The Donald and Your Money

You've heard of stock market bubbles, housing bubbles, South Sea bubbles, and tulip crazes, right? Now there's Donald Trump, the bubble unto himself.

What keeps him inflated? His ever-expanding ego, perhaps. What keeps him from popping? I have no idea, but I'll venture a guess: It's the public's gullibility, along with their ceaseless penchant for celebrity worship.

Trump's labeled himself as everything from the biggest developer in New York, to the most widely watched TV personality, to the artist of the deal. Perhaps that's all true -- I don't know. But I do know that when it comes to investors' money, this guy is bad news. While "The Donald" might negotiate plenty of bucks for himself, investors generally get hosed.

If you're an investor thinking about giving your money to Trump -- namely, buying shares in Trump Entertainment (Nasdaq: TRMP  ) -- then I have one piece of advice: Bury the thought, at least if you have any interest in earning a dime on your investment.

Downwardly mobile
Here are the numbers, straight out of the financial statements on file at the SEC. All results are full-year totals, in millions, with the exception of 2006, which runs through September of last year.

Year

Net Income

1992

($35.8)

1993

$9.3

1994

($8.9)

1995

($13.0)

1996

($65.7)

1997

($42.1)

1998

($39.7)

1999

($133.8)

2000

($37.3)

2001

($25.3)

2002

($12.0)

2003

($87.3)

2004

($191.3)

2005

$251.9

2006

($8.8)



That's more than $430 million in net losses in almost 15 years. Even the 2005 net income number can be misleading, thanks to a one-time $196 million gain on extinguishment of debt. Although the company recently emerged from bankruptcy, it should remain unprofitable for fiscal 2006, with the first nine months producing almost $9 million in net losses. And while Trump's company could become profitable in the future, it will have trouble overcoming this kind of track record.

Trump's used every excuse in the book for years to explain away the horrible performance -- bad managers beneath him, a difficult Atlantic City gaming environment, the economy, you name it. But these reasons just don't hold up.

You're fired ... aren't you?
Hey, wait a minute -- wasn't Trump the guy who made a catchphrase of "you're fired"? Then fire somebody, for starters. Surely, if Trump had fired any of his managers as fast as he's fired so many poor contestants on The Apprentice, he might have gotten somewhere. Furthermore, if Atlantic City is as difficult as he insists, then why has Harrah's Entertainment (NYSE: HET  ) had only one year of net losses in the past decade? Sure, Harrah's operates casinos in places other than Atlantic City, but its Atlantic City properties have been doing very well, contributing more than 20% of total revenue this past fiscal year.

In the end, investors pay. They pay for elements of Trump's lavish lifestyle, and for the fees that go to his hotshot Wall Street friends, who do the deals that continuously restructure his companies with nothing to show but more promises and more losses.

Mr. Trump himself continually reminds us of his business acumen. Yet even the most cursory examination of the facts shows that he's a big loser with other people's money.

While I cannot deny that he built a major and valuable brand out of the Trump name, investors should be asking whether it's worth the price they're paying. For me, the answer is clearly "no." (I have this thing about losing money.)

Winners and losers
Admittedly, we only get to see into one part of the Trump empire -- the public company that bears his name. Perhaps the private real estate business is going gangbusters; that's beyond our purview, so we really can't be certain. But usually, successful entrepreneurs make money whether they're at public companies or in private business. The opposite is also true.

Trump, the man, is clearly not a loser. He's made a lot of money for himself. However, can he be put in the same category as Bill Gates, Warren Buffett, Steve Jobs, Michael Dell, or so many other entrepreneurs, executives, and investors? People who enriched both themselves and the people around them by taking a chance with their ideas and skills? My answer, once again, is an emphatic no. All of the latter are a breed apart from Trump, I believe.

In the end, I predict that the investing public, at least, will tire of Trump's results-free showmanship, and that the developers who pay huge sums to slap his name on their buildings in the hopes of getting above-market rents or sales prices will no longer be able to recoup their costs. They'll go ahead and find a new "star," and at that point, Donald Trump's bubble will have burst. He'll be a very rich man, indeed, but without the notoriety and the limelight. For him, that's probably a very terrible fate. Hopefully, celebrity feuds won't be his fallback plan to remain in the spotlight.

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Fool contributor Mike Norman does not own a position in any of the companies mentioned and welcomes your feedback. The Motley Fool has a full disclosure policy.


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