Bally’s To Reduce Asian Gambling Presence Amid Operational Changes

Article by : Erik Gibbs Nov 6, 2024

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Bally’s Corporation is shifting its focus by selling its interactive business in Asia and other international markets to a group owned by its management members. This move is part of a strategic realignment as Bally’s seeks to concentrate more on its North American and European operations. 

The Asian division, primarily focused on Japan, contributed a significant share of Bally’s revenue but faced challenges due to Japan’s “grey” market status, where online gaming is largely unregulated. Analysts believe the sale allows Bally’s to reduce exposure to regulatory uncertainties and simplify its global footprint.

This sale is structured as a non-cash transaction, with the buying group, referred to as a “carved-out business,” issuing a seller’s note in exchange. Additionally, intellectual property (IP) assets were placed into a trust and will be licensed back to the new ownership under a five-year agreement. 

Bally’s will have no managerial role in the new entity, indicating a full exit from the business operations in these regions. This structure gives the new management team focused control over the Asian operations while freeing Bally’s from regulatory complexities associated with grey markets.

This decision aims to streamline operations and allocate resources more efficiently within its key markets. By divesting from Asia, Bally’s hopes to mitigate potential risks tied to unregulated markets, which often carry volatile revenue streams and regulatory unpredictability. 

With Japan making up roughly 26% of Bally’s international interactive revenue and about 10% of total company revenue, this shift marks a significant change. In the past year, the Asian division brought in $248 million, though year-on-year revenue fell by 35% in Q2, highlighting the challenges faced in the region.

According to CBRE Credit Research, the sale could improve Bally’s financial stability by alleviating concerns about the sustainability of its operations in Japan’s unregulated market. Japanese operations contributed about 30% of Bally’s international EBITDA in 2023, making this divestment impactful but potentially beneficial by reducing risk and narrowing Bally’s focus to regulated markets. 

The five-year licensing agreement is also seen as a buffer to soften the impact on Bally’s earnings. This arrangement allows Bally’s to maintain some revenue from the Asian business without direct involvement, offsetting part of the potential EBITDA decline and maintaining a flow of high-margin income.

Although Bally’s has not disclosed the exact terms of the buyer’s note or licensing fees, the company anticipates only a “modest decline” in its Adjusted EBITDA and free cash flow due to the sale. Cost-cutting measures tied to restructuring efforts are expected to mitigate this impact.