Allied Esports is selling the World Poker Tour and seeking to divest itself of esports, its other primary business arm, the company announced this morning. If both deals are successful, Allied will essentially become a special purpose acquisition company—a shell entity looking for a business to purchase.
The World Poker Tour buyer is a recently formed entity named Element Partners LLC. Element is paying as much as $78.25 million for the World Poker Tour: $68.25 million upon close of the transaction, plus 5% of licensing and tournament entry fees up to another $10 million, payable over the next three years.
With the transaction, Allied Esports said its board of directors have decided to explore strategic options for the esports business, including a possible sale. The company’s esports business consists primarily of a series of gaming venues, including a 30,000 square foot arena at the Luxor Hotel & Casino in Las Vegas. The company also owns a few semi trucks that can be converted into mobile arenas.
Allied has retained Lake Street Capital Markets to explore possible options for that arm. Lake Street is an investment bank that handled a convertible note last year for Allied and also placed convertible stock for TheMaven, publisher of Sports Illustrated, among other deals. The business is committed to its esports division if no suitable offers are found, according to Allied.
“Today’s announcement regarding the sale of World Poker Tour does not alter the strategy or business operations of Allied Esports,” CEO Jud Hannigan said in a statement. “We are confident in the plan we have in place and the team responsible for executing it. Despite the pandemic, we have continued to grow with new partners and productions, and we enthusiastically look forward to the return of unconstrained live events and the excitement that comes with having our full community together again.”
If Allied sells both business arms, it will change its name and use the money from the sales “to explore opportunities in online entertainment, including but not limited to, real money gaming and other gaming sectors,” the company said in a release. In all but name, Allied will become a SPAC, a cash-rich publicly traded entity seeking to bring another business public. It would complete a full-circle for the publicly traded entity, which began its life as a blank-check named Black Ridge. The Black Ridge SPAC bought both the poker tour and the esports businesses in August 2019 in deals valued at $118 million.
The unusual nature of a SPAC-formed business returning to SPAC-like status possibly reflects the lack of value the stock market is providing to the poker and esports business. Market reaction to the creation of Allied Esports and Entertainment was poor. That likely was in part due to the fact that the Black Ridge SPAC’s stated purpose was to find a business in the oil and gas industry, according to its 2017 prospectus. The entity had 21 months to find a business combination or it would have to return the IPO capital to shareholders, a regulatory requirement of SPACs, which have the freedom to pursue any deal management see fits. The deal to create Allied came just before the return-of-capital deadline and shares fell consistently afterwards. Allied shares churned to an all-time low of 92 cents in November and closed Friday’s trading at $1.58.
Prior to the deal’s announcement, Allied Esports and Entertainment had a market capitalization of $55 million, 35% less than Element Partners’ maximum purchase price for the business. The World Poker Tour saw in-home viewership rise 368% in 2020 over 2019. The total Allied business generated sales of $26.1 million for the year ended 2019, a probably $22.7 million in 2020, according to consensus Wall Street figures compiled by Reuters.
Allied Esports shares leapt with this morning’s news to $1.85 a share, providing the company a market cap of $65 million, equal to the cash Element will deliver immediately to the business upon approval of the sale, expected within the next month. The Element Partners LLC purchasing the WPT is not the investment fund located in Wayne, Pa., according to a spokeswoman for that firm. An entity with that same name was registered in Delaware on December 1, 2020.