The Esports Entertainment Group (EEG) has had a significant first quarter punctuated by major strategic adjustments, including the divestiture of its Bethard online casino and sportsbook business. In a deal finalized for €9.5m, February saw the completion of this transaction, allowing EEG to offload the business entirely. This development comes alongside the announcement that EEG would be ceasing operations and liquidating Argyll entities, a move that has undoubtedly affected year-on-year financial comparisons.
Despite the clear downturns, CEO Alex Igelman emanates confidence regarding the long-term prospects for the company. He has pointed to the recent restructuring efforts that have been put in place to nurture growth and minimize costs. Shortly following the conclusion of Q1, EEG conveyed its intention to acquire a 30% minority interest in Drafted.gg, an esports content producer. Igelman expresses that this acquisition aligns seamlessly with the company’s long-term growth strategy.
Amidst the scrutiny of recent months, Igelman has directed a meticulous review of the company, with a concentrated focus on trends within the esports and igaming spheres. This examination yielded insights into unprofitable operations and contracts which prompted decisive action. Igelman is frank about the one-time expenses that restructuring entailed, but maintains that the benefits of a yearly reduction in operating expenses by more than $4.0m will significantly outweigh these costs.
He describes this period as a transformative era for the organization, signifying a renaissance and a deliberate journey towards realizing its potential for success. Igelman’s optimism is rooted in the belief that these changes will spur substantial revenue growth and, consequently, bolster long-term shareholder value.
A closer look at the company’s Q1 earnings reveals a slump in revenue across its core segments. Igaming revenue, which encompasses online betting and casino activities, plunged 76.7% to €2.0m. Meanwhile, revenue from esports and other related activities decreased by 27.3% to €733,768. EEG attributes part of these declines to negative market conditions and regulatory shifts in Finland and the UK starting from fiscal 2023, particularly impacting its Lucky Dino business.
When dissecting geographical performance, it emerged that the U.S. operations contributed $733,768 to total revenue, while international activities accounted for $2.0m. Nevertheless, measures like the sale of certain assets significantly reduced the cost of revenue by 81.3% to $602,026 for Q1. Alongside this, there were also reductions in sales and marketing and general and administrative expenses, leading to an overall decrease in operating expenses by 51.0% to $7.7m.
Post other income, totaling $214,989, EEG found itself with a pre-tax loss of $4.8m for the quarter. Despite the evident cost savings, this loss surpasses the $4.2m loss of the prior year. The absence of tax obligations resulted in a net loss mirroring the pre-tax figure, underscoring an increase from a $4.2m net loss last year.
Yet, in a positive note, adjusted EBITDA loss showed improvement, reducing from $1.0m in Q1 of 2022 to a $354,870 loss in the current year.
Returning to the company’s roadmap, Igelman places emphasis on the dedication to cultivate initiatives that will broaden the scope of EEG’s esports and igaming solutions. A comprehensive approach to online betting options is envisioned to cater better to customer preferences. To ensure the highest standards of gaming integrity and auditing processes, the CEO affirmed EEG’s commitment to uphold strict regulatory compliance for skill-based wagering. The aim is to conduct an integrity audit of Drafted.gg by an external party, ensuring alignment with standards which will facilitate the company’s anticipated aggressive expansion into the vast US market.
With these strategic investments bolstering confidence, Igelman envisions a luminous trajectory for Esports Entertainment Group. The combination of restructuring efforts and strategic partnerships kindles an anticipation for a future characterized by growth and prosperity.
