Читать книгу The Real Trump Deal - Martin E. Latz - Страница 14
ОглавлениеTHE ART OF THE BLUFF: WHEN HE HOLDS… AND WHEN HE FOLDS
“The worst thing you can possibly do in a deal is seem desperate to make it. That makes the other guy smell blood, and then you’re dead. The best thing you can do is deal from strength, and leverage is the biggest strength you can have… Unfortunately, that isn’t always the case, which is why leverage often requires imagination, and salesmanship.” 169
—Donald J. Trump
Donald Trump knows leverage. In fact, leverage has driven almost all his deals.
How? To answer this, we must define leverage. Many consider negotiation power and leverage the same. Not true. Leverage is one type of power in negotiations. But other negotiation power exists, too.
What is negotiation leverage and how does it provide power?
RESEARCH: Leverage consists of two elements:
How much each party needs or wants an agreement relative to the other
The consequences to each side if no agreement is reached—that is, each side’s alternative to a negotiated agreement [each side’s Plan B if Plan A is their deal].170
Overall, leverage fundamentally relates to how easy it is for you to walk away, relative to how easy it is for the other side to walk away. The easier it is for you to walk away and the harder for the other side, the stronger your leverage.171
Trump knows the first “level of need” element well, writing, “Leverage is having something the other guy wants. Or, better yet, needs. Or, best of all, simply cannot do without.” 172
He also knows the second “Plan B/alternative” element well, stating, “Part of being a winner is knowing when enough is enough. Sometimes you have to give up the fight and walk away, and move on to something more productive.” 173 That “something more productive” would be his Plan B.
RESEARCH: Leverage also is relative and based on perception. Leverage is only strong or weak in comparison to the other side’s needs and wants.
Most of us naturally focus on how much we need or want what the other side has to offer. Don’t. Focus instead on the relative needs of all the parties. In leverage terms, your needs and wants don’t mean much independently. They only gain relevance when analyzed relative to the other parties’ needs and wants. It’s natural to focus on what we need. Ignore the urge. Focus instead on the parties’ relative needs.174
Parties’ perceptions of the other side’s needs and wants also impact the negotiation, not some “true” level of desperation. Perception trumps reality here. It especially impacts leverage.175
Leverage is also fluid, meaning each party can change their leverage. The most effective negotiators also know that everyone has the ability to change their leverage. Leverage is not static. Everyone’s level of need likely will change during the negotiation. At the least, a party’s perception of its level of need may change. This changes its leverage.
Likewise, you may be able to improve your Plan B. Or you might be able to make your counterpart’s alternative (their Plan B) less attractive. In short, you can change your leverage and improve your ability to get what you want even when it appears you have weak leverage.176
The lesson: Analyze your leverage—then strategize ways to strengthen it. Take charge of your leverage.177
Trump understands this. As he has written, “Leverage: don’t make deals without it.” 178
Trump has taken charge of his leverage in many business negotiations. Let’s analyze three:
his first Atlantic City casino lease purchases,
his casino license negotiations, and
his casino partnership with Harrah’s.
For each, we will focus on Trump’s level of need, his Plan B, and how he strengthened his leverage. We will address leverage in terms of his counterparts’ alternative plans in Chapters 6 and 7.
Trump’s First Casino Deal—Creating a Strong Plan B
Donald Trump wanted in on gaming before he ever did a New York City real-estate deal. “As far back as 1976, he was telling reporters he would build the world’s largest casino in Las Vegas and name it Xanadu.”179 But when New Jersey approved casino gambling in 1977, Trump started eyeing Atlantic City seriously.
His first step—just like in real estate—obtain the rights to the land on which to build a casino. He decided to lease and not buy. Why was this a smart negotiation move? Leases better satisfied his interests (as opposed to buying), as Trump could lock down a key casino property but still walk away with little lost if the deal didn’t happen. “Preserving his options [with this move] was precisely what Donald wanted.”180
As Trump wrote, “I never get too attached to one deal or one approach. I keep a lot of balls in the air, because most deals fall out, no matter how promising they seem at first.”181
Trump wanted to develop a good Plan B, too. The better his Plan B/alternative, the stronger his leverage.
His best Plan B versus an Atlantic City casino? A New York City casino in his newly redeveloped Grand Hyatt Hotel (the old Commodore). But New York had not legalized casino gambling. Trump sought to change this—taking practical, concrete steps to strengthen his leverage vis-à-vis a New Jersey opportunity. This is a crucial and often overlooked leverage-enhancing strategy.
Here was Trump’s effective research-based strategy.
In 1979, when the campaign for gambling heated up in New York, Donald became a prominent public spokesman for it. Declaring in a multipart Daily News series on gambling that the still-in-construction Hyatt was designed for casino use, Trump said: “We designed the building so it can easily be converted to one larger than the MGM Grand in Las Vegas.
[Trump later said in a July New York Times feature that] “We are missing the boat every day casinos are not approved.”182
New York did not approve casino gambling. But Trump’s strategy provided leverage for his Atlantic City negotiations.
He also intimately involved himself in the substance of those negotiations, using his leverage to get a great deal on the leases where he would build his first casino. Here’s how his interactions were described in Trump Show.
The [negotiations] took place on a hot March day in an unair-conditioned Resorts suite, and as the hard bargaining wore on, [Trump’s broker and lawyers] who’d come down from New York with Donald, and many of the rest of the group got down to their shirtsleeves. Donald’s only concession to the heat, however, was his unbuttoned suitcoat. He chatted and sparred with [his counterparts] and, after threatening at various points to “just forget about it,” he finally arrived at the basic terms of the deal. [Emphasis added.]183
Two elements to highlight. One, Trump fully engaged in the substantive details. This later changed. And two, Trump’s comment several times to “just forget about it” reflects his ability to walk and go with his Plan B—a powerful leverage move.
And while we don’t know if Trump would have walked (he could have been bluffing—creating the misperception he would walk), his creation of a New York Plan B and the existence of other deals at the time made this statement credible.
Did Trump negotiate a good deal? Yes. He got the lease and only paid out “an unescrowed $1.5 million, and his counterparts gave him promissory notes that would require the repayment of even these sums if certain conditions weren’t met.”184
Trump’s leverage was key.
New Jersey Gaming Approval—They Are Desperate, and Trump’s Not
Donald Trump wanted an Atlantic City casino. But he didn’t need it.
New Jersey needed Donald Trump—desperately. This gave Trump leverage. And he knew it.
On March 14, 1982, the [New Jersey] Casino Control Commission took up Trump’s application for a casino license…. Atlantic City officials all but bowed before him. It didn’t matter that he had no experience running a casino, had not assembled financing, and had been investigated for dealings with organized crime figures. To the officials, Trump’s presence showed the city was on its way back….
The license was approved in less than two hours. [Emphasis added.]185
The timing worked out well for Trump, too. Atlantic City was desperate for Trump. He wasn’t. Strong leverage for Trump.
This also illustrates another important leverage element: timing.
RESEARCH: Given the fluid nature of leverage, you will always want to complete your agreements when your leverage reaches its peak. Strike while your leverage is hot.
How? Constantly strive to maximize your leverage. Don’t assume it will stay the same. In fact, time alone often strengthens one of the parties’ leverage. Time may work for you or against you. When you have strong leverage, exercise it and get the deal done.186
When you sign the deal may determine if you even have one.187
Trump knew his strong leverage might not last.
So what negotiation strategy did he execute to seize this window of opportunity, described in Making Trump as “perhaps the most lucrative negotiation of Trump’s life”?188
Two things. One, he pushed hard to get a license in six months instead of the usual 18 months.
New Jersey required all license applicants to complete a highly detailed personal history under a system designed to fulfill the promise to New Jersey voters that Atlantic City would not become a mob-run Las Vegas East….The state was so diligent in vetting would-be casino owners that it sent detectives overseas to interview people and inspect documents.189
What was Trump’s hurry? His leverage could change. And Trump was “unwilling to endure such a lengthy inquiry, [so he] set about arranging special terms to prevent scrutiny of his past, a practice he has continued to this day,” according to Making Trump.190
In other words, an expedited process might not allow New Jersey to complete its due diligence. If New Jersey fully vetted Trump, noted Making Trump, it would have found several usually disqualifying elements he did not include in his application, including:
A 1979 federal grand jury inquiry into how he had acquired the Penn Central railroad yards on the West Side of Manhattan (federal agents had interviewed Trump twice on this);
The 1980 U.S. Attorney’s investigation into whether Trump and Berger had illegally cheated Penn Central in the bankruptcy case;
The FBI’s questioning of Trump relating to the Trump Tower apartment he allegedly arranged for Cody’s girlfriend;
Trump’s hiring a mob-connected construction firm in 1978 to work on Trump Tower; and
A 1973 U.S. Justice Department racial discrimination case against him. (Trump checked “no” on the application asking whether he had ever been accused of civil misconduct.)
Trump was never indicted nor convicted of anything. But the application required he list these investigations regardless of result. And the cover of the application, in capital letters, stated: FAILURE TO ANSWER ANY QUESTION COMPLETELY AND TRUTHFULLY WILL RESULT IN DENIAL OF YOUR LICENSE APPLICATION.191
New Jersey also meant this, as “this standard had been strictly enforced for other people.”192
Why did the Division of Gaming Enforcement report, which completed its investigation in five months, ignore Trump’s failure to list these items? And why give him a free pass on the two it found that Trump subsequently added to his application?
New Jersey desperately wanted Trump. In a word, leverage.
The second strategy Trump used to get an expedited review involved politics, also related to his leverage. “Instead of going to state government offices in Trenton, Trump asked John Degnan, the New Jersey attorney general, to come to him. [Degnan did and brought with him] G. Michael Brown, the head of the Division of Gaming Enforcement.”193
The first hint of Trump’s leverage? They came to him, not the other way around. What happened? According to Making Trump,
Trump assured Degnan there was no need for a long inquiry into his conduct and business dealings; he was “clean as a whistle”—too young at age thirty-five to have become enmeshed in any sort of trouble.
Trump then told him that unless the attorney general expedited approval, he would not build in Atlantic City, where he had already acquired a prime piece of land at the center of the Boardwalk. Finally, Trump hinted that his Grand Hyatt Hotel, next to Grand Central Terminal in midtown Manhattan, could accommodate its own casino.
…Degnan was about to make his own run for New Jersey governor. He knew that a Trump lawsuit, a Trump campaign for casinos in New York, or denunciations from Trump about excessive government regulation would not win him any votes. He agreed to Trump’s terms. He did not promise approval, but did promise that, if Trump cooperated, the investigation would be over within six months. [Emphasis added.]194
Trump had powerful leverage and exercised it. As noted in Trump Show, “Donald was the white knight from New York that New Jersey desperately needed to lend luster and credibility to its casino industry.” [Emphasis added.]195
Trump got his license.
Trump’s Harrah’s Partnership—The Illusion of Need
Trump now had the land and license. But he still needed financing and an operator. Leverage again proved crucial.
For the financing, Trump was “fishing for financing everywhere,” including holding detailed talks with Drexel Burnham Lambert’s junk bond king Michael Milken. Milken was pushing for a $30 million equity investment from Trump. Trump, typically aggressive, wanted 100 percent financing.196
Trump, at the same time, was negotiating with Harrah’s, the casino operator owned by Holiday Corp. (which also owned Holiday Inn). These negotiations were for a partnership to operate the casino. Later, after Harrah’s committed to a deal as the operator, it would also include financing when Trump’s promised financing failed to materialize.
Three elements of these negotiations reflect Trump’s actions to maximize his leverage. One, Trump simultaneously engaged in negotiations with multiple parties, his Plan A (Harrah’s) and B (Drexel).
Two, Trump created an illusion of great activity at his construction site when he showed it to potential partner Harrah’s board members. This suggested he was well into building the casino when he had yet to get financing or do much work there.
Here is how Trump Revealed described his illusion. If Harrah’s believed it, this would suggest Trump was interested, but not desperate.
In June 1982, Trump hosted board members from Harrah’s… at the site of his proposed casino. The Trump Organization had done little work at the construction site. To impress the Harrah’s officials, Trump told a crew to dig up dirt and push the piles around the two-acre lot. Trump instructed the workers to make it look like “the most active construction site in the history of the world.”
On the tour, a Harrah’s official asked why one of the workers was quickly filling a hole he had just dug. Trump was relieved when the questioner was not more skeptical. Trump would recall with glee his little deception: “The [Harrah’s] board walked away from the site absolutely convinced that it was the perfect choice.”197
In fact, Trump was desperate. But Harrah’s had no idea. Had he not inked the deal with Harrah’s three weeks later, “he would have literally been out of money” and would have been forced to “halt the limited construction activity then going on at the site.”198
Trump, though, created the perception of not being desperate. This strengthened his leverage. Trump also understood how timing relates to leverage: he struck while the iron was hot.
Finally, Trump exercised the leverage he created to achieve what Trump Show noted “might be the single best deal of [Trump’s] life.”199 What did he negotiate?
– Harrah’s would pay Trump $22 million initially to cover his alleged project expenses;
– Harrah’s would invest an additional $28 million in the project;
– Trump would build the casino and collect a construction fee; and
– Harrah’s would operate the casino, share half the profits with Trump, and guarantee him against operating losses for five years.
Shortly thereafter, Trump’s supposed financing was “lost” (Trump’s term in court papers when this partnership blew up). This threw the project into crisis, effectively forcing Harrah’s to “use its own corporate guarantee to secure an entirely new bank package.”200 Trump had strong leverage there, too.
Milken, when informed of the Harrah’s deal in the midst of his own financing negotiations with Trump, told him, “It’s a great deal.”201 He did not even attempt to compete.
Trump’s knowledge, leverage and negotiation strategies here bear incredible similarity to his Commodore Hotel and Trump Tower deals. As noted in Trump Show,
The parallels with the Commodore and Trump Tower deals were striking—Trump had laid claim to a prime location with a minimal early investment, parlayed political advantages and a locally downturned economy into a series of governmental concessions, and then used both the location and the concessions as a lure for an institutional partner that could help deliver the financing he otherwise could not obtain…. [It had become] a proven formula for success.202
Trump created and used his leverage—his counterparts’ relative desperation and his good Plan Bs—to close two financially lucrative low-risk deals and get his casino license.
Ethical Issues Related to Trump’s Leverage
Three final notes on the leverage in these negotiations.
One, what about the ethics of Trump’s not listing the criminal and other investigations on his casino license application? These appear to have been intentional misrepresentations of material facts. But were these material, given that he wasn’t indicted or convicted of anything? Is this acceptable “bluffing?”
Or should Trump get a pass? After all, New Jersey’s Division of Gaming Enforcement and its Casino Control Commission basically ignored his omissions after they investigated and found several misrepresentations. Yet they still granted him a license.
Two, was creating the perception of a busy construction site an ethically acceptable “bluff?” What about its effectiveness long-term, as he did it to a potential business partner?
And three, what about Trump’s “bluff” to Harrah’s about already having the casino financing lined up? While disputed, this fits a pattern he started with the Commodore deal. Then, he told New York City he had already bought the hotel from Penn Central when he had not (he admittedly did this and later boasted about it).203
These are important questions, and directly impact Trump’s credibility—always a crucial issue. Each will be addressed in Chapter 12.
LESSONS LEARNED
| Trump’s Strategies and Tactics | Trump enhances leverage by developing strong alternatives/Plan Bs. |
| Trump takes advantage of counterparts’ desperation—striking while his leverage is strong. | |
| Trump creates illusions of not being desperate—impacting the negotiation reality. | |
| Trump consistently fails to disclose information that could weaken his leverage and makes misrepresentations, threatens, and “bluffs” in others. | |
| Lessons Learned | Leverage consists of parties’ level of desperation and Plan Bs—and parties can strengthen leverage in many ways. |
| Leverage is relative and based on perception. Parties can change their counterparts’ perception of how much they need a deal. | |
| Leverage is fluid—so strike while your leverage is hot. | |
| Parties can strengthen their leverage by creating a better Plan B and changing the perception of their Plan B. | |
| Bluffing, illusions, and threats can negatively impact long-term leverage and credibility. |
