ELEVEN
Street Legal
It was a day Bob Stupak had long dreaded: the inevitable trip to the offices of the state Gaming Control Board to take part in the gaming licensure of the Stratosphere.
The tower was built, the thrill rides were being tested, and more than 2,000 construction workers toiled around the clock in an attempt to get the casino, restaurants, and shopping promenade ready for the projected opening in mid-April 1996.
For weeks Las Vegas columnists had predicted Stupak would be battered like one of Mike Tyson’s sparring partners by the Control Board, which had seen fit to fine him for his Vegas World Vacation Club packages only three years earlier. In fact, some speculated that the corporation would be approved, but Stupak would be ostracized. At the very least, the Control Board had no intention of enduring even one more of Stupak’s business stunts. The hustling casino operator who had been featured on “60 Minutes” and in The Wall Street Journal had played his last wild card with state regulators.
The Control Board members had not only recommended six-figure monetary sanctions against Stupak, but they’d also toyed with the idea of ousting him from the industry for good. Although gaming-license revocation is rare in Nevada, it is far more likely to occur when a licensee is deemed an embarrassment to the industry’s image rather than, for example, if there’s evidence of organized-crime associations.
Although Nevada’s regulatory system is touted as the ideal for the casino industry, it is largely a laissez-faire arrangement, due in large part to severe understaffing of the investigative division. Approximately 90 investigators are responsible for plowing through every aspect of operations in all Nevada casinos. In a state with a long tradition of approving slot machines for use in supermarkets, the chances of catching sophisticated cheats and deep-cover mob activity would appear remote.
The Control Board’s overworked investigators had no such trouble compiling damning information against Bob Stupak. All they had to do was sit by the phone and wait for a call from a disgruntled tourist who claimed he was misled by the Vegas World vacation package. One thing was certain: Stupak had no friends on the Control Board.
But Stupak and his attorney, Frank Schreck, had been wise in settling up with Nevada gaming authorities prior to the Stratosphere licensing. The fine had been levied and the check for $125,000 had been cut years earlier. Despite what the three members of the Control Board might say in the hearing, that piece of business was officially concluded.
Some Las Vegas reporters were predicting Stupak would be grilled mercilessly by two of his biggest Control Board critics, Chairman Bill Bible and Member Steve DuCharme. But his March 6, 1996, hearing turned out to be more playful than pugilistic.
It didn’t hurt that Stupak was represented by Frank Schreck, who lost a gaming case about as often as the Harlem Globetrotters lost a basketball game.
Schreck, the Nevada power broker whose clout in the casino industry is matched only by his strength as a political fundraiser, had represented dozens of clients before the Control Board and Gaming Commission. In some casino circles, he was unofficially referred to as the fourth member of the Control Board. Not only had he helped craft casino regulation legislation and served as a member of the Commission, but he was also capable of overwhelming members who made the mistake of entering a hearing ill prepared.
Schreck handled the introductions of his clients and Stratosphere associates, including Stupak, Lyle Berman, director Robert Maheu, Stratosphere president Dave Wirshing, executive vice president Andy Blumen, chief financial officer Tom Lettero, vice president of compliance Joe Galvin, and corporate director Pat Cruzen. Also in the audience was veteran local attorney Ralph Denton, who had fiercely done battle for Stupak for many years.
Schreck planned a presentation illustrating Stratosphere’s features, operations, and financing, but first Stupak wanted to work the room. After all, he was not accustomed to entering a Control Board hearing smiling.
“It’s been quite a while since I’ve been here before this Board,” Stupak started, nervously. “I think this is 1996, and the first time was in 1993. It was an experience then. I hope it’s an experience tonight.
“… Talk about the Stratosphere Tower and what is planned for the future, I’d like to leave that to Lyle Berman. Lyle Berman fortunately enough is a long-time poker-playing buddy of mine. Lyle Berman is—I wouldn’t say he is one of the best casino operators in the world. In my opinion, he is probably the best casino operator in the world, and I think the state of Nevada is very fortunate that Lyle Berman and this company are here taking part. So if I may introduce Mr. Lyle Berman.”
“That’s fine,” Bible said. “We may have some questions later.”
“Okay,” Stupak replied. “I’ll be here.”
“I knew you’d stay,” Bible said.
Berman recapped Grand Casino’s meteoric history, reminding the Board that the outfit named America’s fastest-growing corporation had been in existence less than six years. Profits from Indian reservation casinos in Minnesota and going public in late 1991 created the sort of cash flow that made investing in the Stratosphere project possible. Berman discussed the company’s two Indian gaming projects in Louisiana and two more riverboat sites on the Mississippi Gulf Coast. Grand Casinos was about to open its eighth casino in five years.
“As measured by capacity, Grand Casinos will be the third largest gaming company in the United States when we open Grand Casino Tunica this summer, and we have joined that elite group of gaming companies that have a market capitalization of more than a billion dollars,” Berman said. “There are only seven operating companies that have that, and we’re one of the seven. So we’re very proud of that. We like to say we have come a long way in a short time.
“The tower itself today, the picture of what you see every day when you drive around Las Vegas, is exactly what Bob Stupak designed and dreamed about and really has changed very very little from when we first got involved with it as a project … The base building, however, is kind of what Grand Casino brought to the table.”
Then it was Wirshing’s turn to charm the board.
“As Lyle described, we’re not just building a tower here, we’re building a major international destination that we believe is going to appeal to a cross section of the visitors that come to Las Vegas … Part of what has distinguished Grand Casinos, and we believe is going to distinguish Stratosphere, is the commitment that we have to high-quality levels of service, and the emphasis that we’re going to place in that area.
Wirshing outlined the company’s marketing strategy: target independent travelers, tour and travel, conventions, and holders of the unused Vegas World vacation packages. It made plenty of sense on its face, but resort-industry analysts might have questioned the company’s reliance for nearly a third of its customer base on tourists without hotel reservations. The short-selling of the lucrative convention market—Grand estimated that only 5 percent of its customer base would be generated from there—also might have caused eyebrows to raise. But, Stratosphere officials believed, such was the magnetic strength of the great 1,149-foot tower.
“It is an absolutely stunning property,” Wirshing gushed. “For me, the best part of the whole project is the fact that literally everyone that’s come through, no matter what walk of life they come from, has had their expectations surpassed and just been absolutely overwhelmed, both with the facility at the base of the building and of course the tower, which takes your breath away. It literally has with everybody.”
Brian Harris, the newest and least demonstrative member of the Control Board, became curious about Stratosphere’s marketing program. The tower obviously was the biggest attraction, but would it market itself?
“… We really believe we’re going to get an absolute cross section of everybody that comes to Las Vegas,” Wirshing explained. “So is it safe to say we’re specifically targeting a certain segment? It really isn’t. It’s everyone. We have amenities in the tower, as Lyle was discussing, from weddings to amusement rides that obviously are going to appeal to different people.”
As far as Wirshing was concerned, it was just that simple. Although he would have found a historical exception in Disneyland, which opened before it was ready for the public and was considered a flop in its early months, the president of Stratosphere Corporation pegged the tower as a sure thing.
Then Chief Financial Officer Tom Lettero addressed the complex issue of the property’s financing. Those still leery of Stratosphere’s location might have been alarmed at the high interest Stratosphere had promised to pay on the $203 million first mortgage.
“The [mortgage] notes are for seven years with a four-year noncall provision and bearer coupon interest at the rate of fourteen and a quarter percent and contingent interest on nearly eleven percent of EBIDTA [earnings before interest, depreciation, taxes, and assessments] up to a maximum of one hundred million dollars,” Lettero said.
Grand also increased the pot by pouring another $33.5 million into the project through the purchase of stock.
And so the bottom-line reality of the sure-thing $550 million tower resort was beginning to take shape. Stratosphere visitors would have to drop a mountain of coins into the slot machines to cover the monthly juice on notes sold at 14.25 percent interest. The deal was a throwback to the heart of the junk-bond era, when high-interest, high-yield bonds fueled the record growth of some companies and drove dozens of others into extinction.
Total funding for phase one was $333.4 million. Phase two entailed the construction of 1,000 more rooms and suites, a pool area, spa, and expanded parking. Grand Casinos’ total cash investment in Stratosphere was set at $71.5 million.
Even before the resort was open, Stratosphere expanded its real estate base on Las Vegas Boulevard when it purchased the Sulinda Motel in exchange for one million shares of common stock, which at the time of the March 1996 meeting were worth more than $12 million. At the time, Grand Casinos held 43 percent of Stratosphere stock, Stupak approximately 15 percent. The Sulinda was scheduled to be razed to provide increased parking for the behemoth.
Grand’s total financed investment in the Stratosphere project: $467 million, with an additional $50 million investment by the Gordon Simon Company for the expansive retail center, and another $25 million by the Aquarium Company. Throw in a gorilla ride, and the bottom line was slightly more than $550 million—the third largest investment in a resort in Las Vegas history behind the MGM Grand ($1 billion) and the Mirage ($620 million).
Given Stratosphere’s location, the half-billion-dollar investment was an amazing act of faith. But no one, not even the members of the still wary Control Board, was willing to doubt that it would be anything short of a stunning success. The critics would be singing the praises of Grand Casinos genius Lyle Berman, the Stratosphere Corporation, and Bob Stupak, too.
Chairman Bible, easily the most astute member of the Board when it came to comprehending complex corporate-finance issues, was intrigued by the mile-high mortgage-interest rate.
“What is the basis for the calculations for the contingent interest?” he asked. “What are the factors?”
Stratosphere’s financial experts based their ability to service their debt on the consolidated cash flow of the resort in total, including projected casino revenues as well as profitable hotel, retail, and food and beverage operations.
For his part, Stupak sounded like a man who planned to hold onto as much stock as possible. Perhaps he hoped his old motto, “The Sky’s the Limit,” applied to his Stratosphere holdings:
“It’s my opinion the stock is going to be much higher than it is right now, and it would be sensible to keep the stock and try to liquidate something else” (to ensure that his vacation-package obligations were fully funded).
Stupak again was forced to explain on the record that he had every intention of honoring the terms of his vacation packages, even though he wanted out. In fact, he had instructed his phone-sales staff to offer refunds even if package holders called to make reservations. At that point, Stupak would have done almost anything to free himself of the embarrassing and largely misunderstood program.
“Why are you encouraging redemption? Just to get rid of the liability?” Bible asked.
“Yes,” Stupak said. “The quicker the liability is exhausted, the more comfortable I’ll feel.”
“I think we’d share that feeling with you,” Bible said.
“Well,” Stupak cracked, “we have something in common.”
“We’ve talked about this on a couple of occasions,” the chairman said.
“At least one or two,” Stupak deadpanned. “But I mean, I’m sort of glad to be here to respond to this again. But to be quite truthful, I’m sort of glad to be anywhere right now.”
Then it was DuCharme’s turn to test his Stupak material.
“Have you given any thought to authorizing someone else to be able to release funds from that [escrow] account?” DuCharme asked, just in case he decided to try riding a motorcycle again.
“If it’s necessary, but at this stage of the game it’s not necessary.”
DuCharme said, “You never know what’s going to happen.”
“I have every intention of staying alive and being around,” Stupak said.
Bible and DuCharme were kidding on the square. Their rhetoric was playful, but their purpose was a serious one. With the world watching gaming issues more closely than ever, they did not intend to allow anyone, least of all Bob Stupak, to embarrass Nevada’s regulatory process.
“What are you going to be doing at the property?” Bible asked. “What will be your duties and responsibilities? You’re (on the agenda) today as chairman of the board, as shareholder, and controlling shareholder.”
“Well, I think I own approximately seventeen percent of Stratosphere. I just can’t help but get this in, but I believe I’m the largest individual shareholder and no one owns more of the tower than I do.”
Bible asked, “Are you involved in the day-to-day operations of the property?”
“No,” Stupak said.
DuCharme: “I guess more importantly, are you doing the marketing?”
“Well, I certainly hope they listen to me. Again, I’m patting myself on the back. I don’t think there is anybody better.”
Suddenly, the kidding had stopped.
“Well, as you know, and we haven’t really talked about the issue, but the package programs had quite a bit of controversy attached to them,” Bible said. “They led in one instance to a disciplinary action. It is very fortuitous that the combination with Grand Casinos and Mr. Berman, I think to a large extent, have prevented what could have been a very major embarrassment for the state of Nevada in terms of those liabilities and those packages not being available for redemption.
“So I think we worked our way out of this particular problem in a manner that protected the individuals that bought those packages. And I think we have a very fortuitous set of circumstances, and where Mr. DuCharme is leading, are we going to see anything like that again?”
“Everything you are referring to is past history,” Stupak said. “Those are things that happened in the past. And then we had a difference of opinion. I’m not looking to go in that direction again.”
“You are a tough guy to keep up with from time to time,” Bible said.
“You have to keep taking into account that Vegas World went from 90 rooms to over 1,000 rooms and went from about $15 million for the first year to over $100 million for the last few years. That was all done without financing, bank loans. That was all done through vacation clubs. Vacation clubs led to Stratosphere clubs. If it wasn’t for those two issues right there, the vacation club and the Stratosphere club, we wouldn’t be having a meeting here today. You know, about what’s happening in the future.
“I think the best tourist-attraction hotel and casino in the world is going to open up next month. I think all those things come into play one way or the other. There were some goods and bads, some pros and cons. But I think the pros outnumber the cons drastically. Again, that’s my opinion.”
Stupak had his pride. Although the vacation packages had a scandalous reputation, they were what kept Vegas World’s room occupancy up to industry standards despite the casino’s deadly location. Stupak did not rule out keeping a hand in Stratosphere’s daily business and acknowledged that he had filed an application for individual licensure—not as an operator, necessarily, but perhaps as an adviser. After all, who knew the Naked City gambling game better than he?
But Bible’s friendly warning was clear:
“As you know, there’ve been a lot of issues between the Board and yourself over the years,” Bible said. “You certainly have a lot of creative talents, and we just need to keep them deployed in the right direction … I talked a little about your creative energies. I think we have to keep them channeled in the direction of the tower, a little bit less on the side of those packages and things of that nature, because those packages had a lot of controversy attached to them.”
In the end, the Board unanimously voted to recommend approval of Stratosphere for licensure.
Bible was most generous in his praise of the project.
“I think you clearly have a home run here,” Bible said. “This is going to be a great project for the state. It is going to be a great project for Las Vegas.
“We talked a little bit about some of the negatives that involve some of the prior business activities of Mr. Stupak. I’d like to emphasize that I think he is to be commended for the vision he had in bringing this project to the table. And Mr. Berman is to be commended, not only for the implementation phase, but also for helping the state work out a fairly difficult problem in terms of the liabilities of the packages.
With a unanimous Control Board vote recommending approval of Bob Stupak’s license to operate the Stratosphere, the March 21, 1996, hearing before the Nevada Gaming Commission promised to be little more than a prelude to a celebration. In the history of the two-tiered process, the Commission occasionally overruled a Control Board recommendation for denial of a license, but no one could ever remember the Commission overturning a suggested approval of an applicant.
Stratosphere proved to be no exception. Still, attorney Schreck was in his best salesman mode before the Gaming Commission. He had plenty to say about the Vacation Club packages.
“Just another aspect of this, if you look at the Vacation Club itself, people got a lot more than they paid for,” Schreck said. “It was absolutely the best deal in town. If you just took the cash, played what you were given and gone and put it on craps one side or the other, you could make as much as you paid for the entire package, then have the two days and all the drinks and the shows and everything. [It] literally was for the person who knew how to use it the best package you could ever get here.”
Schreck’s lengthy list of well-heeled casino clients, who often chided Stupak for his gaudy grind joint and his outrageous vacation advertisements, might have been surprised to hear the attorney’s passion for the Vegas World discount program.
“The people that have them now have an even better package, because instead of going to Vegas World, now they get to stay at the Stratosphere Tower,” he said. “So everything in the package has been upgraded.
“If Mr. Stupak had his way, he would refund everybody tomorrow. That is the preferable way for him to deal with this. He would like everybody tomorrow to write in so he could refund it and it would be over.
“Unfortunately, a lot of those people are smarter than that, and they’re going to take advantage of the fact that they now get to come to Stratosphere Tower as opposed to Vegas World and enjoy those amenities. So there are not going to be a lot of requests for refunds. These people have a much better deal than they ever bargained for.
“… And if there is one thing I could ever assure the Commission of, it is that the Board and Chairman Bible have made sure that every person that’s been a member of any one of those clubs will either get fully reimbursed or have the benefits of those packages until they expire.”
In the face of such rhetoric, the Commission couldn’t help but place its seal of approval on what all present had decided would be a grand success for Grand Casinos and the Stratosphere. Its members even treated Stupak with warmth. Beyond a few stated concerns about the resort’s marketing structure, the commissioners were clearly overjoyed to welcome Grand Casinos to southern Nevada.
A registered Republican, Stupak began turning up at GOP fundraisers for Bob Dole prior to the 1996 presidential election. When Dole’s campaign failed to catch fire in the spring of 1996, the gaming industry, led by Mirage Resorts Chairman Steve Wynn, hedged its bets and attempted to court Bill Clinton. Wynn had played an integral role in raising more than $500,000 for Dole, then managed to schedule a golf date with Clinton.
That led to a $250,000 fundraiser for Clinton in Las Vegas. Stupak and his companion, Phyllis McGuire, were among the guests at the $25,000-a-plate luncheon at the home of Las Vegas Sun publisher Brian Greenspun.
“It’s the first time in my life that the President has been younger than me,” Stupak recalled. “We’re in Brian’s house. There are not a whole bunch of people there. And who comes walking in but the President of the United States. He talked to me like he knew me for twenty years. There he is, having fucking lunch right across the table from me, the real President. I mean, this is the leader of the free world. He’s the Commander in Chief. He’s in charge of SAC. He was just a guy like anybody else. It was hard to believe that this was the President of the United States, the real President. It cost a few dollars, but it was worth it.”
For a few dollars, he kept his hand in politics without getting burned and appeared finally to have learned the lesson the founders of Las Vegas knew so well. At that moment, his interests transcended politics and even Las Vegas.
Stupak’s early 1996 plan to redevelop the dilapidated 188-room Riverside Hotel in care-worn downtown Reno might have appeared a godsend to Reno’s City Council. The Riverside, along with the shuttered Mapes Hotel across the Truckee River, had seen better decades. The 188-room Riverside, which had the distinction of being one of the earliest investments of the Teamsters Central States Pension Fund, had been closed since 1987. Plans to reopen it had been few. Monied backers were nonexistent. There was even speculation that owner Peter Eng would raze the building, but for all the talk, it sat year after year in a worsening state of disrepair a few feet from the riffling Truckee River.
It was nothing new in Reno, where city officials’ plans to redevelop downtown had run into a series of delays that threatened not only to doom major projects, but drive away small businesses as well. Where Las Vegas elected officials might be accused of being besotted when it came to doling out redevelopment funds and using the city’s powers of eminent domain to change the course of development, Reno’s council members appeared to suffer from an inability or unwillingness to embrace any plan.
With the Stratosphere making headlines across the nation, Stupak’s Reno proposal was simple: revamp the Riverside and add either a tower or at the very least the thrilling Big Shot ride. The twist: At approximately 300 feet, 72 feet higher than the Stratosphere’s $2.75 million version, the Riverside Big Shot would be the tallest ever built by S&S Sports Power. In a city that prided itself on the construction of a large bowling stadium complex as a major tourist draw, the Big Shot ranked as a very big idea.
“I don’t know if the tower needs to be 300 feet, but I need to be careful—Bob Stupak will do whatever he wants to do,” S&S sales manager Ray Checketts told a reporter.
If he’d only known.
With visions of reopening the hotel’s cabaret showroom, Stupak picked up the option to buy the hotel from Eng and set to work.
What might have turned into a glorified coming-out party for Bob Stupak in Reno rapidly degraded into a mess that drove him from the deal. In the face of complaints from area business owners, an environmental-impact study was scheduled. With Eng’s interest in the project suddenly piqued, the council set a deadline for plans and impact studies of July 1, 1996, giving Stupak’s development team little time to gather its material. It also provided insight into the problems businessmen encounter trying to develop projects in Reno.
Steve Falcone captured the underlying community sentiment in a column in the Reno Gazette-Journal.
“Making a ride the focus of your presentation only invites Renoites to try to shoot it down and, given the opportunity, there’s no sport that Renoites like better than shooting down someone else’s ideas,” Falcone wrote. “… If I had money to throw around, I would be happy to buy either the Riverside or the Mapes and turn it into a hotel so classy that rich folks from all over the world would fight for the privilege of staying there. And they wouldn’t find a single slot machine in the joint.
“But, of course, I don’t have money to throw around, and I’d be sort of embarrassed to try to tell a guy who wants to spend his money to buy an aging, rotting hulk of a hotel that he has to accept my vision of the property instead of his own.
“And so far I haven’t heard any of those Renoites with glorious plans for the two hotels offer to put up a single nickel to make those plans a reality … Except for Mr. Stupak, who seems to be willing to do what no one else is: put up real money to light a dark corner of downtown, to bring life to a property that’s been dead for a decade.
“Sounds to me like it’s the best offer we’ve got, because it’s the only offer we’ve got.”
But no one listens to newspaper columnists.
The council’s only alternate plan came from the Riverside’s owner, Peter Eng, who wanted financial help from the city to raze the building.
As time ran out, the deal became terminally bogged down in a flurry of concerns over whether the Big Shot would create too much noise.
Stupak’s attorney, Sam McMullen, was clearly vexed. After watching the Riverside sit silent for nearly a decade, city officials were demanding completed plans from Stupak in a matter of weeks. McMullen told the council that it made little sense for his client to spend several million dollars without a guarantee that he would be able to develop the property as planned.
As a gambler, Stupak understood about a player’s run of luck.
Although he had lost control of it, no one doubted that the Stratosphere was Bob Stupak’s dream. For Mr. Las Vegas, it was almost too good to be true.