Esports Entertainment Group records net loss of $34.5M
Sharpr is a weekly newsletter covering the intersection of esports and betting
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In just one month, New York has become the country’s leading market for mobile sports betting and while many states are still reporting results from the Super Bowl, the Empire State may have just set the record with $472M in wagers that weekend. And at a 51% tax rate… that’s a big haul 💰.
In this week’s edition of Sharpr…
Esports Entertainment Group quarterly earnings raise concerns
West Virginia bill seeks to legalize esports wagering
In-play makes up 59.6% of Counter-Strike betting, and more data below
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Esports Entertainment Group records net loss of $34.5M
NASDAQ-listed gambling company Esports Entertainment Group has revealed its financial performance for Q2 of its current fiscal year during an earnings call on Tuesday, missing its revenue consensus by $6.51M.
Net revenue amounted to $14.5M, up from $12.2M year-over-year, but noticeably down 11.4% from the previous quarter.
EEG posted a gross profit of $8M, representing a 20% decrease compared to the $10M earned in 1Q22, despite being up from $7.2M in the same quarter of the previous year.
EEG recorded a net loss of $34.5M – or $1.53 per share – compared to a net loss of $7.3M year-over-year.
EEG had $1M in cash and cash equivalents on its balance sheet, as of Dec. 21, 2021.
EEG’s CEO Grant Johnson acknowledged the considerable decline in company financials during its most recent earnings call, explaining that 2Q22 results “reflect a variety of challenges largely outside of [Esports Entertainment Group’s] control.”
A “significant change” in the Netherlands regulatory environment saw the company exit the country’s sports betting and iGaming market.
Johnston stated the company’s online sportsbook business in Europe “experienced historically low hold,” resulting in a material decline in sportsbook revenue.
The pandemic and Omicron variant specifically impacted EEG’s bottom line, causing the company to delay the launch of its LANDuel product.
"Despite these challenges and the collective impact they are having on our business, we remain extremely bullish about the year ahead and in our ability to reach annualized revenue of $100 million from our current portfolio of offerings,” Johnson said.
EEG expects FY22 net revenue growth to range between $70M - $75M, a more than 300% increase driven by “platform-building and strategic diversification acquisitions completed in calendar 2021.”
This week’s news has sent EEG’s stock tumbling, reaching an all-time low of $1.14 per share – a 93% decrease over the last year. It’s equivalently the third time the company has missed its expected EPS in five quarters.
EEG has been incredibly active over the last year and or so, inking a number of commercial partnerships with traditional sports franchises – the Indianapolis Colts and LA Chargers, to name a fraction of them – while it made similar steps in the esports betting scape.
Most recently, the company received a transactional waiver from New Jersey regulators to legally accept bets in the Garden State. EEG has since launched its esports betting platform VIE.gg in full, allowing New Jersey sports bettors to wager on a variety of prominent esports such as Counter-Strike: Global Offensive, League of Legends, and Dota 2. Johnson estimated that VIE.gg would generate $1M-$2M in revenue in its first year in the Garden State.
In 2020, EEG went on a significant acquisition spree that saw the company acquire venue company Helix eSports, software provider ggCircuit, tournament operator Esports Gaming League, select assets from mobile game studio FLIP Sports, and casino and sportsbook operator Argyll Entertainment.
A closer look at EEG’s spending during H1 shows total operating expenses were $20.6M, a 115% increase compared to the corresponding period last year. Administrative costs accounted for the main outgoing at $24.3M, while sales and marketing expenses amounted to $14.3M.
🦈 Sharpr take: While the company plans to bounce back from its quarterly flop with an ambitious revenue target for FY22, there’s some skepticism of where EEG will actually land here.
EEG’s regulatory approval in New Jersey, for example, was a big moment for the company, but it would be naive to think that VIE.gg will be able to move the needle to the extent needed for the company following its year-over-year drop in share price, at least in its early incarnation.
On top of the demand for esports betting stateside being unclear and unproven, New Jersey implements rather strict regulations on competitive gaming, where operators are only authorized to accept bets of up to $100, unless sanctioned by the NJDGE. Not only can these wager restrictions deter potential bettors, but it's likely to impact the sportsbook’s revenue potential as well.
As with New Jersey’s uncertain appetite for esports betting, consumer demand for peer-to-peer betting is equally questionable. Still, Johnson remains “bullish” on the prospect of its peer-to-peer betting platform LANDuel, which will debut at the Hard Rock in Atlantic City on March 18-20.
Generally speaking, EEG has its hands in a number of different sectors across esports, gaming, traditional sports, and betting. The gambling organization’s portfolio of companies and assets have noteworthy harmonies amongst them, but to-date, have appeared disjointed in practice, and are likely connected to the high operating and administrative costs outlined above.
Not to be overly stark here, because there are headwinds and tailwinds for Esports Entertainment Group at this point in time, but near-term, the future feels unsteady.
West Virginia bill seeks to legalize esports wagering
West Virginia lawmakers introduced House Bill 4826 last week in a new amendment that would include esports in the state’s legal sports betting industry.
The bill seeks to categorize esports as an officially-recognized sporting discipline, which would allow West Virginia residents to wager on esports events. HB 4826 defines esports as an “electronic sport or competitive video game played as a game of skill for spectators.”
The language in HB 4826 is notably broad – as it currently reads, the bill would authorize wagering on a wide range of esports events. State residents are currently able to wager on professional and collegiate sports competitions, both of which would be on the table should its esports legislation pass as presently outlined.
HB 4826 has been sent to the House Finance Committee for further review.
West Virginia was an early adopter of legalized sports betting, launching online and retail betting in August 2018.
The state’s legal sports betting industry has handled $947M since launch across online and retail platforms.
If HB 4826 is passed, West Virginia will become one of a number of states to legalize esports betting, including Colorado, Connecticut, District of Columbia, Louisiana, Nevada, New Jersey, Oregon, Tennessee, Virginia, and Washington.
🗞 In the news
Esports data platform GRID Esports has launched ‘GRID Open Platform,’ a free, public portal to access esports and gaming data to enable “community-driven innovation.”
Sportsflare has inked a partnership with skill-based betting app Skiirmish to integrate its “bet-on-yourself” infrastructure into the platform.
Esports Technologies has filed a quantum computing patent application said to “rapidly predict likely team composition in a MOBA matchup.”
📈 By the numbers
A survey from French regulator l’Autorité Nationale des Jeux has outlined that 21.5% of French teenagers aged 15-17 have bet on esports.
In-play makes up 59.6% of Counter-Strike betting, while pre-match betting is more popular in League of Legends with 54.8%, according to PandaScore’s senior sales manager.
British bettors using unlicensed sports betting platforms have doubled in two years from 220,000 users to 460,000 – the amount staked is said to be in the billions of pounds.
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