DEI backlash threatens Chicago casino
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It's been more than two years since Bally's won the right to build a riverfront casino in Chicago, but some of the IPO financing now is being threatened by a civil rights lawsuit.
Why it matters: This might be a blessing in disguise for both the company and the city, as the project has become fiscally questionable and politically unpopular.
Driving the news: An anti-affirmative action group last week sued both Bally's and Chicago, on behalf of two white men it claims were illegally prevented from investing in the casino.
- The plaintiff has a track record of legal success, most notably the landmark Supreme Court case that struck down affirmative action in higher education. It also was behind a lawsuit that prevented a small venture capital firm from offering grants to Black women entrepreneurs.
- In short, the complaint alleges that the investor qualifications are racially discriminatory.
Catch up quick: The joint agreement required that 25% of the Chicago casino would be owned by women or minorities, although it didn't specify how Bally's would achieve that outcome.
- The company late last year filed for a $195 million initial public offering, but it wasn't a typical IPO.
- Instead, the only eligible buyers were women, minorities, or firms majority-owned by women or minorities.
- The interests wouldn't subsequently trade on an exchange. Instead, they'd pay dividends and be relatively illiquid for at least the first few years — with any transfers having to be approved by Bally's in order to maintain the 25% threshold.
Zoom in: If the lawsuit is successful, Bally's may be able to fulfill the agreement by withdrawing the IPO and trying to find a qualified private equity investor.
- But the more likely result is that it will be in breach of its agreement with Chicago, which then must decide on whether or not to enforce this clause and terminate the entire deal.
What they're saying: "Bally's has a binding Host Community Agreement with the City of Chicago to build what will be the best regional casino in the country," a Bally's Chicago spokesperson tells Axios. "Bally's honors its commitments. The Bally's Chicago IPO complies with our obligations under the Host Community Agreement with the City of Chicago."
- A city representative declined comment, citing pending litigation.
Behind the scenes: There is reason to believe that both sides would at least consider walking away.
- Bally's credit rating has been repeatedly downgraded after signing the Chicago deal, and now is in the process of being acquired. This is its largest project to date, and the results from its temporary casino in Chicago have been underwhelming.
- Chicago's current mayor didn't negotiate the Bally's deal and has been relatively mum about the temporary casino and the permanent one's future.
The bottom line: The entire project is now a risky bet.
Read the lawsuit:
