trip is going to be grueling. Ask the banks to load the plane up with whatever you need to make the trip as comfortable as you can.” Tim flew off on his mission in a Challenger 601 stocked with Johnnie Walker Blue and Fruity Pebbles cereal.
I held down the fort in Las Vegas while Tim worked his ass off between bowls of Fruity Pebbles. It's no exaggeration to say he was taking a physical pounding as he crisscrossed the country and flew over to Europe. On a stop in Paris, he stepped out of a limo to make a presentation and put his briefcase down behind the trunk. The driver didn't see him and slammed the trunk door down on his head, knocking him unconscious. Tim woke up and wobbled into the presentation. He spoke with blood running down the back of his neck, drenching the shirt underneath his suit. After weeks of unrelenting sales, he got his end of the job done.
On June 22, 1999, we flew family and friends to New York for a dinner at Sparks steak house to celebrate our impending entrance to the stock market. Not long before the shrimp cocktail was served, though, the next sucker punch arrived. The bankers told us they couldn't get enough orders in their book. Why? One reason was that our company wasn't losing enough money. Sure, we showed great potential. We could anticipate sales growth at
40 to 50 percent. But during The Crazy
that just didn't look as appealing to investors as an
company forecasting sales growth of
percent. The bankers wanted us to lower our numbers because, they said, the market had softened.
But then we found out that Piper Jaffray had priced another IPO above its initial range and scheduled it for the following morning, at exactly the same time it was supposed to be doing our IPO. I couldn't believe our bank was taking two companies in the same sector public on the same day. I thought it was total bullshit.
Usually, Tim is the guy to throw the first punch. But when I looked over at him, there was no anger on his face. You know how sometimes you get so tired that you can't sleep? Well, Tim was so mad that he was beyond anger. He had thrown so much of himself into the process that he had no more to give. It was one of those moments when you realize you're powerless and you throw the back of your hand in the air and say, “Whatever
Seeing that expression on Tim's face hit me in the gut with a force that I still can't describe. Suddenly, I was in a rage at the bankers in the dining room of Sparks, and Tim was holding
back on the same ground where Big Paulie Castellano was gunned down by John Gotti's boys in one of the last notorious mob hits.
It was completely out of character for me to lose it like that. When I look back on it, I can only wonder if the bankers had tapped into that old high school wound.
You're not playing.
That's pretty much what the bankers were telling us that night. After all their bullshit about how great our company was and how great this offering was going to be, after all the work that Tim had put into raising money, the whole thing came down to almost the exact same words. We're going with somebody else. You're not playing.
It wasn't like I was standing there seeing a movie flashback of myself as a dejected kid in high school. Or a flashback of Tim and me on the frozen lake when he said, “Look, if you come into the business with me, you don't have to rely on other people to create your opportunities.
control our own destiny.” The pain behind the blank expression on Tim's face just made me want to beat the crap out of someone