EPILOGUE
Life After a Sure Thing
A funny thing happened on the way to bankruptcy for Stratosphere, then the third most expensive resort project in the history of Las Vegas. Company President Richard Schuetz’s wide-open marketing strategy, which had reminded many observers of Bob Stupak at his best, began to work. The casino filled up with tourists seeking friendly slot machines and locals in search of the hottest deal in town. Although it would never show a profit without a thorough restructuring of its insane debt load, Schuetz had managed to turn the casino around. In doing so, he gave irate bondholders hope for the future—and made them more amenable to accepting the change that was on the way. But even he wondered on what, exactly, more than a half-billion dollars had been spent, given a hotel that still had 1,000 uncompleted rooms.
“What we did here is a funny thing,” Schuetz said. “I really do believe we have the best place to gamble on the planet. That’s not hyperbole. That’s not an advertising slogan. We can pretty well support that. We’ve been thrilled with the numbers. That’s not to suggest we can be viable given the existing debt structure, which is the whole point of restructuring. I believe the Stratosphere can be viable under restructuring. We’re working without a net, but I think we can do it.”
By mid-January, Chapter 11 bankruptcy reorganization was imminent. Backed by Cargill’s ownership of $60 million of the first-mortgage notes purchased at a 20 percent discount, the majority of bondholders showed a willingness to compromise on the 14.25 percent notes. And after a meticulous look at Stratosphere Tower Corporation under Schuetz’s guidance by an ad hoc committee of 57 percent of Stratosphere’s bondholders, they agreed to accept 11.25 percent for their notes with a due date of May 15, 2002, a move which over time would save the company millions in interest payments. The company’s next interest payment would be due by November 15, 1997.
As a bonus, the new noteholders would receive a 15 percent interest incentive once Stratosphere’s cash flow exceeded $60 million, a gesture that could amount to as much as $3 million per year. As part of the deal, the company was tentatively approved under the reorganization to issue $25 million in additional bonds to complete construction projects put on hold by the foundering finances.
But Stratosphere’s precipitous fall had more than shaken the faith of some of its stockholders.
“Where’s the money?” Las Vegas investor Frank Zohar asked. “That’s the first thing. They had $58 million and another $38 million was raised. Where’s the money? They opened up the place incomplete. They gave beautiful reports at stockholders meetings, but they didn’t tell us they had any problems with construction.”
For longtime Las Vegan Christian Schneider, Stratosphere’s decline defied even the strained logic of the stock market.
“My friend Fritz Uebler and I are looking at each other and are asking how we could fall for such a scam,” Schneider said. “Stupak knew the stock was falling and sold millions of shares. He dumped them quietly while Fritz and I and other people suffered. Now we are asking ourselves why we didn’t sell the day after it opened.”
For its part, Grand Casinos agreed to convert $50 million due from Stratosphere into a large block of common stock equal to 40 percent of the company. Existing shares would be canceled before the new stock would be issued for $1.31 per share. Previous shareholders would get preference and would receive a warrant to purchase another share for $3.
After the reorganization, Grand Casinos would come away owning 65 percent of Stratosphere. Grand also agreed to contribute another $75 million by June 1997 to complete the 1,000-room hotel addition.
The agreement hinged on approval by a federal bankruptcy judge, but it was clear that Grand Casinos had no intention of abandoning its Stratosphere investment. The rapid reorganization also led Bob Stupak to believe he was duped by his old friends Lyle Berman and former Vegas World counsel Andy Blumen.
“I think Bob trusted a lot of people he shouldn’t have trusted,” Dan Hart said. “How can they blame this on Bob? How can this be his fault? He did everything he could to modify the course that Grand was taking.”
David Sklansky: “The truth of the matter is, if Bob had stuck to his original idea—building a $50 million tower with a minor renovation of Vegas World—then it would have been a home run. If he could have just sold the stock, he wouldn’t have had to spend $500 million. But Lyle could not allow that same strategy to have Grand’s name on it. They couldn’t have a second- rate hotel associated with them. They couldn’t have a schlocky casino associated with them. Lyle might have gone overboard, but he definitely had to do a lot of expensive upgrades. Lyle had a big-time casino company that had to be first-class or he couldn’t do it. He has stockholders to think about. He had the company image to think about.”
On January 9, 1997, Stratosphere officials further modified Stupak’s financial connection with the resort when they canceled approximately $15 million in outstanding vacation packages that had been sold during the Vegas World-Stratosphere club era.
The company’s letter to package holders infuriated Stupak.
“Several years ago,” the letter began, “you purchased the right to visit Bob Stupak’s Vegas World Hotel and Casino where in exchange for a payment you made, you received a letter from Bob Stupak which indicated that at Bob’s expense he had arranged for you to take your vacation at the new Stratosphere Hotel and Casino when it opened.
“Bob was able to offer you this opportunity because he had made arrangements with Stratosphere to deposit the money needed to pay for these package benefits in an escrow account set up for that purpose. Unfortunately, at the present time, there are insufficient cash funds in the account to pay Stratosphere for the benefits Bob Stupak’s company previously sold you.
“In addition to the current unavailability of funds in the escrow, Stratosphere anticipates filing for Chapter 11 bankruptcy protection in the near future. This filing will prevent Stratosphere from providing the benefits previously sold to you by Bob. If Bob and Stratosphere are able to make adequate arrangements, then Stratosphere will again be able to provide its facility for your use subject to approval by the bankruptcy court.”
In relieving themselves of the potential financial burden, they put Stupak at the head of the line to be sued by irate package holders. By order of the state Gaming Control Board, Stupak had placed seven million shares of Stratosphere—a $100 million value at its highest point and $7 million at its nadir—in an escrow account. He remained responsible for all refunds for the packages.
Stratosphere, which had been a public relations nightmare up to that point, made itself look even worse by stiffing Stupak’s loyal customers.
From the Dow Jones Information Services wire: “Stratosphere Corp. compounded its legal and financial woes this week by abruptly refusing to honor $16 million in presold vacation packages affecting roughly 16,000 customers, mostly retirement-age patrons.
“The decision, which stranded some travelers in Las Vegas, highlights the hotel and casino’s embarrassing struggles to remain afloat just nine months after opening.
“… Moreover, the consumers’ quandary raises questions about the foresight of Nevada gambling regulators in allowing the vacation packages to be backed by seven million Stratosphere shares.”
Indeed, in accepting Stratosphere stock to back the cost of redeeming the vacation packages, the Gaming Control Board set itself up to appear culpable. Had Chairman Bible and members DuCharme and Harris forced Stupak to pay off the packages with cash—or through a personal loan from Berman or Grand Casinos—the issue might have been averted. But it was too late for hindsight.
“All this is being done by Lyle Berman,” Stupak told a reporter. “He doesn’t give a damn about Las Vegas, doesn’t give a damn about Nevada.”
Schuetz said the company regretted canceling the vacation packages, but it was a matter of survival.
“I can’t afford to offer the packages without knowing I’m going to get paid for them,” Schuetz said.
He was also tired of hearing Stupak blame everything on Berman.
“I have a difficult time with the chairman of the board of a corporation saying he didn’t have any control,” Schuetz said. “I wasn’t here, but that makes zero sense to me. If this place had been a success, do you think Bob would say he didn’t have anything to do with it?”
Even as they traded barbs and as Stratosphere headed for federal reorganization, Stupak and Grand Casinos were meeting to reach a settlement in the vacation package debacle.
“When I was here in the ’80s, there were two people I admired as marketers. One was Andy Tompkins at the Lady Luck. The other was Bob Stupak,” Richard Schuetz said. “They both took what at that time I thought were close-to-impossible situations and made them work.
“But the world has changed too much. Bob has been rendered obsolete. The world changed in fundamental and meaningful ways from a legal standpoint and from a social and cultural standpoint, and I don’t think Bob can change that much. I don’t think he’ll come back up to any scale. On the other hand, Bob has incredible survival instincts. He won’t go down easy, I guarantee you.”
Even Dan Hart, who was so quick to defend his friend and client, didn’t like the odds of Bob Stupak making one last comeback.
“I would never be a person who would count Stupak out,” Hart said. “I’d never count him out, but I think he’s facing one of the biggest challenges of his life.”
Mayor Jones, whose relationship with Stupak had gone from adversarial to a genuine friendship, considered the Stratosphere story a loss on many fronts.
“The Stratosphere was the key to the city,” she said. “It should have been a winner. Bob liked being a big casino boss. Bob liked being rich, but for different reasons. He liked being able to give his money away. He was more generous than most people realize. He really tried to help, and he was willing to put up his money. Lyle Berman is one of the smartest people I’ve ever met. I think what’s happened to all of them is just a tragedy.
“If I could give Bob back his dream, I’d give Bob back his dream.”
Stupak worked for years to overcome the stigma attached to his lack of a formal education. In the end, the men who ran the casino industry knew plenty about business, but little about the spirit of a hustler.
“I think that Bob has had a driving ambition to prove that his eighth-grade education shouldn’t stop him from living in the same circles as Lyle and me, Steve Wynn, Donald Trump, and Michael Milken,” David Sklansky said. “I think Bob always wanted to prove he was in those people’s categories. I think on pure I.Q. he might very well be.
“The big problem Bob has is you can’t enter the game as easily as you could in the old days. If you don’t have $100 million to throw around, it’s hard to get in the game. The sad part about it is Bob had to be almost ruined before he could make a resurgence. He’s got ideas to stave off disaster, and I think there’s a better chance that he will pull it off than others think.”
Ever the optimist, Phyllis McGuire stands by her friend.
“He’s not really down,” she said. “He saw his dream realized. The dream that he’d had so long is that the tower should be finished. I’ve never seen him so happy as the night it opened. He’s already survived the biggest challenge of his life.”
Stupak had been counted out before, but this time he appeared to have taken the ultimate beating. The man who prided himself on always getting the best of it in the end had absorbed the worst. In seeing his dream project come true, he had lost his casino, his bankroll, and the fickle admiration of jaded Las Vegans. He had even lost most of his old friends from the industry that had outgrown him.
“The days of those characters are gone,” he said. “There’s no more Jay Sarnos around. There’s no more me’s around. It’s all over.”
In 1997, he found himself one of the city’s neon dinosaurs, perhaps the last of the carnival-style casino operators that once proliferated around town. Las Vegas had indeed changed in meaningful ways, not all of them positive. But those changes didn’t bode well for Stupak. Like Adalbert, the patron saint of his misspent youth, Bob Stupak’s life’s work was destined to be characterized by failure, but his impact on Las Vegas was great.
These days, you’ll sometimes find him a few blocks north of the tower on Las Vegas Boulevard at his faded Thunderbird Hotel, planning the comeback even his friends don’t believe he will make. He has in mind building a new joint optimistically named The Sky’s the Limit Club after his old motto.
Although it no longer makes headlines, he still sees Phyllis McGuire. He still smokes like a fiend, still fails to take his doctors’ advice. After a lifetime spent chasing the numbers, he still gambles a little every day.
Like the old dice scuffler of Vegas past once asked, how else will he know when his good luck returns?