Business Context and Reporting Period
Motorsport Games Inc. filed a Form 8-K reporting material agreements executed on January 25, 2021, with Automobile Club de l’Ouest (ACO) relating to the Le Mans Esports Series joint venture. The company is an emerging growth company, and its Class A common stock trades on Nasdaq under MSGM.
Key Financial and Operating Terms
- Motorsport Games increased its ownership in Le Mans Esports Series Ltd. from 45% to 51%, making the joint venture a majority-controlled subsidiary; ACO retains 49%.
- The joint venture’s purpose was expanded to include developing and publishing video games based on the FIA World Endurance Championship and the 24 Hours of Le Mans, in addition to operating related esports events.
- Motorsport Games agreed to provide additional working-capital funding to the joint venture as an interest-free loan if approved as necessary by the joint venture’s board. The loans are repayable before distributions of joint-venture profits.
- Under the Gaming License, Motorsport Games agreed to fund up to €8.0 million, as needed during the license term, for development of video game products.
- Motorsport Games must also pay ACO annual royalties beginning when the first video game product launches and continuing through the license term. The amount of the annual royalty is not disclosed in the filing text.
- The filing provides no revenue, profit, cash-flow, margin, debt, cash-balance, or liquidity metrics for the reporting period.
Material Changes Versus the Prior Arrangement
- Ownership increased from 45% to 51%, resulting in majority control by Motorsport Games.
- The joint venture’s mandate expanded from esports activities to include video-game creation, development, and publishing.
- Motorsport Games assumed potential additional funding obligations, including an interest-free working-capital loan obligation and up to €8.0 million of development funding under the Gaming License.
- Motorsport Games received priority distribution rights to recoup additional funding and royalty payments serving as consideration for the Gaming License.
Licenses, Outlook, and Risks
- The Gaming License, Esports License, and 24 Hours of Le Mans Virtual License run through January 25, 2031, with automatic renewal for an additional 10-year term.
- The Esports License and 24 Hours of Le Mans Virtual License were granted royalty-free in consideration of prior investments by Motorsport Games and ACO.
- The licenses support development of FIA World Endurance Championship and 24 Hours of Le Mans video games, related esports events, and the 24 Hours of Le Mans Virtual event.
- Management provided no specific revenue, earnings, launch-date, or operating guidance in this filing.
- Forward-looking risks include the effects of COVID-19, the ability to maintain and obtain sports-related licenses, joint-venture integration and management, unanticipated costs and liabilities, competition, consumer behavior, intellectual-property protection, personnel retention, and broader economic conditions.
- Portions of the license exhibits were redacted because the company stated the information was immaterial and competitively sensitive.
Important Facts for Investors to Verify
- Review Exhibits 10.1 through 10.4 for the complete funding, royalty, priority-distribution, control, and license terms.
- Determine how the 51% ownership will affect consolidation, noncontrolling interests, and future financial statements.
- Verify the timing and amount of any required development funding, including utilization of the €8.0 million commitment.
- Assess the undisclosed annual royalty obligation and the circumstances triggering additional interest-free working-capital loans.
- Monitor product-development milestones, launch timing, license performance, and the joint venture’s ability to generate distributions.