Bally’s Corporation and the company’s plans for a permanent casino in Chicago continue to make news, and investors are now criticizing chairman Soo Kim’s efforts to acquire the company and take it public.
In a public letter to the company’s board of directors, K&F Growth Capital outlined concerns with the possible deal that would see Kim acquire Bally’s for his Standard General turnaround firm as well as some of the company’s projects on the horizon. Bally’s has been working to try and secure $800 million in funding for the Chicago casino project.
The company is also planning to demolish the Tropicana in Las Vegas to make way for a new stadium for the Oakland Athletics baseball team. The plan then calls for building another casino on site. Bally’s is also attempting to secure a license for a New York City casino. K&F believes the company is getting stretched too thin, resulting in a negative effect on stock price, which is down 45% over the last year.
“Moon shot bets on huge, unfunded development projects, failed U.S. online execution, casino resort properties underperforming its regional peers, an overlevered balance sheet with little near-term prospects for de-levering and irresponsible capital allocation decisions have driven the stock and bonds to a point of disinterest from the investing community,” the letter notes.
Opposition to the Acquisition Plan
K&F argues that Kim’s acquisition plan would hand Standard General the company at a considerable discount to where the stock price should be. The firm criticized several recent moves regarding online gaming efforts and rapid expansion. The company has considerable valuable assets, according to K&F, but needs a new approach to maximize those.
“There is no denying that the regional expansion strategy employed from 2014 to 2020 resulted in the compilation of a scaled, highly compelling portfolio of casino resorts,” K&F says.
“The company lost its way thereafter – chasing a deeply flawed omni-channel strategy that was executed by overpaying and subsequently writing down (or writing off) a series of interactive assets, issuing massive amounts of equity in large part to acquire a sports betting customer who never arrived, and blindly pursuing massive new development opportunities without the requisite large-scale casino construction expertise.”
In recent weeks, some critics in Chicago have wondered whether Bally’s, which already operates a temporary casino, should be replaced with a new, more-experienced gaming company to complete the project. Investigations are also underway concerning the original bidding process.
A New Approach
Along with expressing opposition to the acquisition proposal, K&F also offered a plan for growing the company in the coming years. That includes focusing on improving core casino operating margin performance.
“We can only surmise the distraction of Chicago, New York and Las Vegas has prevented senior management from optimizing core performance as Bally’s is the only major regional operator not to have increased margins relative to pre-Covid levels,” K&F reports.
The company should also sell off the international gaming equipment arm of the company as well, K&F says, to boost share price and use the funds for continued growth. The recommendations also suggest at least finding partners for the Chicago, Las Vegas, and New York projects, describing these plans as “bet the company” projects.
“Projects of the magnitude of Chicago, Las Vegas and New York require a team with extensive experience in major (north of $1 billion) project development, experience dealing with (and a database of) high-end destination customers, and a balance sheet with the capacity to fund the project and maintain the property,” the firm says.
In Chicago, K&F estimates that the return on investment will be well below the cost of capital. That should bring management into discussions with other companies for a partnership. The same should go for the Las Vegas stadium/casino, according to the letter. The New York casino bid is also “an enormous management distraction and financial cost,” and K&F says Bally’s should immediately withdraw its application for the casino license.
Other suggestions include refocusing the money-losing online gaming efforts and having a more focused mergers and acquisition strategy.
“We believe our straightforward plan to strengthen Bally’s serves all its stakeholders – employees, management, fellow shareholders, and debtholders,” K&F noted. “This plan will reduce debt, increase profitability, and create significant shareholder value.”
Bally’s hasn’t commented on the letter but has formed a committee to study the acquisition plan. Standard General already owns 26% of the company. Kim has said his proposal would allow stockholders “to immediately realize a premium price, in cash, for their investment and provides stockholders certainty of value for their shares, especially when viewed against the operational risks inherent in the company’s business and the market risks inherent in remaining a publicly-listed company.”
On a related note, Bally’s has online casinos in the US, including in NJ, PA, and Rhode Island.
