Bally's $1.7 billion (£1.36 billion/€1.65 billion) permanent casino project in Chicago has faced several challenges. Now, a new lawsuit over its minority investment offering threatens to disrupt its development agreement with the city.
In late December, Bally’s announced the launch of its minority investment program for its planned Chicago casino, a key condition for securing the city’s sole casino license in 2022.
Under the host community agreement, 25% of the project’s equity must be held by “minority individuals and minority-owned and controlled businesses.”
As part of the initiative, Bally’s offered $250 million in shares to help repay loans. The program includes four share “classes” ranging from $250 to $25,000, available to women and minority investors residing in Illinois, New York, Texas, and Florida.
The program included African-Americans, Hispanics, Asian-Americans, Native Americans, and other groups deemed by the City of Chicago to have faced racial or ethnic discrimination in American society. The application deadline was January 31.
However, on January 29, a federal lawsuit was filed in the US District Court in Chicago by two white Texas residents, Phillip Aronoff and Richard Fisher. They claim the program is discriminatory and unconstitutional. The lawsuit is backed by the American Alliance for Equal Rights, a legal advocacy group.
Was this to be expected from the beginning?
The lawsuit claims that the two men are “ready and willing” to invest but are unable to do so “because of their race.” They argue that the “race-based stock offering is illegal” and are asking the court to rule it unconstitutional.
Loop Capital, the underwriting firm for the investment program, previously stated it would not verify applicants’ race or gender. However, plaintiff attorney Daniel Lennington told Block Club Chicago that Bally’s is “verifying race and sex because people who click ‘no’ are not qualified.”
In a statement to WBEZ Chicago, Bally’s asserted that the program “complies with our obligations under the Host Community Agreement with the City of Chicago.” However, in its prospectus filed with the Securities and Exchange Commission (SEC) on December 27, the company acknowledged the potential legal risk.
“If such a lawsuit were filed against us, we could face significant legal costs, and our management’s time and focus could be diverted from business operations,” Bally’s stated.
Additionally, the company warned that if the program were found unconstitutional, “the host community agreement could be terminated, negatively impacting our ability to operate casinos and significantly affecting our business, financial standing, and overall performance.”
Mixed sentiment on investment details
The investment program has received mixed reactions, regardless of the lawsuit. Supporters argue that it achieves Bally’s and the city’s goal of expanding investment opportunities to more diverse communities.
“This is a very unique opportunity,” said Loop Capital executive Michael Jackson during a recent presentation, as reported by The Chicago Southsider. “It’s rare for someone investing $250 to have the same opportunity, at the same price, in the same security, and at the same time as someone investing $750 million. That just doesn’t happen.”
However, critics question the investment’s value. According to the prospectus, investors won’t receive dividends until the casino has been operational for “approximately three to five years.” With the opening expected in fall 2026, this means dividends likely won’t be issued until 2030 or later. Additionally, there are no protections if the casino fails to open or shuts down.
University of Chicago economist Damon Jones expressed skepticism in an interview with The TRiiBE, advising against the investment.
“When people have really good investment opportunities, they don’t advertise them. They keep them to themselves,” he said. “A general financial rule: if someone is advertising it to you, question it.”
Lawsuit is latest hitch in Chicago project
For Bally’s, the lawsuit is yet another hurdle in its effort to develop its flagship casino. The company initially faced a major funding shortfall, which was eased when Gaming and Leisure Properties (GLPI) stepped in. In July, the real estate investment trust announced a broad financing agreement for the project, which included Bally’s selling the property and leasing it back.
Design challenges have also caused delays. The original plan featured a multi-phase construction approach, but the proposed hotel tower clashed with city water lines. As a result, Bally’s had to revise its plans, relocating hotel rooms above the casino.
Further complicating matters was the company’s buyout on July 25 by its largest shareholder, Standard General (SG), a hedge fund controlled by Bally’s chairman Soo Kim. The deal merged Bally’s with Queen Casino & Entertainment, another SG-owned operator. SG had made multiple attempts to acquire Bally’s, with its initial offer dropping from $38 per share in early 2022 to the final purchase price of $18.25 per share.
