Esports Entertainment Group ex-CEO sues company

Grant Johnson, the former CEO of Esports Entertainment Group, has initiated legal proceedings against the company, claiming that his dismissal constitutes a breach of his employment contract.

In December, the Esports Entertainment Group board requested Johnson to resign, marking the end of a tumultuous year for the organization—characterized by brand closures, a debt default, and the looming threat of delisting from stock exchanges.

Recently, in a prospectus for a share offering, the company disclosed that Johnson’s lawsuit alleges both breach of contract and wrongful termination.

According to court documents filed in the Southern District of New York, Johnson asserts that EEG violated his employment agreement by terminating him “for cause” based on fraudulent allegations, willful misconduct, and gross negligence.

As a consequence of this termination, Esports Entertainment Group denied Johnson severance pay or any compensation for the remainder of his contract, which was set to expire in 2025.

Johnson is pursuing over $1 million (£820,000/€920,000) in damages, in addition to 200,000 shares of EEG stock.

Response to Allegations of Fraud

Johnson’s representatives contend that the allegations against him are unfounded. They further argue that even if the accusations were substantiated, they would not meet the stringent criteria for “for cause” termination as defined in his contract, which necessitates “demonstrable and serious injury to the company.”

It is noteworthy that the Esports Entertainment Group board of directors had previously investigated these matters in April 2022 and unanimously decided not to pursue further inquiry.

In response, Esports Entertainment Group maintains that Johnson’s claims lack merit. The company expressed its intention to vigorously defend against the lawsuit, asserting that the litigation does not pose a significant threat that could materially affect its operations, despite the company’s already precarious financial standing.

Financial Health of Esports Entertainment Group

In its May quarterly report, Esports Entertainment Group indicated that there were “substantial doubts” regarding its viability as a going concern over the coming year.

The financial challenges persist, as evidenced by the firm’s most recent disclosures. As of January 12, 2023, the company reported having only $500,000 in cash reserves.

iGaming Closures and Asset Sales

In December, Esports Entertainment Group revealed that it was contemplating the sale of its remaining iGaming assets to alleviate debt burdens.

This consideration followed the closure of its SportNation and RedZone UK brands, which were attributed to “a variety of reasons, including the economics of operating a small iGaming business within the UK market.”

Both brands were part of Esports Entertainment Group’s subsidiary, Argyll UK. The operator outlined a strategy for winding down operations, including surrendering its license to the Gambling Commission and processing customer deposit refunds.

As of December 31, 2022, approximately $200,000 was still owed in customer refunds. The company stated its commitment to complying with legal requirements for these refunds and upholding Argyll UK’s terms and conditions.

Looking ahead, Esports Entertainment Group is also finalizing the sale of its Spanish iGaming assets. A letter of intent was signed in November 2022, and although the deal was expected to close in December, it is now anticipated to finalize this month. The total proceeds from this transaction are expected to reach $1 million, alongside a $1 million deposit held by the Spanish regulatory body.

It is important to note that 65% of the liquidity generated from this sale is earmarked for a noteholder due to a prior default on debts.

“The sale of the Spanish license is contingent upon various closing conditions, and we cannot guarantee that these conditions will be met. Should the sale not proceed, our liquidity position will be adversely affected, which could further jeopardize our financial condition and operational results,” the company cautioned.