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Grant Johnson, the recently fired CEO of Esports Entertainment Group, has filed a lawsuit against his former employer, claiming that the company’s termination of his services constitutes a breach of his employment contract.
In December, Johnson was asked to resign by the board of the Esports Entertainment Group. This came at the end of a disastrous year for the company, which included brand closures, a debt default and the possibility of delisting.
Now the company has disclosed in a recent stock offering prospectus that Johnson has sued the company for breach of contract and wrongful termination.
Johnson argues Court records filed in the District Court of the Southern District of New York that EEG violated his employment contract in the stated reasons for his dismissal. EEG had terminated the former CEO’s contract “for good cause”, accusing him of fraud, intent and gross negligence.
After Johnson was fired for cause, Esports Entertainment Group did not provide Johnson with severance or payment for the remainder of his contract, which ran through 2025.
He is seeking compensation of more than $1 million (£820,000/€920,000) as well as 200,000 EEG shares.
Fraud allegations
Johnson’s chief executive said the allegations were false and that, even if true, they would not constitute “good cause” within the narrow definition set out in the contract, which requires “demonstrable and serious harm to the company”. .
Johnson noted that the Esports Entertainment Group board had already addressed the matter in April 2022 and unanimously decided not to investigate further.
Esports Entertainment Group said it believes Johnson’s claims are baseless.
“The company believes the claims are without merit and intends to vigorously defend itself against the claims.”
The Esports Entertainment Group further stated that the lawsuit does not jeopardize the company despite its already precarious financial situation, “although an adverse decision could have a significant negative impact.”
Esports Entertainment Group Finances
In the company’s May quarterly report, Esports Entertainment Group said there was “significant doubt” about the company’s ability to continue as a going concern for at least a year.
In the latest publication, these financial problems remain evident.
According to EEG, the company’s cash balance was just $500,000 as of January 12, 2023.
Igaming closures and sales
In December, Esports Entertainment Group said it was considering selling its remaining igaming assets to pay off its debts.
This comes following the announced closure of its UK brands SportNation and RedZone, which the company said was due to “various reasons, including the economics of operating a small iGaming business in the UK market”.
Both brands were owned by Esports Entertainment Group subsidiary Argyll UK. The operator outlined its plans to wind up the business, including surrendering its license to the Gambling Commission and refunding customer deposits.
“As of December 31, 2022, approximately $200,000 remained to be refunded to customers,” the company said. “Going forward, Argyll UK will honor refund requests to the extent required by law and in accordance with Argyll UK’s terms and conditions.”
Esports Entertainment Group also shed light on the status of the company’s ongoing sale of its Spanish iGaming assets.
A letter of intent was signed in November 2022 and although the deal was initially expected to close in December, it is now expected to close this month. Total proceeds are expected to be $1 million, plus a $1 million deposit held by the Spanish regulator.
Esports Entertainment Group said 65% of the resulting money will go to a bondholder that previously defaulted on its debts.
“The sale of the Spanish license is subject to various closing conditions and we cannot guarantee that these will be met. If the sale does not go through, it will have an adverse impact on our liquidity position and this could have a further negative impact on our financial condition and results of operations,” the company said.
