On Wednesday, the Los Angeles Times took a good look at Donald Trump’s business empire and how he built it with the aid of government largesse.
Today it’s The New York Times‘s turn, and it’s even better, with an investigation by Michael Barbaro that raises serious questions about how Trump’s business interests increasingly ensnared consumers in the last several years in money-losing ventures, including shaky real estate developments and a bogus online “university.”
Trump is still primarily known as a developer but he doesn’t build much any more and he hasn’t for years. He’s more of a franchise or a brand these days, and that’s much more lucrative and far less risky than putting up equity to build a skyscraper or casino, as Trump knows from going bankrupt in the early 1990s and from his casino businesses (!) going bust a couple of times since.
Here’s how it works: In much the same way that hotel brands like Marriott and Sheraton don’t much build hotels themselves anymore, Trump doesn’t either. For an upfront fee and a percentage of all future revenue, they sell franchise rights to hotel developers who take on all the highwire risk in the hopes of benefiting from the chains’ brand name and loyalty programs.
The Trump brand is worth a lot of money to real estate developers who want to build luxury condos. Every condo is marketed as “luxury” these days, and they want something that sets them apart. The gaudy Trump brand gives their developments cachet and automatic media attention, which helps them get a leg up on the pre-sales that most every condo development needs to get going. They charge a premium per square foot, too, for the Trump aura. All that ultimately helps developers get financing, which they can’t live without.
Trump can charge a lot of money for all this. The Times reports he got $4 million plus a cut of any profits for slapping his name on a project in Tampa Bay.
But Trump may have had more risk than he thought in these licensing deals. The Times makes a persuasive case that Trump deceived consumers by telling them he was developing the projects when, in fact, he had no skin in the game. Here’s how he marketed the Tampa Bay development:
The marketing materials left little doubt that Mr. Trump was a driving force behind the 52-story tower: “We are developing a signature landmark property,” Mr. Trump declared in a news release unveiling it, which described him as a partner. In a marketing video, Mr. Trump called it “my first project on the Gulf of Mexico,” and even showed up to mingle with potential buyers at a lavish, catered event. “I love to build buildings,” Mr. Robbins recalled Mr. Trump telling the audience.
A confidential agreement, later made public in court filings, told a different story: Mr. Trump was not one of the developers or builders.
There’s no way around that: It’s deceptive marketing. He’ll be forking over some cash for that.
The Tampa project isn’t the only one:
But when three of the planned buildings encountered financial trouble, it became clear that Mr. Trump had essentially rented his name to the developments and had no responsibility for their outcomes, according to buyers. In each case, he yanked his name off the projects, which were never completed. The buyers lost millions of dollars in deposits even as Mr. Trump pocketed hefty license fees.
Those who bought the apartments in part because of the Trump name were livid, saying they felt a profound sense of betrayal, and more than 300 of them are now suing Mr. Trump or his company…
Alan Garten, a lawyer for Mr. Trump’s company, said that, regardless of what Mr. Trump himself or any marketing materials had suggested, his role was disclosed in lengthy purchasing documents that buyers should have carefully scrutinized. But in an interview, Mr. Garten acknowledged that, “without a lawyer, it can be difficult” to understand such documents.
Oops. Ya fired, Garten. That’s a bit too candid.
The Times is also excellent to look at Trump’s for-profit education empire. He’s also lent his brand to that scandal-ridden industry, dangling the false promise of wealth in front of consumers.
This, on how Trump tries to use high evaluation percentages as a defense against consumer complaints, is amazing:
Students said the evaluations must be put into context: they were told to fill them out using their names, often in the presence of the instructors they were assessing. Mr. Tufenkian, for example, said he gave high marks to the program after his mentor told him he would not leave until Mr. Tufenkian did so. “I had to fill it out right in front of him,” Mr. Tufenkian said.
The school has repeatedly sought to use such evaluations to raise questions about the credibility of unhappy former students. After Tarla Makaeff, who spent about $37,000 on Trump classes, joined the lawsuit against the school, the company released raw footage of a Trump University videographer approaching her in a hotel conference room, asking her to assess the program and her mentors. On the video, her mentors can be seen standing beside her, clearly within earshot. While warning that “we just got started,” Ms. Makaeff, 37, calls the mentors “great” and “awesome.”
The Times also reports that some former students allege that Trump University “promised intensive one-on-one instruction that often failed to materialize. And its mentors recommended investments from which they stood to profit.” Trump was forced by the states to change the name of the “school” because it misled people. Meantime, Texas is investigating its practices, and Trump has shut it down temporarily.
I’ll leave the kicker to Edward Ericson Jr., who left this comment on my LAT Trump post:
What no one has done yet, though, is examine how & why Trump has any credibility with anyone, anywhere. The way the dude presents, everything about him that is not sleazy is fraudulent. So why, after 30 years of this, is his name of any value?
ADDING:
Henry Blodget pulls a fun clip (with a bogus headline, naturally) of Trump raging against the Times and Barbaro this morning on CNBC:
Good for whoever the Simon guy was on CNBC for pushing back hard against Trump. UPDATE: Looking at the TVEyes rush transcripts it looks like it was Simon Hobbs, bringing a welcome bit of British interviewing style to American TV.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.