After the beating we’d just taken, the last company you’d think we’d want to see on the opposite side of a negotiating table would be Microsoft. That would be kind of like a fighter getting flattened by the number nine contender, then the number ten contender, then getting up, rubbing his jaw, and saying, “Bring on the champ!”
Microsoft had not only squashed Netscape. It was rolling over nearly every company in its path on its quest to dominate the software market. If a rival with an innovative product wouldn’t sell out to Microsoft, there was no mercy. Microsoft simply built a replica into the next version of its own software and made the competitor irrelevant—which is one reason it was being sued for monopolistic tactics by individual companies, twenty states, and the U.S. government.
But we had something that couldn’t be replicated by a software developer at three in the morning behind beads hanging over an open doorway on Microsoft/Expedia’s sacred fifth floor in Redmond, Washington. We had the relationships in Las Vegas and a lock on the rooms. We were selling two million a year, and it would cost Microsoft millions of dollars and years of effort to duplicate that.
We also had a friendly history with Microsoft. For years, we’d made each other money. Early on, we bought advertising space on the travel page of Microsoft’s Internet portal, MSN.com, and the hotel page on Expedia.com. At the same time, we sold a lot of hotel rooms when November came around for the Comdex Expo in Las Vegas, a platform Microsoft liked to use to launch its products. Comdex was the one of the largest computer conferences in the world at the time and seemed to take place under Microsoft’s shadow. The company actually rented out the entire Mirage for its employees, who all walked around in khaki pants and blue shirts. The first time Tim saw these guys, he turned to me and said, “And I thought you were a square!” But we had to respect what they’d created. Thousands flew in from around the world to hear Bill Gates give the keynote address at the conference, and we had the room receipts to prove it.
So we were actually in a good position when we began to talk to Rich Barton about selling Travelscape to Expedia. We had a solid relationship. We were now war tested. We had a cash offer from American Express for $100 million in our back pocket. And soon after the Diller debacle we’d brought in a chief operating officer who could walk among the Goliaths.
Steve Cavallaro had worked for large outfits like Harrah’s and run the Fertittas’ Palace Station. He didn’t have a nickname, but I call him The Sniffer because it didn’t take him long to sniff out employees like The Weasel and The Floater, and weed out others who didn’t do much and were great at camouflaging it. He scrutinized deals we’d made with distributors and renegotiated them in our favor. He was the type of guy who could be counted on to dot every i and cross every t in a negotiation with Microsoft.
Everything Tim and I had been through during the failed IPO and the negotiations with Diller had changed our outlook on doing a deal. In a negotiation, everybody knows you’re not supposed to throw out the first number. Why ask for $105 million if the person you’re making a deal with is prepared to give you $200 million? But our recent experiences had taught us otherwise. It was ironic that some people saw Tim as a Vegas slickster. Tim was merely looking for someone he could trust. “Look,” Tim told Barton, “we’ll sell you Travelscape for $105 million in Expedia stock. It’s not our first number. It’s our last number. So if you don’t like the deal, let’s just forget about it. We won’t waste your time and you won’t waste ours. We’re not negotiating. A hundred and five million in Expedia stock means a hundred and five million in Expedia stock. That’s the number.”
Barton immediately recognized the deal’s potential. Expedia had airline contracts, distribution, and technology mastered. We had a huge customer base and a great hotel inventory built around the merchant model. It’s hard to imagine now, but back then you couldn’t choose from a full range of hotel and airline options on a single Internet site or build your own vacation package. A synergy of Expedia and Travelscape gave the world access to Expedia’s airlines and our hotels. It was like introducing french fries to a hamburger. Barton could readily see that the two companies combined were worth way more than they were independently. It was one of those deals where 1 + 1 = 50.
We began to work the details out with Rich. The Sniffer spent a few weeks dotting every i and crossing every t. We were all set to go. Then, just as we prepared to fly up to Seattle to close the deal, Tim got a terrible case of the flu. You can imagine how sick he was to stay in bed. But executives at Expedia couldn’t. They saw it as a negotiating ploy, and they didn’t bring Barton to the table.
The Sniffer, two lawyers, and I walked toward a conference room in the law offices of Bill Gates’s father, past hundreds of boxes reading: U.S. Government vs. Microsoft. That will get you thinking.
About twelve guys from Microsoft sat at the conference table behind laptops as we tried to wrap up the final half-dozen points of the deal. It seemed like we were making good progress through a long day of work. Late in the afternoon, we took a break. When we returned, one of their lawyers started leading the meeting as if we’d never been in the same room.
It was as if we’d left for the break on the one-yard line, about to punch it in for a score, and returned to find ourselves starting at the fifty and moving in slow motion. “Let’s go back to these points,” they’d say in the most methodical way. Was this the same old story? They get the carrot halfway in your mouth and out comes the bulldozer. Or was it the genius of Microsoft? They just wear you down. It was hard to know. You couldn’t even look these guys in the eyes. They were hunched over, concealed by their laptops.
Either way, The Sniffer was in a state of utter disbelief. He’d been in all kinds of big deals. He knew the routine. Everybody throws down a line in the sand. But compromises are always reached at the end. And when you’re buying a company from someone who started it and has deep emotional ties, you’ve got to do some serious massaging. Look the owner in the eye. Give on some points. Make the owner feel good.
All we could see was the bulldozer’s steel plate heading straight for us.
The Sniffer slammed his hand on the table. “You’re making no compromises whatsoever,” he said. “You guys don’t know how to get a deal done. I’m gonna recommend to Tim and Tom that we take a different deal.” Then he walked out.
I sat in silence for about thirty seconds. I didn’t quite know what to do. It was the first time I’d ever been in a negotiation like this. Sure, I’d haggled over hotel room rates with our suppliers. But this was on a different level. Our attorney, Peter Wallace, took charge. “We’re going to take a break, and we’ll let you know how to proceed.”
We met The Sniffer outside. He’d seen it for what it was. The Microsoft culture was used to rolling over everybody across the table, and we were across the table. It’s not every day you blow a $100 million. This was the third time in less than a year that a nine-figure deal had slipped through our fingers.
We phoned Tim. “Are you ready for this?”
Tim was right behind us. We left a message with Expedia that we were headed back to our hotel.
Over dinner at the hotel, the phone rang. It was Expedia’s chief financial officer, Greg Stanger. “Where are you guys?” he said. “We’re all sitting in the conference room waiting to resume talks.”
The Sniffer and the lawyer were writing notes on my napkin, advising me what to say. I gleaned the information, but then there was a moment when I stopped reading, looked up, and became somebody who I wasn’t only a half hour before.
“We’re trying to get a deal done here,” Stanger said.
“You guys know what the issues are.” My tone was straight-forward and completely reasonable. “When you’re prepared to compromise, let me know. If I don’t hear from you by early tomorrow morning, we’re leaving at eight thirty.”
That night, I set my cell phone on the nightstand. Nothing. I tossed, turned, and woke up every two hours. Nothing. We headed to the airport the following morning. As we boarded the plane, my stomach felt as lousy as it could possibly feel without throwing up. I remember flying over Mount Rainier. It was a picturesque day. The Sniffer and the lawyers were trying to cheer me up, but I could barely hear a word they were saying. The detail I most remember about the ride is there was no turbulence.
When we landed, there was a message on my phone to call Tim. I dialed him immediately. “Where are you?” he asked.
“We just landed in Vegas.”
“Vegas! What are you doing in Vegas?” he said. “You’ve got to be up in Seattle to sign the contract!”
He was joking—and not joking. While we were in the air, he’d spoken to Rich Barton over the phone and ironed out the deal.
There was high-fiving and hugging and of course Tim couldn’t resist a few digs. “What I forgot about doin’ deals, most people never knew!” Joe Pesci couldn’t have executed it any better. Only years later, after I’d met Tony and Danny Bennett, did I fully understand that I’d played an integral role in making the deal. At the time, I was just overjoyed it was done.
The deal was announced on January 31, 2000, the day after the Super Bowl. Tim and I had sold Travelscape for $105 million in Expedia stock. People have asked what it’s like to make a hundred-million-dollar deal. All I can say is that the feeling really didn’t hit until I saw the stock certificate months later.
What I do remember from that time is a moment that came up when lawyers began to sort through the paperwork. They asked Tim and me for a document that showed our fifty-fifty split of the company. We had nothing to hand them. We’d never written one up.
“You mean,” the lawyers asked, “you don’t have anything on paper proving your partnership in the company?”
It was impossible for them to believe that all we had, that all we needed, was a handshake on a frozen lake.
If all this sounds like a fairy tale, read on. Only a couple of months after we’d sold our company to Expedia, the Internet Bubble burst. Wall Street had finally realized that most of the tech companies were more concept than viable businesses, and there was a stampede for cover. Even investors who could see the fall coming were surprised by its severity. As the market bottomed out, companies formerly valued in the billions were suddenly declaring bankruptcy. The dot-com millionaires who’d borrowed against their stock to buy Lamborghinis and mansions went bust, and many a bandwagon investor lost everything.
As our Expedia stock skidded lower and lower, there was nothing we could do. We couldn’t even sell. The shares we’d received in the deal were restricted from being sold—and the price plummeted before the restriction was lifted. So we simply watched as our stock sank with the rest of the technology market. But when it fell from $34 to $7—and we’d lost $80 million—I couldn’t take it anymore. I phoned Ed and blurted “What the fuck is going on? This is crazy!”
“No, Tom,” Ed said. “This is the end of The Crazy.”
Ed tried to calm Tim and me by explaining that The Crazy had little to do with us. There was simply no correlation between the way Expedia stock was being priced and the company’s true value. Expedia’s stock was plummeting only because every dot-com’s stock was plummeting. Ed sensed that as worthless Internet companies crashed, genuine businesses like Expedia would find a base and recover. Forget about the numbers on the stock market, he advised us. Look at Expedia’s sales. When I looked closely I began to relax. The addition of Travelscape had bolstered Expedia and sent its revenues soaring. And we’re talking about the Microsoft culture, here. This was a company born with a vision of smashing through any wall put in front of it. Now that Expedia had the power of our operation behind it, it was on its way to becoming the largest seller of travel in the world.
Time proved Ed right. Expedia not only recovered, but our shares soared from $7 to $150 by the summer of 2003. When they did, we had more money than when we first signed the deal.
But as clairvoyant as Ed could be, he couldn’t fathom where the sale of Travelscape would take our day-to-day lives. Neither could Tim. And neither could I. Looking back on it, these changes were much more profound than the dive and soar in the stock market.
As part of the deal with Expedia, I began overseeing staff and implementing the global hotel strategy as the two companies came together. I wanted to make sure that the transition was smooth for all the people who’d worked so hard for Tim and me at Travelscape. No way was I taking my money and running off to retire in the Land of Grey Goose. It was an important time for me. No matter how hard I’d worked and contributed to build Travelscape, I knew damn well that it had been Tim’s inspiration. I needed to find out if I truly belonged at a conference table with the likes of men who ran billion-dollar businesses. So I opened myself up to learning as much as I could. And you know what? It was great. I was traveling to Europe frequently and setting up Expedia offices in London, Munich, and Paris. After years of working sixteen hours a day, I opened myself up to a social life. Let me tell you, going out with Miss Israel at that time would’ve opened anybody’s mind. Miss Israel of 1999, Rana Raslan, is Palestinian. I was a long way from Barnsville.
My eyes were wide to the new world in front of me. Because of that I didn’t see the deep funk that Tim was sliding into. Tim didn’t know what to do when he got up in the morning. Yeah, he was doing some consulting for Expedia, but his role was more detached. Most days, he had nowhere to go and nobody to see. He might have stayed in bed all day if the housekeeper didn’t arrive at eight thirty every morning. Being in bed when she arrived made him feel like a loser. So he showered, dressed, and got behind the wheel of his Mercedes without any idea where he was going. Sometimes he went out for breakfast. Sometimes he went to a bookstore. Many afternoons he sat alone through a matinee. For a little while he forced himself to go out at night and act like a playboy. But that wasn’t him, and he knew it.
He tried to make sense of his funk by looking at the lives of Bill Clinton and Steve Wynn. He wondered what Clinton would do at a relatively young age now that the presidency was behind him. And now that Wynn had just sold more than two decades of his creativity and relentless work on The Golden Nugget, the Mirage, Treasure Island, and the Bellagio to Kirk Kerkorian and MGM, what new ground would Steve break?
Everything Tim had done, everything he was, pointed back to his business. Now he felt like he’d given up his baby. He missed everything about it. It was more than driving hard for bigger numbers and celebrating over T-bones and cigars at Morton’s steak house. Tim missed playing practical jokes on Naaygs. He missed the laughter that rocked the office. Even when he’d gotten into a fistfight with a pediatrician over parking spaces at our ever-expanding office, he might have regretted it later, but he damn well knew he was alive. Pressure, tension, stress—that’s what made Tim’s heart tick.
Though he had millions in the bank, Tim felt hollow. His days were no longer filled with Frank Sinatra. Now, he heard Peggy Lee singing “Is That All There Is?” Who could possibly comprehend what he was going through? The kid who had to hope for his dad to make a winning bet the night before a vacation to Disneyland could now provide for his extended family beyond his mother’s wildest imagination. There were about fifty million men in America who were wishing for Tim’s dilemma. If he so desired, Tim would never have to work another day for the rest of his life. What right did he have to complain?
He didn’t tell me or anybody else, but he started seeing a shrink and taking Prozac.
One thing you learn about having a dream come true is that you’re going to wake up the following morning. When you do, it’s wise to have another dream or goal in place.
I had a goal. I had to see how well I could do on my own. So the transformation after the sale was much easier for me precisely because the questions I needed to answer set a staircase in front of me. One of those steps took me to a seat on Expedia’s board of directors in February of 2002, just as Barry Diller bought a 60 percent share of the company from Microsoft. Suddenly, I found myself preparing to sit at the same conference table to work side by side with the guy who’d screwed Tim and me over when we’d tried to sell him Travelscape!
“Is Tom still mad at me?” Diller wanted to know before I joined the board.
There are people who would’ve refused to enter a room with Diller if he’d done to them what he’d done to us. Make no mistake about that. But Sumner Redstone, the CEO of Viacom, says he doesn’t let history get in the way of the future. Anyway, that’s just the attitude I took.
That first board meeting with Diller was a big day in my life—one of those days when you’re up before the alarm clock rings. Say what you want about the guy, but the list of people who’ve worked with Diller over the years grabs your lapels and gets your attention. Michael Eisner, who became the CEO of Disney, mentored under Diller. So did Jeffrey Katzenberg, who started DreamWorks with Steven Spielberg. At one point, they called those guys the Killer Dillers. I simply needed to know if I could hold a seat in the room at that level.
I was staying in New York at my favorite hotel, the St. Regis. I put on my best suit. My best shirt. My best tie. Maybe I looked like I belonged in a Barry Diller boardroom. But inside I was still the same guy who had a hard time figuring out trigonometry. The same guy who’d been rejected by his high school basketball coach. The same guy whose dad would be deeply wounded if I ever sacrificed my solid Midwestern values for the almighty buck.
I didn’t go out and buy a fancy house as soon as the money became available. I sent some to my parents, who’d given me those solid values. I sent some to my older brothers, who’d probably stunted my growth with all those Piledrivers and helped create my Charlie Hustle attitude. I sent some to my younger brother, John, who is so close to me that we talk five times a day. I sent some to my old backcourt partner Chris Bednarz for helping me learn how to synthesize. I gave some stock to a school that Andre Agassi and Perry Rogers were establishing for inner city kids in Las Vegas. Let me tell you, it’s a great a thing to be able to give the Nevada Cancer Institute a million bucks. Well, yeah, I also bought a Ferrari—which gave Tim the perfect opportunity to twist in his needle. “No, Tom, you haven’t gotten away from those humble Midwestern roots. You’re just driving a Ferrari!”
But there was probably nothing $105 million could buy to make me feel as good as the tape I received in the mail from Chris Bednarz’s dad not long before that board meeting with Diller. It was a recording of that basketball game against Totino-Grace. The Ferrari is long gone. But that win will always be with me. Now, I needed to know if I could seize the moment like that in Barry Diller’s boardroom.
It was about five months after 9/11, and tension from the destruction of the World Trade Center still hung over the city. I stepped out of the street and into the anxiety of the boardroom. Everybody attached to Microsoft was anxious to find out where he or she would fit in now that Expedia would be under Diller’s control.
Diller was very cordial. I sat between him and Greg Maffei, the former chief financial officer of Microsoft. I could hear my heart beating as I wondered when to jump into the conversation and how to time my comments so that I didn’t sound as long-winded as Tim would have you believe I am.
After that three-and-a-half-hour meeting, I was no longer a kid who’d stepped into an amazing opportunity on a frozen lake still trying to find his way in the world. I knew I belonged at that table, and I was deeply aware of how much I’d changed in a decade.
The changes were confirmed over the next year and a half when Diller bought the remaining 40 percent of Expedia. I was placed on a special committee in charge of negotiating the price with Diller on behalf of Expedia shareholders. It was a tough negotiation. Believe me, Diller ended up paying more than he wanted. But in the end, everyone got a fair deal. And Diller and I sent each other notes wishing each other the best.
Closure always makes it easier to open the next door.
That door was opening now that Tim was emerging from his funk. Once again, Bishop Gorman High School had come through for him.
While depressed and uncertain what to do next, Tim complained to Perry that I wasn’t around enough. Perry helped him see the big picture. He explained to Tim that I needed to learn what I was capable of doing on my own. It was the same reason, Perry intuited, that he’d needed to add Shaquille O’Neal to his own business. Otherwise people would’ve thought that he was successful only because Andre Agassi happened to be his best friend. He had to prove that his success as Andre’s agent wasn’t luck. He had to prove that to everybody around him. And he had to prove it to himself.
Then Lorenzo invited Tim to join the board of directors at Station Casinos. The board met quite often, and being around gaming began to light a spark inside Tim. That spark began to kindle when he got a call from another Bishop Gorman grad, Curt Magleby, who many years before had learned a lesson in discipline at the blackjack table with Tim at his side.
One day, during their junior year, the water was turned off at Bishop Gorman, and the students were let out early. Tim and Curt went to lunch at the Barbary Coast and then wandered over to the Dunes with about $50. They must’ve looked at least twenty-one years old when they ran it up to $1,200 on the blackjack table, because they were able to convince the hotel to comp their dinner, as well.
Knowing he’d gotten “the best of it,” Tim wanted to leave after dessert. Curt wanted to use the $1,200 as a base to “take the joint down.” So they strolled over to a $100 blackjack table and ten minutes later their pockets were empty. Ratcheted between disbelief and fury, Tim headed out the front door, weaved to the fountain out front, and dunked his head in the water as a reminder never again to betray his instincts.
That dunk became more memorable to Curt than any of Michael Jordan’s. He went on to become an investment banker who specialized in arranging gaming partnerships and buyouts. When he heard that the longtime owner of the Imperial Palace was in bad health and trying to sell the hotel before he died, he phoned Tim to ask if he’d be interested in buying.
Curt’s call was like another slam dunk in a fountain. Tim came up blinking with the realization that he was actually in a position to take a shot at his dream. Curt was an expert on raising money for these investments. If Curt thought Tim was qualified, so would everybody else.
The desire to own a casino was in Tim’s DNA. And after we’d been apart for more than a year, what better way was there for Tim to bring back the old magic than to include his best friend?
One day I went to meet Tim at his office. He was poring over a desk covered with spreadsheets. I should have seen it coming.
“Hey, buddy, have you got 25 million bucks?”