Bally's shareholders fight over ownership, 'unfunded development projects'

• Bally's special committee is being pressured by key investors to reject Chairman Soo Kim's offer to purchase the company at $15 per share.
• Kim's focus on "moon shot" projects is being blamed by Dan Fetters and Edward King, prominent venture capitalists in the gambling industry, for the decline in Bally's stock price and market share.
• Bally's has revealed plans to construct a casino and resort in Chicago, replacing the historic Tropicana on the Las Vegas Strip, and is also seeking a gambling license for a former Trump golf course in New York City.

The closure of the Tropicana in Las Vegas is putting its operator in an existential struggle over ownership, public status, and prominent projects.

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

Some high-profile investors contend that Kim is undervaluing the company, and the market has lost confidence in the company's strategy and financial stability.

K&F Growth Capital's Dan Fetters and Edward King wrote to the special committee reviewing Kim's proposal on Tuesday, urging rejection.

Fetters and King suggest a plan to return Bally's to its casino origins.

Bally's owns 16 casinos in 10 states and offers interactive gaming, sports betting, and free-to-play games. The company has announced plans to build a casino and resort in Chicago, replace the historic Tropicana on the Las Vegas Strip, and win a gambling license for a former Trump golf course in New York City.

Bally's should focus on its core business and stop wasting money on projects it doesn't know how to build or operate, according to Fetters and King. They argue that the company's efforts in high-end casinos, online sports betting, and internet gaming have driven down its share price and market cap.

In the past 12 months, the company's stock has fallen by nearly 30%.

Fetters and King argue in the letter that Kim proposes to take advantage of this weakness and acquire Bally's at a significantly lower price than its fair value.

The letter states that the stock and bonds of Moon shot have become uninteresting to the investing community due to its failed U.S. online execution, underperforming casino resort properties, unfunded development projects, overleveraged balance sheet, and irresponsible capital allocation decisions.

During the fourth quarter, Bally repurchased $69 million in shares, which was met with opposition from shareholders.

The proposed take-private deal, according to Standard General, would enable the company's shareholders to receive a premium price for their investment and provide them with certainty of value for their shares, particularly in comparison to the operational and market risks associated with remaining a publicly-listed company.

Divestment plan

Fetters and King's letter suggests bringing in 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. However, Bally's won with a $1.7 billion commitment, which has since been reduced to a $1.1 billion development. In March, Bally's CFO informed Nevada regulators that the company was seeking $800 million in financing for the project.

Bally's would benefit from partnering on or selling altogether its Tropicana operations on the strip, as 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 owns the site.

Bally's should divest its New York City golf course and tech businesses to concentrate solely on sports betting and digital casino, according to Fetters and King.

Despite its powerful legacy brand, Bally's market cap is only slightly over half a billion dollars and it has not been able to compete effectively in any space except regional casinos.

Despite owning less than 1% of Bally's stock, Fetters and King are prominent venture capitalists in the gaming industry and co-founders of Acies Acquisition Corp. with Chris Grove and former MGM Resorts International CEO Jim Murren.

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

"At the time, he told CNBC that they wanted to buy and disagreed with the market. He believed that the market's value would increase significantly in the near future."

— CNBC's Jess Golden contributed to this report.