Smart Deals Made Tilman Fertitta Billionaires During the Pandemic

Smart Deals Made Tilman Fertitta Billionaires During the Pandemic
Smart Deals Made Tilman Fertitta Billionaires During the Pandemic/image courtesy of Facebook

When you arrive, a uniformed crew member at the bottom of the stairs going up to the main deck of Tilman Fertitta’s new 252-foot yacht, Boardwalk, asks if he can take your shoes. “We are expecting you—may I take your shoes?” he says. Of course, it’s logical why the shoe policy exists. A $150 million project that took nearly five years to complete, Fertitta spent days with Dutch shipbuilder Feadship, explaining his obsessional vision for six decks of plush carpeting, marble surfaces, chrome fittings, and automatic sliding doors. There are cabins for 22 staff members and 14 guests, who frequently arrive via the ship’s de facto helipad. Fertitta’s favorite position on the ship is the top deck, which is 74 feet above sea level and overlooks the heated hot tub. Boardwalk, his fifth yacht, towers over the other yachts anchored at the Atlantis resort on Paradise Island, Bahamas, where he is staying. A 164-footer docked in his hometown of Galveston, Texas, is the only boat he still owns. When asked if he ever rents out his yachts to help with expenses, he dismisses the topic with a shrug. “If you need to charter it, you shouldn’t be the one to own it,” says the author.


The 64-year-old yacht, restaurant, casino, and hotel owner can be described in a variety of ways: as a showman, a gambler, a college dropout, a detail guy, an NBA owner (the Houston Rockets), a reality show star (three seasons of Billion Dollar Buyer on CNBC), and the man who bought Donald Trump’s Atlantic City casino out of bankruptcy in 2011 and turned it into a success. However, the one person that has unquestionably had the greatest impact on his riches is that of a keen financial engineer who has a history of bringing the general public into and out of his projects and taking on and discharging debt at the most advantageous times.


“We always grow bigger and stronger when we go through difficult times,” Fertitta claims. During the 2001 recession, he took advantage of the situation by purchasing struggling restaurant franchises at a bargain. In 2010, amid the Great Recession, he took Landry’s Inc. private, purchasing the 45 percent of the firm that he did not already control for $1.4 billion in cash after being a publicly traded corporation for 17 years.


If things had gone differently this time, Fertitta could have gone bankrupt because of the $4.6 billion in debt he accumulated while building his enterprise. Instead, due to his utilization of the special purpose acquisition business, also known as a SPAC, he has become significantly wealthier in this period of rapid financial development. According to Forbes, Fertitta has already raised his net worth from $4.1 billion a year ago to $6.3 billion today, mostly due to innovative SPAC financing and what appears to be some substantial self-dealing. Fertitta hopes to close his fifth transaction in December, which will be the largest of his career when it comes to SPAC transactions. In this transaction, he will transfer the majority of Landry’s assets, including five Golden Nugget casinos and more than 500 restaurants (as well as billions in debt), to the newly renamed Fertitta Entertainment. If all goes according to plan, he will wind up with a 74 percent ownership in the newly public firm, worth approximately $4 billion, and a personal net worth over $8 billion. (Landry’s restaurant franchises include Bubba Gump Shrimp Co., McCormick & Schmick’s, the Palm, and the Rainforest Cafe, among many others.)


A SPAC is a publicly traded shell company that raises money to facilitate a future merger with an unnamed private company that may not have the heft or patience to conduct a traditional initial public offering, with all federal scrutinies that entail facilitating a future merger. SPACs have experienced tremendous growth over the last two years, thanks largely to the influx of cheap money into the economy by the Federal Reserve. As opposed to just 59 sales raising $14 billion in 2019, according to SPAC Analytics, SPAC offerings soared to 248 transactions raising $83 billion in 2020 and 443 transactions raising $127 billion in the first nine months of 2021.


Fertitta is not the only one who has done SPAC deals; others have as well. Chamath Palihapitiya, a billionaire venture capitalist (and bitcoin fan), has formed six SPACs, which he has used to take public companies such as Opendoor, Virgin Galactic, and Clover Health, among others. Others have gotten affluent as well (at least momentarily). After his family-owned company went public through a merger with a SPAC sponsored by billionaire investor Alec Gores, who has done eight such deals, United Wholesale Mortgage CEO Mat Ishbia’s net worth has dropped to around $8 billion (from nearly $13 billion since January). Ishbia’s net worth has dropped to around $8 billion (from nearly $13 billion since January).


There’s a lot to question about the SPAC growth, including that sponsors and hedge funds appear to be getting assured profits. However, when it comes to being the most active, Gores and Palihapitiya may be the most aggressive, resorting to bold maneuvers that few large investment firms would approve of.


For example, he represented both sides of a critical transaction for Golden Nugget Online Gaming in one instance. Fertitta and his longstanding banker, Jefferies Financial Group, raised $250 million for a SPAC (Landcadia Holdings II) with the stated goal of acquiring an entertainment firm in 2019. This was before the outbreak of the flu pandemic. As a result, Fertitta received a 10 percent promoter’s ownership in the company and the titles of co-chairman and chief executive officer.


According to the company, when the Covid-19 lockdowns began in March 2020, Fertitta shuttered nearly all of his facilities and laid off 40,000 employees. In total, he earned $160 million in forgiven federal paycheck protection program loans—but he returned every penny of it to Uncle Sam amid public outcry over large corporations receiving funds designed to assist small firms.


“If someone has any doubts about that arrangement, they should know that it is the best deal in the world.” It’s already been sold once. “I’m putting it up for sale again.”


Instead, he took out an emergency $300 million loan from his Golden Nugget Online Gaming company (GNOG) at a rate of over 13 percent in April of that year, which had become a pandemic bright spot as Americans were stranded at home gambled their federal stimulus money. He describes the loan as “liquidity insurance,” adding that he “didn’t spend any of it.”


Fertitta’s online gaming operation, which was the subject of the high-interest loan, was the acquisition target for Landcadia II, which announced its acquisition in June 2020, just two months after announcing it had found it. As a result, Fertitta ended up with 49 percent of GNOG’s shares and a $30 million cash payout when his SPAC completed the purchase of the company in December 2020 for $745 million (six times revenues). He was also relieved of the duty to repay the emergency debt, and he was permitted to retain the $300 million he had borrowed.


Fertitta and five other SPAC kings were scolded by four Democratic U.S. Senators, including Massachusetts’ Elizabeth Warren, in letters they wrote to Fertitta and five other SPAC kings in September 2021, asking them to account for apparent conflicts of interest and urging the SEC to take a closer look.

“These sorts of maneuvers ensure that sponsors win regardless of the performance of the merged company,” said Warren in the letter. As a result, SPAC sponsors have only purchased affiliated companies in a few instances in the last few years, according to Michael Ohlrogge, an associate professor of law and corporate governance at New York University. This is for a good reason, says Ohlrogge: “Whenever you have a buyer who is also a seller, you have to wonder if the price is going to be fair.”


It’s not that GNOG’s investors are dissatisfied. On the contrary, Fertitta signed an agreement to sell GNOG to DraftKings (founded by a SPAC) for $1.5 billion in stock in August of this year.

“If anyone has any doubts about that agreement, I’ll tell them it’s the best deal in the world,” he exclaims. “I’d already sold it once before. ” “I’m putting it up for sale again.”


In a marathon eight-hour-plus interview that includes supper at Nassau’s legendary Graycliff restaurant, where the bill for four people comes to $1,500, Fertitta implores, “Don’t say I got my start peeling shrimp.” Fertitta is adamant: “Don’t say I got my start peeling shrimp.” Following the film’s conclusion, Fertitta, his 27-year-old son, Patrick, and a Forbes reporter can be seen relaxing on a platform that folds out from the hull of Boardwalk while watching spotted manta rays swimming beneath them in the water below.


However, the fact remains that Fertitta’s roots in the food and entertainment industries are as much a part of his colorful background as his financial acrobatics. His grandpa, Vic Fertitta, and great-uncles Salvatore and Rosario Maceo owned and operated the Balinese Room in Galveston, which hosted Frank Sinatra and Bob Hope. (The Maceos, who were immigrants from Italy, were accused of operating a gambling and bootlegging operation in Galveston.) The restaurant Pier 23 in Galveston, owned by his father, also named Vic, was where young Tilman worked as a shrimp shucking apprentice. By the age of 14, he was in charge of the restaurant, gaining valuable experience in the company.


He made an effort not to eat in restaurants. Fertitta began his business career in the late 1970s after dropping out of the University of Houston. He opened a women’s clothing store, vitamin stores, an arcade game distributor, and a construction company. He opened the 160-room Key Largo Hotel in Galveston, Texas, when he was 28 years old. He arrived at his high school reunion in a limo (which he claimed he owned). Soon after, he sold the Key Largo property to his cousin Frank Fertitta for $600,000 in cash (who, with brother Lorenzo, later became billionaires from casinos and mixed-martial-arts promoter UFC, which they sold in 2016).


Tilman utilized the money to assist him in purchasing the Houston restaurants Landry’s Seafood Inn & Oyster Bar and Willie G’s from the Landry brothers. He then expanded to Galveston, Corpus Christi, and San Antonio with the support of his partners. He became overleveraged and incurred $10 million in debt, but he “outlasted the banks” following the 1987 financial crisis and was able to pay off his loans for $2 million. In the late 1980s, he began purchasing eateries on the marina promenade in Kemah, Texas, located on Galveston Bay. He built a Ferris wheel and developed 40 waterfront acres into his first “eatertainment” zone, including Joe’s Crab Shack, Saltgrass Steak House, and other restaurants.


By 1993, Fertitta made $2.7 million in profits on $34 million in revenue, and Landry’s first initial public offering (IPO) raised $24 million. To conserve money, he reduced the size of french-fry orders and reduced the number of lemon wedges that were served. Richard Handler, CEO of Jefferies Financial Group, believes that one of Tilman’s superpowers is understanding the numbers behind the metrics, such as how much they pay for meat and beverage consumption.


Fertitta offered $125 million for the Rainforest Cafe franchise, which was themed like the jungle. After being turned down, he purchased the property later that year for only $75 million when the economy reached a difficult patch. Rainforest founder Steve Schussler called Fertitta a “brash, arrogant, bargain-basement, bottom-feeding acquisition enemy” in a book published in 2010. Schussler was displeased when Fertitta chose to eliminate live bird exhibits to save $100,000 per location per year, which angered Schussler. When contacted at his restaurant laboratory in Golden Valley, Minnesota, Schussler retracts his prior claim, stating that a Fertitta-style concern with numbers may have enabled Rainforest to thrive on its own for some time. If it meant that members of the Audubon Society came in and bought margaritas, Fertitta would have twice as many birds, according to him. (The two have since partnered to create the T-Rex Cafe, which is located in Orlando, Florida, and features animatronic dinosaurs.)


Fertitta purchased the two Golden Nugget casinos in Las Vegas and Laughlin, Nevada, for $295 million in 2005. He replaced outmoded eateries with his favorite franchises, then expanded to three more casinos in Biloxi, Mississippi, Lake Charles, Louisiana, and Atlantic City. He purchased the dilapidated Trump Marina casino complex for $38 million and turned it into a luxury resort.


When it comes to attracting high-rolling Asian baccarat players, billionaire Steve Wynn says his pal “Tilly” ensures that he has something to appeal to gamblers of all skill levels, despite his attempts to “take the top end” (i.e., the highest-rolling Asian players). Fertitta is obsessed with the number of people he can employ. According to Gerry Del Prete, who oversees the gaming operations at the Golden Nugget, “which is more useful to a casino: one $1 million player or ten $100,000 players?” He argues that the answer is the ten relative minnows since you can earn just as much money off of them as you can off of the big fish, with less volatility and while providing fewer expensive perks.


Fertitta, on the other hand, enjoys conducting business with other wealthy individuals. He was located in the foyer of his Post Oak Hotel and Spa in Houston, which debuted in 2018 and is home to his Rolls-Royce, Bentley, and Bugatti shop, which he owns. Celebrities and athletes pay upwards of $600 per night to visit and be seen at the resort’s pools and Mastro’s Steakhouse, among other amenities. His son Patrick is listening to Drake’s new song “N 2 Deep” on his phone, which contains lyrics about a woman he refers to as “a little Post Oak baby,” according to his father. In addition, Drake shared a video of himself shooting hoops on the penthouse court at the Post Oak Hotel in September through Twitter.


Fertitta claims he has invested $400 million in the hotel and neighboring office complex in Las Vegas. In August, he invited Forbes to his offices to make a case for raising our estimate of his net worth by several billion dollars. The Rockets, in which Fertitta had a 3 percent share since 1983, were finally purchased by him in 2017 for a then-record $2.2 billion, with the money raised by a loan against Landry’s. It was his most significant prize.


The epidemic struck as Landry’s leverage was being pushed to the limit. “You were terrified to death for four weeks,” Fertitta says. “It was a terrifying experience.” “You can’t save the world, so you have to make painful decisions,” says the president, referring to the decision to lay off 40,000 workers. (He claims to have since filled all but 3,000 of the open posts.) “I got a lot of flak for that because I was the first person to do it,” he explains. It’s not that he has second thoughts about himself. “You have to keep in mind that this is all my money.” CEOs of other companies are not as quick to react because the situation is not theirs.”


Fertitta was surprised to see a ray of hope emerge from his Golden Nugget Online Gaming branch, which has been in existence for eight years and has been a source of pride for him. With revenue of $1.7 billion in the first half of 2021, the online gambling business in the United States has already surpassed its previous high point in 2020, increasing the value of Fertitta’s share in GNOG to $600 million. However, Fertitta will be quite content to step back and let DraftKings handle the company’s day-to-day operations. The company earned $600 million in revenue during the first six months of the year, but it spent so much time gaining market share that it suffered a net loss of $650 million over the same period. “It goes against everything I believe in. “Everything needs to be profitable, in my opinion,” Fertitta says. “Let them manage the company, and let them cover the losses on their own.”


The purchase of related enterprises by SPAC sponsors has been rare in recent years, and for a good reason: “Whenever the buyer and the seller are the same entity, you have to ask whether or not the price would be fair,” says a former SPAC executive.


It will get better. Fertitta worked on a preliminary prospectus to bring Landry’s to the public market before the epidemic. Instead, he was approached by Fast Acquisition, a special purpose acquisition company (SPAC) founded in 2020 by marketing genius Doug Jacob (who sold his agency Jwalk to Shiseido Americas in 2017) and Sandy Beall, the creator of the Ruby Tuesday restaurant chain. They agreed to sweeten the pot for Fertitta and lower their promoter’s shares by 40 percent to “do a once-in-a-lifetime transaction with one of the greatest operators of all time,” according to Jacob. Their agreement to integrate the majority of Fertitta’s restaurants, the five casinos, and his share in GNOG/DraftKings with Fast, creating a new publicly traded business known as Fertitta Entertainment, was announced in February for $6.6 billion. In addition, Fertitta stated in June that he would expand the acquisition, bringing in properties such as the Kemah boardwalk district, the Galveston Pleasure Pier, the Denver Aquarium, and additional restaurants to the mix. This resulted in an increase in the headline figure to $8.6 billion. More assets also assist in mitigating the impact on his balance sheet of the billions in debt he would transfer to the new business, lowering leverage from 5.2 times EBITDA to 4.3 times EBITDA, which is still rather high. He will have a 74 percent ownership stake in the company as well as the CEO position.


Fertitta will retain ownership of several restaurants and hotels, including the Post Oak and the Houston Rockets (whose franchise is valued at $2.5 billion by Forbes). In addition, he intends to use the newly public firm as a growth platform and hopes to acquire a piece of real estate on the Las Vegas Strip.


What could go wrong? Well, a resurgent Covid-19 could have an impact on the travel and restaurant industries. On the other hand, a decline in the stock market could sour the mood of investors. And his overall leverage is still significant, particularly given his diverse portfolio of restaurants and casinos. Furthermore, the average SPAC’s stock has lost money after a year, and some of its shares are being challenged in court. In the case of Waitr, the Louisiana-based meal delivery service that Fertitta and Jefferies acquired in 2018 through their first SPAC, Landcadia I, which raised $250 million, this is what happened to them. Waitr shares have lost 90 percent of their value, and class-action plaintiffs accuse him of making false statements about the company’s “huge potential” in taking on competitors such as DoorDash and Grubhub, as well as about their “highly complementary” nature with his other businesses, according to the lawsuit. His attorneys have submitted a motion to dismiss the case because there are no actual claims of fraud. Instead, the rhetoric was essentially “corporate optimism and puffery,” according to the filing. A decision on the motion is pending at the time of writing.


But for the time being, everything is well. Fertitta expects to spend 30 nights a year on Boardwalk, according to a statement. This summer, he hosted a week-long visit from his ex-wife, Paige, and their four children. Their separation from each other in 2017 was amicable. Once employed as a litigation lawyer for Landry’s, Lauren Ware has been his wife for two years.


Fertitta understands that being so dazzling at this time is a difficult decision. “Things have changed in the world. People despise billionaires,” he complains, particularly those who have become significantly wealthier as a result of the pandemic. “Take a look at my social media accounts—I haven’t posted a single item about the new boat.” I’m a pretty private person, although I’m quite public,” he explains. You’ll never see him posting selfies from his yacht on social media. In addition, “remember that [Forbes] was the one who invited me” to provide a tour of Boardwalk. So yes, and thank you very much for your generosity. Fertitta has already begun planning his second yacht, which he hopes will be a 361-footer built by the German manufacturer Lürssen.


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