Esports Entertainment Group Struggles to Survive Amid CEO Sacking and Asset Liquidation

After reaching a high of $21 per share in March 2021, EEG shares were trading on Nasdaq at a near 52-week low of 11 cents per share on Thursday, putting its market cap at approximately $7.6 million.

Last Updated: Dec 8, 2022 10:33 PM ET Read Time: 4 min
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Esports Entertainment Group (EEG) is in a battle for survival amid falling share prices, negligible cash reserves, and the official announcement on Wednesday that CEO and Board Chairman Grant Johnson had left the company.  

Jan Jones Blackhurst, who was appointed to the EEG board in May, was named EEG's new Chair of the Board of Directors. She is a former Mayor of Las Vegas and currently sits on the Board of Directors of Caesars Entertainment.

But in a sign of ongoing internal turbulence, the esports-focused online betting site and entertainment company took two days to confirm Johnson's exit via press release after news of his firing had already been leaked on Monday by journalist Cody Luongo on his Sharpr substack site

EEG previously announced debt default in May

The corporate shakeup is a further sign of the EEG's precarious financial state following a year that has seen the company desperately attempt to raise cash by shutting down its betting brands in the face of a collapse in the value of its shares.

In May, EEG revealed in its quarterly earnings report that it had "substantial doubt" about its ability to continue as a viable entity after defaulting on a $35 million Convertible Note it had issued in 2021. 

But owing to the company's precarious fiscal state, the noteholder has thus far chosen not to call in the debt, which would likely put EEG in an untenable position.

Possible lifeline in place

Wednesday's statement from EEG sought to allay such concerns:

"The Company is in discussions with its debt holder to restructure its payment obligations, including but not limited to eliminating the derivative liability on its consolidated balance and addressing the Company's default status under the debt," read the release. "The Company is optimistic that an agreement can be reached to the benefit of both parties in the near term." 

The release also mentioned that it received a "non-binding letter of intent from a third party that offered to merge its assets, including intellectual property, with that of the Company," which would still focus on growing esports revenues and is currently under consideration by EEG.

A key element to EEG's survival is the expected December 12 closing of its Spanish-facing online casino entity. Proceeds from the sale, the amount of which has yet to be announced, will be used to pay down the principal on the Convertible Note.

iGaming asset fire sale under consideration

EEG further indicated that it was considering the sale of its remaining iGaming assets due to "increasing regulatory burdens and competition."

Previously in May, EEG announced that it was seeking to stem its cash burn by selling off its esports assets, including Helix eSports (which it sold in June to SCV Capital for the equivalent of its debt liabilities), ggCircuit, and Esports Gaming League.

Sales of the latter two assets have thus far yet to materialize.

The bad news kept on coming in October, however, when EEG announced that it was unable to raise new capital. This forced it to close its online sportsbook less than a year after it launched in New Jersey in early 2022, amid considerable fanfare.

The venture proved to be an utter disaster as it badly overestimated its ability to attract customers to its online platform, after paying a seven-figure "skin fee" to Bally's Atlantic City Hotel & Casino.

"Esports was categorized [the] same as sports. So the skin [costs] seven figures a year, which is way too much for esports in its current stage as an evolving vertical," said then-CEO Johnson at the time of the VIE shutdown. "Had the market not turned so radically, we had anticipated raising capital and then adding a sportsbook. But by the time we were approved, clearly, the world had changed."

Unlike operators such as the soon-to-debut BetFanatics and Betr, which will rely on massive customer databases for customer acquisition upon launch, EEG has a far less convertible following among its gamer customers.

The company also lacked the capital resources to finance the high costs of marketing and promotional spending that might have gained the VIE brand some minimal traction in the highly competitive New Jersey sports betting market.

At the same time as he was announcing the closure, Johnson also warned investors that EEG was already in peril as far as its UK sports betting operations were concerned.

"We are restructuring to last through to more stable markets," stated Johnson in October." "[And] at this time, NJ, Spain, and the UK are all jurisdictions that we don’t have the required capital to stay active in. So we are reducing our burn and putting some cash back in the bank."

Subsequently, in November, EEG ‡ which runs games, iGaming, and B2B tech divisions — announced that its UK SportNation and RedZone sportsbook brands would be closing, citing "a variety of reasons including the economics of operating a small iGaming business in the UK market."

EEG narrowly averts being delisted from the NASDAQ

Prior to the confirmation of its CEO's departure, EEG announced at the beginning of the week that it had avoided being delisted from the Nasdaq exchange where its shares trade.  

The company was granted a two-month grace period by Nasdaq in order to allow the beleaguered operator to raise additional capital and boost its share prices, which cratered this week.

After reaching a high of $21 per share in March 2021, EEG shares were trading on Nasdaq at a near 52-week low of 11 cents per share on Thursday, putting its market cap at approximately $7.6 million. 

Under the terms of the arrangement with the exchange, EEG must boost its share price by nearly tenfold, and achieve a minimum bid price of $1.00 per share for 10 consecutive days, in order to continue being listed on the exchange. 

This objective will prove difficult to reach unless EEG finds a corporate rescuer or existing stakeholder willing to pump new capital into its sinking operations, thereby giving investors confidence that the company will have sufficient cash to sustain itself in the coming year. 

In addition, the operator will also be required to demonstrate by March 31 that it has a minimum of $2.5 million in stockholder equity.

Are esports-focused books following other niche operators to say "No Mas?"

With the pullout of Fubo and MaximBet from the U.S. legal sports betting market, EEG's impending withdrawal from the iGaming sector could be a clear sign that a host of smaller/niche players will soon follow suit.

Sharply higher interest rates are putting greater pressure on minor operators who do not have the overall capital resources that have allowed the major sportsbooks — FanDuel, DraftKings, BetMGM, and Caesars — to finance heavy promotional campaigns while remaining in pre-profit.

Only FanDuel's sportsbook is currently in profit, while the others are hoping to reach the all-important "inflection point" later in 2023. The shutdown/selloff of EEG's sportsbook and gaming operations indicates that those companies competing for 1% market shares in most U.S. markets may no longer be viable.

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