Do More. Do Better. No Excuses.
Tough Wisdom From a Self-Made Billionaire
Sitting on the terrace of the Oak Room, the 25th-floor members-only sanctuary in Houston’s luxurious Post Oak Hotel, Tilman Fertitta is making his introductions when he spots an errant piece of potato chip on the floor. He instinctively scoops it up and discards it—though he does, in fact, own the joint, so there are plenty of wait staff at his disposal to do this sort of tidying up. But it’s second nature to a billionaire who learned the restaurant trade from the ground floor and can’t stifle his inner busboy. Fertitta has stepped outside on this warm sponge of a Houston evening to escape the typically frigid air conditioning within—is every thermostat in this town set to 60 degrees in the summer?—that’s overmatching his standard dark T-shirt and jacket. But noise from the traffic on the I-610 freeway below is incessant, so he rises and prowls the terrace as if to assess any possibility of ending this acoustic outrage. “There must be something we can do,” he says.
Maybe he’ll have the highway moved.
Over the past four decades, Fertitta has built Fertitta Entertainment, a restaurant, gaming, hospitality, amusement, and sports conglomerate—and become a business celebrity, with his own TV show, Billion Dollar Buyer— by demonstrating an ability to pay attention to little things and pull off big deals in whatever proportion is necessary.
He became an entrepreneur at age 20. About 10 years later, after buying control of a small Houston-area restaurant company named Landry’s in late 1986, he embarked on a classic roll-up strategy, giving him 522 restaurants today under some 60 brands, including Mastro’s, Willie G’s, Bubba Gump Shrimp
Co., Chart House, Saltgrass Steak House, Bill’s Bar & Burger, Morton’s, and, most recently, Del Frisco’s. Fertitta and his family also own four aquariums and a Hilton, a Holiday Inn, and a Westin, among other hotels, plus a Bentley and Rolls-Royce dealership. There’s the Pleasure Pier in Galveston and another one in Kemah, Texas. Oh, he has casinos, too. And an NBA basketball team. This year, those assorted businesses will generate around $4.6 billion in revenue and throw off $800 million in ebita.
“I’d like to say I’m the smartest guy in the room, but I’m not,” he tells Inc., which may or may not be false modesty. You can’t go to any of the company’s websites without seeing his permanently grizzled mug gazing from the cover of his new book, Shut Up and Listen, which pretty much makes the case that of course he’s smarter than you. “But I do more things better than most people,” he concedes.
He’s got a point there. “Do more better” could be his mantra. It’s essentially the difference between being an investor and being an operator. Over time, Fertitta taught himself to be a master executive and applied those skills to an ever-expanding number of business lines. “People called him a restaurateur,” says Rick Liem, his longtime CFO. “But he’s really an entrepreneur, and a really, really good businessman. I don’t care what the business is. He will figure it out.”
One of the things he figured out was the gaming industry. In 2005, as CEO of Landry’s Restaurants Corp., then a public company, he spent nearly $320 million to buy the Golden Nugget casinos on Fremont Street in downtown Las Vegas and in Laughlin, Nevada. He had no experience in the casino business, and the price was a steep multiple. When he first brought the idea to his M&A guru, Dave Jacquin, founder of North Point Advisors, the advice was not ambiguous. “I told him, ‘This is crazy,’ ” says Jacquin.
But I have a plan, Fertitta responded. And the plan was: Tilman Fertitta. “He makes the bet on himself,” says Jacquin, “and then he makes those bets pay off.”
The bet was to spend $300 million to renovate the Fremont Street Golden Nugget and build a new tower, despite some classically bad timing. When the financial crisis struck in 2008, the ferocious downturn that followed impaled Vegas. The industry’s biggest company, Caesars Entertainment Operating Co., would eventually go under, weighed down by more than $20 billion in debt. Landry’s, too, had debt maturing in 2008—and lenders were evaporating.
But Fertitta proved to be one of the few in the industry who performed during the tough times. “Throughout the crisis, he did a remarkable job operating his company,” says Rich Handler, CEO of Jefferies Financial Group, the investment bank that backed him in refinancing the company’s debt. Fertitta would go on to buy three more casino properties, including the bankrupt Trump Marina Hotel and Casino in Atlantic City, all of which would be rebranded as Golden Nuggets. The casino division will produce $300 million in operating profits this
year on revenue of $1.1 billion.
Two years ago, Fertitta made another highlight-reel acquisition. When his hometown NBA Houston Rockets became available, he directed Landry’s to write him a dividend check for $1.7 billion so he could fulfill a lifelong dream and buy the team. He’d been a season-ticket holder for 40 years and at one point a minority owner. The price tag: $2.2 billion. To clinch the deal, he made a down payment of $100 million to then-Rockets owner Leslie Alexander. “I told him, ‘If I can’t close, the money is yours,’ ” Fertitta says.
He closed in 50 days, an NBA record for a franchise transfer. The price was an NBA record too. Told that he might have overspent by a couple hundred million, Fertitta’s response was: “What’s $200 million in 10 or 20 years?” He meant that the value of a modern NBA franchise goes in one direction—up. (The Brooklyn Nets just changed hands for $2.35 billion.)
Bold moves such as buying the Golden Nugget and then the Rockets may give the impression that Fertitta, 62, is your swashbuckling, bet-the-ranch Texas wildcatter. He certainly has the toys: a pair of Gulfstream GVs, two helicopters, and a 164-foot yacht called Boardwalk. (He’s ordered a bigger one, too.) He built the Post Oak Hotel not because Houston needed a five-star hotel, but because Tilman Fertitta needed one. He spent $400 million to build it. He paid cash.
But the flash can be deceiving. Last October, he offered to buy the recapitalized Caesars, an audacious proposal given that his Golden Nugget casino hotels are still jacks compared with Caesars’ kings. When Eldorado Resorts offered $17.3 billion for the company, a deal he found too rich, Fertitta quickly folded. “I would have been gambling my whole company, and I have a pretty good program as it is,” he tells Inc. “When I was smaller, I took huge risks, but now that I’ve made it, I can’t do that.”
Following the Rockets acquisition, the company started grinding out its $4 billion in debt like a homeowner dutifully paying down a 30-year FHA mortgage, only in this case to the tune of $200 million a year. Fertitta’s goal is to make sure “the paddle doesn’t hit my ass”—the unforeseen risk that can strike any entrepreneur. Avoiding the paddle, and taking advantage of companies that don’t, has made the increasingly conservative Fertitta increasingly wealthy.
With the restaurant industry saturated and economic slowdown in the air, Fertitta is experimenting with new ways to finance deals. “We don’t have the flexibility to do some of the things my dad relied on in the past,” says Fertitta’s son and aide- de- camp, Patrick, 25. “So it’s just being a little bit more creative.” For instance, Fertitta and Jefferies filed an IPO for a special purpose acquisition company, or SPAC, which is a vehicle that can be used for anything—like, say, merging with another restaurant company.
In other words, if the economy goes south, Fertitta wants to be ready. “You gotta remember,” he says, “I’m worth $5 billion today because I’m an opportunist.”
Fertitta believes he was put on earth to be an entrepreneur. As a kid, he says, “I never watched cartoons. I carried a briefcase.” His father, Vic, owned a restaurant called Pier 23
“If You Confuse, You Lose”
Megan Eddings moved to Houston to work in medical-equipment sales, but a household issue prompted a rethink. When her husband’s persistently malodorous workout gear began to annoy her, she hatched the idea of creating a smellrepelling fabric. A chemist by training, Eddings turned her obsession into Accel Lifestyle, which makes “stink-proof ” activewear. She discussed her startup with her mentor, Tilman Fertitta, whose TV show, Billion Dollar Buyer, has helped startups make a deal with one of his companies. Her fabric could be used in chefs’ outfits—and Fertitta has more than 500 restaurants. —As told to B.S.
Fertitta How long have you been working on this, Megan?
Eddings I started developing the fabric about three years ago. I didn’t officially launch until recently, because it took a long time. I actually invented the fabric. My background is in chemistry, and
I was tired of throwing away my husband’s stinky workout clothes. It was driving me nuts.
Fertitta Y’all ever think about throwing his clothes in the washing machine?
Eddings That’s what was driving me nuts. You can wash that kind of dry-fit, polyester-type material, but the moment he started sweating in it again, the shirt became—I coined this term—activated. Fertitta How can I help?
Eddings A lot of times, people say wholesaling might not be the best way to go, because if my white T-shirt is sitting there and it’s $70, and a Hanes white T-shirt is also sitting there and it’s $20, it’s going to be tough for someone to spend that $70 until they have familiarity with the brand. But I believe the way to get the brand out there would be through wholesale. What do you think?
Fertitta You have a unique product, but I don’t think you’re going to be able to sell it to a big retailer at this point. I don’t think you could even scale up to produce enough. What you want to do is find some little boutique stores around town that could carry your product. Do you have a huge label that explains what it is?
Eddings No, and, actually, I saw that in one of your Billion Dollar Buyer episodes. I have a hang tag that briefly describes just the proprietary anti-stink fabric, and says “Made in USA” and “ethical,” but I definitely could expand the hang tags, for sure.
Fertitta I would do something that’s real Millennial-looking, with unique fonts—everything that would attract attention. I like the name No-Stink Athletic Wear. It’s a catchy name.
Eddings I’m tooling with something like Anti-Stink. Or, actually, a friend who’s in marketing said “Sweat, Don’t Smell” fabric.
Fertitta That’s too long. I like No-Stink. Remember, what is Google? What is Yahoo? What is Alphabet? You’ve got to have catchy phrases today, and I think No-Stink works. Explain what it is and use an organic-looking tag that hangs off the shirt.
Eddings Perfect. Absolutely. I love the No-Stink. I read this quote—it’s funny how quotes stick with you—about a month ago that said, “If you confuse, you lose.”
Fertitta One hundred percent.
on the water on Galveston Island, a beachfront near Houston. Fertitta began working there in his teens and gradually mastered each piece of the operation, from the kitchen to the front of the house, until he could essentially run the place without adult supervision. He was, he realized, particularly adept at numbers.
A restless student, Fertitta bounced from Texas Tech to the University of Houston, making his first investments along the way. He dropped out because of financial considerations: “I was making too much money,” he says. (No hard feelings: He’s now chairman of UH’s board of regents.) In 1978, he began dabbling in retailing with a women’s apparel store, and then hawked Shaklee’s vitamins and health supplements at franchise stores that he opened around Houston. The Shaklee experience was valuable, he says, because it taught him how to make presentations in front of large groups and prepare sales decks.
He proved to be an early adopter. When video arcade games exploded in the early 1980s, he became a distributor of Pac-Man and other machines, splitting the take with local hotel, bar, and store owners. Decades later, he would be out front on online betting in his Atlantic City casino and quickly built a category leader. He also formed a construction company and built homes and small shopping centers as the Texas real estate market boomed, financed by easy money from local savings and loan companies.
He was $2 million in debt when the commercial real estate market toppled, begetting the savings and loan crisis of the mid-1980s. Though later that credit crunch would seem like small change compared with the Great Recession, every S&L in Texas failed. There was no lending, and no hope. But with the help of an attorney who worked for his cousin’s law firm, Fertitta renegotiated his debt on favorable terms. He then used everything from equipment leases to credit cards to get back in the game. “You could not borrow money in Texas for 10 years,” he says of the banking meltdown. The helpful lawyer, Steve Scheinthal, was so impressed by what he saw that in 1992 he quit the cousin’s law firm to work for Fertitta—and has never left. Why? “Because he was dynamic, and he was brash, and he was a visionary,” says Scheinthal, who is now the company’s executive vice president. “He had ideas, and they all seemed to make sense.”
One good idea: They could compete with the dominant seafood restaurant brand, Red Lobster. After buying control of Landry’s and its sibling, Willie G’s, in 1986 from the Landry brothers and their partners, Fertitta set to building. There were some dud Houston locations, but eventually Landry’s—upscale but accessible—began to catch on.
What he lacked was a currency to fund growth. Red Lobster and the fast-growing Outback Steakhouse each had access to equity shares. So in 1994, Landry’s went public. “I was doing $40 million [annually] and making $4 million,” Fertitta says. “You go public as a hot concept, and you wake up and you’re worth $100 million.”
A lot of entrepreneurs can’t adjust to public ownership or cope with the hyenas in Lower Manhattan. Fertitta proved he could play Wall Street hardball in a two-year quest that took the company private again in 2010 for $1.4 billion, as he fended off activist investors who accused him of lowballing the price. “He is one of those unique operators who understand capital markets as much as Wall Street does,” says Jefferies’s Handler.
That understanding has shaped the restaurant segment. In the aftermath of the recession, Fertitta played the great white shark in a sea of wounded seals, devouring chains ranging from tourist trap Bubba Gump to high-end steakhouses like Mastro’s. The company’s recipe: Buy restaurants with strong concepts and great locations but subpar execution and swiftly bring them up to Landry’s standards. That means, if necessary, a redesign, as with Morton’s, and no skimping on maintenance, which has always been one of Fertitta’s bugbears. “You’ve got to spend maintenance capex dollars,” he says. “That’s the best advice I can give anybody who operates a big company.”
The most recent pickup of a flailing competitor: the
“People called him a restaurateur, but he’s really an entrepreneur. I don’t care what the business is. He will figure it out.”