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Allied Gaming & Entertainment Faces Shareholder Dispute Amid Expansion Plans

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Tobias Seck

2 hours ago

Allied Gaming & Entertainment Faces Shareholder Dispute Amid Expansion Plans

HyperX Arena Las Vegas operator Allied Gaming & Entertainment Inc. (NASDAQ: AGAE), an experiential entertainment company specializing in esports and gaming events, acknowledged today a recent public filing by shareholder Ourgame International Holdings Limited. The filing includes a legal letter sent to Allied Gaming & Entertainment’s Board of Directors, in which Ourgame expressed opposition to certain recent actions taken by the board and management, citing concerns over the impact on their interests as a shareholder.

Ourgame International, which previously owned World Poker Tour before selling it to Element Partners in 2021, has been a significant shareholder in Allied Gaming & Entertainment. In its filing, Ourgame stated that the decisions by Allied Gaming & Entertainment’s board and management “are unreasonable and do not adequately and prudently consider the views of all directors,” particularly those who voted against recent measures. The company expressed worries about a potential change in its control over Allied Gaming & Entertainment and the dilution of its shares due to actions like amendments to Allied Gaming & Entertainment’s bylaws.

In response, Allied Gaming & Entertainment stated that it “respects and values the opinions of all its shareholders and remains committed to engaging with them in an open and constructive manner.” While acknowledging the letter, Allied Gaming & Entertainment “firmly disagrees with Ourgame’s characterization of the Board’s recent decisions.” The company emphasized that its Board of Directors has always acted transparently and in the best interests of all shareholders.

Financial Performance and Strategic Initiatives

The dispute comes at a time when Allied Gaming & Entertainment is pursuing several growth initiatives. On August 19, 2024, the company reported its second-quarter financial results, highlighting an 11% sequential increase in total revenues to $2.6M USD, though this was a 19% decrease compared to the same period last year. The year-over-year decline was primarily attributed to a $2.0M decrease in multi-platform revenues from its branded content production arm. This was partially offset by $1.7M in revenues from casual mobile gaming, following Allied Gaming & Entertainment’s strategic $7.0M investment in mobile games developer Z-Tech (Beijing Lianzhong Zhihe Technology Co.) in the fourth quarter of 2023.

Costs and expenses for the quarter surged by 70% year-over-year to $7.9M. The increase was mainly due to a $3.0M rise in general and administrative expenses, driven largely by legal and other costs related to “legal actions by an activist shareholder,” which might be a reference to the ongoing dispute with Ourgame.

The company reported a net loss of $3.9M for the quarter, compared to a net loss of $0.7M in the same period last year. Adjusted EBITDA loss stood at $1.4M, slightly improved from a loss of $1.7M in the prior quarter but higher than the $1.1M loss in the second quarter of 2023.

Despite the financial challenges, Allied Gaming & Entertainment maintains a strong balance sheet with cash and short-term investments totaling $95.2M as of June 30, 2024, including $5.0M of restricted cash. The company has a working capital position of $61.8M and approximately 38.2M shares of outstanding common stock.

Expansion into New Ventures

Allied Gaming & Entertainment is optimistic about its future prospects, particularly with the recent launch of the World Mahjong Tour (WMT). Announced after the close of the second quarter, the WMT aims to replicate the successful business model of the World Poker Tour by bringing Mahjong to a global audience. The inaugural season is set to culminate in the spring of 2025 at Allied Gaming & Entertainment’s HyperX Arena in Las Vegas.

“These are exciting times at Allied Gaming & Entertainment as our business is very well positioned with a number of growth catalysts in the near future,” said Yinghua Chen, Chief Executive Officer of Allied Gaming & Entertainment. “We are particularly bullish on our most recent announcement, the formation of the World Mahjong Tour.”

The company continues to host a variety of events at its HyperX Arena, including both proprietary and third-party events. In the second quarter, the arena hosted 65 event days, featuring high-profile events such as the Mobile Legends Bang Bang 2024 NACT Spring Grand Finale and the 2024 Licensing International Excellence Awards.

Shareholder Dispute Implications

The dispute with Ourgame International raises questions about governance and shareholder relations at Allied Gaming & Entertainment, especially as the company seeks to expand its footprint in the esports, entertainment, and mobile gaming industry. The increasing costs associated with legal disputes could further impact the company’s profitability and distract from its strategic initiatives.

Ourgame has indicated that it may take additional actions to protect its interests, including potential legal proceedings. “The Company will take appropriate actions, including but not limited to legal proceedings, to resolutely safeguard the Company’s legitimate rights and interests as a shareholder of AGAE,” Ourgame stated in its filing.

Tobias Seck

Tobias Seck is a journalist and business analyst who spent more than seven years at The Esports Observer (TEO) as a business analyst. He was one of the first employees of the publication, having joined in 2015. In October 2018 he shifted to the role of business analyst and journalist, writing analysis and helping fellow TEO writers understand the world of finance as a supplemental editor when needed. He continued in that role when TEO was rolled into Sports Business Journal (SBJ), where he worked until February 2023.