10-Q: Hall of Fame Resort & Entertainment Company Faces Financial Headwinds Amidst Lease Default and Ongoing Losses
Sentiment:
Quarterly Report
Hall of Fame Resort & Entertainment Company reports a net loss of $34.5 million for the nine months ended September 30, 2024, and faces a critical lease default, raising concerns about its ability to continue as a going concern.
Delay expectedThe company's waterpark project has been delayed due to the termination of the ground lease.
Capital raiseThe company is seeking additional funding through debt, construction lending, and equity financing.The company's ability to raise capital on acceptable terms or at all is uncertain.
Worse than expectedThe company's net loss of $34.5 million for the nine months ended September 30, 2024, is worse than expected.The company's default on the waterpark ground lease and the risk of default on other loan agreements are worse than expected.The company's precarious cash position and the substantial doubt about its ability to continue as a going concern are worse than expected.
Summary
- Hall of Fame Resort & Entertainment Company (HOFRE) reported a net loss of $34.5 million for the nine months ended September 30, 2024.
- The company's accumulated deficit reached $252 million as of September 30, 2024.
- HOFRE is currently in default on a waterpark ground lease, which has led to a notice of termination and the requirement to surrender the premises.
- The company is also in default or at risk of default under loan agreements totaling approximately $81 million.
- The company's cash position is precarious, with $2.6 million in unrestricted cash and $4.9 million in restricted cash as of September 30, 2024.
- Operating activities used $7.1 million in cash during the nine months ended September 30, 2024.
- The company needs to raise additional capital to fund its development plans and working capital.
- There is no assurance that HOFRE will be able to raise capital on acceptable terms or at all.
- The company's ability to continue as a going concern is in substantial doubt due to these financial challenges.
Sentiment
Score: 2
Explanation: The document paints a very negative picture of the company's financial health, with significant losses, defaults, and substantial doubt about its ability to continue as a going concern. The termination of the waterpark lease is a major setback, and the company's reliance on additional capital raises further underscores its precarious situation.
Positives
- The company received a $9.8 million grant from the State of Ohio, providing some financial support.
- Sponsorship revenues increased by 5.7% for the nine months ended September 30, 2024, compared to the same period in 2023.
- Operating expenses decreased by 38.4% for the nine months ended September 30, 2024, compared to the same period in 2023.
Negatives
- The company's net loss for the nine months ended September 30, 2024, was $34.5 million.
- The company's accumulated deficit reached $252 million as of September 30, 2024.
- The company is in default on its waterpark ground lease, leading to a termination notice.
- The company is in default or at risk of default under loan agreements totaling approximately $81 million.
- The company's cash position is precarious, with only $2.6 million in unrestricted cash.
- Event, rents, restaurant and other revenues decreased by 11.9% for the nine months ended September 30, 2024, compared to the same period in 2023.
- Hotel revenues decreased by 8.9% for the nine months ended September 30, 2024, compared to the same period in 2023.
- The company's ability to continue as a going concern is in substantial doubt.
Risks
- The company's ability to raise additional capital is uncertain.
- The company may be required to reduce the scope of its planned development.
- The company may not be able to continue to fund or may have to significantly curtail its ongoing operations.
- The termination of the waterpark ground lease could have a material adverse effect on the company's financial condition.
- The company is in default or at risk of default under certain loan agreements.
- The company has a material weakness in its internal control over financial reporting.
- The company's common stock may be delisted from Nasdaq if it fails to comply with continued listing standards.
Future Outlook
The company's future is uncertain, with substantial doubt about its ability to continue as a going concern. The company needs to raise additional capital to fund its development plans and working capital. There is no assurance that the company will be able to raise capital on acceptable terms or at all.
Management Comments
- Management acknowledges the material weakness in internal control over financial reporting.
- Management states that the company is seeking additional funding through debt, construction lending, and equity financing.
- Management believes that the company was in compliance with all of its notes payable covenants as of September 30, 2024.
Industry Context
The company operates in the resort and entertainment industry, which is subject to economic fluctuations and consumer spending patterns. The company's reliance on sponsorships and events makes it vulnerable to changes in corporate spending and event attendance. The company's financial difficulties highlight the challenges of developing large-scale entertainment destinations.
Comparison to Industry Standards
- Compared to other resort and entertainment companies, HOFRE's financial performance is significantly weaker, with substantial losses and a precarious cash position.
- Companies like Cedar Fair (FUN) and Six Flags (SIX) have demonstrated more stable financial performance and stronger cash flows.
- HOFRE's reliance on debt financing and its current default on a key lease agreement are not typical of well-established players in the industry.
- The company's inability to generate sufficient revenue to cover its operating costs is a significant deviation from industry norms.
- The termination of the waterpark ground lease is a major setback, as it was a key component of the company's development plans.
Related Party Transactions
- The company has related-party transactions with IRG and PFHOF.
- Stuart Lichter, a director of the company, is also President of IRGLLC and MLF and a director of CHCL.
- The company entered into a Professional Services Agreement with IRG in conjunction with expanded services requested of an executive.
Stakeholder Impact
- Shareholders face significant risk of losing their investment due to the company's financial difficulties.
- Employees may be affected by potential layoffs or restructuring.
- Customers may experience disruptions in services or the cancellation of events.
- Suppliers and creditors face the risk of non-payment.
- The local community may be impacted by the potential failure of the Hall of Fame Village project.
Next Steps
- The company needs to secure additional financing to continue operations.
- The company needs to address the default on the waterpark ground lease.
- The company needs to remediate the material weakness in its internal control over financial reporting.
- The company needs to evaluate the non-binding proposal from IRG.
Key Dates
| Date | Description |
|---|---|
| September 16, 2019 | Date of the original Merger Agreement. |
| November 6, 2019 | First amendment to the Merger Agreement. |
| December 30, 2019 | Date of the original City of Canton Loan agreement. |
| December 30, 2019 | Date of the original New Market/SCF loan agreement. |
| March 10, 2020 | Second amendment to the Merger Agreement. |
| June 19, 2020 | Date of the Secured Cognovit Promissory Note payable to JKP Financial, LLC. |
| June 30, 2020 | Assignment date of the Secured Cognovit Promissory Note payable to JKP Financial, LLC. |
| July 1, 2020 | Date of the business combination with HOF Village, LLC and effective date of the 2020 Omnibus Incentive Plan. |
| October 7, 2020 | Date of the management agreement with Shulas Steak Houses, LLLP. |
| December 1, 2020 | Amendment date of the Secured Cognovit Promissory Note payable to JKP Financial, LLC. |
| June 2, 2021 | Date of the 2021 Annual Meeting where the 2020 Omnibus Incentive Plan was amended. |
| September 30, 2021 | Date of the Equity Distribution Agreement with Wedbush Securities Inc. and Maxim Group LLC. |
| December 15, 2021 | Date of the Loan Agreement with ErieBank. |
| March 1, 2022 | Date of the first amended and restated promissory note payable to IRG, LLC and JKP Financial, LLC. |
| April 8, 2022 | Effective date of the Global License Agreement with PFHOF. |
| April 27, 2022 | Date of the promissory note payable to Midwest Lender Fund, LLC (MLF). |
| June 16, 2022 | Date of the original business loan agreement with Stark Community Foundation, Inc. |
| June 16, 2022 | Date of the promissory note issued by the Company to CHCL. |
| July 14, 2022 | Date of the Online Market Access Agreement with Instabet, Inc. (betr). |
| August 31, 2022 | Date of the original Stark County Infrastructure Loan. |
| September 15, 2022 | Date of the original City of Canton Infrastructure Loan. |
| September 27, 2022 | Date of the Sale-Leaseback transaction with Twain GL XXXVI, LLC. |
| November 3, 2022 | Date of the Hotel Construction Loan Commitment Letter with IRGInc. |
| November 7, 2022 | Date of the Sale-Leaseback transaction with Oak Street Real Estate Capital, LLC and the IRG Letter Agreement. |
| December 27, 2022 | Date of the Open-End Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing with HOFV Stadium. |
| January 12, 2023 | Date of the issuance of Series A Preferred Stock to ADC LCR Hall of Fame Manager II, LLC. |
| January 23, 2023 | Date of the issuance of additional Series A Preferred Stock to ADC LCR Hall of Fame Manager II, LLC. |
| January 24, 2023 | Date the board of directors adopted the Hall of Fame Resort & Entertainment Company 2023 Inducement Plan. |
| May 2, 2023 | Date of the issuance of additional Series A Preferred Stock to ADC LCR Hall of Fame Manager II, LLC. |
| June 7, 2023 | Date the stockholders approved an amendment to the 2020 Omnibus Incentive Plan and the IRG Letter Agreement. |
| September 13, 2023 | Date of the Amendment to Global License Agreement with PFHOF. |
| October 10, 2023 | Date the Company reduced the amount of shares of its Common Stock that could be issued and sold pursuant to its at-the-market program. |
| November 1, 2023 | Date of the lease agreement with Touchdown Work Place, LLC. |
| January 11, 2024 | Date of the sale of 80% interest in the ForeverLawn Sports Complex. |
| January 17, 2024 | Date of the amendment to the CH Capital Term Loan Agreement. |
| January 30, 2024 | Date the Company provided notice of its intention to extend the maturity date of the IRG Debt Instruments. |
| February 1, 2024 | Date of the amendment to the CH Capital Term Loan Agreement. |
| February 23, 2024 | Date of the First Amendment to Lease with Oak Street. |
| February 28, 2024 | Date of the amendment to the CH Capital Term Loan Agreement. |
| February 29, 2024 | Date of the Second Amendment to the ground lease agreement for the waterpark with Oak Street. |
| March 15, 2024 | Date ErieBank agreed to release certain of its pledged restricted cash. |
| March 26, 2024 | Date of the First Amendment to Lease Agreement with Touchdown Work Place, LLC. |
| March 31, 2024 | Effective date of the omnibus extension of certain debt instruments. |
| April 7, 2024 | Date of the formal omnibus extension of certain debt instruments. |
| April 8, 2024 | Date of the Amendment No. 2 to the Equity Distribution Agreement. |
| May 10, 2024 | Date of the third amendment to the lease agreement with Oak Street. |
| May 20, 2024 | Date of the amendment to the Stark County Infrastructure Loan. |
| May 30, 2024 | Date the Company received a grant of $500,000 from SCF. |
| June 5, 2024 | Date of the amendment to the City of Canton Loan and City of Canton Infrastructure Loan. |
| June 8, 2024 | Date the Company provided notice to Shulas of its intent to terminate the management agreement. |
| June 11, 2024 | Date of the loan agreement with the Stark Community Foundation, Inc. |
| June 17, 2024 | Date of the Customer Contract for EME Express Services Equipment Program with Constellation NewEnergy, Inc. |
| June 25, 2024 | Date of the amendment to the New Market/SCF loan agreement and the First Amendment to Business Loan Agreement with Stark Community Foundation, Inc. |
| June 28, 2024 | Date the Company was awarded a $9.8 million grant from the State of Ohio. |
| July 1, 2024 | Date the Company received approximately $9.9 million from Constellations Energy Made Easy program. |
| August 9, 2024 | Date the Company received the $9.8 million grant from the State of Ohio. |
| August 18, 2024 | Date the Company took over management of the restaurant. |
| September 11, 2024 | Date of the Amended and Restated Global License Agreement with PFHOF. |
| September 14, 2024 | Date the registration statement on Form S-3 expired. |
| September 25, 2024 | Effective date of the Forbearance Agreement. |
| September 27, 2024 | Date IRG delivered a preliminary non-binding proposal to the Companys Board of Directors. |
| October 10, 2024 | Date ErieBank released an additional $943,864 of the held back portion of the loan proceeds. |
| October 22, 2024 | Date the Company opened the restaurant under a new brand, Gridiron Gastropub. |
| October 26, 2024 | Date the Company received a notice of termination due to event of default on its waterpark ground lease. |
| November 11, 2024 | Date the Company and CH Capital signed a term sheet for interim financing. |
| November 13, 2024 | Date of the filing of the 10Q report. |
Keywords
Hall of Fame Resort & Entertainment Company, HOFRE, financial results, lease default, going concern, waterpark, debt, capital raise, operating loss, sponsorship revenue
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