When asked why they backed Donald Trump, the folks who propelled the billionaire developer to seven big victories on Super Tuesday frequently praise The Donald for his vaunted skills as a manager. We’ve all heard the most typical raves: “He knows how to create jobs, because he’s created thousands of them,” “He’s the only candidate who’s built a business empire, so there’s no one better to revive the U.S. economy,” and “Who could better negotiate trade deals—look what he’s done in real estate!”
Hence, they’re essentially buying Trump’s claim that he’s one of the great, self-made real estate moguls in America, boasting a net worth exceeding $10 billion, and employing many thousands of workers. Selling this towering success story is essential to making Trump America’s next POTUS.
But how big is Trump’s “empire,” really? Since his holdings are private, we’re mainly taking The Donald’s word. One of the best inside views of how he establishes the value of his enterprise, and how flexible those values are, comes in his extensive testimony in a defamation lawsuit Trump filed against a writer and publisher. In December of 2007, Trump testified in a case alleging that Tim O’Brien, author of TrumpNation: The Art of Being the Donald, had severely damaged his brand by alleging that the tycoon was blatantly exaggerating his net worth, and seeking $5 billion in damages. The case was dismissed on summary judgment in September 2011.
Nonetheless, the case produced what may be the only official record, with probing questions, of Trump detailing how he calculates his net worth and values his properties—something that voters should have a keen interest in these days. The deposition occupied two days, and the transcript runs 740 pages. Throughout, Trump revealed a kind of vague, ethereal perspective on real estate, where the numbers normally used to establish market value—such as discounted stream of future rents—are less important than Trump’s own gut feel for what his holdings are worth.
The bottom line: Trump regularly assigns a gigantic range of possible values to properties that should be pretty straightforward to appraise, and chooses the values that are the highest, and that the actual numbers may not support. If as Warren Buffett says, accounting is the language of business, The Donald seems to have come up with his own personal dialect.
The most famous part of the deposition, which has been quoted frequently, is Trump’s highly philosophical discussion of how he determines his wealth. Asked “Have you always been completely truthful in your public statements about the net worth of properties?”, he replies, “I try,” then goes on to say the number depends on “My general attitude at the time that question may be asked,” and “it’s very subjective, sometimes you’ll have someone who will pay five times more or substantially more than someone else would pay.”
The deposition, though, is packed with much more juicy material that’s gotten very little attention. The defense attorneys in the case charge that in a 2004 financial statement given to North Fork Bank, Trump claimed a net worth of $3.5 billion. He also provided North Fork with his tax return. The bank, however, conducted its own analysis, finding that the real number was $1.2 billion. Replied Trump: “The lowest I can get are the numbers already in [my own] statements. I think they are extremely conservative.”
Deutsche Bank didn’t share that view. Presented with the same financial statements, its credit team established a different number for Trump’s net worth, $788 million. “They have no idea what most of these assets are worth,” said Trump. “They’re discounting the hell out of the assets.”
O’Brien’s lawyers also challenged Trump for claiming that new members were paying $300,000 each to join his golf club in Westchester County. “Membership costs $300,000. I think it’s a bargain,” Trump had stated in one of his books. Records showed that the initiation fee actually paid was more like $200,000. That didn’t bother Trump, who argued that most members would keep paying fees for “20 or 30 years,” putting the total amounts paid over a couple of decades far beyond $300,000.
Trump also drew fire for telling TV host Larry King in 2006 that he employed 22,000 people. Trump admits that all those people are not on his payroll, but “if you think about all the suppliers and all the people that service things that I have, it could very well be around that number.”
Trump was typically vague about the range of his net worth, but that range started really, really high. “It could be close to $8 billion,” he said, adding that his brand was worth “a couple of billion.” He also said he couldn’t remember telling Crain’s Business that his enterprises had total “revenue” of $10.4 billion.
Trump explained that the number was plausible because at his casinos, “if you talk about the money played over the table, it’s probably low.” That’s an unconventional definition of revenue. If Trump’s revenues were really that high, his empire would be twice the size of real estate giants Vornado and Boston Properties combined.
Trump also dismissed the importance of tax returns in revealing wealth, just as he’s doing today. “Tax returns have nothing to do with net worth,” he explained. “With a tax return you take depreciation, you take this, you take that, you take contributions.”
In other words, a developer who’s really, really rich may pay a lot less in taxes than someone not so rich. We’ll soon discover if that’s the profile of taxpayer Donald Trump.