NINE
Enter Berman
It was not by chance that Bob Stupak was in Minneapolis the night of the Stratosphere fire. What his friends in the financial community had been telling him for months finally had begun to soak in: the best-efforts initial public offering wasn’t selling fast enough to meet the deadline for the $35 million minimum. If he didn’t bring in a partner, his dream project was in jeopardy.
But who would be daring enough to team up with Bob Stupak?
With more than $20 million already invested, Stupak couldn’t continue to build out of cash flow and short-term loans from his casino pals. If the IPO fell short, the deal would be doomed in the unforgiving world of finance. He had to act quickly.
Stupak decided to pursue Lyle Berman as his partner for a number of reasons. First, they were friends and high-stakes poker adversaries. Also, Berman’s Grand Casinos Inc. was a meteoric success story in the fiercely competitive gambling industry. Berman had bounced his casino design concepts off Stupak in 1991, and Stupak had opened up Vegas World for his inspection.
“Everything I could do to push him into the deal, I did,” Stupak said. “I told Lyle, ‘You’re in Minnesota, Mississippi, you’ve got these Indian deals in Louisiana. But it’s the difference between the minor leagues and the New York Yankees. The majors is Las Vegas. If you’re not in Las Vegas, you’re nowhere.’
“Every time he came to town, he’d come to look at the tower. I’d take him up to whatever level we were at. I could see he was intrigued with it. He liked it from the beginning.”
Berman recalled the meeting in which Stupak handed him the business plan. Berman was impressed by the market research that had been done; Bob Stupak was not known for letting a few details like structural engineering and design get in the way of a big idea. But this time was different. He appeared to have changed.
“Originally we were just brainstorming, he and I, in my capacity with Berman Consultants,” Berman said later. “I was one of the few outside businessmen he knew. By ‘outside’ I mean beyond Las Vegas, which, you know, is kind of a world unto itself. I was what you might call a ‘real-world’ businessman.”
The decision to enter into a partnership with Stupak was not unanimous. Grand Casinos insider Richard Schuetz, for one, was concerned that Stupak’s notoriety might blemish the public’s perception of the fastest-growing company in America.
“I’d been in Vegas for a long time and Bob’s image wasn’t one I thought was conducive to the image that I and others had worked so hard to shape at Grand,” Schuetz said. “I just didn’t think it was an image, be it right or wrong, that we necessarily wanted to have associated with our very pristine, successful name.”
But by most accounts Berman appeared an ideal partner. In one regard, Berman was everything Stupak was not: educated, understated, respected at the highest levels of the industry and on Wall Street. In another light, they appeared very much alike. Both were successful poker players who possessed the courage to take great risks at the tables and in their business lives.
Stupak described Berman as a player with a “quick arm.” That is, a fellow not afraid to push his chips to the center of the table at a moment’s notice.
“When you play poker with a guy, you get to know what kind of person he is,” Stupak said. “I’ve got somebody who can match me—and maybe go even higher—as a gambler. Lyle plays poker. Lyle shoots craps. Lyle could sit down and win a few hundred thousand and lose a few hundred thousand. No question about it. He’s got gamble in him.”
More than that, Berman had the respect of the country’s best players.
“Is Lyle a good player? Yeah, he’s good,” one noted player said on the condition of anonymity. “He’s better than Bob. Lyle’s probably in the top one percent of all poker players all-around. Whether it’s ring games or tournaments, he’s good at everything.”
Berman and Stupak were born the same year, 1942, but the childhood similarities ended there. While Stupak was knocking around Pittsburgh’s South Side as the son of a gambler, Berman was growing up the son of a clothing-store owner in Minneapolis. Berman graduated from the University of Minnesota in 1963 with a degree in business administration.
Instead of embarking on an Australian odyssey, Lyle Berman stayed in Minnesota and entered his family’s traditional industry. He went to work for Rodeo Leather Works, which after his takeover was renamed Berman’s Specialty Stores. The leather coats and jackets were stylish and profitable, and Berman’s management style was full of energy and innovation. Berman’s Specialty Stores multiplied at a rapid clip.
About the time Bob Stupak was unveiling Vegas World, Lyle Berman was selling his specialty-store chain with its 27 outlets to W.R. Grace for $10 million. Then Berman made a decision that would change his life: instead of taking the money and striking out in another direction, he remained with W.R. Grace as president and chief executive officer and continued to grow the company. But his interests stretched beyond retail marketing and included founding Computer Network Technology in 1982. Lyle Berman was going places in corporate America.
Berman clearly understood the value of rapid growth in the 1980s. The faster he expanded the business, the more attractive it became to speculators in the era of junk bonds and the leveraged buyout. In 1987, Berman tapped his contacts in the financial community and reacquired the company, which by then had expanded to 165 stores, and by 1980s’ standards was undervalued at $100 million.
Riding the crest of the decade, he sold out to Wilson Suede & Leather a year later. The price: $200 million.
As a gambler, he had gained a national reputation in the poker room and had taken plenty of lumps in early forays into Las Vegas. But his sucker days were over.
“When Lyle first showed up in the rooms, he was a mark,” one local player said. “He was the one we waited for because he played much bigger than he should have for his skill level. But Lyle was so competitive, he hired all these computer analysts and experts to study the games he played. And he taught himself.
“Then he turned the tables on all the guys who thought he was easy money. He used to let the big games get started late at night while he slept in his room. Then, early in the morning, Lyle would come down and join the game. All these guys were tired from playing all night, but they couldn’t force themselves to leave without Berman’s money. And he’d kill ‘em. Lyle beat the heck out of everyone for a long time until the poker world snapped to what he’d done. Now, of course, he’s known wherever he goes.”
Berman was a regular at high-stakes tournaments in Las Vegas, but now he was coming to the table with genuine capital.
Grand Casinos was created as a management company to oversee Berman’s $3 million stake in a Native American bingo parlor and slot joint, which opened in April 1991, 90 miles north of Minneapolis on a reservation owned by the Mille Lacs band of the Ojibwe Chippewa Indians.
The reservation casino on the western shore of Lake Mille Lacs at Onamia was an immediate success, and Berman’s group collected the lion’s share of the profits. The success of the Mille Lacs casino helped convince Berman and his Grand Casinos co-founder, Stanley Taub, to take their company public in October 1991. From there, Berman embarked on a casino expansion plan that impressed the industry’s most successful players. In short order, Grand Casinos opened another Chippewa reservation gambling hall in Hinkley, Minnesota, then moved south, gaining two licenses to operate in Tunica, Mississippi, and approval to manage a casino in Louisiana.
Grand Casinos gambling halls benefitted greatly by their exclusive locations. Where it came to casinos, Berman had developed a knack for being in the right place at the right time. He also saw what many traditional gaming executives missed—that to remain prosperous and, indeed, improve their tarnished image, casinos needed to offer more than cards and dice and cheap buffets. Although the Las Vegas Hilton had been the first to devote a section of the hotel to a day-care center in the 1970s, Berman was the first to extensively develop in-house child care as a marketing theme. His Kids Quest Activity Centers offered supervised care and enabled parents to hit the tables.
Those who work for Berman find it impossible to keep up with his 16-hour workdays and the kind of intense focus capable of creating rapid expansion and a seemingly unlimited potential.
“Lyle didn’t know the casino business when he started Grand,” Schuetz said. “But Lyle’s a really smart guy. When you sit down with Lyle, you’re fading the I.Q. points. He’s a brilliant guy. He comes in at eight in the morning and leaves at 10 at night. He just works feverishly.”
With corporate assets at the time well in excess of $300 million, Lyle Berman was a rising star, and it appeared he was taking Bob Stupak with him.
On November 15, 1993, Lyle Berman and Bob Stupak struck a deal. Grand Casinos of Plymouth, Minnesota, saved the IPO by purchasing $28 million worth of stock, and in doing so acquired 43 percent of Stratosphere Corporation, as well as picking up options including an agreement to acquire 75 percent of Vegas World from Stupak for $50.4 million. Grand Casinos did not, however, assume Stupak’s liabilities, which included the cost of the Vegas World vacation packages.
Within weeks, Grand Casinos would control 52.2 percent of the Stratosphere project through purchases and proxies. Stupak held 17 percent, but he also possessed the knowledge that his dream tower would be completed and, as the largest individual shareholder of Stratosphere, he would remain integrally involved in the resort. At least, that’s what he believed at the time.
“Stupak’s much smarter, even though it’s a street-corner sort of intelligence, than most people give him credit for,” securities broker Tom Hantges observed. “He really had to have this deal. He had to make a deal or he would have been busted. He was building out of cash flow. He never wanted the construction to stop. Being smarter than that, he kept it going, even if it was slowly.
“I think the fire did hurt them. But I would venture to say that even without the fire the best-efforts offer wouldn’t have gotten done. The problem with best-efforts deals is that brokers don’t like to commit dollars unless they know the deal is going to close. Most brokers like to wait until they see the deal closing. It’s the chicken and egg; nobody wants to go first. He had to make this deal or he was done.”
Added broker Garren Sepede, “I can’t tell you how many people laughed at us. Important people in town, the kind of people with the money to invest, were saying, ‘This is going to be a joke. It’s never going to work. It’s never going to be completed.’
“No doubt, Grand saved the deal, but Bob had a lot to do with that. He went out and found the White Knight. Bob is a very driven, very focused person. He has a vision of the big picture and how it’s all going to get done. I’ve always felt that by hook or by crook, Bob would get the Stratosphere done.”
As 1994 progressed, even Bob Stupak’s biggest critics had to admit that Stratosphere was materializing. With a new crane in place and construction crews back on the job day and night, the tower was again reaching for the sky. The structure was anchored just 12 feet underground, but its four-legged design made it a marvel of structural stability. It balanced on three legs, each 20 feet by 32 feet, with a supporting center column completing the base. The concrete legs were form cast and designed to support 6,000 pounds per square inch. Wind-tunnel studies had been performed on the tower model, and Stratosphere engineers were eager to boast of its structural integrity and fire-safety precautions.
“The tower is pretty well over-designed,” engineer Rick Stone told a reporter. “Nobody wants the damn thing to fall over.”
The foundation was a web of reinforced steel and 5,600 yards of concrete. Beneath that was the desert’s ultimate foundation, a layer of caliche (lake-bottom hardpan) several feet thick. The base stretched 180 feet in diameter from the center core. Above the base, the concrete legs themselves were 16 inches thick and tapered to a height of 264 feet where they joined the center column.
The one visible flaw was the imperfection of the tower’s north leg. It didn’t detract from the structural soundness of the project, but it did detract from the public’s confidence in the tower. It also gave people a chuckle at Stupak’s expense. After all, surely only Bob Stupak could build a 1,000-foot tower with a crooked leg. In fact, Stupak’s own Leeman Construction had been responsible for the flaw. The gimp leg was smoothed out before the project was completed. Removing the distraction enhanced visitors’ appreciation of the tower’s more attractive features.
The Stratosphere climbed 774 feet before again flattening to a base for the tower’s 12-story pod, which would feature observation decks, wedding chapels, gift shops, a 400-seat restaurant, and a lounge. The revolving restaurant would be the world’s largest; the chapels would be the first wedding facilities in an observation tower.
Stratosphere’s laser lights would lend a distinctly Vegas World theme to the tower. With a ring of synchronized lights and lasers shooting downward from the 700-foot level, the pod would take on the appearance of a spaceship.
The tower’s daily progress was easy enough to see, but it continued to be met with opposition from Clark County Aviation Director Bob Broadbent, who didn’t like the idea and was dedicated to keeping the tower from climbing to Stupak’s new proposed height of 1,825 feet, which would include a radio antenna hundreds of feet high. Broadbent contacted the Federal Aviation Administration, local airlines, members of the Las Vegas Convention and Visitors Authority, and the most powerful casino operators in the city in an attempt to pressure the Las Vegas City Council into limiting Stupak’s ambition.
Stupak had been battling Broadbent on the height issue since 1991. At that time, a preliminary finding by the FAA found that the tower’s proposed 1,012 height created a “substantial adverse impact” on flight patterns in the Las Vegas Valley. The FAA was concerned over any structure above 781 feet. Broadbent suggested the city take out collision insurance and quoted safety warnings from pilots organizations, such as the Air Transport Association and Airline Pilots Association.
In the end, Stupak’s record-setting radio-tower-extension plan was killed by the City Council. He would settle for 1,149 feet.
But he intended to make every inch a part of the show. With the tower’s financing apparently secure, his promotional instincts went into overdrive. He contacted officials at Intamin, which had developed a thrill ride based on a jet flight simulator, to discuss installing a number of trainers atop the Stratosphere. With 360-degree rolls performed 1,000 feet in the air, it would be a guaranteed hit with the strong of stomach.
“We’ve customized the ride for this application,” Intamin’s Mark Messersmith said. “The way it is being mounted, the arms will extend beyond the sides of the building and the passengers will be able to look straight down more than 1,000 feet to the streets below. It will be an amazing sensation. Combine the dives and rolls a person can put the capsule through and the height at which they can do it here and you’ve got yourself one super thrill ride.”
But the Intamin Flight Trainer failed to take off, and in no time Stupak was angling for other action. He contacted Jay Checketts at S&S Sports Power of Ogden, Utah, and flew a private jet full of friends and associates to experience what was sure to be the greatest tower-topping attraction in the world: the Space Shot liftoff simulator. With nine rides all over the world—and a spotless safety record—S&S Sports had developed the technology capable of launching 16 riders strapped into chairs 150 feet up a specially designed 187-foot tower in three seconds at a force of four Gs. The drop, at negative one G, sent the riders halfway back down the pole and gave a sense of free fall. From beginning to end, the ride lasted 30 seconds, allowing hundreds of riders per hour to blast off. Mounted atop the Stratosphere, it was sure to be a winner. In keeping with the Vegas theme, Stupak would change the name from Space Shot to Big Shot.
Despite the Broadbent feud, by the summer of 1994 Stupak was enjoying an unprecedented surge of positive press and public support for the Stratosphere project. With the reliable Berman in place to shepherd the financing and expand the theme, Stupak appeared to be moving toward widespread community acceptance for the first time.
But it’s not easy being politically correct when you’ve made a career out of offending people. It didn’t help that Stupak announced the eviction of dozens of tenants from the apartments he owned near Vegas World to make way for construction at his expanding $323 million resort. He offered to pay a few bucks to relocate the 300 residents at 122 and 128 West Boston Avenue. Not surprisingly, his most vocal critic was City Councilman Frank Hawkins, who had barely survived Stupak’s sleazy sting operation three years earlier. Perhaps not wanting to jeopardize his newfound public support, Stupak trudged into City Hall, met with Mayor Jan Jones and members of the City Council, and rescinded the evictions until a later date. But he wasn’t finished backtracking.
Stupak had feuded with the Culinary Union from the day Vegas World opened. He had fought sidewalk pickets and National Labor Relations Board complaints. The local union’s mob associates had tried to muscle him; its in-house instigators had tried to organize his maids, waiters, and bartenders. After 15 years, he finally appeared to be enjoying a truce with the union. But then a Culinary Union button appeared on a maid’s uniform. Taking it as a sign of trouble, Stupak overreacted and fired 36 maids merely for wearing the buttons. Even the local anti-labor zealots shook their heads over Stupak’s apparent callousness.
City leaders, including the mayor, met privately with Stupak a day after the maids were terminated. Stupak and his counsel, Andrew Blumen, emerged from the meeting sounding every bit like union activists. The maids were rehired. Stupak claimed that the fired workers had walked off the job, but that he was a generous boss and had allowed them to return to their work cleaning rooms and making beds.
It wasn’t easy being a benevolent casino mogul. Over the years he had provided turkey dinners for hundreds of homeless people at Thanksgiving and Christmas. Although his Vegas World health plan did not rank among industry leaders, he had personally funded surgeries for some of his longtime Vegas World employees. Still, when it came to public opinion, Stupak was a man forever on the edge of the abyss.
The most painful reversal concerned the thousands of unredeemed Vegas VIP Vacation and Stratosphere Club packages Stupak’s telemarketing and direct-mail operation had sold up to 1992. The Gaming Control Board demanded that the investment those customers had made in future vacation packages be protected by Stupak. As part of his forced settlement of the vacation package issue reached with the state’s casino regulators, Stupak agreed to set aside Stratosphere stock equal to 150 percent of what the outstanding packages were worth, which amounted to $44 million. To appease the Control Board, Stupak put up 7 million shares of stock. He had the option to pay the total package price in cash, or sell off stock to cover the debt, but he passed in favor of placing the stock in escrow.
It would prove a crucial mistake that eventually would cost Stupak millions.
In late 1994, Stupak attempted to get the regulators to soften their position. Even at 110 percent coverage the packages would be protected, but Control Board Chairman Bill Bible was adamant.
“People paid for these packages,” he said. “The money was collected by Vegas World. It is our position that they get what they paid for.”
Bible was in no mood to accept Stupak’s word, and Stupak was in no position to pay off the packages with cash without driving down Stratosphere stock and investor confidence. In attempting to protect investors, Gaming Control had inadvertently set Stupak on the edge of personal ruin should Stratosphere perform below its lofty expectations. Quite simply, most of Stupak’s wealth—which would range as high as $130 million in the days leading up to the resort’s opening—was tied up in company stock.
On November 4, Grand Casinos quietly took control of Vegas World and, in effect, the entire Stratosphere project, by completing its deal with Bob Stupak. For $51 million in cash and secured notes, Stupak had become a mere player on the stage that he’d built with his own hands.
“The acquisition of the hotel gives Stratosphere Corporation control of the entire project and is an important step in our total development plan,” Lyle Berman said.
With 17 percent of the stock, Stupak was still Chairman of the Board of Stratosphere and its single largest shareholder. But Grand Casinos controlled 51 percent and, as such, was in charge of the destiny of the tower and the resort.
The project had grown many times since Stupak’s Australian brainstorm. Costs soared from $30 million in 1989 to $350 million by the end of 1994. Grand Casinos was in the process of floating as much as $210 million in bonds to finance its increasingly exorbitant plans for the resort on the edge of Naked City, which included not only the thrill rides Stupak had dreamed about, but also a 2,500-room hotel and an eye-popping World’s Fair theme that Berman believed would make the project instantly competitive with the Strip’s larger resorts.
But it also would be in the similar financial strata: the project was fast becoming one of the most expensive casino-resorts in the history of the city and the first of its size to be built on the edge of a slum neighborhood a $6-$8 cab ride from the heart of the Strip. Including the equity-to-debt incentives to bondholders, Grand Casinos was preparing to take on more than $200 million in debt with an effective interest rate of 20 percent on a substantial part of the notes. It was the kind of rate that would make even a diehard junk-bond junkie break into a cold sweat, but professional poker players learn to be impassive. If Berman and Stupak were nervous, no one was able to tell.
With construction struggling to remain on schedule, the regular addition of new ideas to Stratosphere threatened to push the grand opening into early 1996. Instead of an encased lion’s den, Stratosphere would feature a multimillion-dollar aquarium with menacing sharks and fish of many varieties. When Stupak learned the details of the costly fish tank, he was so angry he sent live fish in water-filled plastic bags to Berman and his fellow Stratosphere executives. As if the top of the tower weren’t wild enough with the addition of the Big Shot, Stupak forged ahead with plans for installing a roller coaster at the 770-foot level. The good ideas jumped like corn from a hot popper, but every move cost millions.
And Vegas World was on its way out. Construction of Stratosphere’s new casino and room addition made it impossible for Vegas World to remain open. Even the casino’s most loyal slot players were having a hard time battling the construction equipment for a place to park.
By the end of January 1995, Vegas World was closing. Allen & Rossi would find other work. The waiters and waitresses, maids and porters would probably be able to land a job somewhere in the boomtown.
Encouraged by the availability of 50-cent drinks, crowds of locals dropped by in the final week to stroll over the interstellar carpet featuring Bob Stupak’s signature, to bid farewell to the million-dollar display and wonder whether there was anywhere near that much cash under glass, to gawk one last time at the lunar module replica and the space-walking astronaut that hung from the ceiling, to walk past the Spaceport check-in, to wonder at the possibilities of the gigantic wheel of fortune, and, undoubtedly, to get lost in the reflection of all those wall mirrors. Vegas World was a place where no one had to ask the identity of the owner and where everyone had to ask directions to the restrooms. It was a little place that affected greatness and, in the age of 3,000-room megaresorts with finely tuned themes and Ivy League CEOs, it was almost quaint—in a “Lost in Space”-meets-Mustang Ranch sort of way.
Despite a lack of critical acclaim and a genuinely awful location, Vegas World had been enormously successful. The property had grown from two to eleven acres, the casino from 15,000 square feet to 80,000. Stupak had opened with 150 slot machines and eight table games and was closing with 1,350 and 40. His casino had generated $8 million the first year and more than $100 million in the final years.
From July 13, 1979, to February 1, 1995, Bob Stupak had been the big man behind the daily operations at Vegas World. It was his brainstorm, and it was helping to pay for his latest big idea.
With its 97,000-square-foot casino and 1,149-foot tower in the making, Stratosphere was sure to eclipse the memory of Vegas World in no time.
All Bob Stupak had to do now was live long enough to enjoy it.