Motorsport Games Inc. (NASDAQ: MSGM) has recently finalized key legal actions that address longstanding contractual obligations and securities-related disputes.
Settlement Agreement for Studio397 Obligations
On February 20, 2025, MSGM entered into a settlement agreement with Technology in Business B.V. and Luminis International B.V. The agreement addresses disputes arising from a share purchase agreement dated April 1, 2021, concerning Studio397 B.V.—the entity responsible for the development of motorsports simulations rFactor2 and Le Mans Ultimate. Under this settlement, MSGM is obligated to pay a total of $750,000, disbursed in five equal installments of $150,000 beginning March 5, 2025. Once the full amount is paid, all deferred payment obligations under the original agreement will be deemed satisfied, and Luminis will release its security interest in the Studio397 pledged shares.
Delaware Court Judgment in the Securities Fraud Dispute
On February 26, 2025, the U.S. District Court for the District of Delaware granted summary judgment in favor of MSGM and its former top executives in a securities fraud case brought by Innovate 2 Corp—the former majority shareholder of the NASCAR Heat racing game series developer 704Games. The case centered on allegations that MSGM’s disclosures, including projections made during board meetings, were misleading.
Key aspects of the judgment include:
- Misrepresentation and Omission Claims: The court found no evidence that MSGM’s forward-looking statements or earnings projections were false or misleading when made. The claims by Innovate that MSGM had painted a misleadingly gloomy picture were rejected.
- Contractual Release: The decision reaffirmed that the release provision within the share purchase agreement barred Innovate’s claims, including those related to alleged fraud in connection with the 704Games acquisition.
- Judge Bibas’s Observation: Notably, Judge Stephanos Bibas stated, “One company sold its shares in another for what, in hindsight, appears to be less than it could have gotten if it had held onto them. But not every poor investment decision is due to securities fraud.”
Analysis of the 704Games Board Meeting and Related Financial Demands
The Delaware court documents also review details from a June 5, 2020, board meeting involving 704Games. At that meeting, 704Games presented projections for its upcoming title, Heat 5, indicating:
- Negative Projections: The presentation included a slide warning that “Heat 5 … pre-sales are struggling, bad community sentiment.” Reports indicated that the pre-sales for Heat 5 were 27% below those of Heat 4 at a similar point in time. Additionally, concerns were raised about the impact of COVID-19 lockdowns on channel availability.
- Financial Warning: The meeting also included a forecast that the company would “run out of money next year … even if we hit our current projections.”
Subsequently, a week after the board meeting, MSGM’s CFO informed minority shareholders that MSGM had overpaid for its shares in 704Games by $1.1 million. The CFO proposed either taking the overpaid amount from 704Games or requiring the minority shareholders to transfer 15% of their equity to MSGM. This demand was not executed. Instead, MSGM later offered to buy out some minority shareholders, reaching an agreement with Innovate to purchase their shares for approximately $620,000.