Rising costs push Esports Entertainment to $35.0m net loss in H1 – Half year results

Esports Entertainment Group reported a substantial net loss of $35.0 million (£25.7 million/€30.9 million) for the first half of its fiscal year 2022. This loss was largely attributed to a significant rise in operating costs, overshadowing a remarkable 1,088.4% surge in revenue, driven primarily by strategic acquisitions.

For the six months ending December 31, 2021, total revenue soared to $30.9 million, up from just $2.6 million during the same period the previous year. This leap can be traced back to the group’s acquisition of Bethard in July 2021, underscoring the pivotal role acquisitions play in scaling operations within the competitive landscape of the gambling sector.

Other notable achievements in this period included the successful launch of Fiksukasino.com, a “pay-and-play” casino brand targeting the Finnish market. The group further expanded its footprint by partnering with Game Fund Partners, contributing to a $300 million venture capital initiative aimed at enhancing gaming experiences.

Esports Entertainment also completed the migration of its SportNation.com and Vie.bet platforms to its proprietary Idefix architecture, enhancing operational efficiency. Additionally, the introduction of Omega—a turnkey B2B solution under the ggCircuit brand—enables businesses to integrate esports and gaming options through an innovative arcade model.

The group enhanced its commercial presence by collaborating with prominent National Football League (NFL) franchises, including the Indianapolis Colts and the Tampa Bay Buccaneers, highlighting the growing intersection between traditional sports and esports.

Immediately following this reporting period, Esports Entertainment secured approval from the New Jersey Division of Gaming Enforcement to commence betting operations in the state, launching its VIE.gg platform as part of this expansion. Moreover, the appointment of Stuart Tilly as chief operating officer is expected to bring strategic leadership to their growth initiatives.

Analyzing expenditures during the first half, total operating expenses escalated to $20.6 million, more than doubling the $9.6 million incurred in the same period last year. This increase primarily stemmed from general and administrative costs, which totaled $24.3 million, alongside marketing expenses that hit $14.3 million. This volatility in expenses led to an adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) loss of $11.1 million, worsening from a loss of $6.4 million in H1 2021.

The group reported a significant $28.5 million loss linked to the extinguishment of senior convertible notes, complemented by a $6.0 million loss from their conversion, a $1.5 million change of fair value of derivative liabilities, and an additional $1.4 million in miscellaneous losses. Conversely, offsetting these losses were $20.5 million in profits from changes in the fair value of warrant liabilities and $1.9 million from contingent consideration changes, culminating in a pre-tax loss of $40.4 million compared to $9.1 million in the prior year.

Tax benefits of $5.5 million partially mitigated this net loss, reducing it to $34.9 million. After accounting for additional costs related to Series A cumulative redeemable convertible preferred stock, the total net loss was adjusted to $35.0 million, compared to $9.1 million for the fiscal year 2021.

In the second quarter alone, total revenue reached $14.5 million, illustrating a staggering 504.2% increase from $2.4 million the previous year. However, operating expenses surged by 224.4%, resulting in a widening adjusted EBITDA loss from $3.8 million to $6.8 million. With net other costs amounting to $27.8 million, this translated to a pre-tax loss of $39.8 million, compared to $7.3 million in 2021.

Once again, the group benefited from a $5.5 million income tax advantage, leading to a net loss of $34.5 million, which was deeper than the $7.3 million loss reported in the prior year.

Esports Entertainment’s CEO, Grant Johnson, reflected on the challenges faced during the second quarter: “Our fiscal second quarter results illustrate a series of obstacles largely beyond our control, driving our first sequential revenue decline in over a year. A notable regulatory shift in the Netherlands compelled us to exit the online gaming and betting market. Additionally, low holding rates in our European sportsbook operations, aligned with broader market trends, curtailed revenue. Finally, the resurgence of the Omicron variant complicated our esports ventures, delaying the launch of LANDuel and the opening of our Helix esports center in California.”

Despite these hurdles, CEO Johnson maintains an optimistic outlook for the future. “I believe our prospects are exceptionally promising as our latest offerings, coupled with the strength of our European iGaming and online sports betting operations, position us well to capitalize on the inherent growth potential within our targeted entertainment sectors—iGaming and esports.”