SEC Filing | DraftKings Inc.

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dkng-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from__________ to ___________.

Commission file number 001-41379

https://cdn.kscope.io/62a184d741d8a33a395b2e0ed19a4f71-dkng-20220331_g1.jpg

DRAFTKINGS INC.

(Exact name of registrant as specified in its charter)


Nevada			87-2764212
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

222 Berkeley Street, 5th Floor

Boston, MA 02116

(Address of principal executive offices) (Zip Code)

(617) 986-6744

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report).

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Class A Common Stock, $0.0001 par value

DKNG

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 4, 2022, there were 417,916,756 shares of the registrant’s Class A common stock, par value $0.0001 per share, and 393,013,951 shares of the registrant’s Class B common stock, par value $0.0001 per share, outstanding.

DraftKings Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2022

Table of Contents


			Page
PART I. FINANCIAL INFORMATION			2
Item 1. Financial Statements			2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures About Market Risk			32
Item 4. Controls and Procedures			32
PART II. —OTHER INFORMATION			34
Item 1. Legal Proceedings			34
Item 1A. Risk Factors			39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39
Item 3. Defaults Upon Senior Securities			40
Item 4. Mine Safety Disclosures			40
Item 5. Other Information			40
Item 6. Exhibits			40

EXPLANATORY NOTE

As further discussed in this Quarterly Report on Form 10-Q (this “Report”), on August 9, 2021, DraftKings, Inc., a Nevada corporation (“Old DraftKings”), and Golden Nugget Online Gaming, Inc., a Delaware corporation (“GNOG”), entered into a definitive agreement and plan of merger (the “Merger Agreement”) for Old DraftKings to acquire GNOG in an all-stock transaction (the “GNOG Transaction”). On May 5, 2022 (the “Closing Date”), Old DraftKings consummated the GNOG Transaction and, in connection therewith, undertook a holding company reorganization whereby a new holding company, New Duke Holdco, Inc., a Nevada corporation (“New DraftKings”), became the going-forward public company and the direct parent company of both Old DraftKings and GNOG. New DraftKings was renamed “DraftKings Inc.” on the Closing Date. New DraftKings is the registrant filing this Report as the successor registrant for Old DraftKings. Unless otherwise indicated, the terms “DraftKings,” the “Company,” “we,” “us,” or “our” refer to (i) Old DraftKings for periods preceding the Closing Date and (ii) New DraftKings, for periods on and subsequent to the Closing Date, in each case, together with their respective consolidated subsidiaries.

PART I. - FINANCIAL INFORMATION

Item 1. Financial Statements.

DRAFTKINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except par value)


	March 31, 2022
	(Unaudited)		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	1,772,892	$	2,152,892
Cash reserved for users	464,854		476,950
Receivables reserved for users	55,946		51,949
Accounts receivable	48,211		45,864
Prepaid expenses and other current assets	56,562		25,675
Total current assets	2,398,465		2,753,330
Property and equipment, net	49,734		46,019
Intangible assets, net	523,023		535,017
Goodwill	615,655		615,655
Operating lease right-of-use assets	61,169		63,831
Equity method investment	7,474		9,825
Deposits and other non-current assets	90,795		45,377
Total assets	$	3,746,315	$	4,069,054

Liabilities and Stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses	$	379,254	$	387,737
Liabilities to users	520,775		528,874
Operating lease liabilities, current portion	12,911		12,814
Total current liabilities	912,940		929,425
Convertible notes, net of issuance costs	1,249,106		1,248,452
Non-current operating lease liabilities	54,457		57,341
Warrant liabilities	14,230		26,911
Long-term income tax liability	78,947		79,125
Other long-term liabilities	51,035		49,272
Total liabilities	$	2,360,715	$	2,390,526
Commitments and contingent liabilities (Note 13)

Stockholders' equity:
Class A common stock, $0.0001 par value; 900,000 shares authorized as of March 31, 2022 and December 31, 2021; 425,151 and 414,911 shares issued and 417,228 and 407,781 outstanding as of March 31, 2022 and December 31, 2021, respectively	$	42	$	41
Class B common stock, $0.0001 par value; 900,000 shares authorized as of March 31, 2022 and December 31, 2021; 393,014 shares issued and outstanding as of March 31, 2022 and December 31, 2021	39		39
Treasury stock, at cost; 7,923 and 7,130 shares as of March 31, 2022 and December 31, 2021, respectively	(320,697)		(306,614)
Additional paid-in capital	5,891,235		5,702,388
Accumulated deficit	(4,221,507)		(3,753,814)
Accumulated other comprehensive income	36,488		36,488
Total stockholders’ equity	1,385,600		1,678,528
Total liabilities and stockholders’ equity	$	3,746,315	$	4,069,054

See accompanying notes to unaudited condensed consolidated financial statements.

DRAFTKINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands, except loss per share data)


	Three months ended March 31,
	2022		2021
Revenue	$	417,205	$	312,276
Cost of revenue	313,379		183,225
Sales and marketing	321,452		228,686
Product and technology	81,352		56,159
General and administrative	216,606		168,997
Loss from operations	(515,584)		(324,791)
Other income (expense):
Interest income, net	148		985
Gain (loss) on remeasurement of warrant liabilities	12,681		(26,980)
Other income, net	37,882		—
Loss before income tax provision (benefit) and loss from equity method investment	(464,873)		(350,786)
Income tax provision (benefit)	469		(4,595)
Loss from equity method investment	2,351		153
Net loss attributable to common stockholders	$	(467,693)	$	(346,344)

Loss per share attributable to common stockholders:
Basic and diluted	$	(1.14)	$	(0.87)

See accompanying notes to unaudited condensed consolidated financial statements.

DRAFTKINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(Amounts in thousands)


	Three months ended March 31,
	2022		2021
Net loss	$	(467,693)	$	(346,344)
Other comprehensive (loss) income:
Foreign currency translation adjustments arising during period, net of nil tax	—		(27,318)
Comprehensive loss	$	(467,693)	$	(373,662)

See accompanying notes to unaudited condensed consolidated financial statements.

DRAFTKINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(Amounts in thousands)


	Class A Common Stock			Class B Common Stock			Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Treasury Stock Amount		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balances at December 31, 2021	407,781	$	41	393,014	$	39	$	5,702,388	$	(3,753,814)	$	36,488	$	(306,614)	$	1,678,528
Exercise of stock options	913	—		—	—		1,770		—		—		—		1,770
Stock-based compensation expense	—	—		—	—		187,077		—		—		—		187,077


Purchase of treasury stock	(793)	—		—	—		—		—		—		(14,083)		(14,083)
Restricted stock unit vesting	9,327	1		—	—		—		—		—		—		1
Net loss	—	—		—	—		—		(467,693)		—		—		(467,693)
Balances at March 31, 2022	417,228	$	42	393,014	$	39	$	5,891,235	$	(4,221,507)	$	36,488	$	(320,697)	$	1,385,600


	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Treasury Stock Amount		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balances at December 31, 2020	396,303	$	40	393,014	$	39	$	5,067,135	$	(2,230,619)	$	83,534	$	(288,784)	$	2,631,345
Exercise of stock options	2,857	—		—	—		7,638		—		—				7,638
Stock-based compensation expense	—	—		—	—		151,843		—		—		—		151,843
Purchase of capped call options	—	—		—	—		(123,970)		—		—		—		(123,970)
Equity consideration issued for acquisition	464	—		—	—		29,399		—		—		—		29,399
Shares issued for exercise of warrants	138	—		—	—		1,761		—		—		—		1,761
Purchase of treasury stock	(48)	—		—	—		—		—		—		(3,124)		(3,124)
Restricted stock unit vesting	178	—		—	—		—		—		—		—		—
Foreign currency translation, net of nil tax	—	—		—	—		—		—		(27,318)		—		(27,318)
Net loss	—	—		—	—		—		(346,344)		—		—		(346,344)
Balances at March 31, 2021	399,892	$	40	393,014	$	39	$	5,133,806	$	(2,576,963)	$	56,216	$	(291,908)	$	2,321,230

See accompanying notes to unaudited condensed consolidated financial statements.

DRAFTKINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)


	Three months ended March 31,
	2022		2021
Operating Activities:
Net loss	$	(467,693)	$	(346,344)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization	32,225		28,193
Non-cash interest expense	654		112
Stock-based compensation expense	187,077		151,843
Loss from equity method investment	2,351		153
(Gain) loss on remeasurement of warrant liabilities	(12,681)		26,980
Gain on equity securities and other financial assets	(37,433)		—
Deferred income taxes	256		(8,104)
Other expenses, net	(768)		—
Change in operating assets and liabilities, net of effect of business combination:
Receivables reserved for users	(3,997)		6,213
Accounts receivable	(2,347)		(4,180)
Prepaid expenses and other current assets	(30,887)		(519)
Deposits and other non-current assets	(493)		(1,527)
Operating leases, net	(125)		(239)
Accounts payable and accrued expenses	(16,087)		71,392
Other long-term liabilities	1,507		2,968
Long-term income tax liability	(178)		1,522
Liabilities to users	(8,099)		11,800
Net cash flows used in operating activities	(356,718)		(59,737)
Investing Activities:
Purchases of property and equipment	(8,614)		(2,389)
Cash paid for internally developed software costs	(13,195)		(8,686)
Acquisition of gaming licenses	(267)		(305)
Cash paid for acquisitions, net of cash acquired	—		(40,541)
Other investing activities	(989)		—
Net cash flows used in investing activities	(23,065)		(51,921)
Financing Activities:
Proceeds from issuance of convertible notes, net	—		1,248,025
Purchase of capped call options	—		(123,970)
Proceeds from shares issued for warrants	—		199
Purchase of treasury stock	(14,083)		(3,124)
Proceeds from exercise of stock options	1,770		7,638





Net cash flows (used in) provided by financing activities	(12,313)		1,128,768
Effect of foreign exchange rates on cash and cash equivalents and restricted cash	—		1,774
Net (decrease) increase in cash and cash equivalents and restricted cash	(392,096)		1,018,884
Cash and cash equivalents and restricted cash at the beginning of period	2,629,842		2,104,976
Cash and cash equivalents and restricted cash, end of period	$	2,237,746	$	3,123,860

Disclosure of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	1,772,892	$	2,818,128
Cash reserved for users	464,854		305,732
Total cash, cash equivalents and restricted cash, end of period	$	2,237,746	$	3,123,860

DRAFTKINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)


	Three months ended March 31,
	2022		2021
Supplemental Disclosure of Noncash Investing and Financing Activities:
Equity consideration issued for acquisitions	$	—	$	29,399
Acquisition of property and equipment, internally developed software and other investments included in accounts payable and accrued expenses	7,604		680
Convertible notes financing costs included in accounts payable and accrued expenses	—		1,024
Acquisition of gaming licenses included in accounts payable and accrued expenses	—		(100)



Supplemental Disclosure of Cash Activities:
(Decrease) increase in cash reserved for users	(12,096)		18,014
Cash paid for interest	—		—

See accompanying notes to unaudited condensed consolidated financial statements.

DRAFTKINGS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except loss per share data, unless otherwise noted)

1.Description of Business

DraftKings Inc. is a digital sports entertainment and gaming company. The Company’s business-to-consumer (“B2C”) segment provides users with daily fantasy sports (“DFS”), sports betting (“Sportsbook”) and online casino (“iGaming”) products, as well as media and other online consumer products. The Company’s business-to-business (“B2B”) segment is involved in the design, development and licensing of sports betting and casino gaming software for its Sportsbook and casino gaming products.

As further discussed in Note 3 hereof entitled “Acquisition of Golden Nugget Online Gaming, Inc.,” on August 9, 2021, DK Crown Holdings Inc. (formerly known as DraftKings Inc.), a Nevada corporation (“Old DraftKings”), and Golden Nugget Online Gaming, Inc. (“GNOG”) entered into a definitive agreement and plan of merger (the “Merger Agreement”) for DraftKings to acquire GNOG in an all-stock transaction, which we refer to as the GNOG Transaction. On May 5, 2022 (the “Closing Date”), Old DraftKings consummated the GNOG Transaction and, in connection therewith, undertook a holding company reorganization whereby a new holding company, New Duke Holdco, Inc., a Nevada corporation (“New DraftKings”), became the going-forward public company and the direct parent company of both Old DraftKings and GNOG. New DraftKings was renamed “DraftKings Inc.” on the Closing Date. Unless otherwise indicated, the terms “DraftKings,” or the “Company” refer to (i) Old DraftKings for periods preceding the Closing Date and (ii) New DraftKings for periods on and subsequent to the Closing Date, in each case, together with their respective consolidated subsidiaries.

In May 2018, the Supreme Court (the “Court”) struck down on constitutional grounds the Professional and Amateur Sports Protection Act of 1992 (“PASPA”), a law that prohibited most states from authorizing and regulating sports betting. Since the Court’s decision, many states have legalized sports betting. As of March 31, 2022, 29 U.S. states, the District of Columbia and Puerto Rico have legalized some form of sports betting. Of those 31 legal jurisdictions, 24 have legalized online sports betting. Of those 24 jurisdictions, 20 are live, and DraftKings operates in 17 of them. The jurisdictions with statutes legalizing iGaming are Connecticut, Delaware, Michigan, New Jersey, Pennsylvania and West Virginia.

As of March 31, 2022, the Company operates online Sportsbooks in Arizona, Colorado, Connecticut, Illinois, Indiana, Iowa, Louisiana, Michigan, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Tennessee, Virginia, West Virginia and Wyoming and has retail Sportsbooks in Colorado, Connecticut, Illinois, Iowa, Louisiana, Mississippi, New Hampshire, New Jersey and New York. As of March 31, 2022, the Company offers iGaming products in Connecticut, Michigan, New Jersey, Pennsylvania and West Virginia. The Company also has arrangements in place with land-based casinos to expand operations into additional states upon the passing of relevant legislation, the issuance of related regulations and the receipt of required licenses.

The novel coronavirus (“COVID-19”) has adversely impacted global commercial activity, disrupted supply chains and contributed to significant volatility in financial markets. Beginning in 2020 and continuing into 2022, the COVID-19 pandemic adversely impacted many different industries. The ongoing COVID-19 pandemic could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the extent and the duration of the impact of COVID-19. The COVID-19 pandemic therefore presents material uncertainty and risk with respect to us and our performance and could affect our financial results in a materially adverse way.

Since the start of the COVID-19 pandemic, the primary impacts to the Company have been the suspension, cancellation and rescheduling of sports seasons and sporting events. Beginning in March 2020 and continuing into the first month of the third quarter of 2020, many sports seasons and sporting events, including the MLB regular season, domestic soccer leagues and European Cup competitions, the NBA regular season and playoffs, the NCAA college basketball tournament, the Masters golf tournament, and the NHL regular season and playoffs, were suspended or cancelled. The suspension of sports seasons and sporting events reduced customers’ use of, and spending on, the Company’s Sportsbook and DFS products.

Starting in the third quarter of 2020 and continuing into the fourth quarter of 2020, major professional sports leagues resumed their activities, many of which were held with shortened seasons. MLB began its season after a three-month delay and also completed the World Series, the NHL resumed its season and completed the Stanley Cup Playoffs, the Masters golf tournament was held, most domestic soccer leagues resumed and several European cup competitions were held, and the NFL

season began on its regular schedule. During this period, the NBA also resumed its season, completed the NBA Finals and commenced its 2020-2021 season.

In the three months ended March 31, 2022, sports seasons continued and sporting events were held as planned, including the NFL regular season, the NFL Playoffs and Superbowl LVI, the NBA regular season, the NHL regular season, the NASCAR Cup Series, various NCAA football bowl games and the NCAA college basketball regular season and tournament. The continued return of major sports and sporting events has generated significant user interest and activity in the Company's Sportsbook and DFS products. However, the possibility remains that sports seasons and sporting events may be suspended, cancelled or rescheduled due to COVID-19 outbreaks.

The Company’s revenue varies based on sports seasons and sporting events amongst other factors, and cancellations, suspensions or alterations resulting from COVID-19 have the potential to adversely affect its revenue, possibly materially. However, the Company’s products that do not rely on sports seasons and sporting events, such as iGaming, may partially offset this adverse impact on revenue.

A significant or prolonged decrease in consumer spending on entertainment or leisure activities would also likely have an adverse effect on demand for the Company’s products, reducing cash flows and revenues, and thereby materially harming the Company’s business, financial condition and results of operations. In addition, a materially disruptive resurgence of COVID-19 cases or the emergence of additional variants or strains of COVID-19 could cause other widespread or more severe impacts depending on where infection rates are highest. As steps taken to mitigate the spread of COVID-19 necessitated a shift away from a traditional office environment for many employees, the Company implemented business continuity programs to ensure that employees were safe and that the business continued to function with minimal disruptions to normal work operations while employees worked remotely. The Company will continue to monitor developments relating to disruptions and uncertainties caused by COVID-19.

2.Summary of Significant Accounting Policies and Practices

Basis of Presentation and Principles of Consolidation

These unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States (“U.S. GAAP”) for interim reporting. As such, certain notes or other information that are normally required by U.S. GAAP have been omitted if they substantially duplicate the disclosures contained in the Company’s annual audited consolidated financial statements. Accordingly, the unaudited condensed consolidated financial statements should be read in connection with the Company’s audited financial statements and related notes as of and for the fiscal year ended December 31, 2021, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as filed with the SEC on February 18, 2022 (“2021 Annual Report”). The accompanying condensed consolidated financial statements are unaudited; however, in the opinion of management, they include all normal and recurring adjustments necessary for a fair presentation of the Company’s condensed consolidated financial statements for the periods presented. Results of operations reported for interim periods are not necessarily indicative of results for the entire year, due to seasonal fluctuations in the Company’s revenue as a result of timing of the various sports seasons, sporting events and other factors.

The accompanying unaudited condensed consolidated financial statements include the accounts and operations of the Company. All intercompany balances and transactions have been eliminated. Certain amounts from a prior period, which are not material, have been reclassified to conform with the current period presentation.

Prior to the second quarter of 2021, the Company (a) included changes in “cash reserved for users” as a component within the change in operating assets and liabilities on its condensed consolidated statement of cash flows as the Company historically viewed the change in cash reserved for users as offsetting the change in player liabilities and (b) presented “cash reserved for users” separate from cash and cash equivalents on the condensed consolidated balance sheet.

Beginning with the second quarter of 2021, to reflect the Company’s total cash position (“cash and cash equivalents” and “cash reserved for users”) and to conform to Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230) — Restricted Cash, the Company revised its presentation to exclude changes in “cash reserved for users” from the “change in operating assets and liabilities” and instead present the total balance as a component of cash and cash equivalents and restricted cash on its condensed consolidated statement of cash flows.

This revision does not have a material impact on the Company’s presentation of cash flows as the change in cash reserved for users will continue to be presented as a supplemental disclosure in the condensed consolidated statement of cash flows. In

addition, the Company will continue to present cash reserved for users as a separate line item on the Company’s condensed consolidated balance sheet.

These revisions have no impact on the Company’s previously reported consolidated statements of operations or consolidated balance sheets, including the Company’s cash and cash equivalents and cash reserved for user balances. Prior period amounts have been revised to conform to the current period presentation.

The following table presents the condensed consolidated statement of cash flows line items after giving effect to the revision of presentation as discussed above for the three months ended March 31, 2021.













	Three months ended March 31, 2021
		Reported		Adjustments			Revised
Adjustments to reconcile net loss to net cash flows used in operating activities:
Change in operating assets and liabilities, net of effect of business combinations:
Cash reserved for users		$	(18,014)	$	18,014		$	—
Net cash flows used in operating activities		(77,751)		18,014			(59,737)

Net increase in cash, cash equivalents and restricted cash		1,000,870		18,014			1,018,884
Cash and cash equivalents and restricted cash at the beginning of period		1,817,258		287,718		(a)	2,104,976
Cash and cash equivalents and restricted cash, end of period		$	2,818,128	$	305,732		$	3,123,860

(a)Represents the cash reserved for user balance as of December 31, 2020 as previously included in the Company’s 2021 Annual Report.

Foreign Currency

During the three months ended March 31, 2022, the Company’s significant non-U.S. subsidiaries’ functional currency changed from the Euro to the U.S. dollar. Accordingly, the Company did not have to translate the financial statements of its significant non-U.S. subsidiaries as of March 31, 2022.

Recently Issued Accounting Pronouncements Not Yet Adopted

In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Accounting Standards Codification Topic 606. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. While the Company is continuing to assess the timing of adoption and the potential impacts of ASU 2021-08, it does not expect ASU 2021-08 to have a material effect, if any, on its consolidated financial statements.

3.Business Combination

Acquisition of Golden Nugget Online Gaming, Inc.

On August 9, 2021, Old DraftKings and GNOG entered into the Merger Agreement, pursuant to which Old DraftKings would acquire GNOG in an all-stock transaction (the “GNOG Transaction”). On May 5, 2022 (the “Closing Date”), Old DraftKings consummated the GNOG Transaction and, in connection therewith, undertook a holding company reorganization whereby New DraftKings became the going-forward public company and the direct parent company of both Old DraftKings and GNOG. New DraftKings was renamed “DraftKings Inc.” on the Closing Date. Under the terms of the Merger Agreement and subject to certain exclusions contained therein, GNOG stockholders received a fixed ratio of 0.365 shares of New DraftKings’ Class A common stock for each share of GNOG that they held on the Closing Date. The Company issued approximately 29.3 million shares of its Class A common stock will be issued in connection with the consummation of the GNOG Transaction. The Company is currently in the process of finalizing the preliminary accounting for the GNOG Transaction and expects to complete its preliminary accounting of the assets acquired and liabilities assumed by the end of the second quarter of 2022. New DraftKings is the registrant filing this Report as the successor registrant for Old DraftKings.

4.Intangible Assets

Intangible Assets

The Company has the following intangible assets, net as of March 31, 2022:


	Weighted-Average Remaining Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net
Amortized intangible assets:
Developed technology	6.1 years	$	422,900	$	(99,806)	$	323,094
Internally developed software	2.7 years	126,873		(54,047)		72,826
Gaming licenses	7.2 years	54,709		(15,827)		38,882
Trademarks, tradenames and other	4.3 years	31,863		(7,699)		24,164
Customer relationships	3.0 years	99,728		(38,553)		61,175
		736,073		(215,932)		520,141
Indefinite-lived intangible assets:
Digital assets	Indefinite-lived	2,882		—		2,882
Intangible assets, net		$	738,955	$	(215,932)	$	523,023

The Company had the following intangible assets, net as of December 31, 2021:


	Weighted-Average Remaining Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net
Amortized intangible assets:
Developed technology	6.4 years	$	422,900	$	(87,089)	$	335,811
Internally developed software	2.6 years	117,953		(52,607)		65,346
Gaming licenses	7.3 years	54,442		(13,466)		40,976
Trademarks and tradenames	4.5 years	30,639		(5,952)		24,687
Customer relationships	3.3 years	99,728		(33,526)		66,202
		725,662		(192,640)		533,022
Indefinite-lived intangible assets:
Digital assets	Indefinite-lived	1,995		—		1,995
Intangible assets, net		$	727,657	$	(192,640)	$	535,017

Amortization expense was $28.1 million and $25.2 million for the three months ended March 31, 2022 and 2021, respectively.

5.Current and Long-term Liabilities

Revolving Line of Credit

In October 2016, DraftKings Inc., a Delaware corporation (“DK DE”) entered into an amended and restated loan and security agreement with Pacific Western Bank, which was most recently amended in May 2022 (as amended, the “Credit Agreement”). The Credit Agreement provides a revolving line of credit of up to $60.0 million. The Credit Agreement has a maturity date of August 28, 2022.

Borrowings under the Credit Agreement bear interest at a variable annual rate equal to the greater of (i) 1.00% above the prime rate then in effect and (ii) 6.50%, and the Credit Agreement requires monthly, interest-only payments. In addition, the Company is required to pay quarterly in arrears a fee equal to 0.25% per annum of the unused portion of the revolving line of

credit. As of March 31, 2022 and December 31, 2021, the Credit Agreement provided a revolving line of credit of up to $60.0 million. There was no principal outstanding as of March 31, 2022 or December 31, 2021. Net facility available from the Credit Agreement as of March 31, 2022 and December 31, 2021 totaled $56.0 million and $55.8 million, respectively, which, in each case, excludes the letters of credit outlined in Note 13. The Company is also subject to certain affirmative and negative covenants until maturity. In connection with the issuance of the Convertible Notes (as defined below) and the entry into the Capped Call Transactions (as defined below), the Company obtained a waiver from Pacific Western Bank for any breach of the Credit Agreement that would have otherwise resulted from entering into these financing transactions. The Company also obtained a waiver from Pacific Western Bank for any breach of the Credit Agreement that would have otherwise resulted from exceeding a capital expenditure limitation for 2021 and the amendments to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and the Company’s Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2021 and June 30, 2021, in each case, for the material weakness previously identified in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020, as filed with the SEC on November 5, 2021. In connection with the GNOG Transaction, the Company obtained a waiver from Pacific Western Bank for any breach of the Credit Agreement that would have otherwise resulted from entering into the transactions contemplated thereby, as well as to permit certain transfers of cash from the borrowers thereunder to GNOG and its subsidiaries from time to time.

Convertible Notes and Capped Call

In March 2021, the Company issued zero-coupon convertible senior notes in an aggregate principal amount of $1,265.0 million, which includes proceeds from the full exercise of the over-allotment option (collectively, the “Convertible Notes”). The Convertible Notes will mature on March 15, 2028 (the “Notes Maturity Date”) , subject to earlier conversion, redemption or repurchase. In connection with the issuance of the Convertible Notes, the Company incurred $17.0 million of lender fees and $1.7 million of debt financing costs. The Convertible Notes represent senior unsecured obligations of the Company, which are being amortized through the Notes Maturity Date.

The Convertible Notes are convertible at an initial conversion rate of 10.543 shares of the Company’s Class A common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $94.85 per share of Class A common stock. The conversion rate is subject to adjustment upon the occurrence of certain specified events and includes a make-whole adjustment upon early conversion in connection with a make-whole fundamental change (as defined in the indenture governing the Convertible Notes).

Prior to September 15, 2027, the Convertible Notes will be convertible only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the Notes Maturity Date. The Company will satisfy any conversion election by paying or delivering, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock. During the three months ended March 31, 2022, the conditions allowing holders of the Convertible Notes to convert their Convertible Notes were not met.

In connection with the pricing of the Convertible Notes and the exercise of the over-allotment option to purchase additional notes, the Company entered into a privately negotiated capped call transaction (“Capped Call Transactions”). The Capped Call Transactions have a strike price of $94.85 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Convertible Notes. The Capped Call Transactions have an initial cap price of $135.50 per share, subject to certain adjustments. The Capped Call Transactions are expected generally to reduce potential dilution to the Company’s Class A common stock upon any conversion of Convertible Notes. As the transaction qualifies for equity classification, the net cost of $124.0 million incurred in connection with the Capped Call Transactions was recorded as a reduction to additional paid-in capital on the Company’s consolidated balance sheet.

Although recorded at amortized cost on the Company’s consolidated balance sheet, the estimated fair value of the Convertible Notes was $907.6 million and $953.8 million as of March 31, 2022 and December 31, 2021, respectively, which was calculated using the estimated or actual bids and offers of the Convertible Notes in an over-the-counter market on the last business day of the period and is classified as Level 2 in the fair value hieraarchy.

Indirect Taxes

Taxation of e-commerce is becoming more prevalent and could negatively affect the Company’s business as it pertains to DFS and its users. The ultimate impact of indirect taxes on the Company’s business is uncertain, as is the period required to resolve this uncertainty. The Company’s estimated contingent liability for indirect taxes represents the Company’s best estimate of tax liability in jurisdictions in which the Company believes taxation is probable. The Company frequently reevaluates its tax positions for appropriateness.

Indirect tax statutes and regulations are complex and subject to differences in application and interpretation. Tax authorities may impose indirect taxes on Internet-delivered activities based on statutes and regulations which, in some cases, were established prior to the advent of the Internet and do not apply with certainty to the Company’s business. The Company’s estimated contingent liability for indirect taxes may be materially impacted by future audit results, litigation and settlements, should they occur. The Company’s activities by jurisdiction may vary from period to period, which could result in differences in the applicability of indirect taxes from period to period.

As of March 31, 2022 and December 31, 2021, the Company’s estimated contingent liability for indirect taxes was $49.2 million and $47.5 million, respectively. The estimated contingent liability for indirect taxes is recorded within other long-term liabilities on the consolidated balance sheets and general and administrative expenses on the condensed consolidated statements of operations.

Warrant Liabilities

As part of the initial public offering of Diamond Eagle Acquisition Corp, (“DEAC”) on May 14, 2019 (the “IPO”), DEAC issued 13.3 million warrants each of which entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share (the “Public Warrants”). Simultaneously with the closing of the IPO, DEAC completed the private sale of 6.3 million warrants to DEAC’s sponsor (the “Private Warrants”). As of March 31, 2022, there were no Public Warrants outstanding. As of March 31, 2022, 1.6 million Private Warrants remained outstanding at a fair value of $14.2 million. Due to fair value changes throughout the three months ended March 31, 2022 and March 31, 2021, the Company recorded a gain on remeasurement of warrant liabilities of $12.7 million and a loss on remeasurement of warrant liabilities of $27.0 million, respectively. During the three months ended March 31, 2022, a de minimis number of Private Warrants were exercised. During the three months ended March 31, 2021, 0.1 million Private Warrants were exercised resulting in a reclassification to additional paid-in-capital in the amount of $1.8 million, reflecting the reclassification of the warrant liabilities of $1.6 million and proceeds upon exercise of $0.2 million.

6.Fair Value Measurements

Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value and nonrecurring fair value measurements are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value as of March 31, 2022 and December 31, 2021 based on the three-tier fair value hierarchy:


	March 31, 2022
	Level 1			Level 2			Level 3			Total
Assets
Cash equivalents:
Money market funds	$	200,212	(1)	$	—		$	—		$	200,212
Other non-current assets:
Derivative instruments	—			—			43,283		(4)	43,283
Equity securities	27,650		(2)	7,033		(3)	—			34,683

Total	$	227,862		$	7,033		$	43,283		$	278,178

Liabilities
Private Warrants	$	—		$	14,230	(5)	$	—		$	14,230
Total	$	—		$	14,230		$	—		$	14,230


	December 31, 2021
	Level 1			Level 2			Level 3			Total
Assets
Cash equivalents:
Money market funds	$	550,169	(1)	$	—		$	—		$	550,169
Other non-current assets:
Derivative instruments	—			—			3,850		(4)	3,850
Equity securities	27,200		(2)	—			—			27,200

Total	$	577,369		$	—		$	3,850		$	581,219

Liabilities
Private Warrants	$	—		$	26,911	(5)	$	—		$	26,911
Total	$	—		$	26,911		$	—		$	26,911

(1)Represents the Company’s money market funds, which are classified as Level 1 because the Company fair values these assets using quoted market prices.

(2)Represents the Company’s marketable equity securities, which are classified as Level 1 because the Company fair values these assets using quoted market prices.

(3)Represents the Company’s non-marketable equity securities, which are classified as Level 2 because the Company fair values these assets using observable inputs for similar investments of the same issuer. The Company has elected the remeasurement alternative for these assets.

(4)Represents the Company’s derivative instruments held in other public and privately held entities. The Company measures these derivative instruments at fair value using option pricing models and, accordingly, classifies these assets as Level 3. During the three months ended March 31, 2022, there were not a significant amount of new derivative instruments purchased by or issued to the Company. The table below includes a range and an average weighted by relative fair value of the significant unobservable inputs used to fair value the Level 3 derivative instruments. A change in these significant unobservable inputs might result in a significantly higher or lower fair value measurement at the reporting date.


	March 31, 2022	December 31, 2021
Significant Unobservable Input	Range (Weighted Average)
Underlying stock price	$11.06 - $39.22 ($36.69)	$	10.88
Volatility	65.0% - 75.0% (73.4%)	60.0		%
Risk-free rate	1.0% - 1.4% (1.3%)	0.3		%

(5)The Company measures its Private Warrants at fair value using a binomial lattice model with the significant assumptions being observable inputs and, accordingly, classifies these liabilities as Level 2.

For the three months ended March 31, 2022 and 2021, the Company recorded $37.4 million and $0.0 million of unrealized gains, respectively, primarily all of which resulted from those financial assets categorized as Level 3. Those unrealized gains are included within other income, net in the condensed consolidated statements of operations.

7.Revenue Recognition

Deferred Revenue

The Company included deferred revenue within accounts payable and accrued expenses and liabilities to users in the condensed consolidated balance sheets. The deferred revenue balances were as follows:


	Three months ended March 31,
	2022		2021
Deferred revenue, beginning of the period	$	91,554	$	30,627
Deferred revenue, end of the period	95,402		41,849
Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period	51,680		24,493

Deferred revenue primarily represents contract liabilities related to the Company’s obligation to transfer future value in relation to in period transactions in which the Company has received consideration. Such obligations are recognized as liabilities when awarded to users and are recognized as revenue when those liabilities are later resolved.

Revenue Disaggregation

Disaggregation of revenue for the three months ended March 31, 2022 and 2021 is as follows:


	Three months ended March 31,
	2022		2021
Online gaming	$	386,678	$	272,661
Gaming software	13,495		31,429
Other	17,032		8,186
Total Revenue	$	417,205	$	312,276

Online gaming includes DFS, iGaming and Sportsbook, which have certain similar attributes and patterns of recognition. Sources of other revenue primarily include media, marketplace and other online consumer products.

The following table presents the Company’s revenue by geographic region for the periods indicated:


	Three months ended March 31,
	2022		2021
United States	$	402,597	$	280,117
International	14,608		32,159
Total Revenue	$	417,205	$	312,276

8.Stock-Based Compensation

The Company, historically, has issued three types of stock-based compensation: Time-Based awards, Long Term Incentive Plan (“LTIP”) awards and Performance-Based Stock Compensation Plan (“PSP”) awards. Time-Based awards are equity awards which generally vest over a 4-year period. LTIP awards are performance-based equity awards that are used to establish longer-term performance objectives and incentivize management to meet those objectives. PSP awards are short-term performance-based equity awards which establish performance objectives related to one or two particular fiscal years. LTIP awards generally vest when revenue, Adjusted EBITDA or share price targets are achieved amongst other conditions, while PSP awards generally vest upon achievement of revenue targets and have a range of payouts amongst other conditions.

The following table shows restricted stock unit (“RSU”) and stock option activity for the three months ended March 31, 2022:


	Time-based		PSP		LTIP		Total	Weighted Average Exercise Price of Options		Weighted Average FMV of RSUs
	Options	RSUs	Options	RSUs	Options	RSUs
Outstanding at December 31, 2021	14,695	4,195	2,354	1,488	11,671	19,343	53,746	$	5.46	$	49.94
Granted	200	8,013	—	2	—	173	8,388	31.40		23.30
Exercised options / vested RSUs	(869)	(405)	(44)	(2,671)	—	(6,251)	(10,240)	1.94		46.15
Change in awards due to performance-based multiplier	—	—	—	1,806	—	—	1,806	—		33.69
Forfeited	(21)	(116)	—	(1)	—	(50)	(188)	4.12		41.41
Outstanding at March 31, 2022	14,005	11,687	2,310	624	11,671	13,215	53,512	$	5.76	$	41.68

As of March 31, 2022, total unrecognized stock-based compensation expense of $731.2 million related to granted and unvested share-based compensation arrangements is expected to be recognized over a weighted-average period of 2.0 years. The following table shows stock compensation expense for the three months ended March 31, 2022 and 2021:


	Three months ended March 31, 2022						Three months ended March 31, 2021
	Options		RSUs		Total		Options		RSUs		Total
Time Based (1)	$	3,864	$	21,786	$	25,650	$	2,433	$	14,268	$	16,701
PSP (2)	—		43,367		43,367		—		16,314		16,314
LTIP (2)	—		118,060		118,060		—		118,828		118,828
Total	$	3,864	$	183,213	$	187,077	$	2,433	$	149,410	$	151,843

(1) Time-based awards vest and are expensed over a defined service period.

(2) PSP and LTIP awards vest based on defined performance criteria and are expensed based on the probability of achieving such criteria. During the three months ended March 31, 2022, the Company recorded a cumulative catch-up adjustment of $20.7 million in additional stock-based compensation expense related to its updated expectation on achieving higher revenue targets than originally estimated for certain PSP awards which have a range of payouts.

9.Income Taxes

The Company’s provision for income taxes for the three months ended March 31, 2022 and 2021 is as follows:


	Three months ended March 31,
	2022		2021
Income tax provision (benefit)	$	469	$	(4,595)

The effective tax rates for the three months ended March 31, 2022 and 2021 were (0.1)% and 1.3%, respectively. The difference between the Company’s effective tax rates for the three month periods in 2022 and 2021 and the U.S. statutory tax rate of 21% was primarily due to a full valuation allowance related to the Company’s net U.S. deferred tax assets, offset partially by current state tax and current foreign tax. Additionally, the Company recorded a discrete income tax benefit of $6.8 million during the first quarter of 2021, which is attributable to a non-recurring partial release of the Company’s U.S. valuation allowance as a result of the preliminary purchase price accounting of Vegas Sports Information Network, LLC (“VSiN”). The Company regularly evaluates the realizability of its deferred tax assets and establishes a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized.

10.Segment Information

The Company operates its business and reports its results through two operating and reportable segments: B2C and B2B, in accordance with ASC Topic 280, Segment Reporting. The B2C segment provides users with DFS, Sportsbook and iGaming products, as well as media and other online consumer products. The B2B segment is involved in the design, development and

licensing of sports betting and casino gaming software for its Sportsbook and casino gaming products, which is primarily comprised of SBTech.

Operating segments are components of the Company for which separate discrete financial information is available to and evaluated regularly by the chief operating decision maker (“CODM”), who is the Company’s Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. The CODM assesses a combination of metrics such as revenue and Adjusted EBITDA to evaluate the performance of each operating and reportable segment.

Any intercompany revenues or expenses are eliminated in consolidation. All of the Company’s operating revenues and expenses, other than those excluded from Adjusted EBITDA as detailed below, are allocated to the Company’s reportable segments. We define and calculate Adjusted EBITDA as net loss before the impact of interest income or expense, income tax expense and depreciation and amortization, and further adjusted for the following items: stock-based compensation, transaction-related costs, litigation, settlement and related costs and certain other non-recurring, non-cash and non-core items, as described in the reconciliation below.

A measure of segment assets and liabilities has not been currently provided to the Company’s CODM and therefore is not shown below.

Summarized financial information for the Company’s segments is shown in the following table:


	Three months ended March 31,
	2022		2021
Revenue:
B2C	$	403,710	$	280,847
B2B	13,495		31,429
Total revenue	417,205		312,276

Adjusted EBITDA:
B2C	(269,171)		(141,355)
B2B	(20,338)		2,093
Total adjusted EBITDA	(289,509)		(139,262)
Adjusted for:
Depreciation and amortization	32,225		28,193
Interest income, net	(148)		(985)
Income tax provision (benefit)	469		(4,595)
Stock-based compensation	187,077		151,843
Transaction-related costs	3,774