On the surface, it looks like TSXV-listed esports company OverActive Media experienced a financially adverse 2022 as the company reported a $27.1M USD net loss in its annual financial statements published late on Monday. However, a diligent scan of OverActive Media’s 2023 financials reveals the story of its fight to shed the shackles of Activision Blizzard’s waste of money turned esports leagues and an esports company operating close to breaking even.
Judging the company by its core competence in running an esports business, OverActive Media has seamlessly maintained its sporting successes seen in previous years. Based on the recent achievements of its esports brands—including the Overwatch League and Call of Duty League franchises Toronto Defiant and Toronto Ultra, respectively, and the international esports organization MAD Lions—OverActive Media was able to secure multi-year renewals with premium partners, including Bell, TD Bank Group, and SCUF, contract extensions with MNP and Warner Music Spain, and signing on new partners, including Zilliqa and Nobis.
As a result, OverActive Media’s business operations segment, which handles partnerships, merchandising, and live event sales, recorded a 23% year-over-year revenue growth to $5.98M. With revenues generated by OverActive Media’s second business segment, which handles team operations, decreasing by 21% year-over-year to $4.41M due to an approximately $1M decline in prize money earned compared to 2021, the company’s total 2022 revenues remained virtually unchanged at $10.42M compared to $10.39M in 2021.
While OverActive Media’s total revenues stagnated, its operating costs increased slightly from $16.29M in 2021 to $18.8M in 2022. Nevertheless, the company’s net loss exploded from $14.23M in 2021 to $27.1M in 2022 due to an impairment charge of $25.11M. The reason behind OverActive Media’s staggering 2022 net loss is a significant permanent reduction in the value of its Overwatch League and Call of Duty League assets. Due to overall macroeconomic conditions and Activision Blizzard’s inability to generate meaningful revenue for franchised teams in its esports leagues, OverActive Media made impairment charges, reducing the value of its Overwatch League assets by $18.59M to a recoverable amount of $4.44M and its Call of Duty League asset by $6.52M to a recoverable amount of $1.8M.
The impairment charges to its Overwatch League and Call of Duty League assets aren’t the first time OverActive Media lost its investors’ money due to betting on the wrong horse. In 2020, the company became one of six founding teams for the Flashpoint Counter-Strike: Global Offensive league via a $1.93M equity investment in B-Site Inc. Due to the league folding after only three seasons, OverActive Media had to write down that investment last year.
However, OverActive Media’s remaining esports assets are part of healthier competitive ecosystems, including the League of Legends European Championship (LEC), North American Valorant Challengers League, and Valorant Game Changers. Depending on the value of outstanding costs associated with OverActive Media’s participation in Activision Blizzard’s franchised leagues, the company is on the brink of operating on a break-even scenario and potentially turning profitable within the next 24 months. For this process, OverActive Media had a cash position of $9.95M left as of Dec. 31, 2022, compared to a cash position of $21.71M at the end of 2021.
While OverActive Media recognized costs of $3.72M in franchise payments during 2022, the company also received league franchise fee deferrals totaling $6.94M in the same period as “certain leagues executed agreements to modify the payables associated with the franchise payment schedules,” with payments pushed out between 12 to 24 months. Some of the outstanding franchise payments for the Overwatch League and Call of Duty League could reduce depending on legal action taken by franchises against the organizer or structural changes to the leagues’ infrastructures in case of a successful acquisition of Activision Blizzard by Microsoft, which could happen as early as June this year.
Other factors contributing to OverActive Media’s ability to become profitable are the diversification of its revenue sources, which are currently dependent on three major customers that represent more than 50% of the company’s total revenue, and its Toronto arena project in collaboration with Harlo Capital, an investment firm jointly held in part by Kimel family board members of OverActive Media, creating new growth opportunities.
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