Romney’s Case Against Trump
Mitt Romney tore into Donald Trump as an unfit nominee for President of the United States. He told an audience at the Hinckley Institute in Salt Lake City that Donald Trump is not a huge business success.
He said that Trump has used bankruptcy (Atlantic City casinos), he inherited his business, and then cited several enterprises that have used the Trump name like Trump Airlines, Trump University, Trump Vodka and Trump Mortgage which are presumably no longer in business.
Donald Trump is the type of person that people love or hate. Entering presidential politics has greatly accentuated this. Mitt Romney is using incorrect or incomplete political talking points to paint Donald Trump as a failed businessman, while overlooking the vast majority of evidence to the contrary.
We won’t debate whether or not Donald Trump is fit to be a nominee for President. However, it is quite clear that Donald Trump is a huge business success.
Atlantic City was a Disaster for Everyone
On the first issue of bankruptcy, Donald Trump has used bankruptcy on four occasions in order to restructure the financing, primarily on his Atlantic City properties. Atlantic City is a disaster.
Along with Las Vegas, it once had a monopoly on casino gaming. Its future looked bright; but then, tribal and other casinos starting rising all other the US and while Las Vegas was able to re-brand itself in a total entertainment destination, Atlantic City largely failed.
The lenders should have never allowed so much debt to be placed on the properties, and ultimately they took a hair cut on the value of the debt. Tremendously successful private equity firms like KKR, TPG, and Blackstone acquire large companies and saddle them with debt.
While in most cases they are able to reduce the debt over time and bring the companies public again, occasionally you will a deal that won’t work like the Energy Future Holdings (TXU) acquisition, which ultimately resulted in bankruptcy. Does that make these private equity firms business failures?
No way. If Atlantic City casinos were Donald Trump’s only business, maybe Romney would have a point, but that is certainly not the case with Trump.
Trump Makes Money through Real Estate Development, Golf Clubs, and Television
Trump’s primary business and the source of the vast majority of his income is real estate development.
He also operates membership golf and dining clubs and previously produced television programming such as The Apprentice and the Miss USA and Miss Universe pageants.
While you may inherit a building, you do not inherit a real estate development business.
Real estate development of high rise apartment buildings or hotels in places like New York and Las Vegas is extremely complicated and very few people are successful at it.
It involves managing the interests of many, many competing interests from land owners to government officials to labor unions to architects to engineers to politicians to environmental and other anti-development groups to contractors to lenders to investors to tenants to buyers, and on and on and on.
Unlike politicians that often get credit for trying hard but accomplishing nothing, real estate development ultimately is a pass-fail endeavor. Either you are able to get the building built and earn a profit, or you fail.
There are millions of pastel water color drawings of beautiful buildings that for whatever reason, were never built.
An Undisputed Luxury Brand in Real Estate and Golf
Trump doesn’t just successfully develop buildings, he develops some of the best ones. He sells units to the most-demanding high end condo buyers from all other the world, and he has developed a brand that often allows him to charge a premium of hundreds of dollars per square foot compared to competing buildings.
Trump’s clubs like Trump National Golf Club in Los Angeles and Trump International Golf Links in Aberdeen, Scotland, are considered some of the finest golf clubs in the world, along with the famous Mar-a-Lago club in Florida.
Trump may have been born into a wealthy family, but you could say the same thing about Bill Gates, Mitt Romney, Ted Kennedy and many others. Trump’s father’s business operated lower end apartment buildings. Trump created a completely different business.
Trump Learned from his Mistakes and Leveraged his Brand
Donald Trump learned something after the real estate market crashed in the 1990’s and he was personally responsible for millions of dollars on underwater real estate loans. He smartly moved away from using his own capital and credit either to develop new buildings or to launch other business ventures.
Romney does not mention any of the buildings that have licensed the Trump name (Trump World Seoul, Trump Towers Sunny Isles Beach, Trump Tower at City Center, etc.), even though they likely generate far more money than any of the operating businesses he names.
With the exception of Trump Airlines (which was launched in 1989 and was eventually sold to Eastern Airlines, most likely at a loss), I would venture to guess that every other business that Mitt Romney named made money for Donald Trump.
Licensing the Trump name allowed other entrepreneurs (be it vodka distillers or real estate developers) to gain the attention of the marketplace. Donald Trump does not drink alcohol and probably had very little input into the vodka line, but likely received an upfront licensing fee, royalties, and equity in the company.
He sounds more like a venture capitalist than a failed businessman, but unlike other venture capitalists, he does not have to put up any actual money into these companies.
Trump University was a Mistake
One thing Romney got right was that Trump University was a big mistake. Trump University is sort of a unique case because regulators and accrediting boards hate the use of the term “University” by for-profit companies.
Also, real estate seminars are notorious for being overpriced and attracting people that want to get rich quick with “no money down.”
Most individual investors that are successful in a particular niche of real estate have a huge disincentive to share that knowledge with others, as it would just bring them more competition.
Because of this, you end up with instructors that either don’t really know how to make money in real estate or that spew out general knowledge that is basically worthless.
Trump approached this business like he did for other businesses that licensed his name when he probably should have steered clear of the headache. That being said, it was probably quite profitable and it is certainly not illegal to run a seminar business.
Forbes Magazine estimates Donald Trump’s wealth at $4.5 billion, which would make him the 121st wealthiest person in the world.
He has employed tens of thousands of employees for decades.
He has developed iconic buildings in New York City, the U.S., and abroad, and developed a licensing model that allows him to generate millions of dollars at very little risk.
Politicians are completely wrong when they accuse Donald Trump of not being a huge business success.