May 09, 2023 - 8:27am EST by
2023 2024
Price: 15.98 EPS 4.84 6.15
Shares Out. (in M): 59 P/E 3.3 2.6
Market Cap (in $M): 936 P/FCF 3.3 2.6
Net Debt (in $M): 3,001 EBIT 450 488
TEV (in $M): 3,938 TEV/EBIT 8.7 8.1

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The equity and bonds of Bally’s Corporation (“BALY”, “Bally’s”, or the “Company”) are incredibly compelling and timely investments.  The shares trade at $15.98 and we estimate that today’s intrinsic value is $70+.  We believe that investors with long time frames will have 9x their investment (37% IRR) over 7 years when the shares hit $150.  The 2029 bonds yield over 12% and trade at 71.  The shares last traded at current levels when the Company’s properties were closed during the pandemic and generated no cash flow.  The shares ended 2020 above $50, and then climbed to the mid-$70s in March 2021.  Since then, the shares have been in a sharp downward trend.  The company is levered, though the leverage is intentional and very manageable.  Additionally, Bally’s has over $400 million in cash on its books.  The shares are not very illiquid since average daily trading volume is only $7 million and Standard General owns over 10 million shares (out of a 59 million fully diluted share count) and Gamesys founder (Gamesys was acquired by BALY in October 2021) Noel Hayden owns another 5 million shares.  The illiquidity discourages meaningful blue-chip institutional ownership of the shares.     


Other names in the gaming space, such as Caesars Entertainment (CZR) and Penn Entertainment (PENN) are also very cheap.  Tom Reeg, the CEO of CZR, goes into great detail on the recent (5/4/23) earnings call explaining his view on the long-term valuation of his stock.  Similarly, Jay Snowden of PENN has publicly expressed his views on valuation on earnings calls and at conferences such at G2E in Las Vegas.  BALY is my preferred gaming play because the downside is protected, the spring constant is high, and the displacement is substantial – BALY has significant elastic potential energy.  



This is due to a cheap valuation, unmonetized real estate, its ability to grow its digital assets internationally, its ability to improve margins in the land-based casino segment, it not getting any credit for its North American digital business, the benefits from the megacasino project it is constructing in Chicago, and the disciplined capital allocation of Standard General.     


The company has complicated the story in the past year due to the large development project in Chicago.  The Chicago project adds significant value to the Company, and we value Chicago separately.  The Chicago project will be done in an unrestricted subsidiary owned ~75% by BALY.  We value the Company by valuing the non-Chicago assets and then adding an estimate for the NPV of Bally’s share of the Chicago project.  Some of the cash on the balance sheet will be used for the Chicago project, but we take this into account in the NPV.        


In all my tables, $ are in USD millions, except for per share amounts which are in actual $.        

Below I show ex-Chicago 2024 cash flow.  Off the current share price, the free cash flow yield is 21%, and if you back out the $425 million of cash ($439 million at 1/3/2023 and then note the reduced share count in the proxy), the FCF yield is 39%.  If the business is sustainable, which it is, then this is an incredibly cheap valuation.  The fully-diluted equity market capitalization is $936 million, and 45% of that is in cash.    



(Note that the multiples in the VIC submission table are ex-cash and I equate EPS and FCF for simplicity; also I back out North America Interactive losses for 2023).  


Above is one way to frame the current cheapness.  Given the evolution of the businesses and our views on their long term potential, we employ a DCF approach which yields a current price of $70, or $75 including Chicago, and those assumptions are provided further below.  Our 2023 steady-state EBITDA is $540 million which backs out North American Interactive losses and excludes Chicago.  Below are some more statistics. 


I show metrics on 2023 and 2024 numbers.  North American Interactive will be breakeven in 2024.  The Company is in significant growth mode, but is very cheap on existing cash flows.  The 2024 unlevered yield is 10% for instance.  The meaningful cash flow growth and leverage massively amplify our returns, and we expect future capital allocation to be thoughtful.  Also note that even if you accept today’s valuation as accurate, the LTV on the bonds is about 75% for 12% paper.    


This is not a melting ice cube – the assets produce significant cash flow and are growing and becoming integrated under a global unified brand.  Below we start with the history of the Company and a discussion of the assets in order to build familiarity with the Company.  



The multi-strategy hedge fund Standard General is the largest shareholder of Bally’s.  Standard General and its CIO Soo Kim (who is also the board chair of BALY) completed numerous shrewd acquisitions to build Bally’s into its current form.  About 10 years ago, the company consisted of a single property, the Twin River casino in Rhode Island.  In 2014, Twin River acquired the Hard Rock Biloxi.  In 2018, Twin River announced the merger with Dover Downs and the Tiverton Casino Hotel opened in Rhode Island.  The merger closed in 2019, and the Company listed under NYSE: TRWH.    


In 2020, the Company’s leverage heading into the pandemic was modest and the Company owned all of its own real estate.  Net leverage at 12/31/2019 was only 3.2x EBITDA.  While other operators struggled to make lease payments as gaming facilities were closed (for instance, Penn National sold the Tropicana on the Las Vegas strip for rent relief), Twin River (it changed its name to Bally’s in 2H 2020) was able to go on an acquisition spree and accumulate several properties at very low prices.  It is also worth noting that the Company did not issue any equity in 2020.  On January 24, 2020, the Company acquired three casinos in Black Hawk, CO.  In April 2020, the Company announced that it has entered into agreements to purchase El Dorado Shreveport in Shreveport, Louisiana, the MontBleu Resort Casino & Spa in Lake Tahoe, Nevada, and Bally’s Atlantic City Hotel & Casino.  In July 2020, it completed its acquisitions of the casinos in Kansas City, Missouri, and Vicksburg, Mississippi.  On October 1, 2020, the Company announced its agreement to acquire Jumer’s Casino & Hotel and the Tropicana Evansville casino, both in Illinois.  On November 9, 2020, the Company changed its name from Twin River Worldwide Holdings to Bally’s Corporation.  On November 18, 2020, Bally’s announced its definitive agreement to acquire, a U.S. based sports betting platform to operators in NJ, Iowa, Indiana, and Colorado.  On the same day, it announced a long-term sports betting and i-Gaming strategic partnership with Sinclair Broadcast Group.  Like other operators, in going through the tedious exercise of closing and reopening casinos in 2020, management has uncovered numerous efficiencies which has led to higher margins.  


In 2021, Bally’s continued to evolve in important ways.  In January 2021, it signed a framework with Ira Lupert to jointly design, develop, construct, and manage a Category 4 licensed casino in Pennsylvania.  Ira is a very experienced investor (co-founded Lupert Adler) with a strong track record in Pennsylvania gaming.  Bally’s has a majority equity interest and will have 100% of the economic interests in all the retail sports betting, online sports betting, and i-Gaming activities.  On January 25, 2021, Bally’s announced the acquisition of Monkey Knife Fight, one of the fastest growing daily fantasy sports (DFS) sites in North America.  The rationale was to enter the high-growth DFS market and incorporate it into Bally’s omnichannel portfolio of land-based casinos and i-Gaming platforms.  On February 8, 2021, Bally’s announced it was acquiring SportCaller, a leading global B2B free-to-play game provider for sports betting and media companies across North America, the UK, Europe, Asia, Australia, Latin America, and Africa.  SportCaller is an enterprise software solution used as a key customer acquisition and retention tool.  


The most important development was the acquisition of Gamesys Group plc which closed on October 1, 2021.  Below is an interview clip which played shortly after the closing of Gamesys.     


Bally's Chairman & CEO: There's unlimited potential for growth in gaming


Bally’s issued shares at $55 in April 2021 to help fund the Gamesys deal.  At the same time it announced the Gamesys transaction, Bally’s also announced it was acquiring the Tropicana Las Vegas.  On July 13, 2021, Bally’s closed on the Association of Volleyball Professionals, the premier professional beach volleyball organization and host of the longest-running domestic beach volleyball tour in the U.S.  On August 9, 2021, Bally’s acquired Telescope, the leading provider of real-time audience engagement solutions for live events, gamified second screen experiences, and interactive livestreams.  


In January 2022, as the market traded lower, Standard General made a $38/share bid for the equity it did not own in Bally’s.  Below is a CNBC interview regarding the offer.  


Bally's chairman on proposed takeover


On May 5, 2022, the board rejected the offer, and Standard General reiterated its long-term commitment to Bally’s.  In conjunction with rejecting the $38/share offer, the board announced it would do a $300 to $500 million tender offer structured as a Dutch auction format.


On May 5, 2022, Bally’s was selected as the preferred bidder for Chicago’s megacasino.  Bally’s Chicago is a $1.7 billion destination casino, entertainment, and hotel project.  More details on Chicago are later in this memo.      


The tender offer for BALY shares expired on July 22, 2022 and the company purchased $103 million in shares at a tender price of $22.  Interestingly, there was not much volume that transacted in the tender.  


The acquisition of Tropicana Las Vegas closed on September 27, 2022, and on November 21, 2022, Bally’s announced it was partnering with a private investor (Oak Street Real Estate Capital) on the sale leaseback for the future site of Bally’s Chicago.  On December 14, 2022, Chicago’s City Council authorized zoning for Bally’s Chicago.  


On January 4, 2023, Bally’s closed on the sale leaseback transactions on the Tiverton and Biloxi properties with GLPI for a total consideration of $635 million (transaction structured as a tax-free capital contribution) and the rent on the Company’s Master Lease increased by $48.5 million, implying a 7.6% cap rate.  The Company stated that a substantial portion of the proceeds will be used to reduce debt.  


The last major update was on February 13, 2023, when in conjunction with releasing solid Q4 2022 earnings the Company announced that Robeson Reeves was replacing Lee Fenton as CEO of Bally’s.  Lee Fenton was the CEO of Gamesys for many years, where he worked alongside Robeson who was the COO of Gamesys.  While Lee is talented, Robeson will be more aggressive in pursuing the opportunity in North America Interactive while expanding Gamesys globally.    


The slide below from the Company shows the evolution of the company over the past decade.  

As you can see, the transformation has been extreme.