K&F Growth Capital (K&F), which holds a stake in Bally’s Corporation, has sent an open letter to the company’s Board of Directors recommending that they reject the takeover offer from Standard General, another minority shareholder partially controlled by Bally’s Chairman Soo Kim. In its letter, the asset management firm claims that Bally’s is currently undervalued and outlines a plan for Bally’s to turn things around. That includes eliminating past mistakes, improving operations, and focusing on its retail verticals.
K&F points out Bally’s financial instability, which includes a 45% decline in stock price over the past year. The company’s bonds are trading at a 28% discount to par, suggesting a loss of market confidence in Bally’s strategy and financial stability. The letter says Bally’s performance lags behind its peers with lower EBITDA margins and an overleverage balance sheet.
The asset management firm says while Bally’s possesses valuable assets, its misguided past strategy, including overpaying for assets and pursuing unprofitable ventures, has resulted in significant losses. However, it claims that with the rigapproachegy, Bally’s can unlock its potential. According to K&F, it would be a mistake for other shareholders to allow Standard General to acquire the remainder of the company while its shares remain devalued. It believes its proposed plan could potentially deliver shareholders double the value of Standard General’s $15-per-share offer.
K&F Warns Against Succumbing to Shareholder Pressure
K&F says Standard General’s offer is a way to exploit Bally’s current financial weakness and allow Kim to seize control of the company. That’s why, in its first and most important recommendation, K&F Growth says accepting the offer is against shareholders’ interest.
If Standard General takes the company private, it will use Bally’s balance sheet as a source of funds. K&F argues that Bally’s finances are already “stretched too thin” and that additional leverage would jeopardize the completion of the Bally’s Chicago resort project. K&F stresses that this would put thousands of jobs and millions in tax revenue at risk for Illinois. On the corporate side, it would also diminish Bally’s ability to invest elsewhere in its casino portfolio.
Kim’s attempt to take Bally’s private is part of a trend in the industry, which has seen several companies seeking a change in ownership structure to escape investor pressure.
K&F wants to see Bally’s buck that trend and says its proposed plan aims to strengthen Bally’s by addressing current challenges, reducing debt, and increasing profitability. By implementing strategic initiatives, Bally’s can position itself for long-term success.
Bally Interactive an ‘Unmitigated Disaster,’ per K&F
Despite its claim that Bally’s stock is undervalued, K&F blasts Blaly’s leadership for multiple strategic mistakes. Not mincing words, it calls Bally’s strategy of the past three years an “unmitigated disaster.”
Many of K&F’s criticisms concern the Bally Interactive division, which includes Bally Casino and Bally Bet.
Bally’s has spent over $300 million on failed acquisitions in the interactive space. These include sports betting platform Bet.Works and daily fantasy sports platform Monkey Knife Fight. Bally’s shut down Monkey Knife Fight last year. Around the same time, it moved away from the Bet.Works platform, which it had been using to power Bally Bet. It has since rebooted its sportsbook using technology sourced from third-party providers Kambi and White Hat Gaming.
In another topic related to sports betting, the letter also mentions the failed media partnership with Sinclair Broadcasting Group and its subsidiary Diamond Sports Group, which filed for bankruptcy in 2023.
K&F calls for Bally’s to offload another, even more expensive acquisition, Gamesys. This $2.7 billion purchase formed the basis of Bally’s interactive strategy and saw Gamesys executives take on leadership positions at Bally’s.
The European-based subsidiary is the technology provider for Bally Casino and Virgin Casino in New Jersey and Bally Casino in Pennsylvania. In November 2023, Bally’s CEO Robeson Reeves announced plans to move have the online casino product follow the sportsbook over to Kambi and White Hat technology. That will likely mean the layoff of hundreds more Gamesys workers.
Even so, Reeves said as recently as last year that the company’s future remains in iGaming. K&F strongly disagrees. Bally’s forecasts further losses for the division in 2024, and K&F says the company “can’t keep throwing good money at bad.”
The firm says Bally’s should abandon sports betting. It should then rethink its online casino to focus on converting Bally’s retail casino customers. In addition to shaping its online product to meet retail customers’ needs, K&F suggests Bally’s return to its historical bread and butter: retail casino acquisitions.
Changes Also Needed For Major Retail Casino Projects
While K&F believes Bally’s financial success lies in retail properties, the company should reconsider its positions on three major projects: Chicago, Las Vegas, and New York.
According to the letter, Bally’s Chicago won’t produce enough return on investment to offset the cost of capital. It says the company should seek operating partnerships, such as with Hard Rock International or Rush Street Gaming. These companies were the competition Bally’s beat out in bidding for the Chicago license in the first place. It recommends similar operating partnerships for its new Las Vegas resort on the site of the Tropicana Hotel and Casino, which finally closed its doors for good earlier this week.
Meanwhile, K&F says Bally’s should bow out of the bidding for a downstate New York casino resort. The company’s proposal is for a property currently occupied by the Trump Golf Links at Ferry Points in the Bronx. Bally’s is competing with as many as 10 other applicants in a contest where the bidding starts at $1 billion. Recently, the New York State Gaming Commission named Bally’s bid as one of four requiring an additional land review process, a step that will delay the selection process until at least the middle of next year.
K&F believes that the selection committee is highly unlikely to opt for Bally’s proposal, so the resources it is investing in the land review and other hurdles are going to waste.
Furthermore, given the uncertainty of the company’s ability to fund its Chicago project and New York bid, Bally’s should also seek operating partnerships for its planned Las Vegas resort at the Tropicana Hotel and Casino site.
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