Jonathan Lipson

Donald Trump’s campaign for president often seems baffling. That’s because he is playing a very different game from what we expect in general elections. He learned it in bankruptcy proceedings. Having taken his Atlantic City casinos through bankruptcy multiple times, this is a game Trump knows how to play and win — at least for himself, if not necessarily for his companies or others who may depend on him.

The process of restructuring troubled businesses such as Trump’s casinos is replete with posturing, table pounding, empty threats, puffery, head fakes and the occasional desperate gamble. If all that sounds familiar, it’s probably because you heard it from Trump in this week's presidential debate. Bankruptcy could be the real model behind his unconventional political behavior.

Corporate bankruptcies are complex and contentious affairs. Scores of creditors and shareholders grapple for slices of a pie that is too small to feed all of them. Ordinarily, the expectation is that shareholders will be wiped out, because the company is insolvent, and managers will be fired, if they created the problem.

Trump certainly made a mess of his Atlantic City casinos. In 1995, after their first trip through bankruptcy, he sold stock to the public, which peaked at about $35 per share in 1996. During the next eight years, he managed them to staggering losses, the shares trading for pennies by 2004, when he put them back into bankruptcy.

Yet Trump personally fared well. Although he lost his title as CEO, which paid $1.5 million per year, he actually got a raise — to $2 million — for continuing to chair the casinos’ board of directors and make promotional appearances. Rather than being wiped out, he retained nearly 30% of the company’s stock. Other stockholders received about 8% (the rest went to creditors). He also received real estate and a share of the Miss Universe Pageant.

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How did he do this? With tried-and-true bankruptcy tactics that resemble those he is using in the presidential race.

Because Trump had performed so poorly as CEO of the casinos, he had to convince creditors he was indispensable to their future. He did this through the brinksmanship typical of bankruptcy negotiations, offering outsized carrots and sticks that made him appear to be the least bad option.

His biggest stick, ironically, was himself: If he did not get what he wanted, he might walk away, taking his name with him. This would have been a real problem for creditors. While the $124 million valuation of the Trump brand was probably exaggerated, the alternative creditors faced — running the casinos without it— doubtless seemed worse.

This made the “carrots” he offered that much sweeter: free use of the brand, plus $55 million cash for the casinos. “Things may have been bad with me,” we can imagine him saying to creditors, “but they will be so much worse without me.”

An otherwise fractious group, creditors and shareholders ultimately agreed, although they later regretted this. The casinos continued to do poorly, going back into bankruptcy in 2009, and again in 2014.

While Trump’s casinos failed terribly — they went through more bankruptcies than any others in Atlantic City, creating extraordinary losses and shedding thousands of jobs — the experience was good for him. He recently bragged to The Washington Post that he "made a lot of money in Atlantic City" because "I make great deals for myself."

Bankruptcy and running for president are both high-stress affairs. Being familiar and (personally) successful with bankruptcy, Trump might think that tactics that worked there would work here.

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As with the casinos, his “sticks” have been designed to make himself appear indispensable. He has done this directly (“I alone can fix it”) and through aggressive attacks on Hillary Clinton, as when he told an Iowa rally that she is "unbalanced," "unstable," "dangerous" and "pathological." His promise to save the nation from a Clinton presidency appears more valuable when he threatens to walk away without regret if he does not win, as when he told CNBC that “I’m going to have a very, very nice long vacation.”

The “carrot” is his seemingly unrivaled capacity to voice grievances of those that other mainstream politicians have not. As The Atlantic wrote last spring, a “feeling of powerlessness and voicelessness was a much better predictor of Trump support than age, race” or other socioeconomic factors. No other Republican was willing to take on trade or immigration as Trump has.

Having leveraged this outsider status to win the nomination, he now needs only to make himself seem less bad than Clinton. While many Republicans remain skeptical, they may also feel like the creditors in the Trump casino bankruptcies — trapped, with no viable alternative.

Jonathan Lipson, a professor at Temple University's Beasley School of Law, is an expert on corporate bankruptcy and commercial law who is studying the Chapter 11 bankruptcies of Trump's Atlantic City casinos.

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