After making a splash with a wave of acquisitions – including Bethard and Argyll Entertainment – the business struggled financially during 2021. In May, the business warned that it may not be able to continue as a going concern after defaulting on some convertible notes issued last year, which had a principal value of $35m (£31.2m/€35.9m).
Now the business and the holder of these notes must work out the course of action following the default.
Esports Entertainment Group and the notesholder had agreed that, in the event of default, EEG could be made to redeem the full value of the notes in cash or in shares at market value. However, the notesholder may not hold more than 4.99% of Esports Entertainment Group, and the default agreement includes a “floor price” of $2.18, effectively the minimum price at which the notes can be converted to shares in the event of default to ensure this.
If Esports Entertainment Group’s share price dips below the floor, it must make a “make-whole” payment to the notesholder in cash to make up for the value it would otherwise not receive. Currently, the business trades at $0.12 per share.
The business calculated that the fair value of the make-whole provision would be $9.4m. However, it noted that a “strict application of the formula” to calculate the make-whole provision could lead to the group being required to pay $180m instead.
Esports Entertainment Group currently has only $2.6m in cash on hand, meaning even the lower total could cause further difficulties for the troubled business.
“If the holder required us to redeem in cash any or all of the new note, it would have a material adverse effect on our business and financial condition,” the group said in its annual 10-K report.
The announcement comes after the group reported $58.4m in revenue for the year ended 30 June. Of this total, $53.1m came from its betting brands, with the other $5.2m from its esports events and arenas.
However, with operating expenses of $147.7m, Esports Entertainment Group’s operating loss came to $89.4m.
Adding further non-operating losses – including $9.4m for the notes – the business was left with a net loss of $102.3m. This was almost four times the amount it lost in 2020-21.