Founders - #65 Kirk Kerkorian: Penniless Dropout became the Greatest Deal Maker in Capitalist History

Episode Date: March 31, 2019

What I learned from reading The Gambler: How Penniless Dropout Kirk Kerkorian Became the Greatest Deal Maker in Capitalist History by William C. Rempel. ----[0:16] He was a humble man privately proud of his accomplishments, a business genius who ignored his MBA advisers, a daring aviator and movie mogul, a gambler at the casino and on Wall Street who played the odds in both houses with uncanny skill.  [4:34] Kirk believed there was no point in placing small bets.  [16:48] He was a day laborer at MGA studios. He made $2.60 a day. Thirty years later he owned MGM and his investment was returning $260,000 a day. [21:27] His low tolerance for mistakes and recklessness made him a demanding instructor. He often repeated the mantra: There are old pilots and there are bold pilots—but there are no old, bold pilots.  [46:54] He still relished big risks. And he subscribed to the logic of his friend and casino owner Wilbur Clark of the Desert Inn: “The smaller your bet, the more you lose when you win.” Besides, what’s the point—where’s the thrill—winning a small wager? Betting the limit became Kirk’s trademark.  [53:26] Kirk was now sitting on stock worth more than $66 million, a vast fortune by any measure. And no one was more surprised than he was.  [1:09:03] Kirk blamed Kirk. He had let himself become vulnerable. He hated that. He hated feeling helpless and at the mercy of forces beyond his control. He vowed never to let anything like that happen again.   ----Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work.  Get access to Founders Notes here. ----“I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — GarethBe like Gareth. Buy a book: All the books featured on Founders Podcast

There is an inspiring life story in the 98 years that belonged to Kirk Kerkorian, a boy who ran barefoot in the rich dirt of California's San Joaquin Valley before family financial chaos made him a city boy fighting for his place on the dirty sidewalks of Los Angeles. He was a tough guy who wept at funerals, a humble man privately proud of his accomplishments, a business genius who ignored his MBA advisors, a daring aviator and a movie mogul, a gambler at the casinos and on Wall Street who played the odds

in both houses with uncanny skill. That is an excerpt from the book that I'm going to talk to you about today, which is The Gambler, How Penniless Dropout, Kirk Kekorian, Became the Greatest Dealmaker in Capitalist History. So let's start with his personality, his early life, and some of his accomplishments. So it says, Kirk was uncomfortable in crowds and dreaded the attention of strangers. His lifelong aversions to the trappings of celebrity would make him what he remains years after his death, one of the least known of America's richest men. He seemed to burst out of nowhere onto the American business scene in the late 1960s,

a small businessman with a gambling habit and a junior high school education who struck it rich at the mature age of 50. He dropped out, and we'll get to that too, but he dropped out in eighth grade. He was a heroic wartime aviator who ferried factory fresh bombers and fighter planes for the Royal Air Force over the treacherous North Atlantic in the era before navigational aids. He nursed a small charter air service through cycles of hard times after the war until selling his company for a windfall fortune. But the gambler decided to bet it all on some kind of capitalist trifecta. Suddenly, he was on business news pages across the country, risking huge sums in a puzzling range of eclectic markets. On the West Coast, he moved to control America's oldest commercial airline.

In New York and Hollywood, he waged a takeover battle for the faltering but fabled MGM Studios. In Las Vegas, he built the world's biggest hotel, despite a secret campaign to stop him by rival Howard Hughes. So let me actually just stop there. So somebody sent me, suggested I cover this book. They sent it to me on Twitter like a few months ago. And I had it on my wish list. I don't think I'd ordered it yet.

And then about a month ago, I did a podcast on Howard Hughes. And in the, it was the author's sourcing for the Howard Hughes. And in the, the, it's, it was the author sourcing for the Howard Hughes book, or a lot of the author sourcing was all these memos that Howard Hughes would write, especially later on in his life when he was basically a recluse. He'd write written instructions for like his staff, like they were known as like the Mormons. I mean, it's half like five or seven people, like basically his buffer between his little penthouse where he never left and the outside world. So anyways, a lot of those memos in the book, they brought up the fact that Howard Hughes was, even though he would never appear in public, he was insanely jealous when other people would, other entrepreneurs would receive attention. So at the same time that Howard Hughes was living in the Desert Inn in Las Vegas,

Kirk Krikorian is developing a lot of the hotels there. And so because he's developing hotels there, he's written about in the press. And so Howard Hughes actually starts writing these memos on how to destroy Kirk. Now, I bring that up is because Kirk never knew that, first of all. And second of all, he admired Howard Hughes.

So if you remember all the different industries that Howard was involved in, Kirk kind of, I'm not saying he copied Howard Hughes, but he certainly admired him. He was an aviator and a pilot, just like Howard was. He winds up owning a movie studio, just like Howard did. He winds up developing real estate in Las Vegas studio just like Howard did. He winds up developing real estate in Las Vegas just like Howard did. They have a lot of the same ideas and they work in a lot of the same industries.

So Howard Hughes is in this book a lot. I'll probably talk about him a few times. But it's just good to know that Kirk is about 15 years younger than him and definitely admired Howard's accomplishments. That was not reciprocated. Howard was, by that time, a drug addict and rather paranoid, as I covered in that podcast. Okay. Friends would call him a deal junkie, addicted to financial thrills,

whether at a craps table or at the negotiating table. In business, as in gambling, Kirk believed that there was no point in placing small bets. So that's definitely a theme we're going to go back to a lot. He just, he did a lot of this stuff, not necessarily for money, but for the excitement. And he didn't, he would never bet small. There were no tycoons in Kirk's family tree. His immigrant father, an illiterate farmer and fruit peddler, was in constant financial trouble kirk learned english and how to brawl growing up in los angeles now at the beginning of the podcast um in the intro

it talked about how he he went from running around in the dirt in the san joaquin valley to having to learn english and on the dirty sidewalks of los angeles so what they're talking about here is his immigrant father and illiterate farmer and food peddler was in constant furniture trouble. He actually had like his father had over a million dollars worth of assets in like the 1920s, I think might have been like even the teens, but he was highly leveraged and he'd he'd constantly fall behind on payments and then he would have all his land foreclosed upon.

And so finally, he did this several times. And finally, he went completely bust. They lost everything. And that's when they moved to Los Angeles. And he just started to sell like fruit on the side of the road. Eviction was a recurring family predicament. He said he studied in the school of hard knocks. It turned out to be an advanced course in survival and the value of trust loyalty and hard work so says Kurt more a little bit more about who Kirk was a little bit of his personality Kirk was soft-spoken and

understated with a paralyzing fear of public speaking Kirk never defaulted on a loan and always regarded his handshake as a binding contract so that's important too later on in his, he's got an entire staff working for him. He buys and sells tons of different companies. This is much later because like the interest said, he didn't really strike it rich. He was already 50, but he lived at 95. And I think it took him to almost like the age of 75 or 80 to become a billionaire. And then once he did that, I think his peak net worth was somewhere around 16 to 20 billion. And then he got caught up in the financial crisis in 2008. And I think he died with a net worth right around two or three billion. But the reason I bring that up about,

he's always regarded his handshake as a binding contract. He owned a majority of this company and he puts it on the market to sell. This Japanese conglomerate comes through. They're going to offer him, let's say, $150 million or whatever the number is. They have a handshake agreement with the guy running the company, so Kirk's second in command. So he agrees to sell the company. The next day, another group wants to sell the company. The next day, another group offers, wants to buy the company,

but offers $15 million more in cash. And so Kirk's second in command calls Kirk and says, hey, what should I do? I just got another offer and it's $15 million higher. And Kirk says, well, did you agree? Like, did you make an agreement yesterday? Did you shake and say you're going to sell the company? He's like, yes, kirk's like well why are we even talking and he hung up the phone so he he didn't take the 15 million he said no your word is your bond you made we made an agreement we're going to honor that agreement that was something extremely important to him all right it says um he let's say he never defaulted on a loan okay kirk Kirk traveled without an entourage. He carried his own bags and drove his own car, typically a Ford Taurus or a Jeep Cherokee.

He refused comps, personally paying for meals and rooms, even at his own hotels. He gave away millions to charity and to people in need on the strict condition that his gifts were kept secret. When his donations grew into the tens of millions, he formed a charitable foundation and it gave away more than a billion dollars so he he had a saying that um he felt like anonymous donations uh donations made anonymously to an anonymous person um was like the purest form

of giving and he's saying if you wanted something in return like you wanted your name on a building or you wanted a plaque or an award or you wanted people to know to put like you're publicizing what you're doing he's like then it's not charity like it's a transaction you're trying to get something out of it so this actually went up backfiring on him because he would pay for you know uh his employees like they're they'd somebody in the family would have cancer he'd pay for the the treatment he did all kinds of very generous things but his family's from from Armenia, and he was the most successful Armenian businessman in the United States at the time where there was this giant earthquake in Armenia. And he was silently and anonymously donating millions and millions and millions of dollars.

And he was doing this before anybody asked. And then he started to get a ton of press coverage. We're like, look how basically stingy this guy is like you you know your family emigrated from armenia to america like you've had all this great success you've done nothing so that's when he had to set up the foundation and kind of do it like more publicly even though he didn't want to um because you know he was he was getting bad press undesly so. Okay, so then he says, this is a quote from him, Life is a big craps game. I've got to tell you it's all been fun.

What follows is an account of the great craps game, the life of Kirk Corian. This is one of the books where, I've talked about this in the past, as I flip through the pages to get to my next notes. There's something about when you read a book that's so fantastic I don't know what the the feeling is But this would probably sound familiar to you like you get to the end of a book you really enjoyed You know, it's a huge investment. This book is I have the hardcover version

It's I don't know 400 pages like you're talking about 10 hours to read Um, and then you get to the end and it's like that melancholy, like bittersweet feeling. I had that feeling when I finished this book because I enjoyed it so much. It was just like, wow, like I'm never going to get that experience to read this for the first time again. I don't know. I really enjoyed it. So he's discovering this is – I'm going ahead in the time frame. He's not a little boy anymore.

I think he's around 19. Might be a little older. But this is what he, he's discovering his first love, which is flight. And at the time, he's actually working. So let me tell you, it's amazing that in the book they talk about how much money. Okay, so he's working at 45 cents an hour. And at the time, he is installing. Remember, he's in eighth grade education, right?

So he's making 45 cents an hour installing 270-pound wall furnaces. So these things that would heat people's homes and he's the person he's working with they're working close to like a um like an airfield and the guy he's working with's like hey we can go pay a dollar and we can take a flight on like a little you know like a little two-seater prop plane that they had um at the time and this was his result and it's this is him discovering flights and then rapidly switching careers. And so Kirk is in the back.

The plane takes off. And he says, in the back, Kirk's senses were instantly assaulted by the deafening scream and forceful lurch of the Piper's 50-horsepower engine. Imagine a plane with 50 horsepowers. But if Kirk was unnerved by the noise, the power, the speed, or seconds later, the altitude, he didn't show it. His big grin said it all.

Kirk was smitten. It was love at first takeoff. Suddenly, his entire future was banking sharply in a new direction. Until that takeoff, Kirk had been focused on quite a different career path, professional boxing. Moving heavy wall heaters serves as an extension of weight training in the gym. had been focused on quite a different career path, professional boxing. Moving heavy wall heaters serves as an extension of weight training in the gym. His big dream before he started taking flight had been getting his name on the marquee of a title belt. He had a nickname. They called him Rifle Wright Kikorian.

Rifle Wright Kikorian fighting for a world championship in the ultimate international arena, New York City's Madison Square Garden. So that flight causes Kirk to want to learn how to become a pilot, which is like his first passion of his career and how he makes his first fortune actually. So now the book is going to go back in time. We're going to learn more about his early life and then a little bit about his dad and then some of his early jobs, which I find always fascinating because you go from making 45 cents an hour to having a net worth of $20 billion in one lifetime. I find that motivating and interesting. All right.

So the Kerkorian family's financial collapse and forced relocation to Los Angeles would be among the earliest and most unsettling memories of young Kirk's life. It also ushered in prolonged periods of economic uncertainty that would extend more than a decade deep into the Great Depression. Missed rent payments and evictions, sometimes as often as every three months, repeatedly uprooted the family and made the boy a new kid in the neighborhood over and over again. Hence why he had to learn how to box, because he was constantly getting bullied and getting his ass kicked by age nine kirk was hawking the evening express which is the newspaper in the area they lived in on street corners making about 50 cents a day and turning over pocketfuls of pennies to help support the family so everybody worked his his brother and his sister as well more first jobs kirk entered the south southern californ California job market as a middle school dropout at the worst possible time, the depths of the Great Depression.

He had to settle for a series of odd jobs. He would caddy at the golf course. He would sell oranges on the side of the highway. Anything to bring home a few cents a day. Everyone in the family had to contribute. So then around the age of, he's about 17, he lies, he gets his parents to lie how old he is because one of FDRs, one of the programs of the New Deal,

they created something called like the Civilian Conservation Corps. So they did like infrastructure work and ditch digging and stuff like that to like kind of build up funded public works, right? And so he lies to be able to go up to – it's in Sequoia National Park. And they're working – well, let me just read it. It was especially demanding high-altitude work, digging, chopping, and clearing paths on terrain

like the 14,500 foot face of mount whitney um and so they talk about uh there's a lot of people like from day one there's an obvious difference between the limited stamina of of of people like kirk and his friend and then uh the farm boys that were able to work much longer because at this time he'd been in in los angeles for almost 10 years. But a lot of people were just dropped their shovels and leave because it was such strenuous work. But Kirk wouldn't give up. So Norman, who is Kirk's friend, goes up there. It's like, hey, let's just bail out. Kirk's like, no, no, no, we're going to stay. We can do this.

And Norman saying this is his recollection at the time. He says, at first, the farm boys pretty, pretty near killed us and we couldn't keep up but we worked hard and we got tough the pay was 30 a month more money than kirk or norman had ever made um okay so that but that was a limited engagement he then he goes back to los angeles and you know you have to pick up odd jobs so here's the one of the craziest interesting facts about his life. One of the odd jobs he picked up was moving boulders at MGM Studios in Culver City. So they were going to film like some kind of underwater scene and they needed to move these giant rocks. And so the boys spent a night shifting, pushing and shoving rocks around a big tank used for filming underwater scenes.

They made $2.60 each. Personal bests for a single day's work. Now I'm going to jump right to the punchline in the book. Let me just read the other note I wrote because I was listening to, after I finished the book, I was doing more additional research for you, and I heard the author tell a story that he was giving a speech on the life of Kirk Kerkorian. And he said something that was fascinating.

And it's, he was a day laborer at MGH Studios, which I just told you, moving big rocks. He made $2.60 a day. 30 years later, he owned MGM. And his investment into MGM was returning $260,000 a day. So from moving rocks on the studio for $2.60, 30 years later, he owns the entire place, and it's generating him a quarter million dollars in profit a day. Okay, but we're very far from that point in his life, we're still in a sea of uncertainty.

And it says, with regular work still hard to come by, throughout the middle 1930s, Kirk turned entrepreneurial. So this is his first business. He bought equipment for steam cleaning car engines and rented space at a gas station to use as his operation center. Used car dealers became Kirk's primary customers. He made enough money to start buying and trading old clunkers. So first he cleaned them, then he'd buy and trade old cars. He'd get them running with his auto shop skills, swap out bald tires for other used tires with a few more treads, and then wash, polish, and steam clean. Presto, he could clear a $15 profit. So again, that's a good amount of money at the time because instead of moving heavy rocks around and making $260 a day,

he can make what? What is that? More than five, six times that just fixing up an old car. He also takes this lesson to the future because one of his most successful first businesses is buying and refurbished. He'd buy old junky planes, refurbish them, and sell them. Something that traits that tie together all the entrepreneurs that we talk about on this podcast, right, is the fact that they're relentlessly resourceful. And Kirk took that flight on that little plane, was smitten, decided, I have to learn how to fly, but he had no money, right? So this is how Kirk learns to fly with no money. Kirk's new love was flying, and she was a demanding mistress.

He needed more money to pay for $3 an hour flight lessons. So he took an extra job at a bowling alley bar as a bouncer. Kirk enrolled in night school classes to study the same math that once bored him as a schoolboy. At the time, you might still need to know, but basically that once bored him as a school boy at the time you had a uh you might still need to know but the basically he was bored in algebra so he'd always fail out in math classes but now that the like because you know the the problems he was learning was just fake but he knew to be a successful pilot he had to make all kinds of different calculations so once he had a purpose that hey you need to learn this because it's going to help you reach your goal, he was very adamant. So he said,

he had to solve the mysteries of a compass and a protractor. He had plenty of motivation now. Math was essential to all aspects of aviation. From navigating to tracking fuel consumption, a pilot's computations were serious matters. life or death matters. And Kirk now had one overriding goal in life, a pilot's license. Sometime around the spring of 1940, a newspaper advertisement caught Kirk's attention. The famous American aviatrix, Florence Poncho Barnes, had opened a flight school at her dairy farm in the Mojave Desert. So he's like, oh crap, I got to get down there. This is how dedicated he is. He hitchhikes 85 miles to the Mojave and made Poncho a proposition. He was short on education

and money for flight lessons, but he was willing to work hard. If that meant getting up at dawn to milk cows, slop hogs, and muck out the the barn Kirk was ready to start immediately so she actually makes this this trade with him she said he was impressed with his the young man's and in innovation our initiative sorry an obvious ambition so then poncho he's starting to learn he's starting to learn how to fly from poncho and here's another connection to Howard Hughes. Poncho regaled her cadets with tales of barnstorming, air derbies, and stunt flying,

spiced with accounts of Hollywood parties and her work for filmmaker Howard Hughes. Kirk came out of Poncho's flight academy barely six months after plunging into tense pilot training and physically rigorous farm chores. When he left the academy, Kirk had already qualified for a commercial's pilot license, and he already had a job offer.

So he's going to wind up working for a civilian defense contractor. This is right before the start of World War II. So Kirk was needed immediately by a civilian defense contractor to teach aviation cadets for the U.S. Army Air Force. So they're subcontracted out for the Air Force. And this is a description of him as a teacher. His low tolerance for mistakes and recklessness made him a demanding instructor.

He often repeated the mantra, there are old pilots and there are bold pilots. There are no old, bold pilots. So this whole low tolerance for mistakes and and being extremely demanding definitely personality traits uh talked about like later on in life he was dating a series he became rather famous he's dating a series of well-known uh women and he was um like adamant about never being late uh he just wouldn just wouldn't accept it. Like he was never late for anything. And if anybody worked for him, he would just like, if a meeting was going to start and

you didn't show up, he would just leave. And this, he was so severe. I wouldn't recommend this as a personality trait, even though I like to be punctual as well. Um, that he was waiting for the, whatever woman he was dating, uh, at the time Kirk owned his own like 737 and they're leaving France he's got to go back to work in Las Vegas and she doesn't show up at that point in time so he just took off without her and it was her responsibility to figure out how to get back so he was extremely extremely demanding person which you can kind of you can kind of guess that from if just my description of like his early life being extremely poor ev, evicted everywhere, no education, boxing upbringing. He was not – he called it.

His schooling was not MBA from Harvard. It was the School of Hard Knocks. So his personality kind of shows that. Okay, so – and then he's also extremely – there's a reason why the book is called the gambler. He's freaking crazy So he gets a high paying job and it's really high paying member Shortly before this he was happy if he made $15 profit on reselling a car or two dollars and sixty cents in a day's labor Now he's gonna start making a thousand dollars a month. Well, why the hell would he be paid a thousand dollars a month?

Well, he gets a high paying jobing job because almost everybody that does the job or a lot of people that do the job die. So it says the Royal Air Force Ferry Command needed contract pilots to fly new warplanes from the North Atlantic for the astonishing sum of $1,000 a month. So this is in Canada. I think it's out of Montreal, if I'm not mistaken. They have the series of warplanes that the Allies are going to need.

So it hasn't yet popped off, like America's not jumped into World War II yet, but Britain needs these to combat, like, the bombing that Germany's doing to, I think, London at the time. And so this whole, in aviation history though, that flight path from like top of North America flying by the Arctic to London was very treacherous. And they had like, I forgot what it was called. It was like hurricane force winds in the jet stream. At the time, you had a one in 40 chance of crashing. So they'll pay you $1,000 a month, and you're literally just flying a plane over there. So you're basically like a plane truck driver, if you will.

And you're going to make a lot of money, and they're going to pay for all your expenses, so you can save a lot of money, but you have a good chance of dying. Basically, this is him. He goes, some days he could hardly believe his good fortune. He was part of an elite unit that was steadily changing the balance of power in the war. Why did they say that because they're using these planes to to shoot the the german rockets out of the sky he was commanding some of the biggest hottest most powerful planes in the air and the like the he's on the leading edge of technology for aviation and and day after

day he was flying the unflyable north atlantic they said it was impossible uh to fly kirk kirk kirkorian was having the time of his life. It's also crazy because the book goes into detail about like, you know, he starts to make friends with some other co-workers who are doing the same thing. And, you know, a bunch of them, a bunch of them died. Like their planes would just disappear. And the water is so cold, they talked about like once you hit the water, you're dead in about 15 minutes up there. He almost died. He almost died. He almost died over – he lost contact somewhere over Scotland in heavy fog.

Okay, so it says – I'm going to skip over all that part still because it has nothing really to do with the scope of this podcast. Okay, so this is a summary of Kirk's time as a contract pilot. I bring this up because it's extremely important because he uses this as seed money to start his own business. So there's a point in all these little anecdotes. Kirk Stint, as a contract pilot, lasted more than two years. Through the end of the war in Europe, in that time he qualified to fly seven different planes and accumulated thousands of hours of flight time, thousands of dollars in savings, and untold tales of adventure on five different continents.

So he loved it. Okay, so this is his second business. Now the war is over, that gig is done, so he's going back to Los Angeles. He returned to Los Angeles knowing only that he wanted to fly and that he needed to be his own boss. In a matter of days, he set up a pilot training school. So this is his second business that's going to lead to his third business.

The booming aviation business needed large numbers of instrument rated commercial pilots so Kirk's flight school roster was quickly filled. Within weeks the business was turning a reliable profit but there was no excitement, no adrenaline rush, the teacher was bored with teaching. Kirk decided to get in on the charter business too so this is extremely important because the charter business is how he makes his first fortune. One of Kirk's first charter customers was a Los Angeles scrap metal entrepreneur with a gambling habit. Jerry Williams operated a recycling yard about

five miles from the airport and wanted regular lifts over the mountains to a budding gaming resort in the desert 250 miles east called las vegas what i love about the life story of kirk is like he has no wasted energy so he takes everything he learns and what all the stuff that he's learning is going to turn into a business later down the road so um he's installing heavy heavy uh like heaters right takes a flight realize oh man i gotta learn how to fly learns how to fly in some ingenious way to like get free like basically barter farm labor to learn how to fly then takes a really harrowing risk risky and harrowing job stacks a bunch of money uses that money and he says hey i'm gonna be i'm gonna i'm gonna uh start teaching other people to fly since i since i already

know how to do that make some money that, turns it into a charter business. That charter business introduces him to Las Vegas. Later on, he winds up building the largest hotel in Las Vegas three separate times. Okay, so Williams was a regular, hiring Kirk and his Cessna for weekly flights to the gaming center. Kirk was enthralled by the action. Now, this is one of the few direct quotes we have from Kirk because he's extremely private. I was just overwhelmed by the excitement of the little town. The adrenaline rush was back in his life. So this is him starting and selling more businesses. The charter business in those days was very good. Gamblers and couples in a hurry for Nevada's quickie weddings dominated

customer traffic and Las Vegas was poised for a boom. Kirk's operation was too small. He sold off his flight school and planes, paid off his Bank of America loans, and pocketed a healthy profit that he intended to parlay into something bigger. Kirk wanted his own airline, his own fleet of planes, his own company. Okay, so he takes the cash that he makes for selling off his flight school, right? And he's like, I need, he wants, like, he doesn't want to just fly Cessnas, right? He wants to turn this into a full-fledged, like, charter airline, which he winds up successfully doing, and he's going to sell it for a lot of money.

But remember how you would sell, he'd buy old clunkers, use his skills to refurbish them and sell for profit He's gonna basically do the same thing So the chartered business had two it was two separate businesses That made a lot of money that made him wealthy at age of 50 was he had the Charter So, you know, you can hire him and are his planes and other pilots eventually to fly you to specific places So like private airfare and then he had buying old military planes, refurbishing them, and selling them. So this is an example of that.

One way to build capital fast was in surplus military plane market. So I guess there's a lot of like DC-3s, C-47s, these huge planes that were used during the war. They were just kind of abandoned all over the world. Anywhere from like, there's a bunch of them parked in Hawaii for some weird reason. I guess it wouldn't be a weird reason, right? They just got done fighting in the Pacific. So you'd have to fly them from like Hawaii to, you know, South America, Alaska, all over the place.

So Kirk had a plan. He bought seven of the planes stranded in Hawaii, each worth at least double its purchase price if he could get it to the U.S. mainland and doubled again for any plane he ferried all the way down to Rio de Janeiro. He was figuring on profits that in 2018 dollars ranged from $90,000 to $250,000 per plane. Now, you have to ask yourself, like, why is such a huge profit just sitting there anybody could take? One, you had to obviously know how to fly, but two, they had limited range. So he would have to like take out all, like basically gut the plane in Hawaii, install extra fuel tanks, and then pilot them over himself. He almost died doing this on a flight from Hawaii to California. So again,

something where he's putting his life at risk to make money. So this gives him a chance to actually turn his charter business into a charter airline. It says, when a small charter airline at Los Angeles Municipal Airport went on the market in 1947, Kirk and Rose bought it. Rose is his little sister. She actually lives. So Kirk lives to 98 years old. Rose lives to 102. All right, so Kirk and Rose bought it,

a three-plane fleet. So they have a DC-3, a twin-engine Cessna, and a single-engine Beechcraft. Kirk, so they're buying this for $60,000. And I'm not even going to save the punchline here. So Kirk put up most of the $60,000 purchase price after borrowing $15,000 from Bank of America. Rose invested an additional $5,000 and managed the office. So he is going to, oh, let me get there in a minute. Kirk's new bookkeeper, so it's him, Rose, and the Harry bookkeeper. Kirk's new bookkeeper would introduce him to the tax benefits of lease deals and depreciation and capital gain profits.

Both his used plane brokerage and his charter service were making money. He wasn't rich, but the entire Kerkorian clan was sharing in his growing financial security. So he'd hire his family members because, remember, they come from very humble beginnings. Now, I'm not going to bury this punchline. This small charter airline that he purchases for $60,000 and it starts building up, he sells 21 years later for $104 million. I mean, he's got some transactions in his book. It's just insane.

Just $200 million here, $100 million there. Okay, so this is an example. Something he internalizes at 35 years old. He's like, listen, to get wealthy, you have to own some kind of equity. You need businessmen to get wealthy. Pilots don't. So he's still buying and selling these old planes. He finds some of them are almost scrap.

So this is an example of one he bought. He bought for $100,000. So his $100,000 cattle scowl went to Northeast Airlines for the remarkable price of $340,000. And that was without the used passenger seats. The scrap dealer sold those separately. So he'd say like, you'd find somebody that needed like a 747 left wing and you'd send that to Europe. Somebody needed like the fuselage or like the chair, the seats or whatever. And he'd just sell it piece by piece and make a lot more money. And he said, that transaction produced a milestone for the 35-year-old entrepreneur. For the first time, Kirk's annual income broke $100,000.

He also learned a lesson. Pilots don't make big money. Businessmen do. So he's now starting to build up quite, he's buying more and more expensive planes. These are just giant jets that he's now trying to resell. And this is when he actually meets Howard Hughes for the first time more expensive planes like these are just giant jets that he's now trying to resell and he he actually this is uh when he actually meets howard hughes for the first time because he's trying to sell a plane he says his good as new plane cost kirk about three hundred thousand dollars

he uh he hung on it a price tag of 1.6 million dollars his first sales call was to howard hughes remember um hughes aircraft was giant at the, so they'd buy all kinds of planes. So he's talking to Howard Hughes. They talked planes and flying. They talked price. Hughes was easygoing, friendly, but a hard sell. They agreed to meet in Las Vegas. Though they had never met, Kirk knew Hughes by reputation, as did most of America.

Hughes was a famed aviator, test pilot, and aircraft designer with many speed records and daring flights to his credit. He owned an airline, TWA, and a movie studio, RKO, and was worth millions and millions of dollars. The famous aviator, 12 years older than Kirk, was gracious and down-to-earth. Again, they talked about planes and flying, then about Las Vegas. This is when they're having dinner. But when conversation turned to business, Hughes seemed argumentative. He didn't like the price, but he also didn't like a litany of other

things. This made me chuckle when I read it, including the size of the airliner's lavatories. Kirk was always flexible about price, but he was surprised and put off by the nitpicking, especially over the design of in-flight toilets. And though Hughes was always very polite, his stubborn pettiness made Kirk wonder if he might have somehow personally offended the multimillionaire. After three or four more meetings without agreement, Kirk gave up. Okay, so right around this time,irk actually gets depressed and he's married his first wife their marriage is actually coming to an end so he says their nine and a half year marriage officially ended uh in 1951 kirk slipped into depression he stopped working stopped talking

to his family and hold up alone in a hollywood apartment during that same period he tried to shake his dark mood with electric shock therapy. He later told friends that it worked, but the effects didn't last long. So I include that in there just because like when I'm telling these stories to you, you know, it's an amazing story from, you know, penniless eighth grade dropout immigrant to billionaire. But I want you to keep in mind that everyone's life is messed up in some way. Like there is no such thing as a perfect life. You're going to have ups and you're going to have downs. There's, he went through a couple, uh, um, serious, like, uh, periods of depression in his life, even though from the outside, you know, he's very wealthy.

He seems to have everything he could possibly want. And you just, you know, he's very wealthy, he seems to have everything you could possibly want. And just, you know, it's, it's just part of being human. So I just want to, you know, I want to make sure I make that clear that I'm not just trying to, to put these people on a pedestal or glorify them because they're humans. And, you know, there's a lot of ideas that we can learn from these people and, and, and hopefully apply to our own lives. And it helps to learn from their experience, but they're, you know, we, we're not trying to idolize them. We understand that humans are valuable. Yeah, I think that's the right word. So Kirk definitely had his ups and downs and mistakes as well,

just like I do and just like you do. All right, so this is him gambling on gambling and then learning an important lesson. And now this is happening in Las Vegas in the mid-1950s. As a gambler himself, Kirk knew better than most the fundamentals of a casino business model. Customers come in all day and night to throw money at the owners, and they love doing it, win or lose.

Kirk consistently lost more than he won and yet called his visits to Vegas the best times of his life. And another quote, I was just overwhelmed by the excitement of the town. And so this is when somebody approaches him about, remember, the Vegas at this time is extremely mobbed up. It was controlled by gangsters all over the United States. And a lot of the people running the casinos were fronts. So he was approached, and they were trying to raise money,

and he was authorized to buy. So it says, Kirk was authorized to buy his first casino point, which means he'd have a 1% share ownership in a casino for $50,000. If timing is everything, the deal had nothing going for it. They were in such bad shape, Kirk later conceded. The good news for Kirk was that he lost only $50,000. It was on the dunes, and it wound up, basically they went to a rapid series of ownership changes news for Kirk was that he lost only $50,000. It was on the dunes and it wound up, basically,

they went to a rapid series of ownership changes that left his equity share basically worthless. So the good news for Kirk was that he lost only $50,000, but it was a bitter lesson. And this is the most important lesson and why I'm telling you this part. I learned then not to invest in a business that I didn't run. So Kirk loved the allure of starting businesses and doing deals, but he was also obsessed with control, which is obviously very common for the people that you and I have talked about so far on the podcast. So remember that little charter service? He still owns it.

He changes it to TIA. So this is Kirk's plan to grow what's now known as TIA. The importance of playing for the long term and hiring someone and giving them one mandate. Sometimes I leave notes for myself and I can't even read my own handwriting. Okay, Nikita Kirk's grand plan was to go all in with TIA as a defense contractor.

Since 1959, when the company landed its first government bid, which is ferrying U.S. soldiers and their families to North Africa, military business had become a steady and reliable source of revenue. Kirk also reasoned that if his company was the first supplemental airline with jets, he could sew up all the government business he could possibly handle and take a giant leap ahead of his competitors. This was a big risk for a big payout. But Kirk wasn't taking a wild guess or betting on chance. He knew the business. He saw the expansion of U.S. military bases in and around the Pacific, and he was confident that future demand for troops and cargo would translate into strong returns on investments. So now he's going to go around. He's like, listen, I need jets. I don't have the money for jets.

I need to go borrow money. So since his first stop was Walter Sharp at the Bank of America, they wind up having a lifelong financial relationship. So it's actually important that he winds up paying back Walter on time and never defaulting on anything. So this is not the first time they did business. Walter was actually a fan. So it says, a Kerkorian fan since Kirk's Vale Field Flight School. That was the name of his flight school.

Sharp said he would try to get his main office to go for a loan up to $2 million. It was no sure thing. It was an amount well beyond a branch manager's independent authorization. So even if he got that $2 million from Bank of America, it wouldn't be enough to buy it for all the planes he wants to buy. So he goes to the company that he wants to buy the planes from and sees if they'll finance the deal. And they wind up doing it. So the company's called Douglas Aircraft Company. So this is Kirk. He, meaning Kirk, arranged to pitch his idea to

Douglas executive Jackson McGowan, a familiar face to Kirk. They knew each other casually, having negotiated a couple of plane deals in the past when McGowan was a Douglas vice president of sales. He was now vice president and general manager of the entire aircraft division. This is what I meant about the importance of playing for the long game. Kirk had a fabulous reputation. So if he did business with somebody in the past, they were likely to continue that relationship in the future. And usually in the future, they were in a more advanced station in life so they could actually provide him more benefit.

And in this case, this guy's running the whole thing. So McGowan was skeptical. A supplemental air service paying $5 million for a jet? Was he serious? But he knew Kirk's reputation, and he knew his credit history. He knew his track record and Kirk's quiet, controlled excitement describing his plans made sense. It got McGowan excited too. There was even an escape hatch, a plan B. If government contracts were slow or failed to materialize, Kirk could lease the plane to a commercial carrier.

So he sets these deals up. If you remember that three-part series I did on Richard Branson a couple months ago, or maybe last year, that's what I thought of when I read this section, where when he was setting up, especially for Virgin Atlantic, but in almost any endeavor, Richard Branson just picked up on the simple idea that, hey, I just need to protect my downside.

And if I protect my downside and I have enough businesses that have uncapped upside, I have some kind of asymmetric advantage and it usually will work out over long term. So when he set up Virgin Atlantic, he said, hey, I want to buy these 747s from you, but if I go out of business, I need to be able to have the NRL lease, I need to be able to, like, you buy the plane back from me. So his downside was capped. Kirk's basically doing the same thing here, but like 50 years earlier. So as the government contracts were slow or failed to materialize, Kirk released the plane back from me so his downside was capped kirk's basically doing the same thing here but like 50 years earlier so as the government contracts were slow or failed to materialize kirk released the plane back to a commercial carrier the douglas exec agreed with

kirk it was a good bet and he wanted a piece of it mcgowan crafted a special deal uh so he's gonna he's gonna finance some of it he says kirk came up with some cash bank of america came through with the loan for about two million dollars and and Douglas Aircraft Company financed the balance, an unprecedented move at the time of about $3 million. On his signature loan, Kirk had assumed a personal debt load of nearly $5 million. Default would wipe out everything he had built. Failure would bring him a taste of his father's desperation back in those final days at Weed Patch. That's the place in the San Joaquin Valley.

But Kirk, the gambling aviation aviation executive was going all in. The jet deal closed in June and Kirk moved quickly. He turned to, so this is the importance of hiring somebody with just one mandate. He hires this guy named Glenn. Glenn was the sales executive at Lockheed and a leading figure in the post-war charter business. Kirk lured him over to TIA, making him president of the company. Glenn's mandate was to keep the meter running on the DC-8. That's the jet he just bought, keeping it, keep it so he could keep it making money. So basically your job is just to sell time on this plane that we just spent $5 million for. The big jet's first steady work was flying high priority military loads from Travis Air Force Base in Northern California to Guam.

More contracts followed. And just like Kirk envisioned, TIA was scooping up the cream of the new defense contracts. In its first partial year of operation, the jet single-handedly propelled TIA from earning a quarter million dollars in profit to 1.1 million dollars. The company's net value surged into multi-million dollars, into the multi-millions of dollars. So he gets four times the amount of profit in less than a year. Oh, so this is something surprising because when I was reading up, I knew that eventually he sells TIA for 104 million, but then in the book book he sells it twice and the first time it didn't go well so I actually want to talk to you about that because I found this part surprising so taking outside investment plus giving up control equals

an unhappy Kirk so he's heavily he's making money but now he's he's highly in debt so he's looking he's saying hey what if I take outside investment and I have somebody like I can make a little bit of cash and then have some offset like my liability. It says big debt deprived Kirk and TIA of room to maneuver, to take advantage of other investment opportunities, to expand, or more importantly, to withstand unforeseen economic slowdowns. The plane and TIA were insured against a catastrophic accident, but Kirk was a sitting duck in the event of a business slump. Debt is what broke his father four decades earlier.

Kirk pondered ways to minimize his personal exposure to financial ruin. And then Studebaker came knocking. So Studebaker, you probably heard of that company. It's a car manufacturing. And the guy running the company is this guy named Egbert. Egbert? I'm going to call him Egbert because that's funnier. Egbert came prepared to make concessions. Kirk was a classic self-made entrepreneur who ran his own company. He wasn't going to relish having a boss. Egbert assured him that Studebaker wanted Kirk to continue running the air service.

Kirk would be corporate vice president and the president of Trans International, a Studebaker subsidiary. Egbert said that Kirk would receive more than 120,000 shares of Studebaker stock, then valued at about $8.25 per share. The deal would make Kirk a millionaire, at least on paper. Studebaker would assume responsibility for Kirk's DC-8 debt. That's a $3 million debt for the plane, I guess $5 million. And Kirk had everything he wanted, plus his first million dollars. The total deal was worth about $10 million. However, the honeymoon didn't last long.

Accountants and executives in South Bend, South Bend, Indiana, where Studebaker was headquartered, questioned marketing strategies and even the smallest exceptions, or excuse me, smallest expenses. Sometimes Egbert called Kirk directly to complain about costs or whatever. On one occasion, the exchange went something like this. Egbert said, what the hell do you think you're doing? Kirk said, what the hell do you know about running an airline? After so many years without a boss, Kirk's midlife encounter with supervision and second guessing turned out to be about as welcome as a patch of moderate to severe turbulence. He winds up getting out of this deal. Stu Baker, they buy a bunch of these subsidiaries. They're all making money, but their main company winds up almost going bankrupt.

So Kirk winds up buying back the control. All right, this is a little bit about his philosophy on risk and an example of that risk. Kirk still relished big risks, and he subscribed to the logic of his friend and casino owner, William Clark of the Desert Inn. The smaller your bet, the more you lose when you win. Besides, what's the point and where's the thrill winning a small wager? Betting the limit became Kirk's trademark. He took a similar approach in real estate investing.

After receiving nearly a million dollars in stock from Studebaker at the end of the year in 1962, Kirk turned around and invested most of that fresh income, $960,000 on 80 acres of sand and brush. The property was a potentially prime location near the dunes and across the strip from the Flamingo. So he makes a million dollars, doesn't hold onto it, puts it basically all on a bunch of dirt in Las Vegas.

That winds up working out really well for him because unbeknownst to him, there's a guy named Jay Charano who actually builds hotels and motels all over the country. And he wants to build something in Las Vegas. And he's like, I want this land, looks up who's the owner, winds up being Kirk. So he wants to meet with Kirk. And this is how Kirk winds up with being part owner of Caesars Palace, one of the most famous hotels in Las Vegas. Jay Charno, the maestro behind upscale motel developments

from Georgia to California, already had financing lined up through personal friendships with Teamster Union president Jimmy Hoffa. Remember, this is the mob era of Las Vegas. Now he needed to win over Kirk Kerkorian, the Strip's newest landowner. They met over dinner on a summer night in 1963, so it's about a year after he buys it. Kirk had come to listen. Sarno had come to make a deal. He proposed a lease agreement that would make Kirk a partner in the casino profits.

Sarno launched into his pitch. This is going to be the greatest hotel casino in the world. Everything is going to be top notch. We'll have the finest restaurant, the best entertainers, the most luxurious rooms. People won't want to stay anywhere else. It can't lose. It was a very big play and Kirk wanted to hear more. So when he goes into this meeting, he would only, really at the beginning, he only wanted to um accept like regular lease payments like no i'll just lease you the land you just pay me the set amount every month and kirk being the gambler he was like oh well actually it wouldn't be bad owning this so it says it looked like a shaky deal to cohen oh i'm skipping over something so he convinces kirk kirk's

like yeah you know what i'll give this a shot sarino still needs to raise more money. So he goes all over. The book goes into detail. I'm going to skip over most of it. But he's meeting people all over everywhere. Nashville, New York City, New Orleans, just everywhere. And I just put this part in there because I thought it was funny because it winds up being extremely successful. But he goes to meet this guy that specializes in airport hotel developments.

His name's Burke Cohen. And this is what Cohen says. It looked like a shaky deal to Cohen. A lot of debt and hefty lease obligations with sketchy business plan. After his door shut behind the departing Sarno, Cohen dictated a note to one potential investor. This afternoon, I met with Jay Sarno

and reviewed his plans for the Las Vegas hotel. I examined the terms of his lease, his loan commitment, and his business plan. If you put one penny into this deal, I promise I'll have you committed to a mental institution. However, Kirk didn't send that letter to Kirk. I just thought it was funny that he said this is a terrible deal. Kirk saw something different. He's like, yeah, I'll do it. Kirk agreed to a final conditions.

A relatively modest monthly lease of $15,000. So he's for growing some monthly profit. In return, Kirk would receive 15% of casino profits. So now this is the story of how Kirk buys TIA back, then takes it public. And he's done this a few times where he sells something to somebody at like peak price, and then something will happen and he'll be he's able to buy it back at like one-fourth the cost it's really fascinating he did it to mgm studios a couple times or maybe twice um okay the car so this is studebaker the car maker was in free fall it was on track to lose 16 million dollars in 1963 and that was despite the fact that tIA and several other non-automotive subsidiary, one of these days I'll be able to pronounce that word, subsidiary were all profitable. The new president, so the guy that made the deal, Egbert, he's gone. Now he's replaced by this other

guy. The new president had just started selling off everything from idle factory machinery to corporate subsidiaries in a desperate campaign to slash Studebaker debt. Kirk left a meeting with them with a $150,000 option to buy back TIA for $2.5 million in cash. Remember, his other deal was worth $10 million. He's buying it back for a quarter of that. He does something similar, but the numbers are different. It's like a billion dollars he sells something for and then buys it back for 250 million. So this is by September 1964,

after less than two years under Studebaker's control, Trans International Airlines was back under the direct ownership of Kirk. Kirk was ready to open TIA to Wall Street investors. His nearly two decade old charter business would be the first supplemental airline ever taken public.

It was a bet. And this is a fascinating uh story basically these armenian investors are the ones that save his ass here um it was at best a modest beginning tia stock opened at ten dollars and thirty cents per share dropped to ten dollars and didn't move for weeks but what finally started moving the stock were Kirk's Armenian connections. So there's this young, hungry guy that cold calls Kirk one day and wants to take all his stock business. His name is George Mason.

So George Mason goes around and he starts pitching the stock to fellow Armenians he knew through the newspaper because it was like an Armenian mafia almost. They weren't't gangsters i mean like they had like a connection cultural connection and he does this like basically by hand which is just fascinating to me and it actually winds up working so months and months and months he goes around saying hey uh like any any possible person be like a armenian farmer from fresno a couple of these people wind up becoming millionaires because of this this deal but he basically hey you need

to support like your Armenian this is an Armenian owned business it's a good investment opportunity for you is basically the pitch like you should buy this stock and even if they weren't invested in any other stocks at all so winds up working it says in a matter of months Kirk had paid off the two million dollar bank loan from which he had bought TIA back from Studebaker. Kirk was now sitting on stock worth more than $66 million, a vast fortune by any measure, and no one was more surprised than he was. And now there's another quote from Kirk. I thought after the war, God, if only I could get up to having $50,000, that would be great. Then it was $100,000.

It just keeps going, Kirk said. A lot of people ask me, did you have any idea that you would do this? The answer is absolutely zero. All right, so over the course of the career, Kirk invests billions and billions and billions of dollars into Las Vegas. But at this time, he's taking the money from, all the money he made from TIA. He sells it off, makes a hundred and something million dollars, I think 150, 104, something like that.

And he just starts buying up more land in Vegas. And this is an example of Howard Hughes not enjoying sharing the spotlight. So it says, Kirk had paid $5 million cash for about 65 acres. He planned to break ground on the city's tallest high-rise hotel project later in 1967. This was the first of three times that he builds the largest hotel in Las Vegas. I didn't know he also builds the MGM Grand Hotel, which is the first version, and the MGM Hotel, which is the one that's still there to this day.

So it says, the casino would feature the largest gaming floor in Nevada. The hotel would have 1,500 guest rooms, making it the world's biggest at the time. And it's going to be called the International Hotel, which he winds up doing a deal with Hilton, which I'll get to later. The news seemed to wake a sleeping recluse.

From seclusion in his penthouse suite at the Desert Inn, billionaire Howard Hughes made his own headlines a few weeks later when he brought the entire hotel for $13.2 million in cash and loans. Funny story. He bought the Desert Inn because he moved in secretly to the penthouse. It was only supposed to be there for a few days. It stays for two years. They threatened to evict him, so he's like, all right, we'll just buy.

I can't get evicted if I own the hotel. So he buys that hotel. Then he bought the Sands, the Frontier, and more. A buying spree was on. In the shadows behind those perpetually drawn curtains in his penthouse, Hughes was plotting a one-sided rivalry to undermine Kirk's grand plans. To the hermit billionaire,

Las Vegas wasn't big enough for two kings of gambling. And it's funny, in some of his memos that he wrote, he compares him and Kirk to two tigers. He's like, there can't be two tigers on a rock. There can only be one tiger. It's just, I don't know. Howard Hughes is such a peculiar person after reading two massive books on him. It's just bizarre. So, you know, I'm not trying to glorify the fact that this guy goes all in on everything and that he has a penchant for gambling because when it works out, it works out really well. But when it doesn't work out, it can wipe him out. And he came close. At one time, he came close to, like he had a, he almost defaulted on a loan. And if he default,

and then he had another loan that had like a clause in there that if he defaulted on a loan and if he default and then he had another loan that had um like a clause in there that if he defaulted on any other loan that that loan would come due immediately so he's like a few even when he was like over he was over a billion at a time he was a few weeks from like insolvency so uh he definitely pushed it to the limit this is an example of highly leveraged plus high interest rates and this actually goes against him and this is about the international hotel uh the international hotel's early financial returns were sensational into international leisure that's the company he created uh international leaguer leisure stock steadily climbed steadily so he did a public offering to help raise funds for the hotel kirk's original 82 ownership had been worth a modest 16

million before the hotel opened it It jumped to $180 million on the strength of steady profits at both the International and the Flamingo. He buys the Flamingo as well. It was time to take advantage of all the good press and potential investor enthusiasm by preparing for another public offering of International Leisure stock. So he wanted to do it twice. Beyond raising enough cash to pay off the $50 million he had in high interest rate loans, Kirk expected this public offering to raise his next fortune. Okay, so remember that part though, he's highly leveraged. He's got $50 million of debt at a high interest rate. He's like, oh, everything's fine. The first public stock offering went well. The second one will take

care of all this business But it doesn't Before I get there though In the very next chapter There's this story that was amazing Because he starts buying The span of Kirk's interests were amazing At one time he He owned a fairly large stake

In all three automakers He owns MGM He winds up overtaking MGM, which I'm going to talk about right now. He's just got his hands in so many different things. He tries to buy Chrysler later on. He buys a hotel from Steve Wynn later on. And anyways, the reason I bring that up is because I'm always amazed as I go through these books. I've talked about this idea a bit in the past that books are the original hyperlinks. Like they'll lead you from one idea to another, right?

So when I did a podcast on the founder of the Creative Artists Agency, Mike Ovitz, and his book, Who is Mike Ovitz? In that book, we find out because Mike brokers, so there's this there's this family canadian family owns their they started out owning a bunch of distiller distilleries and selling alcohol and stuff and they oh eventually buy seagrams right and seagrams exists still to this day um well the descendants of the founder which his name is Sam Bronfman, they take the family's fortune. And then Mike Ovitz, I'm introduced to them because Mike Ovitz brokers a deal. I think they buy like MCA or something like that.

So the descendants of Samuel Bronfman also at the time own MGM. Okay. So we're about to be introduced into Sam Bronfman's son, Edgar. Now, when I read Mike Ovitz's book about Sam Bronfman, I was like, this guy sounds insane. Like, how does he start with nothing, winds up, you know, building this massively successful, massively profitable company, buys up all these other companies, and kind of keeps it like a family affair, because the company lasted like 120 or 130 years. He finally sold. But anyways anyways we're going to be introduced now to

edgar bronfman who at the time this is samuel ruffman's son he's living in here living and working in new york city and he's chairman of the mgm board and kirk wants to overtake mgm okay so it says edgar bronfman the chairman of mgm board of directors took a call from one of hollywood's biggest lawyers this name this guy named Gregson Botzer. Botzer had been quietly consulting with Kirk Akorian. And the point of the phone call, he now wanted to announce that Kirk would be launching a tender offer in the morning. In the morning, this is a bid for MGM. His bid, $35 each for a million shares.

His goal, management control. Did Bronfman want to sell the 40 year old the 40 year old head of the Seagram company in the United States was stunned by the news and outraged to be confronted with an uninvited takeover bid he declared his opposition immediately so I'm going to get into so he winds up getting MGM but but this is when he's got, he's highly leveraged, as I said earlier, and everything falls apart. So what happens is, you know, there's a lot of rumors that there's a skim going on in Vegas, that mobs secretly control these corporations.

Kirk was never implicated in any of this, but somebody found eight years earlier, the FBI had tapped this guy that was mobbed up and he was a bookie and he was one of the people that kirk would use to bet on um like sporting events or horse races and stuff so that guy calls kirk one day and he's like hey you know the your bet last night went my direction like you owe me twenty one thousand dollars how are we going to get it and kirk always paid his debts and everything else. He's like, okay, well, you know, we'll figure out how, like, you probably don't want a check for $21,000 from me. So Kirk agrees to write it out to some other guy. And then that guy gives that guy cash, right? This comes out eight years later when he's about

to do his second offering for the International Leisure Hotel and everybody pulls out. So remember, he's got $50 million at, I think it was like 15 or 18%, like really high interest rates. This is the late 1960s. And now he's basically forced to find a way out. So he's got to take on partners, even though remember in the past, he didn't like when he took outside investment. But before I get to that point, there's just some personality, some highlights on his personality I thought was interesting. It talks a little bit about the way

he was extremely disciplined. So it says, Kirk had always been health conscious and disciplined about regular exercise. He jogged daily and played tennis religiously. He ate small portions, drank in moderation, and despite bouts of insomnia, tried to keep an early to bed andbed and early-to-rise schedule. So it says basically he'd work like from 9 to 4,

so he'd work at 9 in the morning to 4 in the afternoon. Then he'd do an hour of vigorous exercise, and then he'd have a cocktail and go out to dinner. He abhorred ostentatious displays of wealth, starting with jewelry. He wore no bracelets, no gold chains, no pinky rings. He kept a simple Timex watch without a band in his pants pocket. And I'm jumping ahead in the story before I go back to how he gets out of the conundrum that he's in. But I found this fascinating because he winds up taking over MGM, increasing the value a lot, and then selling off pieces of it because he also bought United Artists and all these other movie studios.

But I thought I want to share this part because there's a pattern of how like the entrepreneurs that I've been reading about and talking to you about, they kind of abhor complexity. And so Kirk, one of his most famous quotes is like, he'd shake your hand on a deal and they'd be like, hey, don't let the lawyers mess this up or lawyers and accountants get in the way of what we're doing here. So this is how Kirk sold MGM to Ted Turner. He sells MGM twice, I think. And this is one of the times. So he just calls him up because he knows he met Ted. Ted's a little younger than him. And he just liked him. And he's just like, let me see if I can do a no BS deal with this guy. And says, listen, Kirk calls me. Kirk suggested that he wanted something around $1.5 billion. But at whatever price, it had to be all cash, no contingencies, and a no-outs commitment.

And the deal had to be closed in two weeks, start the clock. So it's a pretty easy deal to understand. We're going to settle somewhere around 1.5. It's going to be cash, no contingencies, and you've got two weeks. It wound up taking like eight months to close the deal because he had to round up money.

Kirk winds up financing some of the sale himself, similar to what the aircraft company did for him earlier in his career. But I just like the way he just laid it out in a very like simple and easy, like easy to understand. And, you know, as soon as they hung up, Ted starts working on the deal. Okay, so this part is about the negative new coverage and then, you know, it kind of all falling apart. And I've mentioned before, like one of my favorite books of all time is The Big Short by Michael Lewis, the book being way, way better than the movie.

And Steve Eisman is one of the people that saw the housing crisis coming and wound up becoming a billionaire based on his bets against the housing crisis. He was played by Steve Carell in the movie. Anyway, Steve Eisman, I've watched a couple of interviews with him, and he's got this great quote about summarizing all this financial shenanigans that was taking place at the time. He was famous because he went, I think it was the CEO of Bank of America, and he went to one of their investor meetings and just called out the guys, like, you don't know what you're talking about.

All the things you think are assets, they're going to zero. And in the book, it talks about, oh, my God, he had a realization that one of the people leading one of the biggest banks in one of the biggest countries in the world is dumb. That's Steve's words. So anyways, he describes it. He says, they mistook leverage for genius. And I love's words. So anyways, he describes it. He says they mistook leverage for genius. And I love that quote because again, leverage can make you seem really smart when

the market's going up and make you seem really dumb when you're coming down. So they mistook leverage for genius. And this is a mistake that Kirk makes. The negative news coverage continued. There was no question that any publicity that put Kirk in the same headline with the mob was very bad publicity. By the spring, international leisure was forced to withdraw its application for the second public offering, and Kirk had to hang for sale signs on everything. So all of his assets now have to be liquidated. Talks began with a very aggressive Baron Hilton of the Hilton Hotel chain. So Baron hilton is

conrad hilton's son conrad hilton is the person that founded hilton and i have a book on conrad hilton uh that will eventually appear uh in a founders as a founders episode in the future baron was eager for a partnership with kirk as joint owners of the International Hotel. So it says they're thinking about doing a 50-50 deal, and one of his advisors, one of Kirk's advisors is saying, hey, with a 50-50 deal, you'll have no say. You'll be arguing constantly. He pressed Kirk to sell only 49%. They'll never go for it, Kirk said.

The sale ended up coming together in stages. One reason for the protracted transaction was the dreadful condition of the stock market. So not only does he have leverage, not only does he have bad publicity, but now the stock market is crashing. It was heading to record lows and taking with it a paper with paper savings of millions of Americans and a big chunk of Kirk Korean's net worth. In just a few months, International Leisure stock, check this out, this is crazy, the stock had fallen from $65 a share to less than $6.50. Kirk had no choice but to sell at the worst possible time. Hilton paid only $19 million for roughly half of Krikorian's holdings,

nearly 3 million shares that a few months before would have brought in $180 million. Jeez, so he lost, what, 90% of his, almost 90% of his investment. I got a good kick in the ass, Kirk conceded to a close friend. And now we're going to see what he thought about this. You'll definitely have an understanding of Kirk after this. He didn't care if they changed the name of the International Hotel to the Hilton, and he shrugged off questions about the staggering paper loss on the deal. But in a rare public display of temper, Kirk let his feelings show when asked about sharing management control with his friend Baron Hilton and his team.

They can talk all they want. They can call it Hilton Hotels. I have no ego problems, but we own equal voting control. We have two directors. They have two. I hate even that. I like to call my own shots. It's my place more than Baron's and Conrad Hilton's, so I'm not going to dance to their tune, and they can go whistle. Like any sane gambler, Kirk never looked back. He wanted no part of what-if speculations, no second-guessing about past decisions, learn a lesson from mistakes, and move on. That was Kirk's way. But Kirk's legal and financial advisors wanted to blame the SEC. They estimated that Kirk lost $100 million as a direct result of the stock offering denial.

Kirk blamed Kirk. He had let himself become vulnerable. He hated that. He hated feeling helpless and at the mercy of forces beyond his control. It took much of the fun out of his life and out of his business. He vowed never to let anything like that happen again. And he never does. That is where I'm going to leave this story.

Most of the story, he winds up making a lot more money from the point we are in the story. If you want to read more about it, I recommend the book. It is absolutely fantastic. It's well worth your time. I'd recommend buying a copy. If you want to buy a copy and support the podcast at the same time, I'll leave a link in the show notes, but you can also go to amazon.com forward slash shop forward slash founders podcast. I will be back next week with another podcast or going over another biography of an entrepreneur.