SEVEN
Selling the Tower
For Bob Stupak to take his roller-coaster career in a new direction, he would need a new image. The Polish Maverick and high-rolling gambler grabbed tabloid headlines and played well with his customers at Vegas World, but it wouldn’t impress members of the mainstream financial community. Stupak knew the street, but he didn’t know Wall Street. In remaking himself with a new hairstyle and, according to one report, a facelift, Stupak hoped to change the picture people had of him as a Vegas caricature. He discarded his Vegas-guy sports coats with the casino-carpeting fabric patterns for a more tasteful wardrobe.
Stupak wasn’t the first casino boss to work overtime on image enhancement. As he drew closer to Wall Street, Mirage Resorts Chairman Steve Wynn transformed himself from a Las Vegas rebel into the man Time magazine called the Great Casino Salesman. In many ways, Stupak was following in the footsteps of many casino operators who had come to Las Vegas to shake off their past and don a respectable persona. Stupak and Wynn were very different, of course. Where Steve Wynn had attended an Ivy League university and gravitated toward the highest level of society, chain-smoking Bob Stupak had been content with poker rooms and coffee shops. Stupak had his work cut out for him.
It didn’t hurt that local society writers began to take note of his public relationship with entertainer Phyllis McGuire, who was respected throughout Las Vegas society for her impeccable taste. McGuire exuded class and had the contacts to match. She knew the famous and infamous, threw a helluva party, and was one of the first people approached when a local charity needed help. She also had a colorful history. The McGuire Sisters’ hits included “Sugartime,” “Picnic,” and “Goodnight, Sweetheart, Goodnight,” and the trio had graced the cover of Life magazine in 1958, but such accomplishments were rarely the first topic of conversation where Phyllis was concerned. To the world, she was the McGuire who fell for Chicago mob boss Sam Giancana. No matter how many hit songs she had, she always would be linked with Giancana and his world of hit men.
“Bob was absolutely nutso in love with Phyllis,” Scott Higginson remembered. “He was head-over-heels, falling-down-goofy. Bob doesn’t do things in small ways, and he really fell for Phyllis.”
Stupak later confided, “I guess Phyllis is my one big love affair since I’ve been in town. It’s unexplainable. Things happen. I don’t know how they happen. It was completely unexpected. I’d never been with someone who was an entity in themselves, and Phyllis definitely was an entity in herself.”
The fascination was mutual.
“Bob is a three-ring circus,” McGuire said. “The man’s ingenuity is incredible. He always has something up his sleeve.”
McGuire came along at the right time in Stupak’s life and she obviously helped him with his new look and his quest for respectability.
Not long after meeting McGuire, Stupak attempted to impress her with his skills on a motorcycle. The couple took Stupak’s big Harley up to the Mt. Charleston Lodge, 40 miles northwest of Las Vegas, for a morning ride before church. Lost in conversation, Phyllis and Bob lost track of the time and appeared to be destined to miss Sunday services. As Stupak raced down the mountain back toward the city, Phyllis said, “Can’t you go any faster, Bob?”
Stupak glanced at the bike’s speedometer and winced.
“I’m doing ninety-five now!” he shouted.
He increased his speed to 105 miles per hour, and got Phyllis to the church on time.
With his love life heating up, along with the level of scrutiny from the Gaming Control Board, for the first time in many years Stupak began contemplating his spiritual luck and decided to return to the street. For months, he regularly volunteered to hand out coffee and doughnuts to downtown’s transients. In his mind, he was not being kind or pious, but was attempting to improve his spiritual odds. To him, God knew all about luck and sprinkled it sparingly to those who had their life’s priorities out of order.
Until late 1992, Stupak believed that he might be able to build his dream tower out of cash flow at Vegas World. And he started to do just that. After all, the original tower plan was to create a structure that would include a Space Needle-like restaurant and observation deck. That and fresh paint and carpeting at Vegas World might run as high as $50 million, and his Vacation and Stratosphere Club programs generated twice that much.
As the project expanded in concept and cost, it began to consume Stupak’s net worth, as well as his daily casino revenue. With the state Gaming Control Board watching his every move, he couldn’t allow his casino cash reserves to slip, or he would risk being publicly embarrassed and fined by the regulatory authorities. And after the $125,000 fine he paid to settle the state’s Vegas VIP Vacation inquiry and the outside investigations being conducted into his Stratosphere Club offers, it was clear that he couldn’t continue to rely on his traditional methods of raising revenue.
A public stock offering was the only way Stupak could generate enough revenue without losing control of the project. He set out in January 1993 to create Stratosphere Corporation with the assistance of attorney Mark Moskowitz. He also met with a number of securities analysts and stockbrokers as he attempted to enter a world about which he knew little.
One of the securities specialists he met with was Tom Hantges of USA Capital, which had raised $17 million in the Rio Hotel’s initial public offering and had a clear-eyed view of the gaming industry. With Moskowitz on Stupak’s side, Hantges knew the casino man was serious about going public, but he was stunned when he looked at the Stratosphere package. It was a great deal for Stupak, but a sucker bet for investors.
Hantges turned Stupak down.
“The casino was not involved in the deal,” Hantges said. “It was just the Stratosphere Tower. I said, ‘We’re not fooled, Bob. We’re not going to own the tower and you own your casino. We’d have to have a piece of that deal if we’re going to do it.”
But Stupak wasn’t interested. Having closely guarded his casino from the start, he had no intention of relinquishing control, no matter how little, to outsiders.
Still, there was little time to waste. Construction on the tower was crawling and his cash reserves were dwindling. Large securities firms wouldn’t touch the deal because of Stupak’s reputation. For Stupak’s IPO to fly, it would have to be handled by a group of small securities dealers on a best-efforts basis.
In a standard offering, securities are purchased and guaranteed by the brokerage houses, which resell them in order to generate capital. In a best-efforts offer, the securities dealers act strictly as sales agents. The money generated goes into an escrow account until a set minimum is reached. Then the company goes public and the capital transfers into corporate coffers. A best-efforts offer is a crapshoot that relies on the zeal of the securities sellers, the public image of the project, and the stability of the financial climate. Although their money is protected, many investors are unwilling to buy into a best-efforts deal for the simple reason they don’t want their assets frozen for several months while the securities sellers roll their dice.
To lead the best-efforts offer, Stupak hired Yaeger Securities of California and Union Equity Partners, a feisty brokerage firm looking to make a name for itself in southern Nevada.
The minimum best-efforts offer for Stratosphere stock was 7 million units at $5 per share, or $35 million. The maximum offer was 11.7 million shares or $58.5 million. Buyers could purchase as few as 300 units, which would include 300 warrants for future stock. Once the stock broke out and the best-efforts offer was complete, Stratosphere would be listed on the Pacific Stock Exchange. If the company grew, as many analysts insisted it would, the stock would be included on the National Association of Securities Dealers Automated Quotation System, or NASDAQ.
For their efforts, securities brokers would receive sizable, though not outlandish, commissions: common investors purchasing less than $300,000 worth of stock would be assessed a 7.5 percent commission. Those purchasing up to $525,000 worth would pay a 5 percent commission. Above that, the commission dropped to 3 percent.
It was a standard proposition, but it had enormous potential for small firms.
The offer posed no immediate risk to investors. Units purchased would be held in a custodial account at Wells Fargo Bank. There, the investment would draw interest until the minimum offer was completed or fell short. If it reached its $35 million goal, the money would be transferred into Stratosphere’s account. If not, it would be returned to individual investors.
Phase one of the tower project would be financed with proceeds from the minimum offering: the tower, 12-story pod, and three-level, 30,000 square-foot promenade leading to the Stratosphere elevators. Included in that $35 million, as a bonus, Stupak would even be able to throw in the Wall of Recognition promised to Stratosphere Club members.
Once operational, the tower was sure to be a winner, at least according to the Stratosphere prospectus.
“The Tower will draw from the 800,000 local population base of Las Vegas and surrounding areas and Las Vegas visitors (approximately 22 million in 1992), the majority of which stay within a 10-mile radius of the Tower. In 1992, the number of visitors increased by approximately 2.7 percent over the previous year. The Company anticipates a significant increase in the number of visitors in 1994, the year in which the Tower is expected to open, when high-profile destination resorts such as MGM Grand Hotel and Theme Park, Circus Circus’ Luxor, and Treasure Island at The Mirage are expected to open for operation and add approximately 10,500 rooms to the Las Vegas market.”
The best-efforts offer was a safe way for an upstart like Stupak to create a publicly traded corporation capable of helping him complete his dream project. He was still a huckster at heart, but the deal was genuine. As part of the plan, once the minimum offer was reached he agreed to contribute $8 million cash and turn over acres of real estate and the project’s site plans to the new corporation. Total out-of-pocket contribution by Stupak: approximately $12.5 million.
What was in it for Stupak? Plenty, it turned out. For his effort and creative vision he would receive a whopping 8.8 million shares of stock—approximately $44 million worth at the $5 opening price. In all, he would own a minimum of 15.1 million shares and as many as 17.1 million. If the minimum offer was reached, Stupak would own 66.8 percent of the company. At initial-purchase prices, his shares would be worth more than $75 million. Combined with the 219,300 shares promised Stratosphere officer Donald Peterson and the 300,000 headed Stupak adviser Andrew Blumen’s way, Stupak and friends would control 69.1 percent of the company if the minimum offering was completed.
The best-efforts deal made plenty of sense to securities broker Garren Sepede, whose research confirmed that wherever towers were built, people came from miles around to stand atop them. The Seattle Space Needle was paid off within weeks of completion. The Eiffel Tower in Paris and CN Tower in Toronto also generated millions in revenue.
“Getting the financial information about these towers was very difficult, but once we did our due diligence we started to get excited about the project,” Sepede recalled. “When I looked at it without the personalities involved and understood the business of towers, we thought it was a tremendous idea. But we also knew there would be an enormous hurdle and challenge with Bob Stupak because of his reputation.”
As chairman, Stupak topped the six-man board of directors. Former Howard Hughes aide Robert Maheu was named vice chairman; president and chief operating officer Gary Zahlen, along with Donald Peterson, Andrew Blumen, and gambling adviser David Sklansky, were named directors.
Stupak would tell friends he added Maheu because he was a colorful character, but in doing so he also stood near a man with historical connections to the CIA and the Chicago Outfit.
Of note were Zahlen’s stock options. As a bonus, he would be allowed to purchase his 300,000 shares at a below-IPO price of $4.25. Combined with his $200,000 annual salary, Zahlen found himself in splendid financial shape. As a top executive, he would be in a position to see his personal fortunes grow along with the company.
Zahlen, then 50 years old, was a casino consultant with a vast portfolio of high-caliber clients, such as Mirage Resorts and MGM Grand. He also served in executive positions with Desert Inn, as well as with Genting International Resort and Casinos, which had properties in Malaysia, Australia, and the Bahamas. Before coming to Stratosphere, Zahlen had held positions with the Lucayan Beach Resort and Casino in the Bahamas, Harrah’s Marina Hotel-Casino in Atlantic City, Knott’s Berry Farm, Magic Mountain, and Disneyland.
Sklansky was Stupak’s in-house gambling guru. He had made the self-styled Polish Maverick millions of dollars by adjusting the rules of Vegas World’s popular gimmick games. The probability wizard was a respected author of gambling books and had been paid as a consultant up and down the Strip.
Peterson had worked closely with Stupak on previous projects and, as a former general partner at Montgomery Securities, was experienced in venture capital and securities issues.
Blumen was Stupak’s confidant and had been the general counsel at Vegas World since 1989. He had practiced law in Nevada since 1983 and was keenly aware of the legal and political ground on which Stupak stood. Blumen was a gambler with a special affection for sports betting and poker, and that attribute endeared him further to Stupak.
Of all the directors, Maheu held by far the most intriguing portfolio. His career had been linked to Las Vegas for more than 30 years. In that time, Maheu had mixed with mobsters and G-men, pimps and politicians, billionaires and foreign spies. His legend read like a Ludlum novel, only his exploits were the stuff of nonfiction.
Maheu was an FBI agent until 1947, when he went to work for the fledgling Central Intelligence Agency, which had grown out of the Office of Special Services, a collective of World War II spies and intelligence gatherers. Maheu had worked in counterintelligence during the war and was on retainer to the CIA in the early 1950s when he was introduced through channels to oddball industrialist Howard Hughes.
In his role as aide-de-camp to Hughes, Maheu’s duties were diverse: he dug up dirt on wives, recruited paramours, negotiated with Chicago mob man John Rosselli, and helped manage the paranoid billionaire’s seven casinos—all without a face-to-face meeting with Hughes. In the many years Maheu worked for Hughes, the rough-and-tumble private investigator never met his boss in person. Instead, they corresponded through memos and spoke on the phone many times a day. Hughes became dependent on Maheu for everything from his taste in television movies to his choice of casino managers.
Fragmented tales of Maheu’s exploits have been chronicled in many books. Linked to such varied activity as bugging the inner sanctum of Aristotle Onassis, fixing city council races, funneling campaign cash contributions to Richard Nixon, and procuring Miss Universe contestants as girlfriends for Hughes, Maheu was a man of no small ingenuity, and he was extremely well paid for his efforts.
In the summer of 1960, Maheu played an integral role in devising a plot to hire the mob to kill Cuban leader Fidel Castro and enlisted the assistance of his friends Rosselli and Sam Giancana to do the job.
In the end, Castro stayed healthy and the CIA-mob plot to kill him stayed officially buried for many years. When it finally surfaced, few who understood the symbiotic relationship between the underworld and the intelligence community were surprised to find Maheu’s fingerprints on the project.
After Hughes made his mystery-shrouded move to Las Vegas in November 1966 and set up his empire on the ninth floor of the Desert Inn, Maheu emerged as the billionaire’s mouthpiece. After years of using him as one of his only links to the outside world, Hughes fired Maheu, sending the operative back into the night. In a rare interview in June 1972, Hughes was asked why he had split with Maheu.
“Because he’s a no-good, dishonest son of a bitch, and he stole me blind,” Hughes replied. “The money’s gone, and he’s got it.”
It was severe criticism, indeed, coming from one of the shadiest industrialists ever to draw a paranoid breath. Hughes had played footsie with the mob and the international intelligence community most of his life. He had reveled in spying on enemies and building a political power base that ruined careers and lives.
Anyone who knew Maheu’s history had to respect his eye for business, and he was mightily impressed with Stupak’s Stratosphere. The two had briefly considered entering into a casino deal years earlier in Atlantic City, but the Stratosphere had both men excited.
“Every time I drive by this damn place there’s more activity going on there and I’m beginning to pay more and more attention to Bob Stupak,” Maheu said later. “So I decide to go in one day and there’s action, and I figure, what in the hell is this guy’s combination? I was intrigued by him. And when he approached me I didn’t have to check his business acumen, because I had seen it over the years.”
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With his inner circle in place, Stupak entered into a consulting agreement with Space Needle Corporation, which operated Seattle’s famous observation tower. It was Stupak’s plan to eventually have the Space Needle operate Stratosphere—the tower, not the casino. The Seattle company would be brought in to manage the property, food and beverage, retail sales, marketing, hiring, and administration.
But if anyone believed Stupak intended to loosen his grip on his own project, they were mistaken, as a letter in the Stratosphere prospectus clearly notes:
“To date, Mr. Stupak has been responsible for the development of the Tower … Because Mr. Stupak has agreed that the Company will have a right of first refusal with respect to his future gaming, entertainment and recreational ventures (other than expansion of Vegas World), the Company is and will be dependent upon Mr. Stupak’s continued active involvement in the Company’s business. The Company intends to obtain, and thereafter to maintain, for a period of not less than two years, a key man life insurance policy on Mr. Stupak in an amount not less than $5 million.”
Bob Maheu and the Space Needle people were only two of many talents Stupak surrounded himself with. In addition, there was Ned Baldwin, the Stratosphere’s principal architect. As the president of Baldwin & Franklin Architects of New York and Toronto, Baldwin’s company designed the CN Tower. It couldn’t hurt to have the firm that designed the tallest building in the world on your side.
And there was Gary Nelson, architect of the American Center in Phoenix and the Sheraton Tucson El Conquistador Golf and Tennis Resort. Nelson was a respected member of the high-rise building subcommittee for the city of Phoenix.
John Skilling, Chairman of the Board of Skilling Ward Magnusson Barkshire Inc. of Seattle, was hired at Stratosphere expense to represent the interests of the City of Las Vegas. Skilling played an integral role in the design and construction of the World Trade Center, and he reviewed the design and drawings of the Stratosphere.
Frazer Smith was hired as the principal structural engineer of the Stratosphere Tower. As an associate of JAS Cashdan Inc., Smith specialized in the analysis and design of sophisticated concrete structures. He was an expert in earthquake-resistant design.
Dan Cashdan of JAS Cashdan specialized in nonlinear analysis and was one of the state’s top structural engineers. Among his engineering credits were Bally’s, the Golden Nugget, and the Tropicana. Tony Tschanz was a structural design engineer and an expert at structural analysis. He had contributed to the structural design of the Bangkok World Trade Center and AT&T Headquarters in New York.
As executive director of Ad-Art Inc. of Stockton, California, Charles Barnard’s advanced design concepts had helped create the largest signs in the world, including those outside the Golden Nugget in Las Vegas and the Superdome in New Orleans.
Bob Stupak had done his homework and had gathered many of the greatest architects, developers, and managers since Eiffel himself. It was clear Stratosphere was not a typical Bob Stupak production.
Weeks after their meeting, Hantges bumped into Stupak and Phyllis McGuire in a casino in the northern Nevada town of Elko. Bob and Phyllis had been hitting the clubs and even tried to crash a few of the cowtown’s legalized brothels. McGuire was playfully appalled to learn that Nevada law prevented her from dropping in at one of the whorehouses for a beer with the working girls. Even her pleas to the sheriff were to no avail.
Stupak invited Hantges to dinner and a show. After dinner, the Gary Puckett show, and a few cocktails, Stupak finally got around to business. He wanted to know what Hantges really thought of the deal, and the securities broker told him.
“Bob, your deal is not going to get done,” Hantges said, reminding him why he’d turned down Stupak in the first place. “You’re bullshitting yourself. You guys are not going to raise the money. We’d be foolish to participate. It’s just not a good deal.”
Though Stupak had surrounded himself with men of impeccable credentials, his greatest obstacle remained selling himself to those that mattered most—the public.
Even with the collection of brokerage houses working their clients and pitching Stupak’s lengthy list of Vegas World Vacation subscribers, the IPO barely inched toward its $35 million minimum goal in July just as the tower reached the 400-foot level.
“It was pretty obvious that they wouldn’t be able to pull it off,” Hantges said. “It wasn’t through a lack of effort, just a lack of interest. They were calling a lot of old customers. They were pushing. They were working hard. At one point, I said, ‘You need to go and make yourself a deal. You need to bring in a partner.’ I didn’t tell him who to see. Bob knows plenty of people on his own.”
By late August 1993, the tower had reached the 500-foot level, the halfway point give or take a few concrete pours. Despite the odds, the small securities firms managed to reach the halfway mark as well. But though he desperately needed it, he was unable to use a nickel of the escrowed IPO money.
In addition to attempting to charm traditional investors, Stupak was hitting up friends and associates to invest in his dream. He worked the poker rooms all over town, trying to coax a few bucks from his low-ball buddies. Then he moved to the casinos’ executive offices. Some of the biggest names rumored to be interested in the tower included Las Vegas gaming legend Jackie Gaughan, who owned a half dozen casinos downtown; Si Redd, the video poker giant who was a longtime Stupak ally; Ralph Engelstad, whose Imperial Palace was one of the most profitable casinos on the Strip; and Lyle Berman, whose upstart Grand Casinos of Minneapolis was setting records on Indian reservations and had big plans for riverboat operations.
But time was of the essence. The $35 million minimum offer had to be completed by November or the deal was ruined.
Bob Stupak had never let the public see him sweat, and he wasn’t about to start now.
“It’ll be the first thing people see when they fly in or drive in,” he told a reporter. “And you can believe me when I say there’ll never be another like this in Nevada—there’s always going to be other theme parks, but this is an exclusive.”
At the time, Bob Stupak could not have known how right he was.