Three casino moguls bought a winery. It ended their friendship
Invest / 28 January 2019, 06:00am / Christopher Palmeri
Mahana Estates Winery is about as close to paradise as a person can get on Earth.
With more than 50 acres of vineyards on the New Zealand coast, it features a restaurant, art installations and a setting so enchanting Prince Charles had to stop there on his 2015 visit to the country.
It’s also been the scene of a bitter feud involving three casino moguls -- former friends -- who put money into the winery.
Jim Murren, the chief executive officer of MGM Resorts International, and Dan Lee, CEO of Full House Resorts, both investors in Mahana, sued their friend Glenn Schaeffer, the former president of Mandalay Resort Group and managing partner at the winery.
The pair claim Schaeffer misled them into thinking they actually owned a stake in the business and squandered their money. Schaeffer said Lee threatened to kill him, and his dogs. Lee said he was joking.
Last month, a court in New Zealand sided with Murren and Lee, awarding them $2.3 million, plus interest.
The saga of Mahana, which means warm place in Maori, the local indigenous language, shows that business investments can spoil friendships, even among the wealthiest and most successful of individuals.
Today the winery is closed and in the process of being sold to a new owner for not much more than the debt owed against it. The one-time buddies aren’t speaking to each other -- although Schaeffer said he’d still talk to Murren.
“It’s the story of a very good friendship gone bad,” Murren said.
The relationship between the three goes back decades. When Lee left his job as a casino analyst at First Boston to take a position in finance at Mirage Resorts in 1992, he lived just two doors down from Schaeffer, who helped run an empire that included the Luxor, Circus Circus and Mandalay Bay resorts. Murren, another former Wall Street analyst and chief financial officer at MGM Grand at the time, joined the posse. The three vacationed together with their families, collected art, and drank fine wine.
Schaeffer and Murren even hatched the $7.9 billion sale of Mandalay to Mirage in 2005 over a bottle of Woollaston New Zealand pinot noir. After the final terms were reached, Schaeffer and Murren hugged each other, according to “Winner Takes All,” a 2008 book about the casino industry.
By then, Schaeffer had already convinced Murren and Lee to back him in the winery. He pitched it as an opportunity to buy vineyard land cheaper than in the U.S. and as a currency hedge against the weaker New Zealand dollar, according to Lee.
Bankers from Bank of America Corp. also invested. In the end, Murren put in $1.6 million and Lee, $700,000, over a series of years.
Schaeffer spared no expense on the winery, processing organically grown grapes in a four-story, gravity-fed facility. A video marketing the property shows a tasting room, catering hall and villa.
Lee acknowledges he didn’t pay much attention to the investment, trusting his friend and believing it just took a long time to produce wine.
“It’s not like we expected to get cases right away but after a few years, you start thinking, ‘I wonder what happened to the winery?”’
It was a chance encounter between Lee and Schaeffer’s soon-to-be-ex-wife at a restaurant in Las Vegas that led the partners to think all might not be right with their investment. Renee Schaeffer told Lee she was concerned about the winery’s ability to refinance $5 million in loans, according to the judge’s decision. Lee said he thought the winery was debt-free.
After further probing, Murren and Lee said they discovered that they had never owned shares in the partnership that owned the winery, as they claim they’d been led to believe, and that their money had been used to pay for Schaeffer’s contributions. They sued him for fraud.
In an interview, Schaeffer said wine sales slowed after the financial crisis and farming businesses often take on debt.
Renee Schaeffer confirms Lee’s account of their meeting at the restaurant, but said she sides with her ex-husband in the dispute.
“I know Glenn,” she said in an interview. “He didn’t do anything deceitful. It all went into the property where it was supposed to.’’
Glenn Schaeffer, who played a casino boss in the short-lived NBC series “Las Vegas,” alleged that during a mediation designed to end the dispute Lee threatened to “bury me in the desert like in the old days.” He also said Lee threatened to kill his dogs.
Lee said his comments referred to how such disputes were handled in the past and that he didn’t threaten Schaeffer or his pets.
“I was joking,” Lee said in an interview. “I said, ‘You’re the luckiest guy if you can steal a couple of million dollars from two Las Vegas CEOs. Thirty years ago, you’d be dead out in the desert.”’
As for Schaeffer’s pedigree Rhodesian Ridgebacks, Lee said he suggested they could be seized to cover his debt to them.
“If the show dogs are worth money, that’s collateral,” Lee said in the interview. “I didn’t say I was going to kill them. I love dogs.”
The judge sided with Murren and Lee in the dispute.
“There was a high degree of unorthodox merging of Mr. Schaeffer’s personal interests with the assets of (the winery) and a striking failure to properly record the investments made by Mr. Murren, Mr. Lee and the other limited partners,” the judge concluded.
In the interview, Schaeffer said he has affidavits from witnesses as to what Lee said during the mediation and forensic accountants who can vouch for his handling of the money. He said he would appeal.
“I’d be astonished if this were sustained,” Schaeffer’s lawyer, Rick Farr, said in an interview. “The structure was disclosed right from the start.”
Lee, whose wife Susie was just elected to Congress as a Democrat representing Las Vegas, said the lesson is a clear one: Even if you’re investing with a buddy, don’t let down your guard.
“When I do a deal for the company I run, there are title insurers, lawyers checking everything,” Lee said. “You can do a deal with a friend, but don’t pass up on all the due diligence.”