Bally's shareholders wage battle over ownership, 'unfunded development projects'

An exterior view shows the Tropicana Las Vegas at dusk on March 29, 2024 in Las Vegas, Nevada. David Becker | Getty Images

As the famous Tropicana in Las Vegas closes its doors Tuesday, its operator Bally's Corporation is facing its own existential battle. At stake: ownership, its status as a publicly traded company and its highest-profile projects.

Bally's Chairman Soo Kim and Standard General, the private equity fund he founded, last month made a bid to take the company private at $15 per share. Prior to his offer, the stock was trading at around $10 per share. Standard General owns about 23% of Bally's stock, it said last month.

But some high-profile investors argue Kim is undervaluing the company — and so is the market, they say, because it's lost confidence in the strategy and financial stability of the company.

Dan Fetters and Edward King of asset management fund K&F Growth Capital sent a letter Tuesday to the special committee formed to review Kim's proposal. The letter urged members to reject the proposal.

Instead, Fetters and King propose a strategy that sends Bally's back to its casino roots.

Bally's owns 16 casinos in 10 states plus an interactive business in sports betting, internet gaming and free-to-play games. It's announced plans to build Chicago's first casino and a resort to replace the historic Tropicana on the Las Vegas Strip, as well as an effort to win a gambling license for a former Trump golf course in New York City.

The entrance to Bally's Hotel & Casino, located adjacent to the Tahoe Blue Sports & Event Center, is viewed on February 12, 2024, in Stateline, Nevada. George Rose | Getty Images

Fetters and King contend that Bally's should stay in its lane and quit wasting money on efforts that aren't core to its business. They insist the company doesn't know how to build or operate high-end casinos or online sports betting and internet gaming businesses, saying that spending on those projects is what has driven down the share price and market cap.

The company's stock is down almost 30% in the past 12 months.

Kim “proposes to exploit this weakness and acquire Bally's at a fraction of its fair value,” Fetters and King argue in the letter.

“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 reads.

The shareholders also take issue with Bally's $69 million in shares repurchases during the fourth quarter.

Standard General, for its part, said last month the proposed take-private deal “would allow the Company's 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.”

Divestment plan

The letter from Fetters and King proposes bringing on a better-equipped partner for the Chicago casino. Hard Rock International, owned by the Seminole tribe in Florida, had also bid for a casino license there. But Bally's won with a $1.7 billion commitment, which has since been trimmed to a $1.1 billion development. In March, Bally's chief financial officer told Nevada regulators the company was looking for $800 million in financing for the project.

Fetters and King also write that Bally's would benefit from partnering on or selling altogether its Tropicana operations on the strip. The property, which opened in 1957, is closing its doors Tuesday and is headed for demolition. An integrated resort will be built adjacent to a new baseball stadium for Major League Baseball's Athletics, set to move from Oakland to Las Vegas. Gaming real estate investment trust Gaming and Leisure Properties owns the site.

An exterior view shows the Tropicana Las Vegas on March 29, 2024, in Las Vegas, Nevada. David Becker | Getty Images

Fetters and King say Bally's should divest the New York City golf course and various tech businesses acquired to pursue sports betting and instead focus only on digital casino.

Bally's market cap stands at little more than half a billion dollars. It has not been able to wage a competitive threat in any space except regional casinos, despite the power of its legacy brand.

Though K&F Growth Capital owns less than 1% of Bally's stock, Fetters and King are well-known venture capitalists in the gaming industry and co-founders of blank check firm Acies Acquisition Corp. with Chris Grove and former MGM Resorts International CEO Jim Murren.

This is the second time Kim has offered to take Bally's private. In January 2022, he offered $38 per share when the stock was trading at $26.

“We want to buy, and we disagree with the market,” he told CNBC at the time. “We think it's gonna be worth a lot more in the near future.”

— CNBC's Jess Golden contributed to this report.