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A Lesson Learned On Financial Failures
How Donald Trump Faced Four Bankruptcies
No one has defeated bankruptcy triumphantly as Donald Trump has. A businessman, television personality, celebrity, and author, Donald Trump has a net worth of 2.9 billion, stemming from his empire of luxurious and grandiose real estate and properties from all over the world. Trump's extravagant lifestyle and outspoken manner, especially in politics, has brought him many criticism and resentment. But his ego does not let anyone falter him but instead keeps moving forward, as it can be seen in how he runs his business as well. Having faced with four bankruptcies; 1991, 1992, 2004, and 2009, in his 40 plus years in business, Trump still managed to be one of the most wealthiest and influential American, topping #134 on the Forbes Billionaires list in the United States. How does Trump repeatedly file for bankruptcy and still remain on top? First, he doesn't get his personal finance involved and second, he knows how to create a win-win situation.
After filing for Chapter 11 bankruptcies, Trump spoke to his investors and creditors to arrange a debt settlement program. By offering part ownerships of his companies to them, he was given a longer time period to pay off his financial obligation. It also reduce his personal debt, as it allowed him to avoid lawsuits from the lenders and thus avoid personal bankruptcy by keeping his own bank account separated.
Trump knows how to create a win-win situation. Trump proposed to the lenders that reorganizing the company would provide him the cash to improve his business. The reorganizing will have the potential to generate profit afterwards and allow him to invest those earnings into new markets and expansion, thus making more profits for the shareholders and allowing Trump to keep this high salary job.
Let's take a look back at Donald Trump's bankruptcies:
- In 1991, Trump assessment to use high interest bonds to invest in his Taj Mahal casino venture, did not worked as he had planned. Because he could not pay the $3.5 billion loan, he declared Chapter 11 bankruptcy. The banks negotiated with Trump and gave him a lower interest rate and a longer time period to repay the financial obligation in return the investors would receive a majority of the Taj Mahal casino ownership. Within months later, the casino was prospering.
- In 1992, Trump Marina Hotel Casino filed for bankruptcy. Trump again worked out a deal, with the help of top debt settlement companies, where he give up half ownership of the hotel to the lenders while he gets more time to pay off his debt. Eventually, after two years and personal sacrifices, the business was up and running again.
- In 2004, Trump filed for bankruptcy for his Trump Hotels & Casino Resorts that had accumulated $1.8 billion of debt. Again he restructured his debt by reducing his ownership and gaving bondholders stocks to help lower his debt as well as he gave up his title of CEO, but still remain chairman of the board. A year later, Trump Hotels & Casino Resorts came out of bankruptcy with a new name called the Trump Entertainment Resort Holdings.
- In 2009, Trump filed for bankruptcy for his Trump Entertainment Resort Inc. that had a $1.2 billion obligation. Trump had settle the debt by allowing Avenue Capital Management, a hedge fund company, to take over Trump Entertainment Resort Inc. Trump would still receive a small portion of stock in the reorganized company and for the use of his name.
His Name Is Everywhere
Trump Bankruptcies History
Famous Celebrity Bankruptcies
Anna Nicole Smith; a model, actress, and television personality, filed for bankruptcy after her second husband passed away and did not leave her with any of his fortune. Court battle ensued with her husband's family that contributed to her high financial cost as well as a sexual harassment lawsuit and her personal drug addiction.
Mike Tyson, a professional boxer and heavyweight champion, filed for bankruptcy protection due to his squandering in lavish spending, divorce settlement, lawsuit against promoter Don King, and several court cases for his troubles with the law.
Gary Coleman, a actor, filed for bankruptcy due to many factors including ongoing medical expense and financial mismanagement from multiple contributors such as his accountant, adoptive parents, agents, lawyers, and himself.
Larry King's, a television and talk show host, bankruptcy arise from accusation that he had stolen money from his business partner, Louis Wolfson. Ongoing court cases took a toll on his finance as well as his career and job opportunities was ruined due to the scandal.
Walt Disney, creator of the Walt Disney Production, filed for bankruptcy many times due many factors including failed business venture, the Laugh-O-Gram Studio, the making of the film Snow White and the Seven Dwarfs, completing the construction of Disneyland, and much more.
Borders: The Bankruptcy Chapter
Borders, the once dominating bookstore in America, has filed for bankruptcy after 40 years of business. What caused Borders' demise? Here we compiled a list of explanations that led up to their bankruptcy:
1. Slow response to the growing e-commerce - When competitor, Barnes & Noble, responded to consumer shift for online shopping, they established their own online bookstore giving them first-mover advantage. In a slow response to this, Borders took a different direction with e-commerce and made an alliance with Amazon.com, an online store, to sell its books on their site. This alliance created a negative effect for Borders' business as it relinquish control to another company; hurting its brand and cutting its customer base. It took them 7 years to start their own online store, but by then Borders was already seeing a sharp decline in market share.
2. Over-invested in music products - In the 1990s, Borders changed their business operation by including music and movie products to become a entertainment and book retailer. A bad move, as demand have shifted from CDs to MP3s, especially when the iPod, a MP3 player by Apple Inc., came out. Wasted investment and lack of CD sales contributed to Borders' bankruptcy.
3. Lack of foresight to the E-books demand - Much like the consumer shift for MP3s, so was digital books. When the Amazon came out with the Kindle, an e-book reader, consumer demanded more of these electronic reading devices as oppose to traditional paperback/hard-covered books. The decline of consumer sales for traditional reading books drastically changed the landscape of the bookstore industry which Borders failed to notice and take action to combat this change.
4. Over-expansion of brick-and-mortar stores - While demand grew for e-books and online shopping, Borders continued to expand its useless brick-and-mortar stores. Initially with 1,249 stores nationwide, Borders liquidated to a mere 642 stores in February 2011 as it could not pay for the operational cost. A few months later, Borders cease to exist.
5. Poor financial management - Prior to the 2008-2009 recession, Borders had restructured twice and owed about $350 million dollars to its lenders. Borders mismanaged their finances when paying publishers for their books, expanding their stores, and made poor investment to failing products. By the end of their bankruptcy hearing, Border listed $1.29 billion in debt and handed over $1.27 billion in assets.