Battle Over Operations in Atlantic City : Trump-Harrah’s Partnership in Casino Erupts Into a Bitter Feud

ATLANTIC CITY, N.J. —  Like any El Dorado, this is a town of what-ifs. If Hilton Hotels had not done business with controversial labor lawyer Sidney Korshak and then stonewalled the New Jersey Casino Control Commission about it, then the state might not have denied the giant hotel company a casino license.

And if Hilton had gotten its license, it might not have felt the urgency of selling its newly built but inoperable $320-million casino hotel to Donald Trump, the brazen New York real estate developer.

And Trump, who already had 50% interest with the Harrah’s subsidiary of Holiday Inns in a casino called Harrah’s at Trump Plaza, would not have had the chance to put his name on a second one called Trump’s Castle.

The upshot was two events of importance to Atlantic City on June 17. Trump’s Castle opened to the customary fanfare. The same day, in the federal courthouse 50 miles to the west in Camden, Harrah’s sued Trump, its partner on the Boardwalk, for opening the rival casino directly across the street from its solely owned facility in the city’s marina section.

Wants Name Removed

The suit accuses Trump of lying about his casino plans and breaching the partnership contract, and asks that he be forced to remove his name from the new casino.

Trump has fired back, of course. The developer, who once could scarcely restrain his public enthusiasm over the success of the Trump Plaza joint venture with Harrah’s, now contends that it has been mismanaged virtually from its opening in May, 1984. He contends that while Harrah’s is fighting to keep his name on their facility, the company has besmirched it almost beyond redemption by its “amateurish” management.

In a harsh four-page letter May 13 to Harrah’s Chief Executive Officer Philip G. Satre, filed in court, Trump cracked: “The Trump name has been so badly bloodied by your management of the facility that hopefully Trump’s Castle Casino Hotel can do something to bring it back.”

Indeed, documents filed with the partners’ cross-complaints demonstrate that the two sides have been bickering over one thing or another all along. “They’ve been fighting over all kinds of issues,” acknowledges John Barry, Trump’s New Jersey lawyer.

Aside from providing the equivalent of street entertainment to the Atlantic City crowd, the dispute may have other effects. For one thing, argues Daniel Lee, an analyst who closely follows the gambling industry for Drexel Burnham Lambert Inc., “it’s destroying the credibility of both of them as potential business partners.”

Nasty Allegations

The case has produced some nasty allegations. Trump contends that Harrah’s mismanagement has been deliberate. “Our theory is they’ve been mismanaging the facility trying to force Donald out,” Barry says. Trump also contends that Harrah’s reservation clerks steer customers to Harrah’s Marina, and that the company reserves its best employees for its solely owned casino.

Harrah’s contends, in turn, that Trump has tried to hire away Trump Plaza workers for the Castle, attempted to misappropriate lists of Trump Plaza customers and high rollers for his new building, and has balked at constructing a long-planned and critical parking garage for the Plaza to force Harrah’s to buy him out at an inflated price. Both sides have denied the other’s assertions.

Barry says there have been negotiations over a buy-out of the partnership interests by one party or the other. But casino analysts say the talks have broken down over price.

Hanging over all this are the realities of the Atlantic City market. Unlike Las Vegas, where gambling junkets can be several-day affairs, the average customer drives or takes a bus into Atlantic City and stays only six hours. In that time the island resort’s 11 casinos must hustle to get a piece of the gambler’s change.

Casino people know that their claim on the customer’s attention is ephemeral, and likely to be muddied by the presence of two Trump casinos (not to mention two Harrah’s).

“There are, undoubtedly, some people who will mistakenly go to the new Trump II because of the advertising that they’re doing,” said Joseph Sahid, a Harrah’s lawyer, during a June 28 court hearing. “There are some people who simply wouldn’t know where they are. There are some people who want to experience the Trump phenomenon. . . . We positioned the (Harrah’s-Trump) casino in the mind of the people so that they identified it with Trump and now he wants to take that away.”

Personal Pettiness

The dispute also shows how personal pettiness can interfere with an otherwise solid business enterprises. “Underlying the whole thing,” says analyst Lee, “is that they don’t like each other.”

With the lawsuits, this animosity appears to have been channeled into two specific issues. One is whether Trump has the right to hang his own name on a new rival casino. Harrah’s contends that the partnership contract implicitly forbids it. (Asked by the judge why the contract is not explicit on that point, Sahid said: “We didn’t ask him to agree explicitly not to steal.”)

The second issue involves a 3,000-space parking garage that Trump and Holiday have agreed to build jointly for the Trump Plaza casino, which is in desperate need of parking. The partners agreed that Trump would assemble the land on the partnership’s behalf; but now that he has done so, he contends the Trump Plaza casino owes him rent for using the land. The garage remains no more than a blueprint.

Name Is Valuable

To many observers it seems that Trump has reserved his greater interest for the first issue. In New York, where Trump Tower stands for a peculiar kind of glitzy, arriviste wealth and status, real-estate brokers agree that the name is worth as much as $200 per square foot in the price of the building’s units.

Trump argues that his name’s value is a product of his sole effort. Indeed, his affinity for self-promotion permeates even the boilerplate of legal papers. His court complaint reads like the copy on a four-color brochure, describing him as “an entrepreneur who has achieved national and international prominence, reputation, and recognition as the result of the outstanding success he has achieved in conceiving, developing, and promoting various enterprises.”

After listing those achievements--chiefly Manhattan’s Trump Tower, Trump Plaza, and Grand Hyatt Hotel--the complaint continues, “the Trump name has come to be identified in the public mind with quality, excellence, achievement, and success, and Trump has been the subject of innumerable articles in the press and of substantial media attention.”

Compare that to the same document’s subdued description of his adversary: Holiday Inns Inc., which has been renamed Holiday Corp., “is principally engaged in the business of operating quality but non-luxury hotels and motels.”

Needed Each Other

Trump and Harrah’s apparently felt they needed each other when they cast their partnership in 1982. Under the agreement, the $20 million or so in cash that Trump had already sunk in the venture was repaid by Harrah’s, which assumed responsibility for further financing the construction and managing the completed facility. Trump contributed his expertise at getting the building erected, in return for which he is to get 50% of the profits.

Trump and Harrah’s apparently spent an inordinate amount of time niggling over the name of their joint venture. The developer was insistent that his name be on the casino, although Harrah’s executives contend that, when the partnership was formed in 1982, they had no intention of using Trump’s name at all. At the time, with his biggest ventures still on the drawing boards, they argue that Trump was scarcely known even in Manhattan. Trump “has a more glorified view of the importance of his name in 1982 than we did at the time,” said Harrah’s executive Satre in an affidavit.

As time wore on, Trump’s eclat grew in the New York area. His flamboyant buildings were opening; in 1983 he bought the New Jersey Generals of the United States Football League. In September, 1983, says Richard Goeglein, president of Holiday Corp., Trump argued that if his name were placed on the building “he would then have an incentive personally to promote the hotel-casino. . . . Mr. Trump was particularly concerned about the nature of the presentation and the relative size the name Trump would have in the signs.”

Agreed to Change

Harrah’s eventually capitulated, ironically, to the argument that the partners’ casino on the Boardwalk was being confused with Harrah’s Marina casino at the far end of Atlantic City. As time passed, the casino’s name evolved from Harrah’s Boardwalk at Trump Plaza to the current usage, Trump Plaza Casino Hotel.

By now, Harrah’s says, it has spent $8 million promoting Trump’s name in Atlantic City, and is not about to let its partner capitalize on that with a competing facility next door to its own Marina casino. Harrah’s even tried the end-run of registering “Trump Casino Hotel” as a trademark, but Trump discovered the subterfuge and blocked it at the last minute, court papers show.

The public phase of this dispute began with a truly majestic misstep by one of the savviest hotel companies in the land: Beverly Hills-based Hilton, which had spent about $320 million to build what may be the best-designed casino of the 11 in Atlantic City.

Hilton executives clearly believed that approval of their casino license would be routine. When New Jersey gaming authorities raised questions about the company’s 13-year association with Korshak, a Chicago labor lawyer who has long been described by law enforcement agencies as a representative of organized crime figures, they found themselves stonewalled and sidetracked by Hilton executives. On Feb. 29 came the Casino Control Commission’s stunning decision to deny Hilton a license.

Minimized Losses

Hilton’s only option to minimize its losses was to sell the facility. Trump, who already had a license, was a willing buyer.

Letters and other papers filed in the lawsuit show that Harrah’s executives reacted with suspicion to their partner’s new venture. Satre, who had been the Harrah’s-Trump Plaza general manager before his promotion to president and chief executive officer of the Reno-based Harrah’s subsidiary, called Trump to ask him what he was going to call the new hotel and warn him that placing his own name on it would violate the partnership contract.

“I wouldn’t do that to our partnership,” he says he was assured by Trump.

By then the partnership was fraying in a round of recriminations. Trump’s assistants, it seemed, lost nary a chance to hector Harrah’s executives about their performance on the Boardwalk. “The partnership projected first-year profits of $49 million,” Barry says. “In fact, they lost money.” (He acknowledges the loss was “a small amount--basically an accounting thing.”)

According to the partnership papers, Trump was responsible solely for building the facility, after which he turned over all day-to-day management to Harrah’s, retaining three of six seats on a joint executive committee. The partners argued over what constituted daily management matters, and what were executive committee questions. Trump insisted on a multimillion-dollar “incentive fee” for finishing the casino on time and within budget; Harrah’s said he was due no such fee.

Several Problems

Later, Trump exhumed several unfortunate management blunders to flay Harrah’s. The casino’s accounting system for its slot machines failed in the first week, after which New Jersey gaming regulators ordered most of the slots shut for a month. Some customers contracted salmonella poisoning--an incident a Harrah’s attorney has dismissed as “a case of couple of bad Reuben sandwiches.” In an affidavit filed June 25, Trump used those as examples of how Harrah’s “grossly mismanaged the facility.”

To Harrah’s, Trump is simply seeking a whole loaf where half is his due. Says one company official: “Trump Plaza is a cash machine for him. He has no cash invested in it, no obligation on the debt--all he has to do is collect. But he only gets 50% of the profits.”