Minority investment lawsuit is latest headache for Bally’s

Bally’s ambitious $1.7 billion (£1.36 billion/€1.65 billion) permanent casino complex in Chicago has encountered various obstacles, and a recent legal challenge related to its minority investment program threatens to disrupt its development agreement with the city.

In December, Bally’s officially launched its minority investment initiative for the Chicago casino—a requirement for acquiring the city’s sole casino license in 2022. This initiative is mandated by a community agreement stipulating that 25% of the project’s equity must be owned by minority individuals and businesses, reflecting the city’s commitment to inclusivity in its gaming sector.

As part of this program, Bally’s offered $250 million in shares to facilitate loan repayments. The initiative features four classes of shares, priced between $250 and $25,000, specifically available to women and minorities residing in Illinois, New York, Texas, and Florida.

The pool of eligible investors encompasses African-Americans, Hispanics, Asian-Americans, Native Americans, and others identified by the City of Chicago as having faced social disadvantage due to racial, ethnic, or cultural biases. The deadline for applications was set for January 31.

However, on January 29, a federal lawsuit was filed by Texas residents Phillip Aronoff and Richard Fisher in the U.S. District Court in Chicago. They assert that the investment program is discriminatory and unconstitutional. The plaintiffs, supported by the American Alliance for Equal Rights—an advocacy group specialized in legal activism—claim that they are prepared to invest but are barred due to their race.

Legal Perspectives on Racial Equity in Investment

The lawsuit contends that the race-based criteria of the stock offering is illegal. The underwriting firm, Loop Capital, previously indicated it would not verify the gender or race of applicants. However, attorney Daniel Lennington argued that the application process does, in fact, involve verification, excluding those who identify as non-minority.

In a statement to WBEZ Chicago, Bally’s defended its program, asserting it complies with the Host Community Agreement. In its prospectus filed with the Securities and Exchange Commission (SEC) on December 27, the company acknowledged the potential legal risks, stating, “The initiation of such a lawsuit could divert substantial resources from our business and operations.” Furthermore, it warned that if the program is deemed unconstitutional, the host community agreement could be terminated, which might severely impair its operational viability and financial results.

Reactions to the Investment Program

Despite the looming lawsuit, the community reaction to the investment program has been mixed. Proponents argue that it fosters new investment opportunities within underserved communities. Michael Jackson of Loop Capital emphasized the uniqueness of this initiative, highlighting that it allows smaller investors the chance to invest alongside large-scale stakeholders at the same terms—a rarity in this industry.

Conversely, skepticism surrounds the investment’s viability. According to the prospectus, investors should not expect dividends until the casino has been operational for “approximately three to five years,” indicating a potential return on investment no earlier than 2030. Additionally, there is inherent risk as funds are not guaranteed if the casino does not open or ceases operations. University of Chicago economist Damon Jones cautioned potential investors against the opportunity, stating, “When good investment opportunities are widely advertised, it’s prudent to question their legitimacy.”

Challenges in Development

The lawsuit is yet another hurdle in Bally’s journey to establishing its flagship property. The company faced an initial funding gap that was addressed through a significant partnership with Gaming and Leisure Properties (GLPI). In July, GLPI announced a comprehensive funding agreement that involved Bally’s selling and leasing back the property.

Design complications also contributed to delays. The initial multi-phase construction plan encountered issues as the proposed hotel tower interfered with city water lines, necessitating a redesign that relocated hotel rooms above the casino floor.

These challenges have been further exacerbated by the company’s restructuring after its buyout on July 25 from its largest shareholder, Standard General (SG). This hedge fund, led by Bally’s chairman Soo Kim, had sought control of the company multiple times, ultimately settling for a share price that decreased from $38 in early 2022 to $18.25 last year, following a merger with Queen Casino & Entertainment, another SG-owned entity.