Sean O'Leary never had any interest in leading a public company. Well, until now.
EdjSports LLC has merged with Champion Gaming Inc., a relatively new holding company that will soon become publicly traded on the TSX Venture Exchange. O'Leary, who co-founded the sports-centric EdjAnalytics spin-out with Frank Frigo, is now president of Champion Gaming.
Despite having an office presence in Toronto to be listed on the exchange, Champion Gaming, for all intents and purposes, will be headquartered in Louisville, where the vast majority of its employees are, via EdjSports. The Louisville startup, which employs more than 30 people, is now a subsidiary of the new holding company, along with its existing portfolio companies EdjVarsity and Football Outsiders.
The merger announcement comes just weeks after O'Leary shared the company was disbanding EdjAnalytics to double-down on the sports business. He did not disclose the merger in the previous interview, as it was not finalized.
In a more recent interview, O'Leary told me the merger was a result of needing access to bigger pools of capital. He recognized that if EdjSports was going to continue to grow in the rapidly-moving market — both organically and through a strong merger and acquisition strategy — traditional, time-consuming fundraising rounds weren't going to cut it.
As Business First previously reported, EdjSports closed on more than $5 million in a Series A fundraising round last year, with notable local investors including affiliates of Venture First, ARGI Financial Group, Bluegrass Angels, Cascade Seed Fund, Commonwealth Seed Capital, Kentucky Science and Technology Corp., Render Capital and Thornton Capital.
"We are in a very exciting market right now... There's a nice opportunity in front of us and we recognize it will not last forever so we need to get after it," O'Leary said. "We feel like this gives us the best course, given the options in front of us, to execute on that plan for our employees, shareholders and everyone else involved in the business."
Ken Hershman, former president of HBO Sports and executive vice president of sports and event programing at Showtime Network, is the chief executive officer and a director of Champion Gaming. He told me he was drawn to EdjSports for its data science team and product capabilities, in addition to its integrity and credibility in the marketplace.
EdjSports has been historically undercapitalized, Hershman continued, so "with the right management team and capital base, there's a lot of growth potential."
Other top executives at Champion Gaming include: David Lubotta, co-founder and director; Paxton Baker, director; Cameron Wickham, director; John Barkeley, chief financial officer; and EdjSports co-founder Frigo, chief innovation officer.
Champion Gaming is going public in the coming weeks through a reverse takeover (RTO) or a reverse initial public offering (IPO). According to Investopedia, in a RTO, investors of the private company acquire a majority of the shares of a public shell company, which is then combined with the purchasing entity. Investment banks and financial institutions typically use shell companies as vehicles to complete these deals.
Essentially, Champion Gaming will take the place of Prime City One Capital Corp. (TSXV: PMO.H) on the TSX Venture Exchange, a stock exchange with offices in Toronto, Vancouver and Montreal, Canada. In a non-brokered private placement, Champion issued and sold an aggregate of 18,470,000 common shares of the company at a price of $0.25 per share for gross proceeds of roughly $4.6 million.
In the U.S., small companies don't go public because of the cost and legal requirements make it onerous to do so, O'Leary said. He sees the venture exchange as an alternative resource that's making an effort to reach companies needing growth capital in flyover states.
"There's no doubt that we have hoops to jump through because [TSX Venture Exchange] wants to maintain itself as a reputable, reliable place for investors to go and look at good deals," he said. "We're grinding through that process right now and we hope that in the next four to six weeks or so, we're listed through Champion Gaming and off we go."
As a result of the EdjSports merger, Champion issued an aggregate of 24,300,000 shares and agreed to pay EdjSports about $350,000 on or before Dec. 31, 2022.
Champion Gaming and EdjSports both released financials ahead of the RTO. Champion reported more than $1.8 million in both assets and liabilities, and a net loss of just over $30,000 since February.
In the first six months of the 2021, EdjSports reported a revenue of about $789,000, and expenses totaling more than $2 million, resulting in a net loss of about $952,000. The Louisville company also ended 2020 and 2019 with net losses, about $4.3 million and $1.6 million, respectively, while generating about $1.4 million (2020) and $1.9 million (2019) in revenues.
After the RTO is complete, Hershman said he and O'Leary are going to be reasonably aggressive in growing the business through M&A moving forward.
"We want to grow more quickly through the buy-versus-build model if we can find like-minded companies that can fit into what our vision is," he said.
