How did Trump make money from failed businesses?

Factual Questions
1

I’m looking for a factual answer to this question. I have asked in the appropriate forum, FQ.

It has frequently been said that Trump is a poor businessman. His businesses don’t make a profit, and then they cease trading. Investors keep losing their money.

It has also been said that he personally has made billions from it.

How did that work? How has he made a profit out of failure?

Let’s please stick to the facts. Give me a factual analysis of where his money comes from. No political commentary, please.

2

I’m not in the position to give you a full accounting audit of his financials, but just to give one example, licensing deals. If he licenses his name and gets paid up front, it doesn’t really affect his bottom line in a negative way when that business folds. It’s a bad look, sure, but he still gets his money. In fact, when things turned around and his name wasn’t as valuable, he got paid for the rights to stop using the name. I’d love that gig.

3

In the case of his casinos and other trump-run (as opposed to trump branded in name only) businesses, he came out on top by making sure everybody but him suffered for his mistakes. Pretty much the same way he practices politics.

AI answer to “How did trump protect himself from losing money with his bankrupt casinos”:

Donald Trump protected himself from losing money with his bankrupt casinos primarily by using corporate bankruptcy laws to separate his personal liability from the companies’ debts and by leveraging his brand name to negotiate favorable terms with investors. He never filed for personal bankruptcy.

Key strategies included:

  • Corporate vs. Personal Liability: Trump structured his casino businesses as separate corporations, which allowed the companies to file for Chapter 11 bankruptcy to restructure debt without putting his personal fortune directly at risk. This is a standard legal practice for corporations.
  • Transferring Personal Debt to the Company: In some cases, he shifted personal debts onto the casino companies’ balance sheets. When the companies went public, the funds raised from selling stock and junk bonds to investors were used to clear his personal obligations.
  • Collecting Millions in Payments: Even as the casino companies were struggling and eventually went bankrupt, Trump continued to receive millions of dollars in salary, bonuses, and management fees for the use of his name and other services.
  • Negotiating with Creditors: When his companies couldn’t meet their debt obligations, Trump negotiated with banks and bondholders, who often agreed to accept less money (sometimes pennies on the dollar) rather than face years of litigation and massive legal expenses in bankruptcy court.
  • Using Other People’s Money (OPM): Trump financed the casinos with high-interest junk bonds sold to investors, putting up very little of his own money. When the ventures failed, the investors bore the bulk of the losses, not Trump.
  • Tax Advantages: He used business losses, specifically a nearly $1 billion net operating loss (NOL) in the mid-1990s, to offset his personal income for years, potentially allowing him to avoid paying federal income taxes for almost two decades.

In essence, while his casino businesses failed and investors, bondholders, and small contractors lost large sums of money, Trump himself prospered financially from these arrangements.

4

A general rule of business is to not invest your own money. So if you can get others to spend a few billion, that you’re directing, then at the minimum you might get a paycheck for the duration of the enterprise while otherwise throwing away other people’s money and you, yourself, are unaffected.

But, so far as I understand it, I haven’t seen anything about Trump profiting from his big failures (the casino in NJ, the airline, etc.). I understand his primary successes to be:

  1. Inheriting great wealth and then selling portions of that off for smaller locations in more urban areas (e.g. selling an apartment building in Manhattan @ $1000 sqft in return for a golf course in the countryside @ $100 sqft).
  2. Running a successful reality TV show and, actually, being naturally qualified in that space.
  3. Renting out the name and managing buildings (e.g. property management) for a fee.
  4. Renting out the name to various products and services (water bottles, real estate schools, etc.)

My personal sense is that he genuinely is quite talented at self-promotion and knowing how to entertain the average person.

Having read through some of his depositions - so, taking his own description of his own daily life - he seems to run his businesses by simply trusting anyone who walks in his door. If they (a son, a daughter, a security guard, a janitor, etc.) come through his door and say that they have a great idea for how to do X, then he’ll tell them to go for it, he authorizes it. And then when another person comes through and says that the other person is totally screwing up X and that it’s a disaster, then he’ll authorize the new person to take over and get it fixed.

These are all more recent documents, so I’d theorize that he used to run things himself and over time has learned to leave most of everything to others in the land of real estate and property management. It’s still not - by my read - a particularly effective way to run a business but his existing operations do seem to have stayed in business for decades. I’ve seen his building in Vegas and, while it’s tiny and looks like something made in the 70s, it is still there and operating so I think we might assume that the family has figured out, by this point, who’s good at what and to stop getting in each others way so that things keep running.

Reports from his TV show indicated that he was very involved in the production, and took lead there. It was never #1, but it did do well.

In terms of his private businesses, he’s taken cues from others in Hollywood and simply cashed in on his name. Prior to the Presidency, that appears to have been his main success. But, he does seem to have been quite good at reality TV and, thereby, politics.

Aside: I recommend the TV show, Unreal.

5

I saw a Sopranos clip on this just yesterday. The trick is to get paid up front and get out. That way when the business fails, you have your money and the customers/investors and the lenders and are left with the remains and uncollectible debt.

6

One article analyzing his overall wealth and income suggested that his real estate deals were underwater, he would have serious problems even getting someone to guarantee the $485M fine so he could appeal. (The eventual bond was questionable). he made license and management fees from many deals where his name was on the building.

The drift of the article was that he made a very decent income from the TV show in the 2000’s and that kept his other businesses afloat and kept him solvent.

There’s a story in Michael Cohen’s book about how he - acting on behalf of Trump - stiffed a painting company, basically ordered the cheapest unserviceable paint for one of his projects then Trump refused to pay because it was unserviceable. Apparently he’s still doing it, I saw a news article that he’s refusing to pay the demolition contractor for tearing down the East Wing.

7

What a perfect opportunity for that demolition crew to gather up what they can of the East Wing Rubble and dump it in front of the White House.

8

Less urban, I meant. Rural and off-beat locations.

9

Yes, I don’t know how much it contributes to his overall wealth, but stiffing contractors is a go to. He makes a contract for X. Then he pays some fraction of X, withholding the rest on the grounds they didn’t fully satisfy the contract or the quality was substandard. Basically he puts the contractors in the position of having to sue to get paid, and he can afford the lawsuits much more easily.

10

It’s also not known definitely that he’s actually made billions. It’s said that he has, of course, but he resists the sort of close scrutiny that would be needed to verify that.

11

I’m guessing that the logic here is that you order the shit paint, then bitch that it didn’t work well or look good, and imply it was the painters’ skill or attention that was lacking, then stiff the vendor.

Then, when they try to sue, you make things such that it’ll cost them more to litigate for $10k of paint than it would to just let it go or settle for less than it was worth.

Humongously assholish and ethically awful, but it does make some sort of perverse sense if you’re willing to go down that route.

Not that I’m a fan or investigator or anything, but I always have had the impression that he made his early money in NYC real estate, became recognized as one of the wealthiest men in the world and some sort of master businessman, and then essentially moved into licensing his name on all sorts of stuff that he himself, or even his organization doesn’t actually manage, because there’s a population of people out there who equate wealth with competence, and are also unaware of how licensing works. There are a lot of people who don’t really understand the “doing business as” concept, or that some hoary old trademark like RCA or Kodak can just be a brand or trademark of some lesser company selling garbage.

Case in point; while Kodak film and chemicals are still old-school Eastman Kodak from Rochester, their digital cameras and consumer electronics are inexpensive stuff from China, and you can’t bank on Kodak as being a brand that sells good quality photographic equipment anymore. But people still think “Kodak’s a good brand” and consider those cameras.

Same thing with “Trump” labeled stuff. They’re assuming that since it says “Trump”, that it must be vetted and approved by him or his staff as high quality, etc… And he knows this, and that’s why he puts his name on nonsense like steaks, bibles, etc…

12

The unethical types make a lot of money with bankruptcies. Remember, these are the people that are privy to all inside information. When they realize that the business is going south they increase their salaries, bonuses and benefits. They utilize accounting methods to paint a rosy picture for outside investors. They borrow to the hilt, quit paying on the loans and stretch out the litigation as much as possible.

They have a lot of protection using the corporate veil so they are not responsible for any corporate debts. They just can’t be too egregious. It is possible to pierce the corporate veil but that can be a difficult process. They string it out as long as possible and then, BOOM, file for bankruptcy and walk away.

13

My brother in law made money on stocks and real estate in the New York area decades ago, and he told me at the time about this clever young developer named Trump who built this giant condo tower full of multi-million-dollar condos (back when that was expensive). But instead of putting top end materials in there, he just put the cheapest crap flooring, fixtures, etc. “After all,” my BiL said, “what’s the first thing some multi-millionaire or Saudi big-wig is going to do when they spend that money? They’re going to rip everything out and redecorate the way they want. How clever.”

A few years ago, I watched the Netflix documentary on Trump, where some off his old employees from back then were lamenting, against advice he put the cheapest crap in the Trump Tower… because he was cheap. It wasn’t clever thinking.

As David Frum once said about Trump “People think he’s play 3D chess and he’s really just eating the pieces.”

14

I know a contractor that worked in a Trump building and he said the same thing as you. Maybe not the cheapest stuff but certainly not high-end as would be expected based on the asking price. He also said that Trump never paid the “hold back” which is the 10% that is owed the contractor when the job is finished. Good luck trying to sue. The contractor has to hire lawyers that charge by the hour. Trump’s lawyers are on retainer so they will string you along until you drop the suit or go bankrupt. I believe that Trump went into the business of licensing his name rather than being an actual developer as nobody would work for him. Ordinarily, he would have been forced into personal bankruptcy over the Plaza Hotel deal because he personally backed the bonds. He was able to convince the banks that his name was worth something. The bondholders got a small percentage of their investment.

15

This is basically the answer IMO.

Also his main business was real estate. If you can convince someone to lend you money then it’s impossible (for most of the last half century) to not make money on American real estate.

It irritates me when people imply someone getting rich in real estate shows skill on their part. The only skill required is convincing someone to lend you money. In fact the fact Trump hasn’t made that much money despite convincing lots of people to lend him money, shows a spectacular lack of skill on his part

16

I was involved in a failed project of his. I and the company I was partnered with lost about $10,000 (over $22, 000 in adjusted dollars).

You get investors to put in money, you take all the money, the business fails.

17

Gotta be honest, sounds like the same strategy a lot of today’s home building companies use, except they do it at a smaller scale.

18

What I’m wondering is why any general contractor or attorney, or anyone else agrees to work on one of his projects. By now his approach of stiffing everyone is so widely known, he should be blacklisted by every sort of business.

19

I’m guessing they are Republican companies who believe in him and think the bad press about him is fake news.

20

It got to the point where no bank or anyone else would loan him anything. At that point, he got into licensing deals for his name and TV shows. After that, politics.