The latest twist in a saga that predates even Elon Musk buying Twitter, as the full Motorsport Games Board of Directors resign. The news was revealed in a recent filing to the United States Securities and Exchange Comission.
This all means that Motorsport Games currently isn’t in compliance with Nasdaq Listing Rules, as there are currently not a minimum of 500,000 publicly held shares or the required auditing committee. And being delisted will generally have a pretty bad impact on share prices, often encouraging shareholders to start selling off their portfolio in case things get any worse.
Companies have 45 days to submit a plan to regain compliance, and can then be granted an extension of 180 calendar days to show they’ve achieved it. Four Directors resigned on November 9th, with Neil Anderson, Peter Moore and Franceso Piovanetti leaving due to a disagreement with parent company and majority stockholder Motorsport Network (MSN) over proposals to raise additional capital, and a written request by Motorsport Network for them to resign becuase of that disagreement. James Allen also resigned to allow a new board to be appointed, and not over any disagreement. Which isn’t surprising as he’s President of Motorsport Network.
One vacancy has now been filled by John Delta, who previously worked as Motorsport Games Interim Chief Financial officer from October 2022 until November 9th. And Dmitry Kozko has now been appointed to replace him as interim CFO, as well as being the Motorsports Games Principial Financial Officer and Principal Acounting Officer.
What the Board Resignations could mean for sim racers
Motorsport Games are due to report their third quarter 2022 financial results on November 18th after the market closes. Their stock is currently tracked by Yahoo Finance around 6.97, compared to a high of 326.60 back in February 2021, and around 35-40.00 during January and February 2022.
And for a while, the company has filed forward-looking statements for each quarter revealed that the company will continue to have negative cash flows for the foreseeable future, and that the existing cash on hand will not be sufficient to fund the company for at least the next 12 months without additional debt, financing or changes.
Investing in stocks and shares is largely a measure of confidence in a company, so while being delisted is likely to have a major impact, having your entire board of directors resign will also probably shake the confidence of investors, and typically would be staggered over some months to try and minimise any concerns.
All we know of the disagreement is that it regarded proposals to “raise additional capital for the Company in one or more transactions that could require stockholder approval and that would be dilutive to MSN.”
So three directors wanted to find cash from somewhere, but it would dilute the majority ownership of Motorsport Network, and as a result they were asked to resign. Which suggests that the options for Motorsport Games will be limited to those which don’t impact on the shareholding of MSN.
Motorsport Network is itself a fairly new company, being founded in 2015, and acquiring a number of businesses and properties, including notably the porfolio of motor racing brands from Haymarket Publishing in 2016. And it remains privately owned, unlike Motorsport Games.
One option is that things continue on, with Motorsport Network either pumping in more cash to keep Motorsport Games running, or finding a way to finance it for a while longer to see if everything turns around. We’ve already seen KartKraft on consoles, a new BTCC game and NASCAR releases postponed, so it’s unlikely anything is going to change on that front for a while, whatever happens. Despite rFactor 2 releasing a significant amount of new content in recent weeks based on the BTCC licence.
And Motorsport Network is going to be impacted, like every publishing and events company, by any global economic downturn which is lowering advertising revenue, ticket sales etc.
The other is that Motorsport Games disappears, and Motorsport Network probably absorbs the bits that it wants to keep. The esports events and media side of the business makes the most sense for them to retain, but this could mean that developers and licenses are closed or sold off. Currently they have Motorsport Games (the developers formerly known as 704 Games working on NASCAR titles), Motorsport Games Australia (formerly Black Delta, developers of KartKraft), Studio 397 (rFactor 2), and mobile game devs Digital Tales, along with licences for NASCAR, Indycar, BTCC, WEC and Le Mans.
Given the consolidation by other big sim racing and gaming publishers (e.g. EA buying Codemasters who bought Slightly Mad Studios, or iRacing acquiring Monster Games), it seems unlikely anyone would want to pick up studios and titles as a whole. But given previous working relationships, it’s feasible iRacing would see value in the NASCAR and Indycar licenses. Although Codemasters and BTCC would depend on the views of EA as the parent company.
We’ll have to wait and see if more information on the future of current games and developers, and future funding and licences, gets released with the Q3 financial results or in other news on Motorsport Games.