May 19, 2016 1:49 pm
Regulators say his tactics went too far against competition from Native Americans
T
he St Regis Mohawks came under attack as they sought to open a second casino in the state of New York. Advertisements appeared in local media around the turn of the century claiming that the Native American tribe had a long history of drug dealing, smuggling and other crimes. New Yorkers were warned that the Mohawks’ involvement in the gambling industry was making a dirty business even worse.
“Casino gambling stinks,” said one of the advertisements. “It brings increased crime, bankruptcy, broken homes, divorce and, in the case of Indian gambling, violence.”
The broadsides purported to be the work of an anti-gambling group called the New York Institute for Law and Society. But state regulators soon discovered the real story. They unearthed evidence that the man behind the anti-Indian messages was a rival casino owner who had a lot to lose if the Mohawks gained approval to expand their gambling operations in the state.
His name was Donald Trump and his handwriting was found on invoices approving the advertisements, according to the regulators. In response, New York officials alleged that Mr Trump and his associates, including conservative activist Roger Stone, had violated the state’s lobbying law. Without admitting guilt, Mr Trump, Mr Stone’s firm and the institute agreed in 2000 to pay a $250,000 civil penalty to settle the matter, including $50,000 for ads apologising to anyone deceived by the anti-Mohawk missives.
“Mr Trump had control over the content of the ads,” said David Grandeau, who was the executive director of New York temporary state commission on lobbying at the time. “When you control the message content and the message delivery in a lobbying ad in New York state you are responsible to file a registration statement.”
Waging war
Mr Trump’s anti-Indian marketing effort received little attention outside his native New York, but it looms today as a preview of his presidential campaign. Before he characterised illegal Mexican immigrants as “rapists”, or accused Muslim Americans of celebrating the 9/11 terrorist attacks, this year’s presumptive Republican nomineemade it his business to question the character of Native Americans.
For years, Mr Trump waged his own kind of Indian war in response to a 1988 federal law that paved the way for hundreds of Native American tribes to offer games of chance. His goal was to prevent his new competitors from undermining the three casinos in Atlantic City, New Jersey, that he acquired during the 1980s when the seaside resort had a casino monopoly in the eastern US.
As a commercial strategy, the effort failed. Native American gaming revenues rose to $28.5bn by 2014, non-tribal areas looking for a piece of the action loosened anti-gambling laws and the US wound up with a casino glut. Mr Trump was among the losers. His Atlantic City empire fell into decline and he retreated from the big-time gambling business.
However, as a political exercise, Mr Trump’s bitter Indian campaign bore fruit. Before he threw his hat into the ring, Mr Trump spent years refining a protectionist message that savaged weak-minded US officials for selling out domestic interests in favour of unsavoury people with racial or religious backgrounds different to his own.
The angry Mr Trump of the 2016 campaign trail who rails against unfair competitors speaks from experience as a business executive who suffered at the hands of Native American tribes operating with powers of self-government under the US constitution.
“Donald Trump always wanted the government to protect him,” says Richard McGowan, a Jesuit priest who serves as an associate professor of finance at Boston College’s Carroll School of Management and has written several books on the history of the gaming industry. “I don’t think he ever banked on [Native American] competition.”
Left with a bad hand
The political irony is that Mr Trump’s interests were undermined by the policies of the patron saint of his party. On October 17 1988, one of the final days of his second term, President Ronald Reagan signed the Indian Gaming Regulatory Act, which allowed the spread of Native American casinos.
The legislation was crafted in response to a 1987 Supreme Court decision that gave tribes greater leeway in offering gaming. But it also reflected Reagan’s free-market ethos. As president, he sought dramatic cuts in aid to Indian tribes, believing that their reservations represented failed exercises in socialism. Running gambling operations was portrayed as a way for Indians to stand on their own feet.
For Mr Trump, the timing was terrible. As the 1990s began, he was weighed down by billions of dollars in debt used to assemble his property and gambling empire. In 1991, Trump Taj Mahal, his biggest casino, filed for bankruptcy protection, the first of four times his companies would be reorganised under Chapter 11 of the bankruptcy code.
Mr Trump emerged from the wreckage in the 1990s by doubling down on Atlantic City gambling. He said goodbye to assets including an airline, a 282-foot yacht and New York’s Plaza Hotel, but retained control of his casinos, after making the case to his bankers that they would be better off letting him handle such a tricky business.
By the mid-1990s, Mr Trump was being hailed as a comeback kid. His fall as a gambling kingpin only came later, when control of his casino company passed to his creditors. Billionaire Carl Icahn now owns the only Atlantic City property bearing Mr Trump’s name — the Taj Mahal.
Mr Trump’s ultimate decline coincided with the growth of competition for the gambling dollar. In 1992, the Mashantucket Pequot Tribal Nation, backed by Gentingof Malaysia, opened what became the largest gambling facility in the western hemisphere — the Foxwoods casino in Connecticut. In 1996, the Mohegan Sun, the state’s second Indian casino, debuted.
Lacking flexibility, Mr Trump was poorly positioned to respond creatively to the challenge, for example, by enriching the casino experience with shopping, dining or entertainment options in the manner of Las Vegas operators such as Steve Wynn. Instead, Mr Trump fell victim to the rise of “convenience gambling”, the tendency of bettors to frequent the nearest casino.
“Atlantic City made a lot of money in the 1980s being the only game in town,” says David Schwartz, a former Trump Taj Mahal employee who is now director of the Center for Gaming Research at the University of Nevada Las Vegas. “When you have more convenient places open up, that’s when Atlantic City ran into trouble.”
Irresponsible testimony
Mr Trump saw the danger and he fought back in much the same way as he has during his campaign, taking to the airwaves and disparaging his opponents. During an appearance on Don Imus radio show in 1993, the politically incorrect host asked Mr Trump’s opinion of a group of “drunken Injuns” who wanted to open a casino in New Jersey. The man who later came to question Barack Obama’s birthplace said he doubted whether his new competitors were really Native Americans.
“I think I might have more Indian blood than a lot of the so-called Indians that are trying to open up the reservations,” Mr Trump said. “One of them was telling me his name is Chief Running Water Sitting Bull, and I said, ‘That’s a long name.’ He said, ‘Well, just call me Ricky Sanders.’ So this is one of the Indians.”
A few weeks later, Mr Trump appeared before a US House of Representatives subcommittee looking into the state of Indian gaming. He did not hold back.
Mr Trump, who tends to speak off the cuff on the campaign trail, put aside his prepared remarks and lambasted witnesses he accused of “saying everything is peachy-dory”. Among them was a US justice department official who said the “belief held by some that Indian gaming operations are rife with serious criminality is not established by the data currently available”.
Mr Trump claimed that Indian tribes were incapable of stopping mobsters from dipping into their gaming proceeds. He said he found it hard to believe that “an Indian chief is going to tell Joey Killer to please get off his reservation”.
“Organised crime is rampant, is rampant — I don’t mean a little bit — is rampant on the Indian reservations,” he said. “It will blow sky high. It will be the biggest scandal ever or one of the biggest scandals since Al Capone in terms of organised crime.”
He warned George Miller, the panel’s chairman, that he was going to be “very embarrassed” by the fallout, prompting the California Democrat to respond: “In my 19 years on this committee, I don’t know when I have heard more irresponsible testimony . . . You have cast upon the Indian nations of this country a blanket indictment.”
Mr Trump upped the ante when the St Regis Mohawks, who opened a casino on their tribal land in April 1999, were seeking approval to open their second gambling facility in the Catskill Mountains region, about 100 miles from Manhattan. The Trump argument was no longer that Native American tribes were too weak to stop organised crime. Rather, his secretly funded advertisements argued that the St Regis Mohawks were a heavily armed mob and should be viewed with suspicion by New Yorkers and their officials.
“Are these the new neighbours we want?” one advertisement asked. “The St Regis Mohawk Indian record of criminal activity is well documented.”
The Trump campaign did not respond to a request for comment. In an email, Mr Stone, Mr Trump’s long-time confidante, stood by the content of the ads and said he believed Mr Trump had grounds for a legal challenge to the New York regulators but settled to avoid a “costly and time-consuming” court battle.
In the years that followed, Mr Trump, undeterred by the revelations in New York, sought to find his own Native American casino partners. But he struggled to find his place in the new gambling landscape.
In Connecticut, he made common cause with a group called the Eastern Pequots that hoped to open a casino. However, relations between the Indians and Mr Trump frayed, and federal officials ultimately decided against recognising Eastern Pequots as a tribe.
Far from Atlantic City, Mr Trump struck a five-year deal starting in 2002 to manage a casino for the 29 Palms Band of Mission Indians in Coachella, California. But this time, it was the Indians who were unimpressed. They paid $6m to buy out the last two years of Mr Trump’s contract. Tribal leaders said the time had come for them to do the job on their own, without help from the man now running for president.
Donald Trump’s difficulties in dealing with casino competition point to one of the paradoxes of his career. For all his talk about being a self-made man, he and his family business owe a good deal of their success to the government.
An early example came after the second world war when Mr Trump’s father Fred, a New York homebuilder who left an estate worth an estimated $250m-$300m when he died in 1999 at age 93, was a beneficiary of lending schemes offered by the Federal Housing Administration, a creation of President Franklin Roosevelt’s New Deal. Homebuilders with the right connections were able to obtain mortgage financing far in excess of their construction costs on a project and use the surplus for other purposes. Testifying in 1954 before a Senate committee, Fred Trump said his FHA-backed borrowings exceeded his building expenses by millions of dollars.
When Donald struck a deal in the 1970s to transform New York’s run-down Commodore Hotel into a glittering Grand Hyatt, his father’s political ties proved fortunate for his son. The city granted the project a 40-year tax abatement. Asked how he secured the 40-year break, Mr Trump said: “Because I didn’t ask for 50.”
Mr Trump made his move into Atlantic City, New Jersey, in the 1980s when the seaside resort had a casino monopoly in the eastern US. Gambling was introduced there in the previous decade in the hope of boosting its fortunes.
“Let’s face it, the gambling industry is protected by the government,” says Richard McGowan, associate professor of finance at the Carroll School of Management, Boston College. “It’s the only industry I know where legislators say they want it to be a success. The rationale for Atlantic City was that gambling was going to revitalise Atlantic City. It didn’t.”
Mr Trump faltered when changes in federal law led to the construction of two big casinos on Native American land in the same region. “Unfortunately for Donald he was over his head with debt and couldn’t compete,” Professor McGowan says. “He was an old-fashioned casino operator who didn’t adjust to the new reality.”
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