Congratulations, Bally’s Corp. You’ve just closed the Tropicana Las Vegas and are prepared to replace it with … nothing. Whether it be Aztar Corp. or Columbia Sussex or Clairvest or Penn National or Bally’s, the LV Trop was a marketing riddle no one could solve. As we said on KNPR-FM last month, stepping into it in 1998 felt like going back two decades in time. The place was obviously untouched since the late Seventies and nothing really revived it, although Alex Yemenidjian certainly tried, for which we are grateful. (The Trop’s post-Yemenidjian look is seen above.)
But Bally’s has much larger problems right now, having bitten off more than it can chew in Chicago and being in the throes of a daffy/opportunistic buyout offer from Chairman Soo Kim. Having tried and failed to take Bally’s private at $38/share last year, Kim is trying again at a $15/share markdown. Bally’s would become property of Kim’s Standard General hedge fund and probably be victimized by the sort of rapine mismanagement that occurs whenever private equity dabbles in gaming (or health care or …). This has sparked accusations that Wall Street has “lost confidence in the strategy and financial stability of the company.” Join the club, Wall Street. At least Kim’s offer has managed to inflate the value of BALY stock past $13/share.
In an instance of fund-on-fund violence, Dan Fetters and Edward King of K&F Growth Capital have intervened in the buyout-consideration process. They sent a letter to Bally’s special committee, insisting (rightly) that Bally’s does not know its ass from its elbow about developing pricey casino megaresorts, online gambling (the track record there is pretty woeful) or sports betting. They say Kim knows this and is using it depress the stock price to his own ends. Fetters and King wrote, “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.” Ouch … but so true.
The duo also ripped Bally’s use of its scant capital to buy back stock. They propose liquidating Bally’s operational stake in the Trop hulk and (here’s the clincher) bringing Hard Rock International in to realize underfunded Bally’s Chicago. Hard Rock was a jilted suitor for the Windy City casino license and re-landing it would undoubtedly gall former mayor Lori Lightfoot (D), who engineered a shady, sweetheart deal for Bally’s benefit. Also to be jettisoned would be the former Trump Links, now Bally’s wannabe New York City casino site, seen below. (Like that’s gonna happen.) And don’t forget the various tuck-in acquisitions made to build Bally’s ramshackle iGaming/OSB operation. They’d go on the block too. It’s an austerity plan of radical scale—but we like it.
Kim, meanwhile, is whistling out his sphincter, saying of the stock, “We think it’s gonna be worth a lot more in the near future.” That kind of magical thinking has characterized Bally’s leadership [sic] from the Lee Fenton era to the marginally more realistic Robeson Reaves one. K&F particularly zeroed in on beloved albatross Bally’s Chicago, saying the Kim-created turmoil “jeopardizes the completion of the Chicago project, putting at further risk gainful employment and tax generation in Illinois.” And when you say the magic word (“taxes”) politicians start to take notice.
In another example of magical thinking, Bally’s CFO Marcus Glover said that although the company was $800 million short of completion money for Chicago, he and his team “feel pretty good” about their odds. Is that what it’s come down to? Odds and ‘feelings’? Bally’s required to spend marginally under $1.35 billion on the megaresort. At present, it has just a couple of hundred million in hand. Then there’s the small, still unresolved matter of where the hotel tower is going to go. It had to be moved and no new site has been identified. Is this project enough of a Chinese fire drill yet?
Chicago Mayor Brandon Johnson (D) professed bland unconcern about the situation, even after the pro-casino Chicago Tribune starting having second thoughts regarding the Bally’s clown car. And if you’ve lost the Trib you’re pretty screwed. We have to agree with K&F that Bally’s has “individually strong assets” of “highly compelling” potential, if perhaps not the strategy and leadership to unlock their full value. Also, that Kim’s buyout would only worsen an onerous debt burden that is crippling the company.
“No longer can the company focus on the vanity, negative return projects and assets sought after over the last three years,” King and Fetters waxed eloquent. “After squandering equity value as the chairman of the company and the largest shareholder, Standard General cannot be afforded the opportunity to pick off the company on the cheap.”
By adopting the K&F strategy, Bally’s could monetize the remnants of its online operations, not to mention its undeveloped real estate and de-lever at least partially in the process. As Fetters and King wrote, “this value is owed to the public shareholders, not to Standard General post-having acquired the company for a low-ball offer.” Amen to that.
We kid you not. The tagline for the new Harrah’s Philadelphia ad campaign is “Where the excitement never ends.” Above is an example of that infectious excitement, as seen March 12 in the sports book. Below is the teeming food court. At bottom is the casino floor itself. As for the beyond-underwhelming ambience, we have to say that Gary Loveman spared every expense when he built this joint, aside from shoring up its racing oval. When we need to get away from it all for some peace and quiet, we know where to go.
