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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
or

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)
Nevada87-2764212
(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 valueDKNGThe 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 filerSmaller 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

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.



1


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 users464,854 476,950 
Receivables reserved for users55,946 51,949 
Accounts receivable48,211 45,864 
Prepaid expenses and other current assets56,562 25,675 
Total current assets2,398,465 2,753,330 
Property and equipment, net49,734 46,019 
Intangible assets, net523,023 535,017 
Goodwill615,655 615,655 
Operating lease right-of-use assets61,169 63,831 
Equity method investment7,474 9,825 
Deposits and other non-current assets90,795 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 users520,775 528,874 
Operating lease liabilities, current portion12,911 12,814 
Total current liabilities912,940 929,425 
Convertible notes, net of issuance costs1,249,106 1,248,452 
Non-current operating lease liabilities54,457 57,341 
Warrant liabilities14,230 26,911 
Long-term income tax liability78,947 79,125 
Other long-term liabilities51,035 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 capital5,891,235 5,702,388 
Accumulated deficit(4,221,507)(3,753,814)
Accumulated other comprehensive income36,488 36,488 
Total stockholders’ equity1,385,600 1,678,528 
Total liabilities and stockholders’ equity$3,746,315 $4,069,054 
See accompanying notes to unaudited condensed consolidated financial statements.

2


DRAFTKINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except loss per share data)
Three months ended March 31,
20222021
Revenue$417,205 $312,276 
Cost of revenue313,379 183,225 
Sales and marketing321,452 228,686 
Product and technology81,352 56,159 
General and administrative216,606 168,997 
Loss from operations(515,584)(324,791)
Other income (expense):
Interest income, net148 985 
Gain (loss) on remeasurement of warrant liabilities12,681 (26,980)
Other income, net37,882  
Loss before income tax provision (benefit) and loss from equity method investment(464,873)(350,786)
Income tax provision (benefit)469 (4,595)
Loss from equity method investment2,351 153 
Net loss attributable to common stockholders$(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.

3


DRAFTKINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(Amounts in thousands)
Three months ended March 31,
20222021
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.
4


DRAFTKINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(Amounts in thousands)
Class A Common StockClass B Common StockAdditional
Paid in Capital
Accumulated
Deficit
Accumulated Other
Comprehensive
Income
Treasury Stock AmountTotal Stockholders’ Equity
SharesAmountSharesAmount
Balances at December 31, 2021407,781 $41 393,014 $39 $5,702,388 $(3,753,814)$36,488 $(306,614)$1,678,528 
Exercise of stock options913 — — — 1,770 — — — 1,770 
Stock-based compensation expense — — — 187,077 — — — 187,077 
Purchase of treasury stock(793)— — — — — — (14,083)(14,083)
Restricted stock unit vesting9,327 1 — — — — — — 1 
Net loss— — — — — (467,693)— — (467,693)
Balances at March 31, 2022417,228 $42 393,014 $39 $5,891,235 $(4,221,507)$36,488 $(320,697)$1,385,600 

Class A Common StockClass B Common StockAdditional
Paid-in Capital
Accumulated
Deficit
Accumulated Other
Comprehensive
Income
Treasury Stock AmountTotal Stockholders’ Equity
SharesAmountSharesAmount
Balances at December 31, 2020396,303 $40 393,014 $39 $5,067,135 $(2,230,619)$83,534 $(288,784)$2,631,345 
Exercise of stock options2,857 — — — 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 acquisition464 — — — 29,399 — — — 29,399 
Shares issued for exercise of warrants138 — — — 1,761 — — — 1,761 
Purchase of treasury stock(48)— — — — — — (3,124)(3,124)
Restricted stock unit vesting178 — — — — — — — — 
Foreign currency translation, net of nil tax
—  — — — — (27,318)— (27,318)
Net loss—  — — — (346,344)— — (346,344)
Balances at March 31, 2021399,892 $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.
5


DRAFTKINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Three months ended March 31,
20222021
Operating Activities:  
Net loss$(467,693)$(346,344)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization32,225 28,193 
Non-cash interest expense654 112 
Stock-based compensation expense187,077 151,843 
Loss from equity method investment2,351 153 
(Gain) loss on remeasurement of warrant liabilities(12,681)26,980 
Gain on equity securities and other financial assets(37,433) 
Deferred income taxes256 (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 liabilities1,507 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 options1,770 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 period2,629,842 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 users464,854 305,732 
Total cash, cash equivalents and restricted cash, end of period$2,237,746 $3,123,860 


6


DRAFTKINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Three months ended March 31,
20222021
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 expenses7,604 680 
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.
7


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
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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
9


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
ReportedAdjustmentsRevised
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 cash1,000,870 18,014 1,018,884 
Cash and cash equivalents and restricted cash at the beginning of period1,817,258 287,718 
(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.
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4.Intangible Assets
Intangible Assets
The Company has the following intangible assets, net as of March 31, 2022:
Weighted-Average Remaining Amortization PeriodGross Carrying AmountAccumulated AmortizationNet
Amortized intangible assets:
Developed technology6.1 years$422,900 $(99,806)$323,094 
Internally developed software2.7 years126,873 (54,047)72,826 
Gaming licenses7.2 years54,709 (15,827)38,882 
Trademarks, tradenames and other4.3 years31,863 (7,699)24,164 
Customer relationships3.0 years99,728 (38,553)61,175 
736,073 (215,932)520,141 
Indefinite-lived intangible assets:
Digital assetsIndefinite-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 PeriodGross Carrying AmountAccumulated AmortizationNet
Amortized intangible assets:
Developed technology6.4 years$422,900 $(87,089)$335,811 
Internally developed software2.6 years117,953 (52,607)65,346 
Gaming licenses7.3 years54,442 (13,466)40,976 
Trademarks and tradenames4.5 years30,639 (5,952)24,687 
Customer relationships3.3 years99,728 (33,526)66,202 
725,662 (192,640)533,022 
Indefinite-lived intangible assets:
Digital assetsIndefinite-lived1,995 — 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
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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.
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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:

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March 31, 2022
Level 1Level 2Level 3Total
Assets
Cash equivalents:
Money market funds$200,212 
(1)
$ $ $200,212 
Other non-current assets:
Derivative instruments  43,283 
(4)
43,283 
Equity securities27,650 
(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 1Level 2Level 3Total
Assets
Cash equivalents:
Money market funds$550,169 
(1)
$ $ $550,169 
Other non-current assets:
Derivative instruments  3,850 
(4)
3,850 
Equity securities27,200 
(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, 2022December 31, 2021
Significant Unobservable InputRange (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.
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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,
20222021
Deferred revenue, beginning of the period$91,554 $30,627 
Deferred revenue, end of the period95,402 41,849 
Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period51,680 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,
20222021
Online gaming$386,678 $272,661 
Gaming software13,495 31,429 
Other17,032 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,
20222021
United States$402,597 $280,117 
International14,608 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.
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The following table shows restricted stock unit (“RSU”) and stock option activity for the three months ended March 31, 2022:
Time-basedPSPLTIPTotalWeighted Average Exercise Price of OptionsWeighted Average FMV
of
RSUs
OptionsRSUsOptionsRSUsOptionsRSUs
Outstanding at December 31, 202114,695 4,195 2,354 1,488 11,671 19,343 53,746 $5.46 $49.94 
Granted200 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, 202214,005 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, 2022Three months ended March 31, 2021
OptionsRSUsTotalOptionsRSUsTotal
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,
20222021
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
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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,
20222021
Revenue:
B2C$403,710 $280,847 
B2B13,495 31,429 
Total revenue417,205 312,276 
Adjusted EBITDA:
B2C(269,171)(141,355)
B2B(20,338)2,093 
Total adjusted EBITDA(289,509)(139,262)
Adjusted for:
Depreciation and amortization32,225 28,193 
Interest income, net(148)(985)
Income tax provision (benefit)469 (4,595)
Stock-based compensation187,077 151,843 
Transaction-related costs3,774 3,023 
Litigation, settlement and related costs1,950 622 
(Gain) loss on remeasurement of warrant liabilities(12,681)26,980 
Other non-recurring costs and non-operating (income) costs(34,482)2,001 
Net loss attributable to common shareholders$(467,693)$(346,344)

11.Loss Per Share
The computation of loss per share and weighted-average shares of the Company’s Class A common stock outstanding for the periods presented are as follows:
Three months ended March 31,
20222021
Net loss$(467,693)$(346,344)
Basic and diluted weighted-average common shares outstanding411,066