Bally’s (NYSE: BALY) is facing a lawsuit over its plan to sell equity in its proposed Chicago casino hotel to everyone except white men.
The lawsuit was filed by the Wisconsin Institute for Law & Liberty (WILL) against the City of Chicago, the Illinois Gaming Board (IGB), and Bally’s Chicago Casino. As part of its host city agreement, Bally’s Chicago, Inc. — the entity managing the casino — aims to sell a 25% equity stake in the integrated resort to people of color and women, excluding white men from participating in the offering.
“Bally’s Casino should put this illegal investment on hold immediately. Withholding investment opportunities based on race is reckless and threatens the entire development,” said Skylar Croy, associate counsel at WILL, in a statement. “We are seeking a simple solution: the same investment should be open to all, regardless of race.”
Through the equity offering, Bally’s hopes to raise $250 million to fund its $1.7 billion integrated resort in Chicago, the operator’s most expensive project to date. The Municipal Code of Chicago defines minorities as “African-Americans, American Indians, Asian-Americans, Hispanics,” as well as “socially disadvantaged” groups such as people of Arab heritage. WILL is representing the American Alliance for Equal Rights (AAER) in the suit.
Timing Could Be Poor for Bally’s Chicago Casino IPO
When Bally’s unveiled plans for the Chicago casino’s initial public offering in May 2023, the environment for diversity, equity, and inclusion (DEI) initiatives was more favorable than it is today.
In his first week in office, President Trump signed executive orders eliminating DEI-based hiring practices at the federal level, prompting some private sector companies to back off related initiatives. While some firms remain committed to those practices, shifting sentiment suggests Bally’s effort to exclude white men from the Chicago IPO could face resistance and be struck down by the courts.
“With the Trump Administration’s new direction on racial equality at the federal level, the focus will now shift to states, local governments, and private companies that persist in unlawful discrimination,” said Dan Lennington, WILL deputy counsel, in the press release. “We will not stop until DEI, affirmative action, and other forms of racial discrimination are eliminated everywhere.”
To qualify for the offering’s Class A shares, participants cannot be city employees, convicted felons, IGB members, or former gaming license holders, among other stipulations laid out by Bally’s. Residents of Florida, Illinois, New York, and Texas can participate in the offering.
Bally’s Chicago Casino IPO Not a Risk-Free Bet
Like any IPO, the one tied to Bally’s Chicago casino isn’t a risk-free investment. The gaming company plans to sell shares in increments of 500 at $250 apiece, 1,000 at $2,500 each, 1,000 at $5,000 per unit, and 7,500 shares for $25K each.
Investors who can’t reach the $25K threshold on their own will have the difference between their stake and that figure covered by a loan from Bally’s carrying an 11% interest rate. That obligation would be paid off by the venue’s future profits, but there are no guarantees the property will be profitable, and while shareholders wait for the loan to be repaid, they cannot receive dividends.
Speaking of dividends from Bally’s Chicago, investors might have to wait “approximately three to five years after our permanent resort and casino begins operations,” according to a regulatory document filed by the gaming company. In the filing, the operator warned that payouts could be cut or eliminated in the future, depending on the casino hotel’s success.
