Kirk Kerkorian: The Lessons of Leverage
“Life is a big craps game. I've got to tell you, it's all been fun.”
In late 1969, the past was catching up quickly to Kirk Kerkorian. The high school dropout had done well for himself, as he parlayed a small nest egg into the biggest hotel casino in Las Vegas, control of Western Air Lines, and a major stake in Hollywood’s MGM studio. But his success was built on leverage, including some cobbled together from expensive, and increasingly anxious, European lenders. To avoid his empire from toppling over, Kerkorian needed to sell more of his stock in International Leisure, his hotel company. But when a mob trial surfaced a recording of him in conversation with a bookmaker and mobster, Kerkorian, already under investigation for purchasing the mob-connected Flamingo casino, was blocked by the SEC. He had gambled high and was running out of time.
Kerkorian is one of my favorite rags-to-riches stories. He started with a small charter airline and eventually dominated the Las Vegas strip and raided companies like Ford and GM. Fittingly, his biography is titled The Gambler. This piece is based on the biography and some supporting articles and profiles, of which there are precious few as Kerkorian generally avoided the limelight.
The man was an outsider, self-taught, and pulled off an impressive range of investments in both private and public markets. He found a big trend to invest in – demand for leisure – and expressed his bet through airlines, casinos, hotels, and media and entertainment companies. His story illustrates how leverage gives and takes. Kerkorian borrowed heavily for his most ambitious ideas. But every so often, the market turned against him and forced him to relinquish much of his winnings. Similarly, Kerkorian took advantage when he found his counterparties overleveraged.
In this first of two pieces I will dive into Kerkorian’s rise.