I've seen worse deals offered in prospectuses. But not often.

Having two tiers of stock with the insiders having the control shares used to be prohibited by the New York Stock Exchange. Now it's common. Google and Facebook are set up that way, so they have presidents for life. So are some lesser companies which really need to fire the CEO but can't.

Then, what you're buying into is not the operating entity. It's just a holding company. Not even the parent holding company that owns many casinos; that's BALY. It's a holding company in the middle, one whose returns are totally determined by the other parts of the stack. This is much like film investing, where you can buy an interest in "Silver Screen Partners IV" and get a share of the profits from a specific film. Except that the studio and the film producer control the accounting between related entities. Those deals are generally a lose, although you get to go to the premier and meet the cast.

And then there's the leverage. When you buy in, you're under water, and may stay there. Can't speak to the tax consequences.

This is so awful it makes meme coins look good.

(Favorite worst deals: 1) being pitched on municipal bonds backed only by revenue from future sewer charges for a development not yet built, and which never was. Junk municipal bonds are a thing. 2) a San Francisco strip club that did an IPO in the first dot-com boom and went bust. SEC CIK 931799.)

This was an aside at the end of the article, but what an interesting strategy:

I bought the stock for the same reason I buy stock in every hotel, airline, bank, and similar I use: in the unlikely event a not-particularly-high-stakes poker player has a routine customer service complaint, Investor Relations is available as an escalation strategy, over e.g. hotel staff who might be long-since inured to listening to complaints from people who lost money in a casino.

Holy fuck that's a terrible deal they offered on the $250 shares! Made up billion-dollar valuation aside, an 11% interest rate on a $24,750 loan means that it's never going to pay for itself and start producing a return for the owner, even at casino-level profits.

An important part of the historical context here is that the black community in America has a lot of scar tissue around sketchy investment opportunities, and those scars go back, oh, call it 160 years (i.e. the Reconstruction era). When you have a community that is suffering from widespread generational poverty, as the black community in America broadly is, that community naturally tends to be very eager for opportunities for generating wealth — especially opportunities that present themselves as "This is it! This is your chance to buy into the American Dream, legitimately and officially, no messing around with crime, sports, or the music industry, you're going to have Investment Opportunities, you will be stockholders, this is what prudent people do to accumulate wealth and provide for their children & grandchildren."

The black community in America has been presented with many such opportunities. How many of them were legitimate? Nobody has a really solid number, for hopefully obvious reasons, but whatever the real rate of legitimate opportunities that sound like the above is, it's low enough that 160-ish years of it have left the black community in America still suffering from widespread generational poverty. Particularly there is a pattern in economic-bubble periods where members of the black community buy in near the top (because the growth of a bubble is driven by existing capital flowing into it and the black community has less capital, while whatever activity is inflating the bubble seeks out large clumps of capital first, as any growing sector does), end up as bagholders (because they bought in near the top of a bubble), and suffer disproportionately (because they had less capital, and so a given absolute loss is a bigger percentage of their capital than for wealthier communities). There have also, of course, been periods of undisguised racial violence, which have always involved theft as one form the violence takes. All of this leaves the black community in America with noteworthy long-term scars around the topic of investment opportunities particularly marketed to them — and yet, what are they supposed to do, give up on pursuing the American Dream, especially when someone promises up and down that this is it, they can leave behind the sordid stuff, this truly is the pathway to affluence, safety, and respectability?

I have never been to Chicago and I know nothing about Bally's. All I know is that while history rarely outright repeats itself, it quite often rhymes.

I was hoping this was a long form piece on the O'Hare Spread.

> make a huge trade on margin, which is essentially like betting with someone else’s money, and then he would go to O’Hare airport

https://digitaledition.chicagotribune.com/tribune/article_po...

> The market does not agree with this assessment. The entire market capitalization of Bally’s (NYSE: BALY) is, as of this writing, ~$1.5 billion. What’s the difference between the $50 million average imputed value of the other casinos and the $750 million imputed value of the Chicago casino? The $750 million is made up, that’s what.

> This is somewhat elementary and handwavy napkin analysis of a complicated business which, like most casinos and hotels, is heavily levered with a complex capital stack. But the investment case gets smothered by a napkin.

This analysis is not OK and Patrick should know better.

A quick Google [0] says Bally's has $5 billion in outstanding debt. That brings the market value of its assets to $6.5 billion and the question becomes "What's the difference between the $400m imputed value of the other casinos and the $750m value of this one?" And that's the kind of difference which gets explained by things like, it has 2x the average square footage, or it's more modern, or how about, it's in a city where it will have a monopoly on casino gambling, not in Las Vegas where there are dozens of competitors.

"A complex capital stack" isn't a good explanation for this analysis. It's a complex capital stack with one line item 3x the size of the only one considered.

I don't disagree with the conclusion that this is not a good deal. A fairer way to do this would be a parallel offering of class B shares to sophisticated investors, with the same economic rights and full transferability, then give the black churchgoers a 20% discount when they buy the class A. But the fundamental analysis is bad enough to make the article untrustworthy.

[0] https://companiesmarketcap.com/ballys-corp/total-debt/

Some truly hideous AI art on this one.

How could the people of Chicago possibly think a casino is going to improve things?

Two random things completely tangent to the article's main topic:

1. The bit at the end about the happenstance of having stock in "every hotel, airline, bank, and similar I use" as a chip to potentially use in a customer service escalation case is hilarious and yet a bit thought provoking....

and

2. I'd love to sit across a poker table from Patrick some day, however terrifying that may be.

It is getting some skeptical coverage

https://blockclubchicago.org/2025/01/24/ballys-chicago-wants...

but not enough, seems downright exploitative to me.

wow i don't like the 'wink wink nudge nudge' very obvious racism against african americans in this article. A lot of pointed and extraneous details about various minorities (non-blacks) that fall squarely into very specific talking points. In fact the only minorities this article doesn't mention are african americans, despite very obviously talking about them. And don't tell me i'm reaching...It's called theory of mind. Kind of sad this has gotten so many points.

There's a lot of interesting stuff in here, but there's also a lot of garbage. Talking about the African American community in Chicago, but then using examples from LA to prove a point, is at best a horrible argument and at worst purposefully misleading.

I live in the Chicago South Side, in a neighborhood that is 99% black. I am not black. There are no pogroms happening here against people who aren't black, even if they do happen to own a business. This is just such a weird statement to have to make.

Breaking it down as a TLDR, as this is quite a long article, written with (what I consider to be pleasant, others might not), flourish in terms of the prose:

There is an "investment" opportunity to invest in a casino with the city limits of Chicago, that the city of Chicago feels will fix long-term budgetary mismanagement issues.

In order to qualify for this investment, investors need to self-certify as a "Minority" (or woman), but no clear definition of "Minority" exists. This could be constitutionally illegal due to the city's involvement in segregating the opportunity.

When digging a little deeper, it becomes clear this is not an opportunity to invest directly in a casino, but in an entity that has a 25% "economic interest" in an operating company that operates a casino.

Disbursement of profits is controlled by the parent company (Bally's), that has 75% voting rights in the entity invested in, and manages and operates the operating company investors own 25% of. This means if the operating company owes the holding company all its profits for, say, "licensing" rights of IP (say, customer databases, or trademarks, and so on), there are no profits to distribute to the investors. This is a familiar ruse to those who know how companies offshore profits to tax-favourable locales.

There are 1,000 slots open to invest, each worth $25k, valuing the company at exactly $1bn, but the parent company (that owns 75%, remember), despite owning more than a dozen other properties and resorts is valued at a total market cap of $1.5bn. This suggests that the market as a whole does not consider that investment slice worth $250m, because it does not value the other 75% at $750m.

If an investor doesn't have $25,000 to buy a slot, they can invest just $250, with the remainder being made up with a no-recourse loan. The interest on this is marked up at 11% annually, compounded quarterly. The $250m needed to provide this financing this, has come from lending on which the operating company is paying ~5%.

The prospectus states profits are unlikely for "3 to 5 years", assuming of course there are profits after "licensing fees" and so on, have been handled. This means the loan bought for $250 is likely to grow to $34k-$42k with interest.

When (if?), dividends are issued to pay off the loan, the payments to pay off the interest may be considered by the IRS a taxable benefit. The prospectus agrees this is possible but "unlikely".

So in a single line: you can pay $250 to create a possible tax bill on $18k that goes to the loan provider in 5 years time, and you may get your $250 back (and more), if the casino operator decides to pay that out through the goodness of their heart.

And this is being supported - including through "roadshows" at churches attended mostly by African Americans - by the city itself, in a way that is predictably going to back-fire, and may be very illegal.

SEC should take a look. Public-spirited lawyers who don't want to see some of the poorest communities in the country get ripped off should also take a look. If I was a Bally's shareholder, I'd be concerned that in a few years time, the company I'm a shareholder in is going to be embroiled in scandal and potentially a Supreme Court ruling.