The Billion-Dollar Failure of Trump’s Taj Mahal Casino & Resort
“One step beyond your wildest dreams, there is a billion dollar dream come true. The utterly fantastic Trump Taj Mahal Casino Resort, where every day is a holiday and every night is New Year’s Eve. So take a magic ride to the eight wonder of the world — The Trump Taj Mahal Casino Resort in Atlantic City. You’ve got to be there to believe it.
This was one of the infamous adverts for Trump’s Taj Mahal Casino Resort in Atlantic City. Aimed to be the best and most extravagant casino in Atlantic City, it was an extreme undertaking from the start. It had the potential to become one of the best casino resorts in the United States, but its constant shortcomings would result in Trump losing over $1,000,000,000 and taking a hit to his already questionable business reputation.
The casino was frequently in the spotlight for labor disputes, potential money laundering suspicions, and even some ties to Asian organized crime. These issues would reappear until, eventually, the casino’s parent company filed for bankruptcy in 2014.
So, how did something with so much potential have such a large fall from grace? Well, to start, we are going to have to go back to 1983.
Before Trump
This story begins before the Trump name briefly shimmered over the Atlantic City skyline. Around this time, a company known as Resorts International had begun construction on their second property in the Atlantic City area, known as the Taj Mahal. With a budget of over $250,000,000 and a goal of becoming the second-largest casino in the world, this construction project made headlines across the United States.
However, these headlines were briefly shaken up when the CEO of Resorts International — James Crosby died unexpectedly in April of 1986, and Resorts International instantly became a target for a hostile takeover.
With the half-constructed Taj Mahal in limbo, bidding began for an ownership stake in Resorts International. There were a few different bidders, but the acquisition was eventually won by the infamous Donald J. Trump for $79,000,000 in July of 1987.
At the time, Trump already owned various large development properties across the United States (including a few casinos) so this was not a surprising acquisition for the real estate mogul.
The Taj Mahal was now in new hands, and there were big plans for the property.
The Battle of the Taj
Upon the acquisition of Resorts International, Trump decided to make the Taj Mahal his main priority. He decided that the $250,000,000 budget wouldn’t suffice for the vision that he had in mind, so he increased it to a whopping $900,000,000 and decided to up the ante. But first, he needed funding.
After the death of James Crosby, Trump acquired 78% of the Class A shares of Resorts International. When the company struggled to raise enough money to finance the Taj Mahal project, Trump offered to buy the remaining shares of Resorts International.
He planned on using the financial resources of his other company — The Trump Organization — to secure the additional funding that was needed to finish the Taj Mahal. This would fix the problem of insufficient capital and would allow construction to continue while giving him 100% ownership of Resorts International.
As his offer was nearly accepted, he ran into a problem.
A rival businessman, known as Merv Griffin, placed a much higher offer to buy majority ownership of Resorts International. This created a highly-publicized battle, with Griffin eventually acquiring ownership of Resorts International and selling the Taj Mahal back to Trump for $270,000,000.
With the Taj Mahal back in Trump’s hands, construction would be resumed and the Trump Taj Mahal was on its way to becoming “the 8th wonder of the world”.
The Trump Vision
Now deeply invested in the project, Trump continued on his journey to raise funds for the property. The remaining $675,000,000 that was needed to complete construction would be funded by junk bonds, which are bonds that have a higher interest rate due to the risky nature of an investment. Junk bonds are high-risk, high-reward bonds for lenders and Trump took them because it was the only funding he could receive to finish the project.
On April 2nd, 1990, the Taj Mahal opened in typical Trump fashion.
Ornate chandeliers, Persian rugs, gold taps and sinks in the restrooms and gold elevators welcomed the guests who arrived at the opening ceremony to see a performance hosted by Michael Jackson. The entire opening day was a complete spectacle and hopes were very high.
The casino made over $2,000,000 on opening day alone.
A BIG Problem
While $2,000,000 sounds outstanding on the surface, it was nowhere near enough to keep the Taj Mahal afloat. Taking on $675,000,000 in debt at a 14% interest rate is not sustainable, and it was estimated that the casino would need to make over $1,300,000 per day to break even, which are numbers that even the biggest Vegas casinos struggle to bring in.
This problem became glaring and just over a year after opening, the casino filed for bankruptcy. At this time, Trump decided to give away a 50% ownership stake in the casino to all of the bondholders in exchange for a lower interest rate and longer repayment period. This proved to be extremely beneficial and would actually help to keep the property afloat for years to come, but it wasn’t smooth sailing.
With such large construction costs and grandiose visions, there were a lot of local Atlantic City contracts that helped to build the Taj Mahal. This project was supposed to work miracles for the struggling Atlantic City economy and contractors were ecstatic to work on the casino. However, many contractors were never paid and after the bankruptcy filing in 1991, they were offered 33 cents on the dollar for their work, with promises that the rest would come later.
Shattered Hope
Somehow, after the delayed debt repayment period and other loopholes, the casino leveled out and managed to stay afloat for the next decades. There were some minor roadblocks, but many of the problems that faced that casino in the early days went under the radar.
However, just as hopes were high and the Taj Mahal Casino Resort seemed to have a future, Atlantic City began to have its collapse.
Casinos all around the city were closing and the local economy was going downhill fast.
Eventually, after a few years of slowing business, the building began to fall into disrepair. The flashy, opulent 1990s interiors were showing their age, and the once-luxurious Taj Mahal was a shell of its former self. In September of 2014, it was announced that the Taj Mahal was once again filing for bankruptcy alongside its parent company — Trump Entertainment Resorts. With over 3,000 jobs on the verge of being lost, the unionized workers tried to do everything they could to keep it running.
So, after much publicity, a new company known as Icann Enterprises would purchase the failing company including the Trump Taj Mahal. While Donald Trump was no longer involved in the project, his name remained on the property for branding and licensing purposes. It seemed as if the Taj would survive once again.
It had a good chance to work if it wasn’t for the hundreds of millions of dollars of bad debt that was still present almost 20 years after opening. These loans were wreaking havoc on the financial stability of the Taj Mahal and Icann needed to cut costs to make it profitable. So, they started by reducing employee benefits like health care and removing included lunch breaks.
With the large union presence, workers decided to go on strike.
But Icahn refused to budge.
And neither did the workers.
The strikes would go on with workers refusing to quit until they got what they thought they deserved.
But, this never happened and with the casino closed due to a lack of workers, Icahn was unable to repay the debt that was owed and the Taj Mahal would close permanently on October 10th, 2016.
It was the end of an era.
Dark Business
Now, you may have noticed that I left out some crucial details that I used in the hook of this story.
The casino was frequently in the spotlight for labor disputes, potential money laundering suspicions, and even some ties to Asian organized crime.
While things look great on the surface, trouble was brewing internally. There was a darker side to some of these financial issues.
During the casino’s operation between 1990 and 2016, the Taj Mahal had broken money laundering rules and regulations multiple times and was fined over $10,000,000. These violations were quite obvious to anyone who knew how to comply, and the fines were some of the largest ever placed on a casino.
This, plus an alleged association with Asian organized crime and multiple shootings on the property, created more problems for the Taj Mahal and would ultimately lead to its downfall.
Eventually, the property was purchased for a mere $50,000,000 from Florida-based Hard Rock hotels.
$50,000,000. On a hotel that cost nearly $1,000,000,000.
Was there ever hope for the Taj Mahal, or was the project doomed from the start?
If you enjoyed this read and want to learn more about interesting stories in business, feel free to drop a follow! I love seeing everyone’s comments and I thank you for your support on future stories.
