Motorsport Games Shares Jump Amidst Positive News

Credit: Motorsports Games

Adverse news has become the norm for Motorsport Games over recent months as the Nasdaq-listed company dropped below $3M USD in market valuation, a majority of its board of directors resigned, it became subject to resentment from the sim racing community, and it fell out of compliance with Nasdaq listing rules on multiple accounts. However, Motorsport Games published several announcements over the last couple of weeks that were received positively by the market. As a result, Motorsport Games became the latest Nasdaq speculation craze with its price jumping from $2.54 on Monday to almost $50 on Wednesday. Because of the rapid price change, Nasdaq halted trading of Motorsport Games stock several times Tuesday and Wednesday.

Primarily responsible for the jump in share price is Motorsport Games’ announcement that it has entered into a definitive $3.9M private placement investment agreement. The capital increase is expected to happen on Friday, at a purchase price of $21.40 per share. Motorsport Games intends to use the investment proceeds for the development of multiple games, working capital, and general corporate purposes.

Earlier this week on Monday, Motorsport Games announced that it had entered into an agreement with majority stakeholder Motorsport Network for a ”debt-for-equity exchange agreement” to repay $1M in debt under an existing $12M line of credit with the company. That line of credit, according to an SEC 8-K filing gives Motorsport Games “a line of credit of up to $12 million at an interest rate of 10% per annum” from Motorsport Network. Motorsport Network’s stake in Motorsport Games consists of an approximately 51.51% stake in Class A shares, a 100% stake in Class B shares, and a 92.35% stake in total voting power.

Also on Monday, Motorsport Games announced that it has regained compliance with Nasdaq’s listing rules as the company’s publicly-held shares exceed 500K again after issuances of Class A shares to Alumni Capital and adding Nav Sunner, and Andrew Johnson as independent directors to its board of directors, which is completed by John Delta. Previously, Motorsport Games completed a 1-for-10 reverse stock split in November 2022 to bring its share price above the $1 Nasdaq listing requirement.

Still, not all news coming out of Motorsport Games recently is positive. On Jan. 18, Motorsport Games entered into a $1.1M settlement agreement with Continental General Insurance Company. Motorsport Games was sued for acting with fraudulent intent when acquiring 704Games – the developer of the NASCAR Heat racing game series – in 2020.

Since its establishment in 2021, Motorsport Games has been acquiring racing games developers, sim racing media, and gaming and esports licenses for racing series such as Indycar, NASCAR, and the 24 Hours of Le Mans. Ab initio, Motorsport Games faced criticism, lawsuits, unhappy customers, and an outraged sim racing community. Thanks to controversies such as reigning Formula One champion Max Verstappen campaigning to boycott the company after a disastrous 24 Hours of Le Mans Virtual event in January, allegations of security fraud and not paying developers, criticism over their exclusive license deals’ negative impact on sim racing esports, and the majority of its former board of directors leaving due to funding disputes, Motorsport Games stock price dropped from $380 per share after going public in January 2021 to $2.54 by Monday.

The latest development of Motorsport Games stock price is likely caused by speculative trading and in all likelihood, not a sustainable valuation development. As the expected $3.9M investment is priced at $21.40 per share, the most probable scenario is for the stock to level off around that price. However, the investment could still fall through and send Motorsport Games’ share price plummeting again. In the long term, Motorsport Games’ ability to turn its business operations around and create value for its stakeholders will determine if its market capitalization will drop back below $5M over the next couple of weeks or find support from investors to stabilize the stock.