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Esports Entertainment Suspends Preferred Dividend

Another pure junk preferred issue which carries a coupon of 10% has had their dividend suspended. Esports Entertainment (GMBL) 10% convertible preferred (GMBLP), which was sold during the zero interest rate period in 2021 is a $10 issue–now trading at $4.90–and in my opinion will go to ZERO. The common shares are trading around 2 cents.

Current assets are $2.2 million versus current liabilities of $10.1 million. Toast!

The announcement is here.

27 thoughts on “Esports Entertainment Suspends Preferred Dividend”

  1. Westie,

    thanks for the Baron’s article. I have been in study mode on preferreds for sometime and I had unfortunately picked this preferred’s Documentation as one of my study subjects for understanding call provisions and had been perplexed. It is clearer now.

  2. Not an issue that I track, but if you purchased one share at Par and stuck around for all of the dividends and sold on Friday it would look like this…

    Cash out

    Cash in
    Dividends 23*.08 = $1.84
    Dividends 1*$.12 =$0.12
    Sale $4.60

    Loss of 34.2%

    It is certainly ugly.
    But in all honesty I have to ask the question – Have I take bigger losses before? My answer has to be yes.

    Do I expect to take a loss on an individual issue like this again? Yes most certainly.

    It’s worth noting that there are lots of income focused investments that are down this much:

    Common stock in leveraged mREITS as an example.
    Preferred equity in CRE property REITS is another.

    It is sometimes revealing to compare losses to Bitcoin. This name went Ex D for the first time on Dec 12 2021. If you purchased 1 unit of BTC on Dec 11 you would have paid $49,242. Today BTC trades at $43,960. That would be a loss of 10.7%. So yes dividend paying preferred stocks certainly can be riskier than Bitcoin. It pays to keep this in mind.

    The lesson is due diligence, diversification, and risk management

  3. The correct symbol for the preferred is GMBLP.

    Has anyone shorted any of these issues? What borrow fee are you paying?

    1. >> Has anyone shorted any of these issues? What borrow fee are you paying?

      Does “these issues” refer to GMBL and GMBLP or to preferreds in general? If the latter, if you post symbols, I’ll reply with what I pay at IBKR.

      1. I meant any of the GMBL issues, but if you have other favorite shorts, I’d love to hear about them.

    2. David–thanks-not sure where I picked up Z – all my info has P. Old age I guess.

  4. I’ll bet everyone here would see a 10% yield in an era when decent companies were drifting below 5% and take it as a huge red flag prompting a deep dive into their finances. I know I would.

    1. Jersey—I hope everyone here would see it as a huge flag–we have had so many from that time go BK or suspend.

  5. Tim; Good time for me to say being an old timer and on days feeling like I’m a thousand years old I will just say I have learned thru the decades of investing and also thru the “School of Hard Knocks” to not buy any of these type of companies anymore. There are actually many many names thrown around on this site about preferreds people buying that are of extremely low quality and it always makes me wonder if people are doing any DD on them.

    1. Chuck P – I am with you–it took some time to learn to stay away from the pure junk–but you know there are always those that have to learn it the hard way with some big losses. If a common share is trading at 2 cents it might be a good warning.

      1. Tim, Im guessing Esports CV preferred didnt have built in covenent and indenture provisions of minimum required interest coverage ratios and preferred coverage ratios that say UE and AI preferreds have, lol.

      2. Tim,
        I know the discussions come up here on some of these riskier stocks, like that golf course company a while back. I think some younger people and novices have come here to learn and this is a great site for that. I hope that the older and wiser people here continue to give their opinions and experiences in investing. I remember listening to Louis Rukeyser on his program on public TV. now people listen to Cramer and the Rida crowd.
        I was conservative even in my younger days. My wife was cleaning up and just found an old paper ticket from Waterhouse securities of San Francisco {actual paper} Grid will probably remember this one. CIN Cincinnati electric and gas. At 28yrs old, I had already bought my first house and was buying 900 shares of CIN at 14-5/8 wish I had kept it.
        So whatever happen to that guy when he was listening to Cramer and buying Sea Drill and Northern Telecom {NORTEL} ? We all make mistakes.

        1. I once purchased Apple at $7 and change and sold it for $12.50.
          I thought I did a good thing.

          Also sold covered calls against DELL during the .com boom and let it get called away. Again I congratulated myself at the time.

          Mistakes take lots of forms…

          Anyway – I learned a lot of Rukeyser and also Myron Candell who used to be on CNN with Lou Dobbs. Also Ed Hart from the old FNN. Also John Bollinger with his Bollinger Bands. They are still around, and so is he. It was not until I learn about statistics that I found out that these are merely an expression of standard deviation. The academics will tell you how useless they are, and yet they are still around.

          1. August, I bought FB about when it IPO’d a lot of people said the bookie’s were doing their dog and pony show before IPO and talking it up too much and there was too much hype. I will pick a number I bought at. I think it was around 28.00 I panicked when it kept falling and sold for a loss.
            I put that memory in the back corner of the mental closet along with Nortel and my experience with IBM

            1. Charles and other participants….
              Your insights about your high yielding preferreds/bond experiences are so valuable.
              I’ve just spent three hours compiling a list of preferreds/bonds from today’s CDx3 yielding more than 6% and rated investment grade by either Moody’s or S&P.
              Not comfortable with banks, I only included ASBA and KEY-L.

              There are 20 – all investment grade – 7 paying over 7%, the rest in the mid to upper 6″s.

              I plan to winnow out most of my below 6% holdings and to invest in the most favorable of the above as opportunities arise..

              IMHO, the fallout from the rise in interest rates is yet to be felt.

              1. Westie I think you have a background in banking? If so, you probably see them from a different prospective. I did get rid of my ZIONO after it recovered. Just didn’t feel comfortable with it as the bank has expanded outside of their sandbox. Keeping a few others.

                1. Yes, Charles, I was a banker with one of the “too big to fail” banks..

                  The challenges of liquidity, commercial real estate, underwater securities held to maturity, and the inverted yield curve punishing profit margins remain very real for regional banks. Inasmuch as bank regulators have multiple tools to cushion/hide these risks, it is difficult to assess how well/badly any one bank is actually doing.

                  For the largest and “too big to fail”, unmargined derivative exposure to each other is the elephant in the room. Swiss Bank’s potential failure caused real shivers among its derivative counterparts before the regulators managed its bailout merger into UBS..

                  Exposure to the sector needs to be managed appropriately.

                  CPRN remains one of my largest holdings.

                  1. Westie – aren’t you concerned with call risk on CPRN? Quantum shows that its callable after 10/30/15. This is really weird because if Quantum was accurate, I think it would have been called long ago since the current coupon is 12%.

                    1. Good thinking, jh
                      But, earlier on this site thanks to Grid:
                      The company has said in the past that it would be uneconomic. Due to a quirk in accounting rules, the securities are carried on Citigroup’s balance sheet for about $1.5 billion, not their face value of about $2.2 billion. A redemption would cost $2.2 billion at the face value of $25. This would result in an accounting loss of more than $700 million.

                      “If we were to redeem this, we would take a large hit to our P&L. And that’s just the way that the bookkeeping has worked on that security,” said Citigroup chief financial officer John Gerspach in 2017 on a conference call. “The decision to redeem that security is largely an economic one. Is it worth taking a large loss to redeem?”

                    2. …paying 12% in a 7% world (BB+) to avoid muddling the illusion of $700M in profitability. The Great Oz had nothing on these bozos.

                  2. What is up with Schwab? I can’t find this symbol, even when I enter the cusip. I’ve run into this before on Schwab where I can’t find a particular security. Is there a way to search that I haven’t discovered yet?

                    1. Only thing I can get at Schwab is C/PRJ and C common. None of the other iterations work.

                      Do I need to enable some feature to be able to access this on Schwab? I guess I’ll have to call later and see what I am doing wrong.

                      Thanks for the reply David.

                    2. Schwab’s search is struggling since they started “reimagining” all of their pages. The old search just worked better, and had a symbol lookup that worked. Now, not so much.

                      The “classic view” of the schwab research pages generally has far more data, esp. for preferreds.

                      Schwab uses at least three different nomenclatures for preferreds on different parts of their systems. so, the D preferred from ET may be called:
                      ETpD (streetsmart edge, mostly).
                      The /PR format works in most places on schwab.com.

                      Also note that they have a bug in Streetsmart Edge I have been chasing for over a year where streetsmart will sometimes create false symbols (like EP PRD – with a space between the P and the R) when you enter an order. So, the order status will show as EP PRD instead of EPpD. The order will show in SSE Order status as if it is a real order, and it will tie up cash like a real order, but if you click on the symbol in the order there will be no information behind it because it isn’t a real symbol. I used to see it once or twice a week. Last few days I see it multiple times a day.

                      ***If anyone else is seeing this, please call Schwab technical support. The more they hear about it, the more likely someone will actually try to fix it****

              2. Westie, A couple thoughts of interest you may consider since you combined bonds with preferreds. If you are perusing baby bond senior notes at BBB or BBB-, this means if that specific company did have preferreds they would be BB/BB+. If you are looking at BBB or BBB- preferreds their senior notes would be A3/BBB+. So its not a true apples to apples cross comparison screening you are making.
                Also if you are looking at some that are significantly above mean, you may want to check and see if that company is under a credit watch for downgrade. As invariably if they are it is quite possible a notch or two lower rating is coming and the market could be factoring it in. Of course it may not and could be a good relative value entry point, or the market is just more historically suspicious of that issue for whatever reason. Its just something I typically do assuming I do find any relevant info.

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