In late December, Bally’s confirmed the commencement of its previously announced minority investment programme for its permanent Chicago casino. The programme was part of the requirements for procuring the city’s lone casino licence in 2022. A host community agreement between the two sides stipulates that 25% of project equity must be owned by “minority individuals and minority owned and controlled businesses”.
As part of the rollout, the operator said it was offering $250 million in shares to help repay loans. The programme features four share “classes” that range from $250-$25,000. Shares were available to women and minorities who are residents of Illinois, New York, Texas and Florida.
Listed groups include African-Americans, Hispanics, Asian-Americans, Native Americans or any others “found by the City of Chicago to be socially disadvantaged by having suffered racial or ethnic prejudice or cultural bias within American society”. The cutoff date for applications was 31 January.
But on 29 January, a federal lawsuit was filed in US District Court in Chicago by two white Texas residents, Phillip Aronoff and Richard Fisher, alleging that the programme is discriminatory and unconstitutional. The plaintiffs are joined on the suit by the American Alliance for Equal Rights, a legal activist group.
Was this to be expected from the beginning?
According to the suit, the two men are “ready and willing” to invest, but “cannot because of their race”. They believe the “race-based stock offering is illegal” and have asked the court to declare it as such.
The underwriting firm for the investment offering, Loop Capital, said previously that it would not verify sex or race of investment applicants. But plaintiff attorney Daniel Lennington told Block Club Chicago that Bally’s was “verifying race and sex because people who click ‘no’ are not qualified”.
In a statement to WBEZ Chicago, Bally’s said the programme “complies with our obligations under the Host Community Agreement with the City of Chicago”. But in its prospectus filed with the Securities and Exchange Commission (SEC) on 27 December, the company seemed to be aware of this risk.
“If any person were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the time and attention of our management would be diverted from our business and operations,” Bally’s said.
Additionally, it warned that if the programme was deemed unconstitutional “the host community agreement could be terminated, which could adversely affect our ability to operate our casinos and could materially adversely affect our business, financial condition, and results of operations.”
Mixed sentiment on investment details
Irrespective of the lawsuit, the investment programme has garnered mixed reactions. On one hand, the programme does what Bally’s and the city intended, in that it brings new investment opportunities to a more diverse set of communities.
“This is a very unique opportunity,” Loop Capital executive Michael Jackson said at a recent presentation, per the Chicago Southsider. “It’s rare for someone investing $250 to have the same opportunity, at the same price, in the same security, and at the same time as someone investing $750 million. That just doesn’t happen.”
But others are not sold on the quality of the investment itself. Investors are not expected to receive dividends until the casino has been operational for “approximately three to five years” per the prospectus. With the opening slated for fall 2026, that would indicate dividends aren’t to be expected until about 2030, or later. The funds are also not protected if the casino never opens or ceases operations.
Damon Jones, an economist at the University of Chicago, told The TRiiBE that he would advise against such an investment.
“When people have really good investment opportunities, they don’t advertise them. They keep them to themselves,” he said. “A general financial rule, if someone is advertising it to you, question it.”
Lawsuit is latest hitch in Chicago project
For Bally’s, the lawsuit is another hiccup in its quest to build its new flagship property. The company originally faced a significant funding gap, which was alleviated by Gaming and Leisure Properties (GLPI). The real estate investment trust in July announced a wide-ranging funding deal for the project. Bally’s sold and leased back the property as part of the deal.
Design issues have also hampered the process. The original design called for a multi-phase construction timeline, but the proposed hotel tower interfered with city water lines. Thus, the company had to redo its plans with hotel rooms placed above the casino.
And all of this was further complicated by the company’s buyout on 25 July from its largest shareholder, Standard General (SG). SG is a hedge fund controlled by Bally’s chairman Soo Kim. As part of the deal, Bally’s was merged with Queen Casino & Entertainment, another SG-owned casino operator. The hedge fund had tried multiple times to acquire the company and its offer fell from $38 per share in early 2022 to the accepted price of $18.25 per share last year.
Original article: https://igamingbusiness.com/casino-games/land-based-casino/ballys-minority-lawsuit/
