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Esports Entertainment Group to drastically streamline business as future hangs in the balance

By Conor Mulheir - 24 May, 2022

Esports Entertainment Group (EEG) is set to drastically streamline its business model after posting a net loss of $63.6m during the first three months of 2022.

The faltering business reiterated “that certain factors raise substantial doubt about its ability to continue as a going concern for at least one year,” after failing to maintain compliance with certain debt covenants relating to a senior convertible note.

In its evaluation of going concern, EEG said it has also considered its historical losses and negative cash flows from operations. As of 31 March 2022, the business had $59.2m in net current liabilities and just $9.4m of available cash on hand. As of 20 May, EEG’s available cash on hand dropped even further, to $5.6m.

Esports Entertainment Group: “The company believes that its current level of cash and cash equivalents are not sufficient to fund its operations and obligations without additional financing.”

“The company believes that its current level of cash and cash equivalents are not sufficient to fund its operations and obligations without additional financing,” EEG said in its latest SEC filing.

As a result, the company will make significant changes to its business model, which currently sees it operate seven distinct brands across the iGaming, sports betting and esports ecosystems.

“Given our lack of liquidity, we have been unable to fully monetise our esports assets – including Helix, ggCircuit and EGL” explained EEG CEO Grant Johnson.

“As a result, we are taking a $38.6m impairment charge in the quarter across these three businesses. We do not see a path to attractive profitability in the Helix business given its significant overhead and ongoing capex and are currently working to divest our two existing centres. GgCircuit and EGL are two assets which we have not effectively been able to monetise due to liquidity constraints.”

Johnson added that EEG is now in the final stages of “dramatically simplifying” its esports offering, focusing on providing SaaS-based technology under its ggCircuit brand as well as in-person esports tournaments under its EGL brands and its peer-to-peer wagering platform.

In addition to implementing this asset-light strategy, EEG said it is working to cut costs across the rest of its brand portfolio by reducing marketing spend, removing duplicated functions between brands and de-emphasising its non-core assets.

Johnson said the firm has also identified further avenues to increase cost savings, which it will continue to pursue in the coming months.

All that considered, EEG said it has set a goal to achieve break-even on an annualised basis by early fiscal 2023, although it has also reduced its full-year revenue expectations for 2021-22 from $70m-$75m to $55m-$60m.

Revenue for the latest quarter (Q3 in EEG’s 2021-22 financial year) came to $15.7m, a dramatic increase from the prior comparative period’s $5.4m, driven by EEG’s acquired brands including Argyll Entertainment, Lucky Dino and Bethard.

Costs also increased significantly, however, leading the business to post a $63.6m net loss for the quarter – up from a net loss of just $12.4m in the prior corresponding period.

Those figures bring EEG’s year-to-date revenue for the first three quarters of its financial year to $46.6m and its net loss total to $98.5m.

The company’s share price has taken a monumental fall over the past 12 months, from a 52-week high of $13.74 to just $0.44 at the time of writing.