Fertitta Money Watch

“The most important thing is diligencing your
counter-parties and your operating partners.”

—Sam Bakhshandehpour

“Nobody took us seriously. Nobody —
  except Donald Trump.”

—Dana White

“And the Fertittas really were
  that magical jeweler for us.”

—Tom Barrack

When prospective partners need to vet Fertitta Capital

Fertitta Capital principals are known for the UFC, but that wasn’t their first venture. Here we go deeper, providing a critical resource for prospective partners + founders looking to understand the past & present of Fertitta-led ventures.

Ventures Now

Nevada Investments?

Fertitta Capital (office in West Hollywood) has yet to announce any investment of initial $500 million seed fund in tech, media, and entertainment startups.

Unknown if Fertitta Capital will invest in Nevada, where Fertitta-controlled casinos depend on locals.

Donald Trump and Beer

Fertitta donations that helped elect Donald Trump lead to Trader Joe’s being urged to stop selling beers from brewery co-owned by Fertitta brothers. Follow here.

Ventures Then

Fertitta & Trump

Trump’s rise to power was aided by big Fertitta donations.

Fertitta family members were major donors to the Trump Victory Joint Fundraising Committee.

One of the Fertittas gave $207,000 to the Trump Inaugural Committee.

These donations helped propel Donald Trump and the Trump Administration into the White House.

We wonder if Fertittas still think this was $$$ well spent.

Particularly after Charlottesville, corporate leaders have distanced themselves from the President.

Patient Capital

It’s been widely reported that the Fertittas bought the UFC for $2 million 2001 and sold it for $4 billion in 2016. What’s less remembered now is how much additional funding they provided the company after the 2001 purchase.

The UFC “burned through more than $30 million in two years” after the Fertittas bought it, according to the Houston Chronicle. The Fertittas “invested $44 million more,” according to CNBC. And Fast Company reported that when the company produced [The Ultimate Fighter] on its own for $10 million, it gave it to Spike [TV] for free, and spent another couple million on ads and billboards. The reality-TV show turned out to be popular and became a turning point for the promotion.

Would other entrepreneurs have had recourse to the level of add-on financing – whether from their own pockets or angel investors – when things don’t go well in the first few years of their business? Will this be the type of patient capital one might expect from Fertitta Capital?

Optimistic Accounting

Another little-reported feature of the UFC story concerns accounting estimates and warnings from the Federal Reserve related to its $4 billion sale.

When bankers tried to raise $1.8 billion to fund WME-IMG’s purchase of UFC, they estimated post-buyout EBITDA of $298 million, even though the promotion had LTM EBITDA of $142 million as of 6/30/2016, according to Bloomberg reports based on people who asked not to be identified and documents obtained by Bloomberg.

Bloomberg later reported that in October 2016, regulators at the Federal Reserve focused on the use of “accounting adjustments [‘add-backs’] that more than doubled the mixed martial arts promoter’s cash flow projections” and issued a warning to Goldman Sachs, which led the loan syndication. By December that year, the Fed “reprimanded” Goldman for a second time and lowered its rating of the UFC loan to “substandard.”

Teamwork & Bankruptcy

The Fertittas, in partnership with Tom Barrack’s Colony Capital, took Station Casinos, Inc., private through a leveraged buyout in November 2007. The company eventually filed for Chapter 11 bankruptcy protection in July 2009.

The 2007 buyout paid company insiders – the Fertitta family, top executives, and directors – a total of $660 million in cash.  On the other hand, following the buyout, SEC filings by the  company show it terminated thousands of its “team members”, reducing the size of its workforce in Nevada by 20% from “approximately 14,600” in January, 2007, to “approximately 11,689” in January 2010.

After a new “Station Casinos LLC” emerged from Chapter 11 with the Fertittas still in control (after injecting $200 million cash equity into the company), the new firm would go on to pay LLC distributions totaling $617 million to its owners from 2012 through 2016.

To avoid going bankrupt, make sure you don’t overleverage your business for short-term financial gains. But with the right corporate structure, if things go wrong, it is possible to let the “team members” take the fall while you, the owner, still get paid.

Gambling & Bankruptcy

Russell Pike, a four-time convicted-felon, gambled more than $35 million at Red Rock Resort & Casino, one of the Station Casinos properties, in 2006 and 2007. Pike was also the founder of Xyience, an energy-drink company that sponsored the then Fertitta-owned UFC.

Fertitta affiliates made two loans to Xyience in 2007. The following year Xyience filed for bankruptcy, and Xyience would eventually be controlled by a Fertitta-owned business.

A few years later, in 2012, a Fertitta entity paid to settle claims it had extracted $1.03 million ahead of the bankruptcy of Xyience. In 2014, Xyience was sold for an undisclosed sum.

Colony Capital, Trump, and the Fertittas

Donald Trump and the Fertittas are jewelers, according to Tom Barrack of Colony Capital.

“The world is in a mess,” Tom Barrack claimed during his speech about Donald Trump at the 2016 Republican National Convention, “this necklace of globalism that we’ve all talked about has crumbled and shattered into a thousand shards. It needs a jeweler to take each of those jewels one by one, starting with America its own diamond and polish it. Then slowly, find seamless strength, [put] them all back together.”

Like Trump, the Fertittas are jewelers, according to Tom Barrack’s October 2007 Nevada Gaming Control Board hearing for approval of the Station Casinos leveraged buyout.

“The difficulty in the gaming business is in order to make rational sense out an operation, especially a company, you need to identify jewelers. You need to find those people of character and integrity and transparency who have that magical ability of taking a myriad of jewels and seamlessly hanging them together so that all you see is the necklace. You don’t see the individual jewel. And the Fertittas really were that magical jeweler for us.”

Nearly three years after claiming the Fertittas were magical jewelers, Tom Barrack said the timing of Fertitta-led partnership was the worst investment ever. “If you were to pick the hour, the minute that it could have been the worst investment ever, it was,” Barrack told Bloomberg in 2010.

About

This site is maintained by UNITE HERE’s Culinary Union and not affiliated with Fertitta Capital, Station Casinos, or the UFC.

UNITE HERE represents 270,000 gaming, hotel and food service workers in the U.S. and Canada. UNITE HERE’s Nevada affiliates, Culinary Workers Union Local 226 and Bartenders Union Local 165, have a labor dispute with Station Casinos.

Press release: Culinary Union announces due diligence resource for prospective partners of Fertitta Capital