View:
February 2, 2020
Eli Baker
Secretary and Vice Chairman
DEAC NV Merger Corp.
2121 Avenue of the Stars, Suite 2300
Los Angeles, California 90067
Re: DEAC NV Merger Corp.
Registration Statement on Form S-4
Filed January 6, 2020
File No. 333-235805
Dear Mr. Baker:
We have reviewed your registration statement and have the following
comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by amending your registration statement
and providing the
requested information. If you do not believe our comments apply to your facts
and
circumstances or do not believe an amendment is appropriate, please tell us why
in your
response.
After reviewing any amendment to your registration statement and the
information you
provide in response to these comments, we may have additional comments.
Registration Statement on Form S-4 Filed on January 6, 2020
Summary
Compelling Unit Economics., page 26
1. We note your disclosure that in New Jersey, DraftKings' iGaming has a
positive gross
profit of 32%. Please revise to disclose the period to which this
relates and the overall
company wide gross profit percentage for the commensurate period.
Regulatory Approvals, page 26
2. Please briefly describe the "certain approvals or other determinations
from certain gaming
regulatory authorities" referenced in this section. Please also revise
your disclosure
throughout, including on page 99 where you discuss "Regulatory
Approvals," to describe
with more specificity the types of approvals and determinations required
to approve the
Eli Baker
FirstName LastNameEli Baker
DEAC NV Merger Corp.
Comapany NameDEAC NV Merger Corp.
February 2, 2020
February 2, 2020 Page 2
Page 2
FirstName LastName
business combination as well as the particular gaming regulatory
authorities who will
need to provide such approvals.
Unsuitable Person, page 34
3. Please revise your disclosure here to briefly describe the provisions
concerning
unsuitability that are in your proposed charter and clearly explain
how they will impact all
holders of Class A common stock. Please revise your disclosure
elsewhere as appropriate
to include similar disclosure and explain how the board will make a
determination as to
unsuitability, including any discretion the board has with respect to
such determination.
Please also revise your discussion of Government Regulation on page
195 to include a
more complete discussion of the particular gaming authorities that
regulate your activities,
including regulation of unsuitability. Please also add risk factor
disclosure as appropriate.
Risk Factors
"We will rely on information technology and other systems and platforms . . ."
"Despite our security measures, our information technology and infrastructure
may be vulnerable
.. . .", page 49
4. We note your disclosure that "DraftKings and SBT have experienced . .
.. website
disruptions, outages and other performance problems due to a variety
of factors, including
infrastructure changes, human or software errors and capacity
constraints" and that you
"have experienced cyber-attacks, attempts to breach [y]our systems and
other similar
incidents . . ." Please revise your risk factors to describe any
material disruptions,
outages, cyber-attacks, attempts to breach your systems, or other
similar incidents, and the
cost and impact of such incidents. Alternatively, please tell us why
you do not believe
you are required to describe these incidents.
"DraftKings primarily relies, and we will rely, on Amazon Web Services . . .",
page 51
5. Please briefly describe the "certain advance notice requirements" with
which AWS must
comply to terminate your commercial agreement for convenience. Please
also confirm
that you will file your commercial agreement with AWS or tell us why
you do not believe
you are required to do so. See Item 601(b)(10) of Regulation S-K.
"We rely on strategic relationships with casinos, tribes, and horse-tracks . .
..", page 56
6. Please briefly define "skin," and explain how these "skins" help you
establish a "retail
relationship" in certain jurisdictions where this relationship is
required. Please clearly
explain why these skins and necessary, including the applicable
regulations. To the extent
the loss of your relationship with a particular casino, tribe or track
is material to your
financial condition and results of operations, please disclose such
relationship.
Eli Baker
FirstName LastNameEli Baker
DEAC NV Merger Corp.
Comapany NameDEAC NV Merger Corp.
February 2, 2020
February 2, 2020 Page 3
Page 3
FirstName LastName
"DraftKings and SBT have been the subject of governmental investigations . .
..", page 64
7. Please briefly describe any material "formal and informal inquiries .
.. . from government
authorities and regulators" received by DraftKings and SBT, including
the outcomes of
these inquiries and whether they are currently ongoing.
"SBT's business includes a B2B business model . . .", page 73
8. In an appropriate place in your filing, please disclose any material
relationships between
SBT and its direct operators and resellers, including the terms of
such agreements. To the
extent that the loss of a particular direct operator or reseller could
have a material impact
on the business of the combined company going forward, please include
this disclosure in
the risk factor.
"DraftKings depends on the Kambi platform to operate its Sportsbook . . .",
page 74
9. We note that you plan to transition your Sportsbook from the Kambi
platform to SBT's
platform. Please discuss any material liability that you may incur if
you chose to
terminate your contract with Kambi. Please also file your contractual
agreement with
Kambi as an exhibit to your registration statement, or tell us why you
do not believe you
are required to do so. See Item 601(b)(10) of Regulation S-K.
Background of the Business Combination, page 94
10. Please revise your disclosure in this section to include negotiations
relating to material
terms of the transaction, including the dual-class structure, the
decision to acquire both
DraftKings and SBT, the voting power granted to Mr. Robins, the
determination of the
amount of the Minimum Proceeds Condition and the related private
placement, the
decision to cash out certain DraftKings stockholders, the reason for
DraftKings' December
2019 convertible note issuance, and the inclusion of earnout shares.
In your revised
disclosure, please explain the reasons for such terms, each party's
position on such issues
and how you reached agreement on the final terms.
11. Please expand your disclosure to provide a more detailed discussion of
the negotiations
surrounding the material terms of the business combination agreement,
including the
amount and form of consideration. In particular, please discuss
negotiations regarding the
proposed valuation of the transaction, including how you ended up with
the valuations
used in determining the consideration payable to DK Equityholders and
SBT
Equityholders. For example, please explain how the parties determined
that the
consideration be based on valuations of $2,055,241,409 and
407,211,831, and how that
valuation amount was determined.
12. We note your disclosure that DEAC reviewed several opportunities and
entered into
substantive discussions with three potential target businesses or
their representatives and,
in addition to DraftKings and SBT, you entered into detailed
negotiations with one other
target. Please clarify whether SBT and DraftKings were considered
separate entities for
Eli Baker
FirstName LastNameEli Baker
DEAC NV Merger Corp.
Comapany NameDEAC NV Merger Corp.
February 2, 2020
Page 4
February 2, 2020 Page 4
FirstName LastName
purposes of the three potential targets with which you entered into
substantive
discussions. If not, please tell us why you declined to enter into
detailed negotiations with
the third target company.
13. We note your disclosure that "DEAC engaged Goldman Sachs & Co. LLC . .
.. as its
financial advisor to provide advice on the potential transaction and
industry generally."
Please elaborate on the role of Goldman Sachs and how it advised you
during negotiations
with DraftKings and SBT.
14. Please clarify when and why DEAC terminated discussions with Company
M.
DEAC's Board of Directors' Reasons for the Approval of the Business
Combination, page 97
15. We note that the DEAC board reviewed the results of an independent
financial model
created in conjunction with management of DraftKings and SBT, and
relied on certain
revenue and operating cost projections and specific financial
projections of DraftKings.
Please expand your disclosure to describe the board's analysis
relating to the the
independent financial model and various operating cost and financial
projections. Please
disclose the material information relied upon, including any material
financial projections
and the assumptions underlying such projections. In addition, we note
the comparable
company benchmarking included in your Rule 425 filing from January 13,
2020. Please
explain whether the board, or the financial model or specific
valuation upon which the
board relied, was based on such benchmarking. If so, please include
the comparable
company analysis in your prospectus and disclose material information
necessary to
understand such analysis.
16. We note your statement on page 98 that the board considered that
DraftKings has its DFS
product in 43 U.S. states. Please clarify the difference in the DFS
product being in 43
U.S. states with DraftKings' live presence in six U.S. states, as
disclosed in your Rule 425
filing on January 13, 2020. Please include similar disclosure
elsewhere as appropriate to
ensure that you present balanced disclosure for investors.
The Business Combination Agreement
Treatment of DraftKings Equity, page 105
17. Please disclose the estimated amount of cash that non-accredited
investors in DraftKings
will receive in the merger transactions.
Unaudited Pro Forma Condensed Combined Financial Information
Description of the Business Combination, page 145
18. In footnote (2) on page 145 you discuss the three million shares held
in escrow with
respect to DraftKings/SBTech stockholders. Please tell us and disclose
your treatment of
the three million shares held in escrow for the DEAC Earnout Group.
Also, clarify what
earnout shares are represented in footnote (2) to the purchase price
allocation on page
160.
Eli Baker
FirstName LastNameEli Baker
DEAC NV Merger Corp.
Comapany NameDEAC NV Merger Corp.
February 2, 2020
Page 5
February 2, 2020 Page 5
FirstName LastName
Other Information Related to DEAC
Liquidation if No Business Combination, page 165
19. We note your disclosure that "DEAC will seek to have all vendors,
service providers,
prospective target businesses and other entities with which it does
business execute
agreements with it waiving any right, title, interest or claim of any
kind in or to any
monies held in the trust account for the benefit of its public
stockholders, [but] there is no
guarantee that they will execute such agreements." Please disclose
whether DEAC is
currently a party to any agreement that does not waive claims against
monies held in the
trust account, and, if applicable, briefly describe the terms of the
agreement(s).
Market Access and Compliance Platform, page 182
20. Please file the agreements discussed in this section as exhibits to
your filing, or tell us why
you do not believe you are required to do so. See Item 601(b)(10) of
Regulation S-K.
Our Products and Economic Model
Our Revenue-Generating Product Offerings, page 184
21. We note your disclosure that your Daily Fantasy Sports, Sportsbook and
iGaming
products together accounted for 97%, 100% and 100% of DraftKings'
revenues for the
fiscal years ended December 31, 2018, 2017 and 2016, respectively. We
also note your
disclosure on page 212 that "DFS currently accounts for a majority of
[y]our revenue,"
and "[s]ince their launch, Sportsbook and iGaming account for a
rapidly growing
proportion of revenue." In an appropriate place in your filing, please
disclose the
percentage of DraftKings' revenues for the periods presented
attributable to Daily Fantasy
Sports, Sportsbook, and iGaming separately.
iGaming
B2B Revenue for Sportsbook and iGaming, page 185
22. Please briefly describe the general terms of your "various
revenue-sharing arrangements"
with iGaming suppliers. Please similarly describe the general terms of
the revenue
sharing and fixed fee contracts with business customers.
Advertising and Sponsorship, page 186
23. We note your disclosure that you offer advertising and sponsorship
packages to targeted
advertisers across your product offerings. Please disclose how you
charge fees for these
advertising packages. For example, disclose whether you charge fixed
fees per ad or per
package, or any other manner in which you charge fees for your
advertising services.
Our Technology and Product Development, page 189
24. We note your disclosure that "[t]he DraftKings-owned gaming products
now account for
the majority of [y]our iGaming handle, substantially reducing [y]our
third-party content
Eli Baker
FirstName LastNameEli Baker
DEAC NV Merger Corp.
Comapany NameDEAC NV Merger Corp.
February 2, 2020
February 2, 2020 Page 6
Page 6
FirstName LastName
fees." Please disclose the percentage of your iGaming handle
attributable to DraftKings-
owned compared to third party products.
Legal Proceedings, page 192
25. Please disclose an estimate, if you are currently able, of the amount
of "substantial
damages" you could incur with respect to In Re: Daily Fantasy Sports
Litigation (Multi-
District Litigation).
DraftKings' Industry
Global Gaming Industry, page 200
26. Please provide support for the following statements, or characterize
them as management's
opinions or beliefs:
"Various jurisdictions globally, including the Unites States, are
embracing regulated
sports betting and iGaming in an effort to create a safer gaming
environment for
consumers and to generate additional tax revenue;"
"In jurisdictions with regulated sports betting and iGaming,
consumers have shown a
strong preference for online products as opposed to retail
products when the option of
online versus retail is available to them;"
"In the past decade,there has been significant regulatory
momentum with respect to
online gaming across the globe[, and t]his momentum has been
particularly relevant
in developed nations whose citizens have disposable income;"
"Th[e] low percentage of mobile gaming penetration in North
America relative to the
rest of the world is predominantly due to the slower pace of
adoption in the united
States where online gaming is regulated on a state-by-state
basis, [and a]s U.S.
jurisdictions become regulated and mature, online gaming
penetration may approach
that of other developed nations;" and
"The sport betting industry is expected to grow significantly
over the next five years
as more states legalize sports betting and currently operational
states progress toward
maturity."
DraftKings' Management's Discussion and Analysis of Financial Condition and
Results of
Operations
Our Business, page 205
27. We note your "Key Milestones" graphic on page 206. Please label the
axis denominated
in millions to clarify whether you are referring to millions of users,
unique paid users,
customers generally, or some other metric.
Eli Baker
FirstName LastNameEli Baker
DEAC NV Merger Corp.
Comapany NameDEAC NV Merger Corp.
February 2, 2020
February 2, 2020 Page 7
Page 7
FirstName LastName
Liquidity and Capital Resources
Cash Flows
Operating Activities, page 220
28. You state net cash used in operating activities decreased in 2018
compared to 2017 mainly
due to a substantial decrease in accounts payable, reflecting quicker
payments to vendors.
This appears to support an increase in operating cash used. Please
clarify and revise your
analysis as appropriate.
Further, in the comparison of 2018 to 2017, you state higher non-cash
operating costs
largely offset the negative cash flow impact of higher loss from
operations of $76.2
million and $75.6 million, respectively. From the cash flows
statement, it appears these
non-cash adjustments totaled $16.7 million and $15.2 million for 2018
and 2017,
respectively. Please clarify your assertion about the relative impact
of these non-cash
operating costs on your results. In so doing, please refer to section
IV.B.1 of SEC Release
No. 33-8350 for guidance in regard to the analysis of operating cash
flows and to section
501.04 of the staff's Codification of Financial Reporting in regard to
quantifying variance
factors cited.
SBT's Management's Discussion and Analysis of Financial Condition and Results
of Operations
Key Components of Revenue and Expenses, page 227
29. We note your disclosure that "[i]t is common for SBTech to earn a
percentage of a
customer's net gaming revenue, as defined under customer contracts,
generated on
SBTech's platform." Please disclose an estimate of the typical
percentage of a customer's
net gaming revenue earned by SBTech under these customer contracts.
Please also
disclose the other avenues by which SBTech earns revenue.
Exclusive Forum, page 243
30. We note that your exclusive forum provision identifies the "Eighth
Judicial District Court
of Clark County, Nevada (or if the Eighth Judicial District Court of
Clark County, Nevada
does not have jurisdiction, any other state district court located in
the State of Nevada)"
as "the sole and exclusive forum for any action or proceeding brought
in the name or right
of New DraftKings or on its behalf." Please clearly disclose whether
the exclusive forum
provision applies to actions arising under the Securities Act or
Exchange Act. In that
regard, we note that Section 27 of the Exchange Act creates exclusive
federal jurisdiction
over all suits brought to enforce any duty or liability created by the
Exchange Act or the
rules and regulations thereunder, and Section 22 of the Securities Act
creates concurrent
jurisdiction for federal and state courts over all suits brought to
enforce any duty or
liability created by the Securities Act or the rules and regulations
thereunder. If the
provision applies to Securities Act claims, please also revise your
prospectus to state that
there is uncertainty as to whether a court would enforce such
provision and that investors
cannot waive compliance with the federal securities laws and the rules
and regulations
Eli Baker
FirstName LastNameEli Baker
DEAC NV Merger Corp.
Comapany NameDEAC NV Merger Corp.
February 2, 2020
Page 8
February 2, 2020 Page 8
FirstName LastName
thereunder. Further, please disclose that, by agreeing to be bound by
the exclusive forum
clause, investors cannot waive your compliance with the federal
securities laws and the
rules and regulations promulgated thereunder.
If the provision does not apply to federal securities law claims,
please ensure that New
DraftKings' organizational documents disclose that the provision does
not apply to federal
securities law claims, or tell us how you will make future investors
aware of the
provision's limited applicability. Please also amend your filing to
include risk factor
disclosure related to your exclusive forum clause, including, but not
limited to increased
costs to bring a claim, and that these provisions can discourage
claims or limit investors'
ability to bring a claim in a judicial forum that they find favorable.
DraftKings' Executive Compensation, page 274
31. Please update your executive compensation disclosures to include the
required disclosures
for your fiscal year ended December 31, 2019. See Item 402 of
Regulation S-K.
Material U.S. Federal Income Tax Considerations, page 288
32. We note your disclosure here and elsewhere throughout the filing that
the reincorporation
merger will qualify as a tax-free reorganization under the Code.
Please provide a tax
opinion and make corresponding changes to your disclosure. Please
refer to Section III.A.
of Staff Legal Bulletin 19, Legality and Tax Opinions in Registered
Offerings.
DraftKings Inc. Consolidated Financial Statements as of December 31, 2018 and
2017
Report of Independent Registered Public Accounting Firm , page F-50
33. Please revise to include an audit report signed by the independent
registered public
accounting firm.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
Refer to Rules 460 and 461 regarding requests for acceleration. Please
allow adequate
time for us to review any amendment prior to the requested effective date of
the registration
statement.
Eli Baker
DEAC NV Merger Corp.
February 2, 2020
Page 9
You may contact Aamira Chaudhry at 202-551-3389 or Doug Jones at
202-551-3309 if
you have questions regarding comments on the financial statements and related
matters. Please
contact Katherine Bagley at 202-551-2545 or Erin Jaskot at 202-551-3442 with
any other
questions.
Sincerely,
FirstName LastNameEli Baker
Division of
Corporation Finance
Comapany NameDEAC NV Merger Corp.
Office of Trade &
Services
February 2, 2020 Page 9
cc: Elliott Smith
FirstName LastName