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Alexandra Berzon

Treasure Island's buyer talks about the art of the deal

29 December 2008

LAS VEGAS, Nevada -- Phil Ruffin started as an entrepreneur owning a single gas station. Last year, Ruffin made almost $1.3 billion when he sold the New Frontier to Israeli investors. Now the Kansas businessman is purchasing Treasure Island for $775 million.

The following is a condensed version of a Dec. 18 interview with Ruffin on KNPR's "State of Nevada" hosted by David Berns. It has been edited for clarity and length.

Berns: Did you see it as a good deal to be had?

Ruffin: It wasn't that so much. It's that money is scarce and a lot of the potential buyers can't get loans. And in our situation we had that cash from the Frontier and we didn't need a loan and we felt that the opportunity would be now to buy a casino. We waited a year, we sat on that money for a year, but MGM indicated interest and I approached them, and we were anxious to get back in the business, so between Jim Murren (MGM Mirage chairman and chief executive), Kirk Kerkorian and myself, we pulled the trigger.

Berns tells listeners Ruffin got his start as a service station owner who expanded into convenience stores and then hotels, then notes: You answer your own phone.

That's the way we operate. We still own those convenience stores, by the way. We lease those to a major company, and that's really how we got our start. We have 63 convenience stores and we borrowed against that lease and put $20 million down on the Crystal Palace in the Bahamas. A cruise line owned the hotel and they held $60 million and I sold that for $147 million, bought the (New) Frontier for $165 million and then sold it for $1.2 billion. Our only asset here in Vegas right now is 50 percent of the Trump Hotel.

Berns talks about Ruffin's love of poker, then asks: Do you need a poker-playing gene?

No, you go all in. I've gone all in three times. And this is another one of those issues where we take all our cash and put it all there. We don't have any cash now, but operating this casino, Treasure Island, we'll have very little, if any, debt. They pay off the $275 million in debt very quickly, even if the economy grows even worse, which it still could do, we won't have any debt so we'll still be positive on cash flow.

How many employees are at Treasure Island?

3,200, I believe.

Do you plan to hold onto them all?

Oh, yeah. I like the management and so the management is going to stay in place and I'll be the owner and I'll be there, have an office there, but I plan to keep everything the same. We like that Cirque du Soleil-Mystere property, that's a really good thing for the hotel. And then the pirate show, which incidentally I've never seen, but it draws a lot of people into the property.

The 3,200 employees, do they lose seniority, do they have to start all over again?

No, no we bought the stock, and so everything remains the same, their seniority stays the same, and whatever's in place, stays in place.

Their benefits are there, their retirements are there, nothing changes?

That's correct.

You said you're going to retain President Tom Mikulich. What is it about Mikulich that you like?

He makes money.

In the Forbes Magazine list of the 400 richest Americans, you're listed at 215. You've said recently that you're investing in municipal bonds, stocks, which headed south in the current financial crisis. I can't imagine a guy like you has much interest in municipal bonds, stocks — that sounds too stodgy.

You hit it right on the head. I didn't like that business. It's somebody else's business. We don't know that business. Buying financials and that sort of thing, that's not what we do. Eventually, we're going to get out of all that stuff. Getting back into action is really where we ought to be. We know the business, that's what we do.

How are you going to work with MGM Mirage? Certainly you're going to have some problems as a stand-alone property driving people to that building.

Yeah, we're under contract for a certain amount of time. We'll stay with the call center and the (player) tracking system and all that will remain the same for a year or so.

What happens after that?

We'll have to stand alone for awhile. We still have the tram. We still have the connection into the Mirage and we still have the connection into the Fashion (Show) Mall, so we get a lot of traffic there, so we'll be able to operate it as a stand-alone. We have a great relationship with Jim Murren and he's very interested in what happens to the employees, because they've been with him awhile, and so he'll do what he can to make this transition go well. We won't be hurt any with that transition.

Berns talks about the megaresort era, the corporate giants and publicly traded corporations owning Las Vegas Strip properties and today's reality that many pieces may be broken off. Then he asks: Are you eyeing other properties on the Strip?

No, we're tapped out. We're not going to do that. We're going to stay where we are for awhile. If the markets ever free up, perhaps 2009, perhaps 2010, then we'll put a mortgage on the property and go back into the market looking for something, but I don't like a lot of debt and that's what happened to very good companies, well operated, but they took that debt on, and that's a real big problem. It's not that they're not doing business. They are doing business, but the debt loads are too heavy.

Do you see the Strip transforming with the opening of CityCenter? Do you see this place very different in terms of who it's bringing here?

When CityCenter opens they're going to generate a lot of new traffic. People wanting to see it. I think it will be very successful. It opens up new things for people to see. And I think they'll come.

Jim Murren has talked about CityCenter as being a key to urban development on the south end of the Strip. This is the biggest urban development project in the history of the U.S. By its very nature, could it transform who is coming to Las Vegas?

Jim is very bright and he knows what he's doing. I think he's correct. It may bring in new people who haven't seen Vegas before because it's kind of a city complex. It's going to be magnificent. Where I fit in? We don't have to get those high rates. We have our own little niche down there and we don't need $200, $300 a night to cover debt service, so I like our position.

Berns refers to an interview Ruffin did with Forbes in September, in which he was asked whether the chase or the kill is the biggest turn-on. He told the magazine: The kill, but be careful that you're not the victim.

(Laughing). That's exactly right. You have to be very careful when you go after these deals. Remember, you might look at 100 deals and only pick up two. So you have to be careful of the other 98, which could be toxic.

How do you know something's toxic and how do you know which of the two are the right ones?

You have to be good at math.

I take it you're pretty good at it.

I got an A in math.

That said, still it's one thing to add, subtract, divide and multiply, but it's another to truly understand markets. What are you tapping into when you look at the casino market, the truck-dolly market, the convenience store market?

We know those businesses. We've been in the hand-truck market for 20-some years and we know that real well and we know the convenience store business since I started out there. The convenience store, that was location. I've always thought that was the key to everything. We played that through to the casino side. I loved the location of the New Frontier and now I love the location of Treasure Island. You look at these deals and you've looked at so many. You get an instinct for what is going to do well or what won't.

Asked by Forbes who you listen to for advice, you said, "Listen to everyone and then do the opposite."

(Laughing) Some of these people have been so wrong about all this stuff. People on TV, they've been wrong, conning you to buy stocks at a time when people have lost a fortune listening to them. You just have to go with your own instincts. Maybe that was a flip comment, but sometimes maybe you are a contrarian.

You feeling pretty smart about your timing of the sale of the New Frontier?

I couldn't have picked a better time. Maybe two or three months later it wouldn't have worked.

Did you know something? Did you see something in terms of economic trends?

Not really. I knew things were getting very, very pricey. Homes were getting out of sight and people were borrowing against that to the hilt. I knew one guy that borrowed $300,000 on a house and he put nothing up and he didn't even have a job. Then a few months later he put a second mortgage on it for another $40,000. They gave it to him. They were just sloppy. I thought there was going to be a problem, but we're not in that business and that's somebody else's problem.

Forbes asked: "Your house is on fire, you can save one thing besides your family, what do you grab on your way out the door?" You told Forbes, "All my Fannie Mae and Freddie Mac stocks and then I throw them back in the fire."


Now as you look at this Ponzi scheme, this alleged Ponzi scheme out of New York, and the collapse of Fannie Mae and Freddie Mac ... the lack of confidence many investors, many Americans have in the markets today, do you feel the same way?

They're printing money. They're printing money so fast, I thought it was time to get into a hard asset. I don't like the way they're printing money, it's just too, too wrong.

When you look at interest rates now, essentially down to zero, the federal government is saying, "Take this money from us, and lend it, please."

It's amazing. The banks are borrowing at zero and lending at 18 percent, if you can get it. It's just amazing. I've never seen a time like this before. I assume it will free up sometime next year, but when you borrow at zero, I think there will be some profit somewhere.

You were asked by Forbes, "How do you spot a liar?" And you responded, "Find out which bank or investment house they work for."

(Laughing) That's right. They don't always tell the truth. As you probably are aware, they come out and say they're in great shape. Next day they need $200 billion or $300 billion, for God's sake. Who can you believe? It's hard to imagine they would make such bad loans, but they did and now they're having to own up to it. I think they could have been more forthcoming in some of the deals they did.

I imagine you were and still are getting a lot of calls from investment bankers. What do you say to them?

I tell them I'm not going to borrow money at 18 percent. We're just not going to do it. So investment banks make their money in fees. They're fee happy. That's how they survive. Once they get their fees, they're gone. So a guy might make you a $100 million loan. He may not keep more than $5 million or $10 million of it. He makes his fees and he sells it all off and other banks buy it. It's kind of an incestuous business. Someone told me it's like cement. When you put cement in, you put some kind of mesh, a wire mesh, kind of goes through the whole property. That's the way you can look at the investment banks and the banks. They're all kind of intermeshed together. One gets hurt, it hurts all the way down the line. And now we're seeing that's true.

We saw the high-tech bubble burst, bust in the late '90s. We saw Enron and WorldCom and Tyco. Now we see the collapse of the housing market. Many people are wondering where the regulators are. Do we need a tougher regulatory structure?

Oh, hell yes. Hell yes. SEC has been asleep. How you let these things get by, I don't think they even understood credit default swaps. I don't think they understood. Where were they going? Who was monitoring that stuff? I don't think they understood the hedge fund business. You have to know what's going on. If you're going to bail these guys out, you've got to know something. If they're going to take that money, they need to be more forthcoming as to what they're doing and how they're doing it and explain it in a way that the feds understand it. I think that the SEC is a disgrace. This $50 billion deal with (Bernard L.) Madoff. It just shows the weakness in the system.

About $55 trillion was in credit default swaps. You said you're not sure whether the SEC understood that market. As I understand it, these were designed by a physicist/mathematician back in '93-'94 and maybe computers understand it, but the average person just doesn't.

It's too complicated.

Too complicated, and the government just doesn't have the resources either to regulate these.

They better get the resources, because they need to know that. They need to know what's out there, what these boys have done. Computer spreads or not, someone needs to regulate that and find out what they're doing, because it affects too many people.

You were asked by Forbes, "You have a front row seat to any event in history, where is your time machine taking you?" You said, "The Bush cabinet meeting where it was decided to spend $1 trillion on this stupid war."

Right, I thought that was a very big mistake by the administration to start a war. Why would you do that? What would you gain? That's a very unstable area of the world. I just think it was a huge mistake to do that deal, to put our boys in harm's way.

Joseph Stiglitz, the Columbia University economist, has said that the actual cost of the war will be at least $3 trillion. How much has that contributed to the economic turmoil we're in?

You could take that $1 trillion or $2 trillion here at home. A lot of people need that money. You know, you've got infrastructure problems, a lot of problems. The fact that they might have better roads in Baghdad than we have in Massachusetts, that's crazy. It doesn't make any sense. I just think they made a huge error.

Ruffin is partners with Donald Trump in the Trump Towers in Las Vegas, with Ruffin providing the land, Trump providing the name. Yet Trump does not tend to put a lot of equity into his properties. Trump's company, DJT, is potentially facing another bankruptcy. Is this guy a good businessman?

He's a really good businessman. And he did put some equity into our deal. Nobody could predict that the condominium market would just evaporate overnight. We had sold all 1,283 units. We've closed only 300 of them. Folks are having a hard time getting financing and nobody wants to step forward and finance these apartments, so it's not Donald's fault. So we have 1,000 units, 900 units there that we're operating as a hotel.

You say Trump is the coolest number in your cell phone.

We talk every day and I'm going to spend New Year's Eve with him. I like him very much.

Berns: Are you both in a strong enough equity position? Could that place could go Chapter 11?

No, no, I don't think so. The original loan was $560 million. It's down to $190 million. So it's mostly paid off.