Did Filing Mistake By BallyBet Owner Help Stock Jump At Wrong Time?

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Regulated financial filings include so much information that it is easy to skim over something important. It might be what happened to the owner of BallyBet in June, in the middle of a major transaction.

Whether that error violated Securities and Exchange Commission (SEC) law or potentially drove stock sales to atypically high volumes remain open questions.

The company behind the BallyBet sportsbook brand is much more than a growing US sports betting operator. Bally’s owns and operates 14 casinos in 10 states and is adding more with a $1.7 billion Chicago casino on the horizon.

Bally’s has started to free up cash through sale-leaseback transactions with Gaming & Leisure Properties. The mistake in question involved announcing the proceeds of one of those sales despite the fact the transaction was not yet public.

What did Bally’s do?

On June 24, Bally’s released a three-year cash flow forecast. There was one problem, though: not all of the information in that document was public knowledge.

The forecast included $635 million in free cash flow in the sale-leaseback category. That number did not concern the REIT transaction with Gaming & Leisure Properties that closed in April but another transaction that would not be announced until June 28.

The filing came at 8:25 am, according to the timestamp on the SEC.Report link, or about an hour before markets opened in the US. That was not the only filing during pre-market, though.

BallyBet owner announced Dutch auction on same day

Bally’s also announced its intent to buy back up to $190 million in shares through a Dutch auction about 40 minutes before the cash flow statement was filed.

A Dutch auction is not a standard stock buyback. Shareholders of the company are asked to submit bids within a certain range (Bally’s was $19.25 to $22) for the amount of stock they would be willing to sell at the lowest price they would be willing to sell.

Bally’s closed the day before the two announcements at $18.87, below the bottom of the Dutch auction range. The company eventually settled the Dutch auction at $22 per share, buying back 4.7 million shares.

Mistake confirmed by finance employee

Bally’s confirmed the $635 million included in the June 24 release was related to a then-unannounced transaction in an email exchange with LSR on June 29:

LSR: “Good afternoon, I had a question about the three-year cash flow forecast added to the IR site 6/24. Is the $635 million for Sale-Leaseback in the 2022 and three-year column referring to the deal with Gaming & Leisure Properties announced 6/28?”

Heidi Gruber, executive administrative assistant – finance: “Yes, thanks”

That was the last answer from Bally’s by LSR despite numerous follow-up attempts.

Stock jumped after filings

Bally’s stock opened June 24 at $20.45, or 8.4% higher than the previous close. The stock hit $21.16 at its highest that day before closing at $20.61, up 9.2% than the prior close.

The stock also had a volume of 2.9 million on June 24, the second-highest in that 52-week period. The only other day with a higher trading volume was January 25, when Standard General announced its bid to take the BallyBet owner private.

There is likely little question the Dutch auction announcement led to stock purchases. Whether finding out about $635 million in previously unannounced free cash flow aided those purchases is potentially a question for the SEC.

Is Bally’s facing a securities fraud violation?

Whether the SEC wants to explore the issue is unknown at this point. Officials at the SEC refused to give insight on the issue, even when there was no mention of a specific company when contacted by LSR:

“Unfortunately, I can’t really find a path to comment on your question, either how it was proposed here and on the voicemail, as it could take me down a road of potentially commenting on the possibility of a current or future investigation which we do not do.

Perhaps if you are able to rephrase it, much more generically, we may be able to help point you in the right direction at least.”

After phrasing the question even more generically, another official followed with a “No comment,” though he did elaborate when pressed for why:

“You’re asking us to weigh-in on a hypothetical scenario and if it’s securities fraud, that’s not something we’d comment on.”

Bally’s has been busy with acquisitions

The company formerly known as Twin River has been busy building out its interactive division since the changing its name to Bally’s in late 2020.

First, Bally’s bought sports betting platform provider Bet.Works for $125 million in cash and stock. Bally’s also started expanding its RSN reach, renaming 21 Fox stations to Bally’s Sports.

It then purchased DFS operator Monkey Knife Fight in January 2021 for up to $90 million in stock.

The biggest purchase to date came two months later, though, when Bally’s dropped $2.8 billion to buy Gamesys. The technology from that transaction became the backbone for BallyBet 2.0, which took until this summer to start rolling out.