When Sen. Frank A. Ciccone got wind in July that Bally’s Corp.’s board of directors had accepted a $4.5 billion buyout offer from the hedge fund Standard General LP, his first call was to R.I. Lottery Director Marc A. Furcolo.
Furcolo told Ciccone not to worry. But that is easier said than done when discussing any changes to the casino company that employs about 1,600 people in Rhode Island and is responsible for some of the biggest sources of revenue for the state’s $14 billion budget.
“I told him to prove it,” said Ciccone, D-Providence.
Rhode Island remains unique in the gaming space, the smallest state with the heaviest reliance on gambling, taking in revenue at the highest per-capita rate in the nation due in part to receiving 61% of the take from the video slot terminals at Bally’s Twin River Lincoln Casino Resort and its sister site, Bally’s Tiverton Casino & Hotel, according to a 2019 report by The Urban-Brookings Tax Policy Center.
Like many state officials, Ciccone, a member of the Permanent Joint Committee on State Lottery, is sensitive to the machinations at Bally’s and its once-adversarial lottery partner International Game Technology PLC.
Just a month after the buyout vote at Bally’s, IGT – which employs about 1,000 people in Rhode Island and is the sole provider of video slot machines at the state’s two casinos – announced it was selling its gaming and digital business to the private equity firm Apollo Global Management Inc. in a $4 billion deal.
Once the transaction is completed in 2025, IGT will continue to lease and own many of the video slot machines, but it will no longer be controlling the state’s sportsbook – for which it signed a three-year contract in 2023 – nor providing content for Bally’s recently launched iGaming operations. Those duties will fall to the spin-off business controlled by Apollo.
What these two deals also mean: a private equity firm and a hedge fund, both entities known for employing aggressive tactics in the name of high returns for their investors, will be playing a larger role in Rhode Island’s revenue generation.
In the case of publicly traded Bally’s, which is headquartered in Rhode Island, ultimate control of the company will be handed off to New York City-based Standard General and its managing partner, Soohyung “Soo” Kim.
Also, the moves come at a time when Rhode Island gambling operations are under intense competition from sites in neighboring states. According to the American Gaming Association’s 2024 annual report, while Massachusetts saw an increase in casino gaming revenue of 47% between 2022 and 2023, Rhode Island’s revenue rose less than 3%.
And according to the state’s fiscal 2024 audit, the R.I. Lottery transferred $426.4 million to the state’s general fund in fiscal 2024, an $8.2 million decline compared with fiscal 2023. The sportsbook take was down 25%.
Meanwhile, the interests of Bally’s have been expanding nationwide, including its efforts to build a $1.7 billion flagship casino in Chicago and plans for a new resort on the Las Vegas strip.
In an interview with Providence Business News, Kim tried to ease any worries of Rhode Island officials, particularly that his takeover could lead to Bally’s prioritizing its properties and construction projects in states where governments aren’t taking such a large cut of the revenue.
He said he’s been involved in the Ocean State gaming sector since Bally’s was operating under a different name and was a “single property in financial distress” years ago. Before the buyout offer, Standard General held 23% of Bally’s shares and Kim has been Bally’s chairman since 2019.
“I’m a known quantity to Rhode Island,” he said.
Now with over $3.6 billion in long-term debt and the recent drawing of $220 million of revolving credit in the second half of 2023, Bally’s posted a second-quarter loss this year of $60.2 million, leaving some to speculate it could be biting off too much at once.
Kim disagrees.
“The shares have traded poorly for a number of years. We are saying clearly that we disagree with that sentiment,” he said. “We wouldn’t be buying more if we thought Bally’s would be somehow unable to flourish in the future. For whatever reason, they are pessimistic. I am optimistic. And that’s what makes markets.
“I think this can only be interpreted as a sign of confidence that the largest insider and chair of the board is tripling down on their ownership of Bally’s,” Kim said. “I see it as going from strength to strength. And our best days are ahead of us.”
Indeed, Ciccone supports Bally’s expansionist ambitions. And he believes IGT spinning off some of its business for a sale to Apollo – a private equity firm with more financial resources at its disposal – could be a boon for the state’s gaming market.
He is betting on Rhode Island.
“I don’t think we will see any drastic changes you would see in other states. Our [state regulators] are much more hands-on,” Ciccone said. “The momentum will come back. Just look in the parking lot in Lincoln; most cars are from Massachusetts.”
‘DEFINITELY CONCERNED’
Others aren’t so sure.
Providence College business professor Patrick Kelly says the growing involvement of aggressive investment funds in Rhode Island’s gambling sector may change the dynamics somewhat as the pursuit of higher returns for investors increases pressure to prioritize investments outside of the state.
“They are not in this to lose money,” Kelly said. “With Massachusetts adding sports betting, it just shows it’s now state against state. That is just the latest challenge that Bally’s has in Rhode Island. They are no longer getting those customers.
“They may say nothing is going to change, and perhaps that really is their position,” he said. “But now they have to figure out what to emphasize.”
In the meantime, state legislators are keeping close tabs on what’s happening.
Though lawmakers hotly debated the provisions and length of the 20-year lottery contract given to the Bally’s-IGT joint venture in 2021, its approval highlighted a bipartisan understanding of the importance of protecting the revenue created by the two companies, something R.I. House Minority Leader Michael W. Chippendale called “our greatest charge.”
Chippendale, R-Coventry, notes the market reaction to the news that Standard General and Kim could be wielding a heavier hand in terms of Bally’s direction. “Bally’s stock price increased by 25% and maintained this growth through October, which is good for a company headquartered in Rhode Island,” Chippendale said.
[caption id="attachment_480808" align="aligncenter" width="1024"]
NEW DIRECTION: International Game Technology PLC is selling its digital and gaming business to a private equity firm and will focus more on its lottery business. That means the spin-off business will be controlling the state’s sportsbook and providing content for iGaming operations.
PBN FILE PHOTO/RUPERT WHITELEY[/caption]
IGT is a different story.
The 20-year lottery contract included an increase of the jobs IGT is required to fill in the state to 1,100, with the aggregate payroll reaching $85 million per year.
However, R.I. Lottery recently confirmed that the company is 114 short of that mark, exposing it to a $7,500 fine per unfilled job at the end of this calendar year.
IGT’s connections to Rhode Island date back to GTECH Corp., an international lottery company based in Rhode Island that started in 1980. It was purchased by the Italian company Lottomatica in 2006, which adopted the GTECH name. GTECH maintained offices in Providence and purchased IGT, the world’s largest slot machine manufacturer, in 2015 for $6.4 billion. GTECH changed its name to IGT.
Chippendale and his fellow Republicans have been outspoken in their criticism of IGT, particularly its failure to reach the 1,100-job mark.
“We are definitely concerned,” he said. “As with any substantive change in a major investment, there must be legislative oversight to ensure the public investment is managed appropriately and prudently.”
Robert Vincent, chairman of IGT subsidiary IGT Global Solutions Corp., says the company intends to reach its commitment, and the sale of the digital and gaming business to Apollo is part of IGT’s business strategy.
“This is just a financial transaction. It’s an asset sale,” he said. “We are not selling the company. We undertook this process as a value creation for our shareholders.”
Vincent says the sale made financial sense given market conditions. IGT is moving away from being a gaming conglomerate and back to its roots as a “pure lottery company.”
When the sale is finalized, the parent IGT will change its name, and the new digital spinoff will operate under the IGT brand. “The theory in the market now is the value [is higher] for pure play,” he said, meaning focusing on a single industry.
Why would a private equity fund – which mixes multiple investments in various sectors – be interested in this billion-dollar gamble?
“iGaming is the new frontier,” Vincent said. “That becomes attractive to a company like Apollo, when maybe in the past it hadn’t been.
“Other [competitors] have separated from this market and the multiples they got in their earnings was greater than ours,” he said. “We felt the quality of our assets that we’ve built up over time was better. So, we will sell them off and the lottery assets in the remaining company will be valued higher than they are today. That’s the rationale behind it. It’s a value-creation play. The company that exists today will exist the day after the closing. It will just be under a different name.”
As for the IGT spinoff, Apollo is expecting to merge it with Everi Holdings Inc., a casino operations company that Apollo is also buying. The combined deal is expected to be valued at $6.3 billion.
[caption id="attachment_480855" align="alignright" width="384"]
NEW PLAYERS: Bally’s Corp., which operates the Twin River Lincoln Casino Resort pictured above, has agreed to a buyout by its largest shareholder, a hedge fund. Its lottery partner, International Game Technology PLC, is selling its gaming and digital business to a private equity firm.
PBN FILE PHOTO/MICHAEL SALERNO[/caption]
THE BUYOUT
It’s not hard to see why high-return private equity and hedge funds have an interest in the gambling sector.
Sebastian Sinclair, president of Christian Capital Advisors LLC, the independent consultancy hired by the state to study the proposed no-bid, 20-year contract involving Bally’s and IGT in 2020, says private equity’s dive into the gambling market began around 2008 with the $31 billion leveraged buyout of Caesars Entertainment Inc. – a subsidiary of Harrah’s Entertainment – by TPG Capital and Apollo Global Management, the same firm involved in the IGT Gaming acquisition.
“Private equity always had some minor interests in the gambling industry, but it usually took the form of financing a project like building a new gaming facility,” Sinclair said. “This was relatively new.”
After that, hedge funds and other investment firms saw the value in casino ownership – a steady cash flow and real estate assets spread across the country that have high revenue per square footage.
“So, if you are a manager of private equity, you’re thinking, that’s something I could leverage,” Sinclair said. “This is now emblematic of the financial wizardry that went on in any other industry where you look to extract value in any place you can. Casinos are good at reliably producing monthly cash flow. Kim knows you’ve got a certain amount of dollars coming through the door every quarter.”
If the Bally’s buyout is approved by the U.S. Securities and Exchange Commission, which is expected in the first half of 2025, Standard General will have ultimate control of Bally’s direction.
Still, in Rhode Island, the state gets the lucrative 61% of the slots revenue no matter who is operating the two casinos.
“You’ve got this unique triumvirate [among the state, Bally’s and IGT] where the state has a lot more leverage,” Sinclair said. “If Bally’s goes belly up, Rhode Island can just say ‘Goodbye Bally’s, hello Caesars’ or another casino company. It’s clear [Kim] thinks the market was undervaluing the company and he could do better by taking it private. But there is always a risk. If you become overleveraged and hit a downturn, you can go bankrupt.”
Colin Mansfield, an analyst for CBRE Capital Advisors’ credit research platform, which covers real estate, gaming, lodging and leisure sectors, says the consensus now is the Standard General transaction should not materially alter Bally’s operating strategy because the hedge fund has been a large shareholder for years. And other large Bally’s shareholders are planning to roll their stakes into the company as it goes private, he says.
The transaction will certainly add to the company’s debt, Mansfield says, but this will be offset by new casino assets that Kim wants to merge into Bally’s.
As for Rhode Island?
“The Rhode Island gaming market remains attractive given the minimal in-state competition, which compensates for the high amount of profits that have to be shared with the government,” Mansfield said. “Standard General believes that the company is significantly undervalued, and the public markets are not accurately reflecting the underlying value and potential of the company.”
Craig Eaton, Bally’s head of Rhode Island operations, does not foresee any major changes stemming from the change of ownership from public to private. Bally’s has continued to focus on local concerns, he said, citing recent initiatives “to refresh and reinvent” Twin River with the construction of a retail sportsbook, the 50,000-square-foot floor expansion and the introduction of iGaming.
Bally’s has committed to maintaining its executive offices in Providence until 2043. IGT is also required to maintain a Providence headquarters until the same year.
Kim says he wants Rhode Islanders to know that even though the company is juggling multiple casino projects and is handing over control to a hedge fund, it has no plans to abandon its roots.
“I understand the responsibility that we have to be a champion for the state,” he said. “And I take that responsibility very seriously.”
