Esports Entertainment Group faces debt repayment issues

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

Last updated on: November 16, 2022, 04:47 am.

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

Esports entertainment group
A profile of the Esports Entertainment Group. The gaming company is facing going concern issues. (Image: YouTube)

While news of the closure of RedZone and SportNation — brands that Esports Entertainment bought in 2020 — clearly drew investor excitement, the stock has lost nearly 98% of its value over the past year. Its 52-week high is $6.67, but it closed at 14 cents today. Adding to the stock’s woes was that an analyst pulled coverage of the gaming stock.

Following GMBL’s recent exit from several eSports-related deals to maintain liquidity, we are discontinuing coverage,” Roth Capital analyst Edward Engel wrote in a report to clients. “GMBL has been struggling to continue as a going concern since 1Q22. Shares of GMBL were previously neutral with a price target of $0.45. As of this notice, all previous estimates, ratings and price targets are no longer relevant and should no longer be relied upon.”

Esports Entertainment Group is one of several small gaming companies currently grappling with going concern issues.

Esports entertainment may be on the brink

In its Nov. 14 10-Q filing with the Securities and Exchange Commission (SEC), Esports Entertainment affirmed its ability to continue as a going concern is in the air. One reason for this is the gambling company’s inability to service debt.

In addition to investor concerns about the company’s financial condition, Esports Entertainment is seeking to renegotiate the terms of a convertible bond offering. This offering gives bondholders the right to exchange for shares at a price of $17.50 per share — a price at which the shares have not traded in over a year. This convertible bond was valued at $35 million and matures in June 2023.

“The Company has defaulted on certain debt obligations and is currently in default under the terms of the Senior Convertible Notes,” the regulatory filing reads.

Esports Entertainment added that it ended the third quarter with a $153.3 million deficit and a history of recurring losses.

Esports entertainment needs more money

While the closure of the aforementioned UK companies is a cost-cutting measure, the stark reality is that Esports Entertainment will likely need access to more capital. The question is whether a creditor will be willing to provide that money.

“The Company believes that its current inventory of cash and cash equivalents is insufficient to fund its operations and obligations without additional financing,” the 10-Q reads. “Although the Company has funding opportunities, as further described below, the ability to raise funds from these sources is dependent on several factors, including market and economic conditions, performance and investor sentiment regarding the Company and the esports and iGaming communities. industry . The combination of these conditions was determined to cast significant doubt on the Company’s ability to continue as a going concern for at least one year from the date of these unaudited condensed consolidated financial statements.”

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