EEG fights liquidity concerns following $38m esports impairment charge 

Esports Entertainment Group (EEG) has announced that it will revise its operating portfolio in order to improve its current liquidity position. 

Publishing its Q3 2022 financial results, the Nasdaq-listed operator outlined that despite recording a two-fold increase in corporate revenues to $15.7m (Q3_2021: $5.3m), it faced a series of ‘near term challenges’ impacting its bottom-line performance.

“Our fiscal third quarter 2022 results illustrate growing top-line momentum across both our iGaming and esports verticals, which benefited from a more normalized operating environment in the quarter,” said Grant Johnson, EEG CEO.

Period trading saw EEG benefit from a ‘record-breaking performance’ by proprietary brand Lucky Dino, alongside a ‘more balanced hold’ from its sportsbook portfolio.

Despite registering igaming growth, EEG reported that it had absorbed a $38m impairment related to its ‘unmonetized esports assets’ of Helix, ggCircuit and EGL.

Back in 2020, EEG had acquired its esports portfolio undertaking the back-to-back deals of Helix and Esports Gaming League (EGL) for a total outlay of $50m.

“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 centers.” – read Johnson’s CEO assessment.  

“ggCircuit and EGL are two assets which we have not effectively been able to monetize due to liquidity constraints.

“To address our liquidity position and improve our ability to invest in the business and adequately support our growth initiatives, we are actively working with our lender on key modifications to the loan and hope to have more to share on this front in the near term.”

The costly trading period saw EEG account for a total operating expenditure of $66m (impairment + business costs) – that resulted in the company declaring a Q3 loss of $50m.

Further bottom-line impacts saw EGG halve its corporate cash balance to $9.4m, down from $20m as reported in June 2021 – as the firm’s asset value dwindles to $85m.

Updating investors, EEG leadership stated that its focus would be on achieving aggressive cost savings across its group structure, revising expenditure on both esports and igaming verticals.

As a result, EEG has provided a more prudent financial outlook in which it expects to achieve full-year revenues in the range of $55-to-$60m from its prior target of +$70m.

Johnson commented on EEG’s outlook –  “As we look ahead, the building blocks for further growth remain firmly in place. However, today’s market conditions are different and, as such, our team has adjusted to focus on achieving breakeven as quickly as possible.” 

“While we have come a long way in a short period of time, there is much work ahead of us as we become a leaner organization that can operate more efficiently and create greater value for our partners and shareholders.”

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