Developer Donald J. Trump's financial problems are rooted deeply in the faded seaside resort of Atlantic City, N.J., where he has such a high profile that the town has gotten the nickname of "Trump City."
Trump's extensive gambling operations there were once thought to be the cash machines that would sustain his financial empire, but it was not to be. The rest of Trump's empire has proved so expensive to run that his three casino-hotels, which have had their own problems, have not carried the load.
Trump has close to $2 billion invested in Atlantic City, and the ultimate fate of his empire may well be decided by how his casinos do financially during the current tourist season that ends in September.
Like all casino operators, Trump has been hurt by the singular maladies afflicting Atlantic City, a racially divided town of 35,000 that offers none of the glamour and excitement of its primary competitor, Las Vegas.
While Las Vegas has thrived, the gambling industry in Atlantic City stumbled badly after hitting a peak in 1983, when it earned nearly $169 million.
Hurt by rising promotion expenses and flat revenues, the casino-hotels lost more than $4 million in the first three months of 1990, according to the Casino Assn. of New Jersey, a trade group.
The financial picture prompted Thomas D. Carver, the association's president, to suggest that Atlantic City may need "radical change" if it is to prosper once again. Seven of the city's casinos are losing money, Carver noted, while two others are marginally profitable.
One problem is that many casinos are heavily in debt because they were financed with high-yield junk bonds, meaning they face huge interest expenses on top of their other operating costs. Trump has heavy junk bond debts on each of his casino-hotels.
Atlantic City has high building and labor costs as well as pervasive poverty and a high crime rate. Its slums abut the seaside Boardwalk, along which 10 of the city's 12 casinos are situated.
Whereas Las Vegas' gaudy Strip does not fully awaken until sundown, the Boardwalk is a virtual no man's land most nights. "It's generally pretty deserted except during the height of the tourist season," said Carl Zeitz, a casino industry consultant and a former member of the New Jersey Casino Control Commission.
Zeitz said state lawmakers in New Jersey have ambivalent feelings about gambling, which has prevented casino gaming from expanding and flourishing as it has in Nevada. Atlantic City's first casino opened in 1978.
"New Jersey has not come to terms with gambling," he said. "We keep holding our nose. Yes, we legalized gambling, but we seem to view it as offensive. You cannot have it both ways."
Although intended to limit the influence of organized crime, tough state rules have snuffed out the liveliness that makes Las Vegas such a draw, according to Zeitz. There are prohibitions against round-the-clock gambling and curbs on the kinds of games played in the casinos.
A requirement that new casino-hotels have at least 500 hotel rooms has also prevented the spread of smaller casino-hotels and meant that potential casino operators must invest at least $300 million to enter the market, Zeitz said.
Atlantic City also does not have a major municipal airport, a critical shortcoming that prevents the town from attracting gamblers much beyond the middle part of the Eastern Seaboard. Most gamblers drive there from cities in New York, New Jersey and Pennsylvania.
Other limitations include a shortage of first-class hotel rooms, a dearth of parking and inhospitable weather that limits the peak tourist season to May through September. Casino industry regulatory costs are also much higher than they are in Nevada.
On the plus side, Atlantic City is soon to get a new mayor, James Whelan, who many locals hope will usher in a era of honesty, racial harmony and better ties between the casino industry and the city's residents.
A white man who ran with significant black support, Whelan soundly defeated James L. Usry, a former school teacher and semi-pro basketball player who was indicted in January on charges of bribery and official misconduct. Usry is black.
"It's hopefully a new beginning," said Redenia Gilliam-Mosee, an executive with one of the casinos who grew up in Atlantic City and used to make $30 a week working as a chambermaid.
Reached at his home, Whelan turned down an interview, saying he was too busy. "I'm swamped with paper work," he said. He takes office shortly.
The Trump properties in Atlantic City today are a mixed bag of success, failure and question marks.
Only Trump Plaza, at the center of the Boardwalk, has been a consistent moneymaker in recent years, and even it ran into bad luck in February when it lost more than more than $6 million at baccarat to a Tokyo real estate tycoon named Akio Kashiwagi.
Using $200,000 chips, Kashiwagi lost more than $9 million at the casino-hotel in mid-May, though, so profits should rebound sharply in the second quarter, said one official in the Trump Organization. (The Trump Plaza's first-quarter loss was $3.67 million.)
Trump Castle is clearly the weakest link. Situated on an inland marina well away from the Boardwalk, Trump has invested more than $400 million in the casino-hotel, which has lost money at mounting rates for more than two years.
Trump barely met $42.6 million in payments on the Trump Castle bonds last Tuesday, avoiding formal default only with an emergency $20-million bank loan hours before the midnight deadline.
The Taj Mahal is the giant unknown, so expensive to build that already there are serious doubts about whether it will be able to meet the next interest payment on its bonds, due Nov. 15. The Taj opened in April at a cost of more than $1 billion.
The man originally chosen to run the Taj, Mark Grossinger Etess, was killed last fall in a helicopter crash, along with Stephen F. Hyde, who was Trump's top gaming executive. Some industry insiders believe Trump has never recovered from that blow.
By some accounts, Trump has become unglued without Hyde, a popular and respected industry veteran who acted as a buffer between the volatile developer and the rest of the staff. Trump has since become increasingly active in the casino management, displaying a seat-of-the-pants style that has worn badly with some underlings.
Jack O'Donnell, former president of the Trump Plaza, quit in May because he tired of Trump's style. O'Donnell was particularly disgusted by Trump's criticism of Hyde's business decisions after Hyde died.
The grand opening of the Taj was marred by snafus and confusion, leading Trump to demote the general manager. Another executive, the chief financial officer, collapsed of exhaustion and was later let go.
Still, the Taj shattered all records in its first month of operation, raking in gambling winnings of $34.4 million--the best monthly showing of any casino in the history of Atlantic City gambling. The Taj took in $36.5 million more in gambling winnings in May.
The success, however, appears to have come at the expense of the weaker casinos, including the Trump Castle. Doubters also point out that Trump borrowered too much to build what is the world's most expensive casino.
He raised $675 million in junk bonds in late 1988 at an interest rate of 14% to finish construction of the hotel, and even Moody's Investors Service, the debt-rating agency, has suggested that Trump is headed for a possible default on the Taj bonds.
Outside experts believe the Taj needs to take in about $475 million a year--and perhaps much more--just to break even. Whether it will or not is a clear concern to New Jersey's casino regulators.
"Some days (at the Taj) are fantastic and other days are not up to expectations," said Anthony J. Parrillo, head of the New Jersey Division of Gaming Enforcement. "It's still too early to tell."