Esports Entertainment Group faces debt repayment issues

Posted on: November 16, 2022, 04:47 am.

Last updated: November 16, 2022, 05:22 am.

Shares of Esports Entertainment Group, Inc. (NASDAQ: GMBL), a tiny online sports betting and gaming company, rose 11.82% today on volume that was more than 12 times the daily average. That leap came with news that the firm will close two of its UK sites later this month in a bid to conserve capital.

Esports entertainment group
A profile of Esports Entertainment Group. The game company is facing business continuity issues. (Image: YouTube)

While news of the closure of RedZone and SportNation, the brands Esports Entertainment bought in 2020, was clearly met with enthusiasm from investors, the stock has lost nearly 98% of its value over the past year. Its 52-week high is $6.67, but it closed down 14 cents today. Adding to the stock woes, an analyst has ripped the coverage of game equity.

Following GMBL’s recent exit from several esports-related businesses in order to preserve liquidity, we are reducing coverage” wrote Roth Capital analyst Edward Engel in relation to clients. “GMBL has struggled to remain a going company since GMBL’s 1Q22 shares were previously rated neutral, with a price target of $0.45. As of this note, all previous estimates, rating and price target are no longer relevant and should not be relied upon.

Esports Entertainment Group is one of several small gaming companies currently grappling with business continuity issues.

Esports entertainment may be on the brink

In its 10-Q filing with the Securities and Exchange Commission (SEC) on Nov. 14, Esports Entertainment confirms its ability to continue while a going concern is up in the air. One reason is the inability of the gaming company to service the debt.

Adding to investor concerns about the company’s financial status, Esports Entertainment is attempting to renegotiate the terms of a convertible debt offering. That offer gives bondholders the right to convert to shares at $17.50 a share, a price the shares haven’t traded at in over a year. That convertible offering was worth $35 million and expires in June 2023.

“The company has failed to meet certain debt covenants and is currently in default under the terms of the senior convertible note,” according to the regulatory filing.

Esports Entertainment added in the filing that it has a $153.3 million deficit at the end of the third quarter and a history of recurring losses.

Esports entertainment needs more money

While the closure of the aforementioned UK operations is a cost-cutting measure, the harsh reality is that Esports Entertainment likely needs access to more capital. The issue is whether or not a lender will be willing to step forward to provide that money.

“The Company believes that its current level of cash and cash equivalents is insufficient to fund its operations and obligations without additional funding,” according to the 10-Q. “While the Company has available funding, as further described below, the ability to raise funding using these sources is subject to a variety of factors, including market and economic conditions, investor performance and sentiment in relation to the Company and to the eSports and iGaming sector. The combination of these conditions has been determined to cast substantial doubts as to the Company’s ability to continue as a going concern for a period of at least one year from the date of issue of these unaudited condensed consolidated financial statements.”

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