Based on prior years, the Q1 Financial Results covering January - March 2025 will be published in early-mid May. Didn't spot any media coverage of the Annual Report so you're stuck with me for now. The settlement to complete the acquisition of Studio 397 (
SEC Filing) that I covered
here will be covered again below to confirm it did lead to a saving of $150,000.
MAR 20, 2025 | | Annual report which provides a comprehensive overview of the company for the past year |
Company Overview
For fiscal years 2024 and 2023, 52% and 72% of our total revenue, respectively, was generated from sales of our NASCAR racing video games.
(page 9)
8,700,000 / 100
= 87,000
x 52
=
$4,524,000
Bear in mind the exact figure is $8,687,462 (page 51) but keeping things simple for a simpletons like me so it can be combined with the $3 million cited in FY24 for Le Mans Ultimate.
4,524,000 + 3,000,000 =
$7,524,000
8,700,000 - 7,524,000 =
$1,176,000
$1.18 million for rFactor2, Kartkraft & any other sources of gaming revenue not included in the above (RaceControl)? Which just goes to shows how even in the (Early Access) launch year for Le Mans Ultimate, MSG was still earning a (slight) majority of gaming revenue from its back catalogue of NASCAR titles. Shall revisit these rough numbers later in the post..
Strategic Licenses and Partnerships
24 Hours of Le Mans
In exchange for such license, we agreed to fund up to €8,000,000 (approximately $8,330,000 as of December 31, 2024) as needed for development of the video game products, to be contributed on an as-needed basis during the term of the license. As of December 31, 2024, we have funded approximately $6.1 million to such development. Additionally, we are obligated to pay ACO an annual payment beginning from the time of the launch of the first video game product and continuing on each anniversary thereof for the term of the license. In addition, through this joint venture, we have the right to create and organize esports leagues and events for the 24 Hours of Le Mans race, the WEC and the 24 Hours of Le Mans Virtual event through certain additional license agreements. These additional license agreements, which were granted on a royalty-free basis, each expire January 25, 2031 with the term automatically renewing for an additional ten-year term unless ACO provides written notice of its intent not to renew.
8,330,000 - 6,100,000 =
$2,230,000
$2.3 million funding shortfall as of December 31, 2024 but no mention how the Early Access impacts this goal. Does it have to be reached before the launch of Version 1.0 (which is what I think the rights holders of Le Mans should insist upon) or the end of the overall licensing agreement? But it's a spending target to look out for in the next Annual Report a year from now.
Epic Games
On August 11, 2020, through our wholly owned subsidiary, MS Gaming Development LLC, we entered into a licensing agreement with Epic Games International (“Epic”) for worldwide licensing rights to Epic’s proprietary computer program known as the Unreal Engine 4. This Agreement was assigned from MS Gaming Development LLC to Motorsport Games Inc. on September 3, 2021..
...The agreement is effective until terminated under the provisions of the agreement; however, pursuant to the terms of the agreement, we can only actively develop new or existing authorized products during a five-year active development period, which terminates on August 11, 2025.
(page 12)
Brief aside, if MSG wants to continue using UE for any other project (not Le Mans Ultimate) then it'll need to reach a new agreement with Epic Games.
Human Capital
Our business relies on our ability to attract and retain the right team to enable us to be a game developer, publisher and esports ecosystem provider of official motorsport racing series. Our headcount as of December 31, 2024 was 39, made up of 22 full-time employees and 17 contractors, with 30 people in total dedicated to game development, located primarily in the United States of America and Europe. None of our employees were covered by collective bargaining agreements, and we believe that relations with our employees are generally good.
(page 14)
30 people is not enough to develop & support a modern racing sim & RaceControl subscription. MSG
Careers page currentlyhas one job opening for a
Backend Developer.
We could be subject to unanticipated adverse effects arising from our inability to fully repay Luminis International B.V. and Technology In Business B.V., the sellers of Studio397, relating to our acquisition of 100% of the share capital of Studio397 in April 2021.
The remaining balance owed as of December 31, 2024, was $0.6 million with unpaid accrued interest of $0.3 million. As security for payment of the amounts owed, we pledged 20% of the share capital of Studio397 (the “Pledged Shares”) to the Sellers. The terms of the sale provide that, in the event we fail to make any payment due subsequent to the closing, the Sellers would become entitled to exercise the voting rights and receive any dividends or distributions associated with the Pledged Shares. On February 20, 2025, we entered into a Settlement Agreement with the Sellers, pursuant to which and subject to the satisfaction of certain payment conditions, we will pay the Sellers in full satisfaction of all amounts due, the sum of $750,000 payable in five (5) equal installment payments of $150,000, commencing on March 5, 2025 and thereafter continuing on April 2, 2025, May 5, 2025, June 4, 2025 and July 3, 2025. We made the first installment payment of $150,000 by March 5, 2025. If we default on any payment, the Sellers could exercise their rights with respect to the Pledged Shares, including the right to claim a share of Studio397’s profits, which represented approximately 11% of our revenue for the year ended December 31, 2024. As shareholders of Studio397, the Sellers would have the right to compel us to call a meeting of the shareholders of Studio397 for the purpose of discussing a proposal to effect the public sale of all assets owned by Studio397, including software. In addition to such rights, the Sellers would further be entitled to retain any payments that we make pursuant to the Settlement Agreement.
(page 21)
900,000 - 750,000 =
$150,000 saved by reaching a settlement.
Studio397 profits represent 11% of revenue.
$8,700,000 / 100
= 87000
x 11
=
$957,000 profit attributed to Studio397 in FY24, maybe, maths! help.gif)
July is when the last tranche of $150,000 payments are required to be made ($750,000 in total). The first payment was made on March 5, 2025 so thats $600,000 left. $450,000 in Q2, $150,000 in Q3. This could be the reason for increasing the cash on hand to $1.2 million by February 28, 2025. Yes? No! Maybe? No idea! Would early July 2025 be the earliest point when any serious moves are made by external companies, either to invest in MSG, acquire Studio 397 or sign any console publishing deal for Le Mans Ultimate? Even less of a clue!
Restructuring Initiatives
On October 3, 2024, the Company implemented additional measures intended to continue to bring down its year-over-year operating expense through a reduction of the Company’s workforce primarily in the United States and the United Kingdom by approximately 23 employees and contractors. The workforce reduction impacted approximately 38% of total employees worldwide. The Company recorded a restructuring charge related to the workforce reduction, primarily consisting of severance and redundancy costs of approximately $0.2 million. The Company recognized and paid out the majority of the restructuring charge in the fourth quarter of fiscal year 2024.
The Company continues to seek to reduce its monthly net cash-burn by reducing its cost base through maintaining and enhancing cost control initiatives and is evaluating the structure of its business for additional changes in order to improve both its near-term and long-term liquidity position.
(page 48)
Reminder of the staff cuts from Q4 FY2024 - I won't belabour the point because I recognise there's a balance in having enough staff vs clearing the backlog of issues like the above financial settlement before I'd expect any external company to want to sign any deals with Motorsport Games. But the pay of executives should not have risen while staff were fired.
Hardware Platforms
We derive most of our revenue from the sale of products made for PCs and video game consoles manufactured by third parties, such as Sony Interactive Entertainment Inc.’s (“Sony”) PlayStation and Microsoft Corporation’s (“Microsoft”) Xbox consoles, which comprised approximately 45% and 62% of our total revenue for the years ended December 31, 2024 and 2023, respectively. For the years ended December 31, 2024 and 2023, the sale of products for Microsoft Windows via Steam comprised approximately 45% and 27% of our total revenue, respectively, and the sale of products for mobile platforms comprised approximately 2% and 4% for the years ended December 31, 2024 and 2023. We expect to derive the vast majority of our revenues via Steam during the next twelve months.
Retail Distribution
Due to our modified product release schedule, we recognized minimal revenue from sales of physical gaming products for the years ended December 31, 2024 and 2023.
Digital Business
Players increasingly purchase our games as digital downloads, as opposed to purchasing physical discs. All of our titles that are available through retailers as packaged goods products are also available through direct digital download. For the years ended December 31, 2024 and 2023, approximately 88% of our revenue from sales of video games for game consoles and PCs was through digital channels. We believe this trend of increasing direct digital downloads is primarily due to benefits relating to convenience and accessibility that digital downloads provide. In addition, as part of our digital business strategy, we aim to drive ongoing engagement and incremental revenue from recurrent consumer spending on our titles through in-game purchases and extra content.
(page 49)
PlayStation/XBOX 45%
Steam 45%
Mobile 2%
Other 8% (Nintendo?)
8,700,000 / 100
= 87,000
x 45 =
$3,915,000
x 2 =
$7,830,000
87000 x 2 =
$174,000
87000 x 8 =
$696,000
Le Mans Ultimate, rFactor 2 & KartKraft being PC only means the PlayStation/XBOX figure is for back catalogue NASCAR titles while the 45% on Steam includes the 3 games plus any NASCAR back catalogue sales before delisting on December 31, 2024. This is also of interest for NASCAR 25 which does have a PC version confirmed (
NASCAR 25 Unveils Career Mode in New Developer Diary Video). On that note, Monster Games & iRacing ported
World of Outlaws: Dirt Racing 24 Gold Edition (includes the Season Pass that was optional on PS4/PS5/XB1/XBS). It was released February 5, 2025, has 79 (very positive) reviews & peak
Steam CCU of 159 back on February 8, 2025. There's work to be done by iRacing on PC.
Esports
Although we did not organize the Le Mans Virtual Series for the 2023/24 or 2024/25 seasons, we currently plan on organizing the 2025/26 Le Mans Virtual Series to commence this year. We also intend to continue exploring opportunities to expand the recurring portion of our esports segment outside of Le Mans.
(page 50)
Esports segment revenues represented 0% and 4.2% of our total 2024 and 2023 revenues, respectively, decreasing by $0.3 million, or 100%, when compared to the prior year. The decrease in Esports segment revenue was due to us not organizing a Le Mans Virtual Series (“LMVS”) event in 2024, resulting in no earned sponsorship or events revenue in 2024.
(page 52)
Note: $300,000 in 2023 was from before the Early Access launch of Le Mans Ultimate in February 2024 so any new event could well be more successful in generating revenue.
Sales and Marketing
Sales and marketing expenses were $0.7 million and $1.7 million for 2024 and 2023, respectively, representing a $1.0 million, or 56.3% decrease when compared to the prior year. The reduction in sales and marketing expenses was primarily driven by a $0.9 million reduction in payroll and employee-related expense as a result of lower headcount, as well as a $0.1 million reduction in software expenses, when compared to the prior year.
Development
Development expenses were $3.4 million and $7.2 million for 2024 and 2023, respectively, representing a decrease of $3.9 million, or 53.3%, when compared to the prior year. The reduction in development expense was primarily driven by a $2.8 million decrease in payroll as a result of lower headcount, as well as a $1.1 million decrease in external development services, when compared to the prior year.
General and Administrative
General and administrative (“G&A”) expenses were $6.9 million and $9.4 million for 2024 and 2023, respectively, a decrease of $2.5 million, or 26.5%, when compared to the prior year. The reduction in G&A expense was primarily driven by a $1.4 million reduction in payroll and employee-related expenses due to lower headcount period over period, a $0.6 million reduction in severance and insurance costs, respectively, as well as a $0.3 million reduction in rent and office expense. This was partially offset by a $0.4 million increase in legal and professional fees.
(page 53)
£3.4 million in development expense for 2024 is worth comparing with the $2.23 million shortfall in spending on Le Mans Ultimate as of December 31, 2024 when checking the 2025 Annual Report. Hopefully the maths is not too far off (any glaring mistakes, please let me know) but the main takeaway is, hire more staff, pay off Luminis for Studio397 on time. Find an external company to make a deal because the NASCAR back catalogue sales are gone so there's a risk of diminishing returns on Early Access & DLC for Le Mans Ultimate in 2025.
game suspended. BTCC calls TOCA time.
