He helped spearhead the fundraising of more than $11 million across a single week in February – the same week IndyCar president and CEO Mark Miles spoke about “overcoming headwinds” and a video game that should have a beta version by May and headed to shelves as the series handed over the Astor Cup in Laguna Seca.
But in mid-March, Motorsport Games CEO Dmitry Kozko revealed to investors on the company’s 2022 Q4 earnings call that it had seen net losses over the last 24 months of more than $70 million. It had seen less than half the fourth quarter revenue ($3.8 million vs. $8.2 million) compared to 2021 and lost more than 30% of the company’s annual revenue year-over-year ($15.1 million to $10.3 million).
“My comment (in Thermal to IndyStar regarding the release of IndyCar’s first video game in nearly 20 years) was based on what they were telling us at the time,” Miles said in Long Beach. “And as they worked through their situation, how much capital they have, how much has been raised and how much burn is there, they came to the conclusion they had to have a delay.”
Those delays, seismic financial losses and the cultivation of an uncertain future led this week to Kozko’s exit from his CEO role after three years at the helm of one of just a couple major players in the motorsports gaming space. According to multiple reports, Kozko will remain on the board of directors, with Stephen Hood set to take over the chief executive role.
His first task? Keeping the company afloat until the new year, after it saw negative cash flows of nearly $20 million in 2022, an average churn of more than $1.6 million per month with just $6.5 million of cash and cash equivalents on hand as of March 22.
“We do not believe we have sufficient cash on hand to fund our operations for the remainder of 2023,” Kozko told investors on its 2022 Q4 earnings call in March. “Additional funding will be required in order to continue operations. We will need to supplement our available liquidity with additional debt and/or equity financing, as well as ongoing cost control initiatives.”
In September of last year, the company announced a restructuring program that it said would generate $4 million in cost reductions by the end of 2023. At that same time, it received a $3 million cash advance from its parent company, Motorsport Network, on its line of credit. It also announced, it would execute a reverse stock split, an operation that would do nothing for the company’s overall cash flow, but would consolidate shares, and therefore make individual shares for purchase more valuable overall.
In the midst of the frantic work to try and raise funds, Motorsport Games saw its three independent board of director members – Peter Moore, Neil Anderson and Francesco Piovanetti – tender their resignations over a dispute with Motorsports Network about how to press forward. Motorsports Network president James Allen also resigned from the board in order to allow Motorsport Games to usher in a fresh slate of board members – with Kozko the only remaining member at the time. To fill one seat, MSG interim CFO John Delta resigned from his day-to-day role to take over a director spot. The three remaining seats were filled in January to help the company stay in compliance with NASDAQ.
Since then, Kozko had helped strike an agreement with an investor for a $2 million stake that could rise to as much as $10 million by the end of this year. The now ex-CEO then struck a debt-for-equity exchange with Motorsports Network that gave the majority stakeholder a more sizable stake in the business while wiping away nearly $3 million in debt in February. And in multiple deals on more than a half-million shares, Motorsport Games raised $11.32 million in the first week of February alone.
Six weeks later, it had less than $7 million in cash on hand to move forward.
Miles: ‘They’ll find a way to attract capital’
And yet, Miles says despite all the turmoil and the changing timelines for IndyCar’s video game that was first announced in the summer of 2021, he continues to hold out hope. Despite the delay, the game is far down the road in the development process, telling IndyStar, “I know for a fact that they’ve scanned every track. The guys in Detroit (where IndyCar is hosting a street race on a brand-new course in 2023) were flabbergasted to find out they already had exactly what the course was going to look like. They hardly felt like they knew.”
Additionally, Miles said Motorsport Games already has all the drivers’ contemporary liveries prepared and scanned all the drivers last May to create their virtual reality profiles. “I don’t know if it’s just fine-tuning left or if there’s more to flesh out, but I do know a lot of work has been done,” he said. “From what I’ve seen, it looks incredibly realistic. They want it to be what a track looks like, down to the signage and the surroundings, and that’s really important to us.”
Some of that continued optimism, Miles said, comes from the knowledge of the company’s continued work behind the scenes to bolster its financial profile. Miles declined to go into specifics, but offered this: “I’m aware of ongoing conversations that, if successful, would lead to ensuring that Motorsport Games is on solid financial ground and able to honor their deals. I think the company has meaningful resources and assets, primarily in the form of some of their (video game) contracts, so they’ll find a way for that to attract capital.”
When asked what all this uncertainty around Motorsport Games’ future could do for IndyCar’s ongoing discussions on a new deal with iRacing, after the pair’s previous contract expired at the end of last year, Miles said that outlook is continuing to evolve. With the end of that deal, the sim racing platform could no longer run an official IndyCar-branded series – including the loss of its ever-popular Indianapolis 500 event. It has since continued supporting IndyCar’s Dallara chassis, but streamers can’t broadcast races with modern Indy cars, and iRacing’s open-wheel racing season removed its ‘IndyCar’ branding and shifted off current tracks the series races on in real life.
“I think it was the right decision,” Miles said of Penske Entertainment’s exclusive video gaming rights agreement it struck with Motorsport Games that stymied much of what it had been doing with iRacing in recent years. “I know iRacing fans aren’t happy, and we’re not minimizing that, but the opportunity for an IndyCar-title game is pretty compelling.”
As for that iRacing question now, Miles said this in Long Beach: “I think that question gets decided in the mix of future funding and capital for Motorsport Games and what they’ll look like going forward.”