An empire built on assets, not debt

Sam Morris

Phil Ruffin talks about his newest acquisition, Treasure Island, which he purchased from strapped gaming giant MGM Mirage for $775 million. Ruffin had the money to buy the Strip resort at a time when banks weren’t lending because he had sold the New Frontier for a record $1.24 billion and therefore could pay cash.

By Liz Benston

Sunday, April 26, 2009 | 2 a.m.

Ruffin Takes Over T.I. (3-21-2009)

Viewing video requires the latest version of Adobe's Flash Player

Share

• del.icio.us
• digg
• Facebook

E-mail this to a friend »

URL:

Download

• 720p - Quicktime
• iPod

Share

• del.icio.us
• digg
• Facebook

E-mail this to a friend »

URL:

http://www.lasvegassun.com/videos/2009/mar/21/1870/

Embed

Kansas billionaire Phil Ruffin reflects on his $775 million purchase of Treasure Island and his first day as the Strip's latest casino owner. Ruffin purchased Treasure Island from MGM Mirage Friday morning.

Treasure Island-Phil Ruffin

Launch slideshow »

Phil Ruffin prefers numbers to grand statements.

He starts his story by writing numbers on a whiteboard, beginning with $20 million and ending at $1.2 billion, with a few numbers in between.

The whiteboard reveals no secrets.

“Luck doesn’t have anything to do with it,” he says. “You’ve just got to think about how these deals work.”

The man who went against the grain, made big money, became a hero and got the girl isn’t much for self-aggrandizement.

“Casinos are like any other business — it’s a profit center,” he said. “It’s not that complicated.”

• • •

If Phil Ruffin, the owner of Treasure Island, were to write a book, it might be called, “How to Turn $20 Million Into a Billion Dollars.”

Or, “Why I Hate Debt and Why You Should, Too.”

It wouldn’t be filled with cliches on how to get rich quick or live more frugally. Instead, it would read like a short morality play — a kind of fairy tale about a man who built a profitable empire without succumbing to the desire for more money or a grander lifestyle. In the race to resort riches, Ruffin hung back, emerging with an impressive estate amid the crumbling fortunes of his competitors.

The story of how Ruffin acquired Treasure Island could begin as early as 1972, when Kansas became one of the first states in the nation to legalize self-serve gasoline stations. Ruffin, a college dropout, scraped together the money for his first business venture — becoming the man who pioneered self-serve gasoline.

From his Kansas headquarters, Ruffin accumulated a chain of more than 60 convenience stores in the Midwest. In 1972, Ruffin won the right to allow his customers to pump their own gas.

This mundane accomplishment was hard-won.

“There was a lot of opposition from the major oil companies,” Ruffin said. “They said women wouldn’t pump their own gas, that men in suits wouldn’t put gas in their cars.”

Ruffin used cash from the convenience stores to build his first hotel, a Marriott in Wichita, in 1987. He also had businesses including oil distribution and one of the country’s largest manufacturers of hand trucks. Those were just a sideline to bigger goals.

In 1994, Ruffin signed a 20-year contract to lease his convenience store locations to Total, a French oil company, for $2.2 million a year.

That money fueled the purchase of additional hotels, mostly Marriott properties. His company now owns 11 hotels.

Ruffin made a bigger move in 1995, borrowing $20 million on that $50 million lease to acquire the Crystal Palace casino resort in the Bahamas. The property cost $80 million, including $60 million in debts — a small price to pay for the tourism boom and resorts that followed.

In 1997, Ruffin borrowed $50 million from the prosperous resort to buy the beleaguered, then-57-year-old New Frontier casino on the Strip. Seller Margaret Elardi agreed to carry a note of $110 million that Ruffin would pay down over five years.

It was neither a lucky break nor an inside track. With a willing seller at war with her employees and a country western theme long past its prime, the New Frontier — once owned by Howard Hughes — was unattractive, stigmatized, even a liability.

The Culinary Union had picketed the New Frontier for seven years in response to Elardi’s efforts to shut down talks for better wages and benefits. Ruffin, with his open-minded attitude toward unions, brokered the end of one of the nation’s longest strikes. He received a champion’s welcome when he closed on the property in January 1998. With little fanfare, he adopted the union’s higher wage scale and benefits package. Though other executives might have avoided wrangling with a union with a death grip on the casino’s bottom line, Ruffin — a man driven by the logic of numbers rather than ideology — couldn’t understand what all the fuss was about.

Some unions are difficult to deal with but the Culinary wasn’t one of them, Ruffin said.

“I would never have agreed to anything that wasn’t reasonable,” he said. “Let’s face facts. $10 per hour is $400 a week, before expenses. It’s very hard to live on that. You have to get wages up so people can make a living.”

The Culinary and Ruffin came to terms on a new salary agreement that left both sides content, and the New Frontier stabilized.

Ruffin sold the Bahamas resort for $147 million in 2005 — money he socked away for future plans that included tearing down the New Frontier and building a high-end resort.

Ruffin had several ideas in mind for the site, the most recent being to build a $1.9 billion, Swiss-themed resort called the Montreaux.

Money wouldn’t have been a problem. Like other casino owners at the time, Ruffin was flooded with offers from banks eager to lend him billions of dollars. The banks were willing to leverage nearly all the assets Ruffin owned, from his hotels to his oil and gasoline businesses.

“The banks were throwing money at everything,” he said. “They were lending like crazy.”

Like a reluctant celebrity, Ruffin turned them all down. He killed plans for the Montreaux after the expected cost ballooned to $2.7 billion.

The economy wasn’t the problem. Business wasn’t growing as fast but wasn’t in decline. Ruffin, along with other Strip executives, was ignorant of the downturn to come.

The debt, he decided, was simply too much. The lowest possible interest on a billion dollars was still tens of millions of dollars — large by any measure. A significant decline in earnings and the whole thing could come crashing down.

“It was very tempting to take that money. But I was worried,” he said. “It wasn’t worth it.”

While others grew their fortunes with Wall Street money, Ruffin was offering $1.99 margaritas and bikini bull riding at the New Frontier.

His reluctance yielded the deal of a lifetime. He sold the New Frontier site for $1.24 billion in 2007 — a Las Vegas record — to a company that imploded the property and has yet to build on it.

In this cutthroat business, Ruffin’s reputation as a savior remains intact. After first neglecting to offer his employees severance pay, he ended up offering $1.2 million to them, including $8,000 checks to housekeepers and other longtime employees.

He was thought to have left the Las Vegas gaming scene until he pounced on the opportunity in March to purchase Treasure Island for $775 million. It was considered a good price for seller MGM Mirage and may help the financially troubled casino giant stay out of bankruptcy court these next few months as it attempts to restructure debts with lenders. Ruffin, who will need to hire more workers to fill jobs that were consolidated at the MGM Mirage corporate level, may have saved jobs that were at greater risk under its highly-leveraged former owner. Ruffin also is controlling labor costs alongside his new neighbors, capping vacation time at two weeks and eliminating 401(k) contributions.

Just as the overheated economy worked in Ruffin’s favor when he sold the New Frontier, the sour economy worked in his favor when he bought Treasure Island at a bargain price.

Ruffin knows that he could have been wrong. He could have taken the banks’ billions. The economy could have grown, or topped out. And he could have built a resort from the ground up — a more impressive legacy than simply owning a property that began in someone else’s imagination. But Ruffin doesn’t seem to bother with what others think — or might have thought, had his conservatism hurt his chances to make big money.

“I could have been wrong, but I wouldn’t have wanted the debt. I don’t like debt.”

Ruffin has traded golf shirts and slacks for expensive suits befitting his well-appointed office — a far cry from his former digs at the New Frontier, which resembled a carpeted, badly-lit warehouse.

But other touches of glamour expected of Las Vegas casino bosses seem to be missing.

The only evidence of his decade-long friendship with Donald Trump — who was best man at Ruffin’s wedding last year to a 26-year-old beauty queen from Ukraine — is an unframed photo of the pair propped up in a bookcase that’s too high to be easily visible. (Ruffin is a partner in Trump’s self-branded Las Vegas condo-hotel tower, which was built on part of the New Frontier land.)

Along with Ruffin’s collection of Remington statues, which complement Treasure Island’s elegant executive suite, Ruffin has his whiteboard, a holdover from his New Frontier days.

It’s all he really needs to explain his story.