IndyCar video game in trouble: Motorsport Games halts development amidst massive layoffs

Motorsport Games has closed its Australian studio, suspending development of an IndyCar video game. It was the latest example of how the company has over-sold and under-delivered during its 28-month relationship with IndyCar; failing a small, passionate fanbase that has not-so-patiently been waiting for a console video game since 2005.

“As underperforming business units and projects have been closed, a new sense of optimism continues to emerge," said CEO Stephen Hood, whose company laid off 38 employees (or roughly 40% of its work force) in the last two weeks, nearly a year after its board of directors resigned a year ago amidst disagreements over cost-cutting measures. Now, nine months into that financial restructuring plan, MSG, under Hood's leadership after he assumed the CEO role this spring, has slashed $6.7 million in operating costs through the first nine months of this year.

The goal was $4 million in annual savings.

“This past quarter has been a continuation of the incredible efforts to steer our business to ensure success," Hood continued on MSG's third quarter investors call. "We’re starting to deliver recognizable, tangible results.”

IndyCar and Motorsport Games struck a deal in July of 2021 that included console game and esports licenses. The former project included the planned 2023 launch of a product for Xbox, PlayStation and PC systems, with MSG also largely locking IndyCar out of the sim racing space within that agreement upon the conclusion of a contract with iRacing that expired at the end of 2022.

Despite the poor performance and reception of its NASCAR products that was released months after IndyCar’s deal with MSG began and delays that followed, Penske Entertainment brass told IndyStar in early-February that it expected the release of the beta version of IndyCar’s game by May, with the product set to be on store shelves by the series' Sept. 10 season-finale.

At that point, MSG was coming off a fourth quarter in 2022 that saw its revenues drop by more than half ($8.2 million to $3.8 million) that led to a year-over-year plunge in revenue from $15.1 million to $10.3 million.

“Motorsport Games has spent a lot of money, a lot of effort to create an IndyCar title. What we’ve seen of that effort, which is not completely obvious, is very reassuring,” Miles told reporters in March after MSG announced its delay of the release of its IndyCar game a year to 2024. “I think it’s going to be outstanding. That’s our shared objective, that when it is released, it’s just widely accepted.

“I wish we had an IndyCar title 10 years ago. We’ve been close, but we’ve had these speed bumps. We better get it right (this time). It’s something we’re very close to and continue to think about what it is to make sure we get it over the line in due course.”

A month later in an exclusive conversation with IndyStar, Miles reference “ongoing conversations” that, he said, “would lead to ensuring that Motorsport Games is on solid financial ground and be able to honor their deals.”

“I think the company has meaningful resources and assets, so they’ll find a way for that to attract capital.”

From this spring: What's the future of IndyCar's video game amid Motorsport Games financial turmoil?

It was hypothesized at the time that iRacing might swoop in as IndyCar’s white knight – in a way that the company, largely known for its popular sim racing platform and one co-owned by billionaire John Henry, has now done for NASCAR’s future console gaming prospects by purchasing the license from MSG. Having hosted immensely popular sim racing leagues and events for American open-wheel racing fans in recent years, while helping IndyCar drivers remain active and in the public eye during the onset of the COVID-19 pandemic, the series’ roots with iRacing were deep – albeit significantly fractured of late.

This week, TOCA, the company that organizes and runs the British Touring Car Championship (BTCC) announced it had “been forced to terminate” its exclusive licensing agreement with MSG it struck in May 2020 to produce a video game “due to ongoing fundamental breaches of that agreement with Motorsport Games.”

During the company’s investor call Tuesday, Hood clarified that MSG was behind on payments for its BTCC license, “which was one of the driving parts behind the termination,” he said. When asked if MSG was behind on payments for its other gaming licenses, which now only seems to include the 24 Hours of Le Mans and the World Endurance Championship, as well as IndyCar, Hood said the company was current on its other deals.

How long that can stay the case remains to be seen.

Insider: Could iRacing buy Motorsport Games' IndyCar video game in strategic partner deal?

Despite improvements across its financial portfolio of late, MSG still recorded a net loss in the third quarter of 2023 of $3.5 million – down from $8.5 million a year ago – while generating just $1.7 million in revenue. At the close of Q3, MSG had just $1.2 million in cash (and cash equivalents), and even after it took in $3.7 million in cash proceeds from its sale of its NASCAR gaming license to iRacing Oct. 5, the company had only managed to hold onto roughly $2 million of that by Oct. 31, when it had $3.2 million in cash, according to its financial report this week.

At the moment, MSG is averaging $1.1 million in negative cash flow per month in 2023 -- an amount Hood told investors Tuesday he believes to be sufficient to operate through the end of Q1 in 2024. In the middle of that quarter, MSG announced Tuesday it will launch 'Le Mans Ultimate', after delaying an expected December release.

On social media, IndyCar fans and gaming fanatics who’d been looking forward to a new racing title, continued to ask why Miles, Roger Penske and company hadn’t announced a severing of ties.

One easy answer could be hidden in Hood’s answer regarding the company’s financial payments; at the moment, MSG has not yet defaulted on its financial obligation to IndyCar while holding its exclusive gaming rights. Delays in the rollout of the product, while frustrating for fans, executives and the paddock, may not be sufficient legal ground to terminate the agreement. Until this week, IndyCar executives continued to be apprised of sufficient progress in the game’s development.

The game’s developers have gotten multiple tracks into the final stages of the production and approval process -- with each current track as of last spring scanned. The team had also performed additional work in recent months on the game’s “car performance and feel,” according to a source briefed on the progress, in addition to drivers being scanned for their profiles in May 2022 and contemporary IndyCar liveries scanned as well. Some media members in the gaming space have even spoken of having chances to play the game with one calling it "playable" in 2022.

IndyCar officials faced the decision of abandoning a product that had made significant strides and that put the series far closer to a mass-production video game than it had been in nearly 20 years – a move that might’ve sparked a legal battle – or ignoring telltale warning signs and pressing on, at risk of having egg on its face when its product failed or sputtered to a halt.

For the moment, Hood said on MSG’s investor call Tuesday that the company “still retains all technology and assets” regarding its IndyCar game as executives “identify opportunities to resume development elsewhere within the business.”

IndyCar isn't presently listed among MSG's "strategic partners" on its website. Hours after Hood’s call, though, IndyCar officials appeared to have finally reached a point of public frustration.

“Significant work and collaboration has gone into the development of our title with Motorsport Games,” IndyCar said in a statement provided to IndyStar. “We’re disappointed they do not have the resources to continue development.

“We’ll announce next steps in due course.”

This article originally appeared on Indianapolis Star: IndyCar 'disappointed,' charting next steps as MSG halts game development