A very Chicago gamble
bitsaboutmoney.com
bitsaboutmoney.com
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.)
(Especially for those owned by listed companies)
And how can the studios and various deal brokers apparently act as if GAAP, FASB, and the SEC don’t exist.
2) I think most of the accounting magic has to do with deferring income, and attributing and allocating future earnings. The mechanics and guesswork is extremely niche; industry norms set the guardrails for what's reasonable. IOW, Hollywood gets to write the rules.
3) I suspect there's less tax cheating than people cynically expect. Mostly the game is about tax deferral, minimizing the blast radius of projects that tank, and everybody jockeying--and stabbing each other in the back--to maximize their share of the pie. I doubt the government loses much revenue. They might nominally get more revenue for a single cycle if accounting was tightened up, but then you might lose much of the dynamism and risk taking, reducing tax revenue long-term.
Note: I have zero industry insight, though I once spoke with a former LA district IRS tax lawyer who seemed much more cynical about the shenanigans than what I presented above. And I got the sense that, like with Scientology and Donald Trump, the IRS has learned the hard way they don't have the wherewithal to win any serious litigation that threatens the status quo.
I'm sure there's some tax cheating going on, but I always got the impression that Hollywood Accounting was to reduce royalties for people who negotiated for a % of net profit instead of a % of gross revenue.
There was a moderately famous documentary about unionization at a San Francisco strip club just a few years before that (called Live Nude Girls Unite). I wonder if the IPO one could have made an effective documentary subject as well.
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.
Though it is impolite to lie.
I thought companies only knew the brokerage, and it was the brokerage who could tie it back to a specific person ?
Edit: and I see downstream he has an answer
(Obviously one can still email IR without actually owning a share, but I both prefer not lying and also enjoy the aesthetics of capitalism, which are extremely invested—ba dum bum—in seeing someone who owns one share as a shareholder.)
Anyhow: bored person, near top of org chart, with access to escalation group if that exists, who earns six figures and really wants you to come away from the experience satisfied. Exists in almost every publicly traded company in America.
The "From" header on the email? It might be possible someone sending from a @gmail.com address is a hedgie, but if they want to announce their affiliation they'll use their company email.
Sadly the temporary casino is only taking about 60% of projected revenue so far.
https://www.yogonet.com/international/news/2024/10/16/82112-...
Bally blames the location and lack of parking and yadda yadda yadda, but Illinoisans are just saturated with gambling options right now. The suburban casinos, the Indiana casinos, Wisconsin first-nations Bingo, Illinois Lotto, the multi-state lotteries, home-rule gaming in restaurants and bars, online sports betting...we still have horse racing here for crying out loud. And, oh yeah, weed is legal here.
They're everywhere. Like one out of every 10 businesses if I had to make up a number. And almost every gas station, bar, or restaurant has slot machines in them.
What is happening in your state, Illinois?
And since they’re only allowed in certain municipalities (not Chicago, though you’ll see them around), you can sometimes drive down a road and see one side just lined with depressing slot machine parlors with names like Bob’s Lounge or Susie’s Cafe.
That side is usually a poorer town that needs the revenue from the town on the other side, where the money is.
I’m not sure why, but in my experience while those establishments nominally serve beer, liquor, coffee, soft drinks, and sometimes food, and are perfectly legal and open to the public, they do not seem at all welcoming to random people popping in who aren’t there to gamble. Or maybe they just don’t like my vibe.
Perhaps some differ, but it’s a very different feeling than states like Louisiana or Nevada where lots of bars have gambling machines that are ignored by the majority of customers.
It’s a shame, because I’m sure they’re crowding out other businesses, including regular bars and cafes that would serve a broader audience.
1) The slots in bars and restaurants are a legitimization of the old video poker machines that the mob used to place in establishments. Can't beat 'em? Join 'em.
https://www.gambling911.com/poker/video-poker-kingpin-gets-t...
That said, every town has the choice to allow them or not. They tend to fall like dominos when they see the revenue. I just saw a restaurant owner on Reddit say he made $100K profit last year, and the location's share is typically a third of the handle.
2) We're taxed so heavily on nearly everything it becomes incredibly easy to pitch additional gaming forms as "see, this will help fund schools!" or whatever cause is up next. Except we're gullible, never realizing that Lotto proceeds replace budgeted educational funds and not supplement them.
Liberalism without the uptight New England financial discipline that makes it workable.
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.
> 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...
> 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.
The bigger problem is the terrible loan terms.
The leveraged shares are essentially an option. If the casino way outperforms expectations, the shareholders will get a huge return on their money (100x return or more). If it meets expectations or loses money, they are out their $250. That fits the profile of what was asked for: if anyone gets very rich off this they want the community to share in the proceeds. Whether 11% "financing" cost is fair or not has very little to do with the cost of funds and everything to do with the volatility of the future returns. If there's any chance the casino doubles or triples or sextuples in value, those shares are very valuable - even though that chance would presumably be offset by a large chance of it becoming worthless.
My biggest problem with this is the transfer pricing issues. Bally's has every incentive to route profits to its other corporate entities and a lot of legitimate opportunities to do so.
> This is a constant risk of being the junior partner in a structure, particularly without an aligned senior partner who would be as adversely impacted by sharp operating as you would be.
This would also be solved by issuing the second class of stock with the same economic rights. Some hedge funds get to invest in it, someone who can assess the appropriate discount to apply for being the junior partner. And if Bally's ever do screw the shareholders, they have the perfect parties for a lawsuit: a sophisticated, well-coordinated operator in partnership with a sympathetic plaintiff.
Obviously there are many better ways to structure this if a sophisticated counterparty actually wanted a good investment opportunity for the community. Sadly that's not in anyone's interest.
If the politicians really cared what their constituents thought or about the long-term financial health of the city, they wouldn't be leasing away our assets at firesale prices (like the Skyway and street parking).
We need more people in government who care about good government like JB Pritzker, Alexi Giannoulias, or even our Parks superintendent Rosa Escareno.
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.
https://blockclubchicago.org/2025/01/24/ballys-chicago-wants...
but not enough, seems downright exploitative to me.
It is interesting that he pitches himself as a hero due to VaccinateCA (which I tried to use because I trusted him 4 years ago but was useless in my experience compared to my states megasite online queue) but has no interest in pointing out who the recent HHS Secretary designate is.
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.
May I ask why? This seems like a deliberate choice. It is, at best, met with suspicion by other residents.
Chicago is an extremely segregated city. In segregated cities, there is a nuanced thought process one must undergo to move into an area where you are considered an outsider. In Seattle for example, the tech community is overall reviled for having gentrified the Central District, where historically black areas were bulldozed to erect overpriced cardboard apartments for tech plebes. This is a legitimate question.
Another question is what will his answer do? How will your opinion of him change or be influence by his answer? Maybe he was born there. Maybe that's all he can afford. Maybe he found an apartment with a particular architectural style unique to that area he wants to live in. Maybe it's close to his friends, or close to his girlfriend, or not too close to his girlfriend, or close to his parents, or easy to get to work, or he often goes into central/southern IL or over to Indiana and doesn't want to drive through the city every time.
There are literally hundreds of possible reasons.
There’s a couple streets down in Kenwood that I don’t think have any equivalent on the north side though…
I lived there for a variety of reasons that weren’t suspicious at all like price, location, commute, etc. my neighbors didn’t seem particularly suspicious of the decision…
The point is a true one; this _really is_ what some community leaders believe. This belief _really is_ why Chicago is doing this program.
> “Tonight is about a new opportunity on how to participate, about not just being a consumer but to be an owner,” Ald. Ronnie Mosley (21st Ward) said at the pulpit in front of the crowd of a couple hundred people.
https://thetriibe.com/2025/01/chicagos-black-residents-can-i...
There is much more support for that having actually been the sales pitch and political compromise there and elsewhere on the record.
And yes, this is a belief with a long and storied history in American politics.
However, the conclusion of your article seems to be that Bally’s (a vice entrepreneur) is about to further impoverish them, this time under the guise of ownership but as usual with the support of the local political elites. So for consistency I think your answer should be “yes.”
You’d make a bigger difference in your hometown by conveying this message directly to the folks being targeted, rather than the HN crowd.
I wonder if there’s another set of beliefs with a long and storied history in American politics…..
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.