C and West Virginia. Several of the aforementioned jurisdictions have enacted laws authorizing sports betting online or in retail locations, but such operations have not yet begun. The Company also has arrangements in place with land-based casinos to expand operations into additional states upon the passing of the relevant legislation and the issuance of related regulations and the receipt of required licenses. The COVID pandemic has disrupted global supply chains and adversely impacted many different industries for most of COVID could have a continued material adverse impact on economic and market conditions and trigger a period of continued global economic slowdown.
The rapid development and fluidity of this situation precludes any prediction as to the extent and the duration of the economic impact of COVID The direct impact of COVID on the business of DraftKings beyond disruptions to normal business operations in several offices primarily results from the suspension and cancellation of sports seasons and sporting events. However, it remains possible that sports seasons and sporting events may be suspended or cancelled due to COVID outbreaks.
Additionally, while retail casinos where the Company has branded Sportsbooks and DFS have reopened, they continue to operate with reduced capacity. DraftKings is also innovating to generate more products that do not rely on traditional sports seasons and sporting events, for example, products that permit wagering and contests on events such as eSports, simulated NASCAR and League of Legends.
As steps taken to mitigate the spread of COVID have necessitated a shift away from a traditional office environment for many employees, the Company has business continuity programs in place to ensure that employees are safe and that the business continues to function while its employees work remotely. Basis of Presentation and Principles of Consolidation. Accordingly, certain notes or other information that are normally required by U.
Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of Old DK issuing stock for the net assets of DEAC, accompanied by a recapitalization. The net assets of DEAC are stated at historical cost, with no goodwill or other intangible assets recorded. The consolidated assets, liabilities and results of operations prior to the Reverse Recapitalization are those of Old DK.
The shares and corresponding capital amounts and earnings per share available for common stockholders, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination. Further, Old DK was determined to be the accounting acquirer in the SBTech Acquisition, as such, the acquisition is considered a business combination under ASC , and was accounted for using the acquisition method of accounting.
DraftKings recorded the fair value of assets acquired and liabilities assumed from SBTech. The presented financial information for the three months and nine months ended September 30, includes the financial information and activities for SBTech for the period from April 24, to and including September 30, days.
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.
Comprehensive Income Loss. Comprehensive income loss consists of foreign currency translation adjustments related to the effect of foreign exchange on the value of our assets and liabilities denominated in Euros. The cumulative net translation gain or loss is included in the unaudited condensed consolidated statements of comprehensive loss. Our reporting currency is the U. Translation adjustments resulting from translating the local currency financial statements into U.
Use of Estimates. The preparation of financial statements in conformity with U. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions reflected in the financial statements relate to and include, but are not limited to, the valuation and expensing of equity awards; accounting for contingencies and uncertainties; fair value estimates of embedded derivatives; purchase price allocations, including fair value estimates of intangible assets; the estimated useful lives of fixed assets and intangible assets, including internally developed software costs; and accrued expenses.
Going Concern. Based on anticipated spend and cash received from the Business Combination, exercise of certain warrants, the June and October follow-on equity offerings and the timing of expenditure assumptions, the Company currently expects that its cash will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months after November 13, The Company has experienced operating losses and negative operating cash flows for the year ended December 31, and for the three and nine-month periods ended September 30, While certain geographies may experience improved cash flow, the Company expects to continue to incur annual operating losses and annual negative operating cash flow for the foreseeable future.
Emerging Growth Company. Section b 1 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable.
The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. The Company expects to lose its emerging growth company status on December 31, As a result, the Company will adopt all accounting pronouncements currently deferred based on private company standards for purposes of the Form K filing.
Concentrations of Credit Risk. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of operating cash and cash equivalents and cash reserved for users. The Company maintains separate accounts for cash and cash reserved for users primarily across four financial institutions. Some amounts exceed federally insured limits with the majority of cash held in one financial institution.
Management believes all financial institutions holding its cash are of high credit quality and does not believe the Company is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. Any fair value of purchase consideration in excess of the fair value of the assets acquired less liabilities assumed is recorded as goodwill.
The fair values of the assets acquired, and liabilities assumed are determined based upon the valuation of the acquired business and involve management making significant estimates and assumptions. Cash and cash equivalents. Cash and cash equivalents consist of highly liquid, unrestricted savings, checking and other bank accounts.
The Company also utilizes short-term certificates of deposit, each with a duration of three months or less. Cash Reserved for Users. Receivables Reserved for Users. Receivables for user deposits not yet received are stated at the amount the Company expects to collect from a payment processor, which includes an allowance for doubtful accounts if appropriate. These receivables arise, primarily, due to process timing between when a user deposits and when the Company receives that deposit from the payment processor.
Receivables also arise due to the securitization policies of certain payment processors. This provision is netted against the receivable balance with the loss being recognized within general and administrative expenses in the unaudited condensed consolidated statements of operations. On assessment that the receivable will not be collected, the associated amount is written off with no impact to the unaudited condensed consolidated statements of operations.
Accounts Receivables. Accounts receivables are recorded at amortized cost, less any allowance for doubtful accounts. Property and Equipment, Net. Property and equipment are carried at cost, net of accumulated depreciation. Depreciation is computed utilizing the straight-line method over the estimated useful life of the asset.
Leasehold improvements depreciation is computed over the shorter of the lease term or estimated useful life of the asset. Additions and improvements are capitalized, while repairs and maintenance are expensed as incurred. Useful lives of each asset class are as follows:. Intangible Assets, Net.
The related amortization expense is classified as cost of revenue in the unaudited condensed consolidated statements of operations. Developed Technology. Developed technology relates to the design and development of sports betting and casino gaming software for online and retail sportsbook and casino gaming products acquired from SBTech and recorded at fair value.
Capitalized development costs are amortized on a straight-line basis over their estimated useful life of eight years once the development is completed and the assets are in use. Customer Relationships. Customer relationships are generally recognized as the result of business combinations.
Internally Developed Software. Qualifying costs incurred to develop internal-use software are capitalized when i the preliminary project stage is completed, ii management has authorized further funding for the completion of the project and iii it is probable that the project will be completed and perform as intended.
These capitalized costs include compensation for employees who develop internal-use software and external costs related to development of internal use software. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Internally developed software is amortized using the straight-line method over an estimated useful life of three to four years. Gaming Licenses. The Company incurs fees in connection with applying for and maintaining good standing in jurisdictions via business licenses.
Fees incurred in connection with the application and subsequent renewals are capitalized and amortized using the straight-line method over an estimated useful life. These fees are capitalized and amortized over the shorter of their expected benefit under the partnership agreement or estimated useful life. Refer to footnote 5 for detail on amortization period. Trademarks and Tradenames. The Company incurs fees in connection with applying for and maintaining trademarks and tradenames.
Fees incurred in connection with the application and subsequent renewals are capitalized and amortized using the straight-line method over an estimated useful life of three years. The Company performs its annual impairment testing on October 1 of each year and when circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative goodwill impairment analysis by comparing the carrying amount to the fair value of the reporting unit.
If the carrying amount exceeds the fair value, goodwill will be written down to the fair value and recorded as impairment expense in the unaudited condensed consolidated statements of operations. The Company performed its annual impairment assessment of goodwill as of December 31, and concluded that goodwill was not impaired.
The Company identified a triggering event during the quarter ended March 31, and as a result performed a quantitative assessment that concluded that goodwill was not impaired. As of September 30, , the Company did not identify any indicators of impairment. Impairment of Long-Lived Assets. Long-lived assets, except for goodwill, consist of property and equipment and finite-lived acquired intangible assets, such as internal-use software, developed software, gaming licenses, trademarks, tradenames and customer relationships.
Long-lived assets, except for goodwill, are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be fully recoverable. There was immaterial impairment related to internally developed software on abandoned projects during the year ended December 31, As of March 31, , June 30, and September 30, , the Company determined that long-lived assets were not impaired. Equity Method Investment.
The Company uses the equity method to account for investments in which the Company has the ability to exercise significant influence over the operating and financial policies of the investee, but does not exercise control. The Company performs a qualitative assessment annually and recognizes an impairment if there are sufficient indicators that the fair value of the investment is less than carrying value. The Company accounts for leases under the provisions of ASC Topic , Leases , which requires that leases be evaluated and classified as operating or capital leases for financial reporting purposes.
The terms used for the evaluation include renewal option periods in instances in which the exercise of the renewal option can be reasonably assured and failure to exercise such option would result in an economic penalty. Leases are classified as capital leases whenever the terms of the lease substantially transfer all of the risks and rewards of ownership to the lessee. All other leases are recorded as operating leases. The Company recognizes rent expense on operating leases on a straight-line basis over the non-cancellable lease term.
Operating leases with landlord-funded leasehold improvements are considered tenant allowances and are amortized as a reduction of rent expense over the non-cancellable lease term. Deferred rent liability, which is calculated as the difference between contractual lease payments and the rent expense, is recorded in accounts payable and accrued expenses and other long-term liabilities in the unaudited condensed consolidated balance sheets.
Liabilities to Users. The Company records liabilities for user account balances. User account balances consist of user deposits, most promotional awards and user winnings less user withdrawals, tax withholdings and user losses. Loss Contingencies. Our loss contingencies, which are included within other long-term liabilities in the unaudited condensed consolidated balance sheets, are uncertain by nature and their estimation requires significant management judgment as to the probability of loss and estimation of the amount of such loss.
We regularly review our contingencies to determine whether the likelihood of loss is probable and to assess whether a reasonable estimate of the loss can be made. Determination of whether a loss estimate can be made is a complex undertaking that considers the judgement of management, third-party research, the prospect of negotiation and interpretations by regulators and courts, among other information.
When a loss is determined to be probable, and the amount of the loss can be reasonably estimated, an estimated contingent liability is recorded. Revenue Recognition. Effective January 1, , the Company adopted ASC Topic , Revenue from Contracts with Customers, using the modified retrospective method for all contracts not completed as of the date of adoption.
ASC requires companies to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard requires more detailed disclosures to enable readers of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
The cumulative effect of the adoption was immaterial to the unaudited condensed consolidated financial statements. See Note 9 — Revenue Recognition for further details. The Company determines revenue recognition through the following steps:. The Company is currently engaged in the business of digital sports entertainment and gaming and provides its users with online gaming opportunities.
The Company also provides online sportsbook and casino operators with technical infrastructure and with respect to its direct customers related services. Online Gaming. DFS is a peer-to-peer platform in which users compete against one another for prizes. DFS revenue is generated from contest entry fees from users, net of prizes and customer incentives awarded to users.
Sportsbook or sports betting involves a user wagering money on an outcome or series of outcomes occurring. For these offerings, the Company functions similarly to land-based casinos, generating revenue through hold, as users play against the house. Online gaming is a platform and incentives can be used across products. DFS, Sportsbook and iGaming, each as described above, create a single performance obligation for the Company to operate contests or games and award prizes or payouts to users based on results.
Revenue is recognized at the conclusion of each contest, wager, or wagering game hand. Additionally, certain incentives given to customers create material rights and represent separate performance obligations. User incentives in certain cases create liabilities when awarded to players and in those cases are generally recognized as revenue upon redemption. Gaming software. The Company contracts with business customers to provide sports and casino betting software solutions.
Gaming software revenue is recognized when control of the solutions is transferred to the customer in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for providing control of the sports betting and casino software.
Transaction Price Considerations. Variable Consideration. Variability in the transaction price arises primarily due to market-based pricing, cash discounts, revenue sharing and usage-based fees. DraftKings offers loyalty programs, free plays, deposit bonuses, discounts, rebates and other rewards and incentives to its customers. Revenue for DFS, Sportsbook and iGaming is collected prior to the contest or event and is fixed once the outcome is known.
Prizes paid and payouts made to users are recognized when awarded to the player. Allocation of transaction price to performance obligations. Contracts with customers may include multiple performance obligations. For such arrangements, the transaction price is allocated to performance obligations on a relative standalone selling price basis.
For Online Gaming DFS, Sportsbook and iGaming , the Company allocates a portion of the transaction price to certain customer incentives that create material future customer rights. Certain costs to obtain or fulfill contracts. Under ASC , certain costs to obtain or fulfill a contract with a customer must be capitalized, to the extent recoverable from the associated contract margin, and subsequently amortized as the products or services are delivered to the customer.
These costs are capitalized as contract acquisition costs and are amortized over the period of benefit to the customer. For the Company, the period of benefit is typically less than or equal to 1 year. As such, the Company applied the practical expedient and contract acquisition costs are expensed immediately. Customer contract costs which do not qualify for capitalization as contract fulfillment costs are expensed as incurred.
Contract balances. Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Deferred revenue relates to payments received in advance of the satisfaction of performance under the contract. The Company maintains various programs to incentivize user behaviors, which allows users to earn awards. Incentive awards generally represent a material right to the user, and awards may be redeemed for future services.
Incentive awards earned by users, but not yet redeemed, are generally recognized as a reduction to revenue and included within liabilities to users on the consolidated balance sheets. When a user redeems most types of awards, the Company recognizes revenue on the condensed consolidated statements of operations. Certain player awards are not subject to expiration or have not been expired historically, on such awards the Company recognizes breakage for amounts not expected to be redeemed to the extent there is no requirement for remitting such balances to regulatory agencies.
C ost of Revenue. Cost of revenue consists primarily of variable costs. Chargebacks have not been material to date. Cost of revenue also includes expenses related to the distribution of our services, amortization of intangible assets and compensation of revenue associated personnel. Sales and Marketing. Sales and marketing expenses consist primarily of expenses associated with advertising and related software, conferences, strategic league and team partnerships and costs related to free to play contests, rent and facilities maintenance and the compensation of sales and marketing personnel, including stock-based compensation expenses.
Product and Technology. Product and technology expenses consist primarily of expenses which are not subject to capitalization or otherwise classified within Cost of Revenue. Product and Technology expenses include software licenses, rent and facilities maintenance and depreciation of hardware and software and costs related to the compensation of product and technology personnel, including stock-based compensation.
General and Administrative. General and administrative expenses consist of costs not related to Sales and Marketing, Product and Technology or Revenue. General and administrative costs include professional services including legal, regulatory, audit, accounting, lobbying and services related to the Business Combination , rent and facilities maintenance, contingencies, insurance, allowance for doubtful accounts receivable and depreciation of leasehold improvements and furniture and fixtures and costs related to the compensation of executive and non-executive personnel, including stock-based compensation.
Stock-based Compensation. Stock-based compensation is measured at fair value on grant date and recognized as compensation expense over the requisite service period. For awards with only service-based vesting conditions, the Company records compensation cost for these awards using the straight-line method less an assumed forfeiture rate. For awards with performance-based vesting conditions, the Company recognizes compensation cost on a tranche-by-tranche basis the accelerated attribution method less an assumed forfeiture rate.
Under the provisions of ASC Topic , Equity-Based Payments to Non-Employees , the Company measures stock-based awards granted to non-employees based on the fair value of the award on the date on which the related service is completed. Compensation expense is recognized over the period during which services are rendered by non-employees until service is completed. Income Taxes. Deferred tax assets and liabilities are determined on the basis of the differences between U.
GAAP treatment and tax treatment of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense.
Potential for recovery of deferred tax assets is evaluated by considering taxable income in carryback years, existing taxable temporary differences, prudent and feasible tax planning strategies and estimated future taxable profits. The Company accounts for uncertainty in income taxes recognized in the unaudited condensed consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities.
If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the unaudited condensed consolidated financial statements. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate, as well as the related net interest and penalties.
Fair Value Measurements. Certain assets and liabilities are carried at fair value under U. 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 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:. Earnings loss per share. Basic earnings loss per share is calculated using the two-class method.
Under the two-class method, basic earnings loss is computed by dividing net income loss available to common stockholders by the weighted-average number of common shares outstanding during the period excluding the effects of any potentially dilutive securities. The weighted-average number of common shares outstanding during the period includes Class A common stock but is exclusive of Class B common stock as these shares have no economic or participating rights.
Diluted earnings loss per share is computed similar to basic earnings loss per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potential common shares had been issued if such additional common shares were dilutive. Since the Company had net losses for all the periods presented, basic and diluted earnings loss per share are the same, and additional potential common shares have been excluded, as their effect would be anti-dilutive.
Recently Adopted Accounting Pronouncements. Under the new standard, equity-classified non-employee awards are initially measured on the grant date and re-measured only upon modification, rather than at each reporting period. Measurement is based on an estimate of the fair value of the equity instruments to be issued. The Company adopted this pronouncement as of January 1, The adoption of this standard did not have a material impact on the Company. ASU increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.
ASU is effective for fiscal years beginning after December 15, , and interim periods beginning after December 15, Early adoption is still permitted. The Company expects to adopt this standard as of January 1, at December 31, The Company continues to assess all of the effects of the adoption and believes the most significant impact relates to the recognition of new right-of-use assets and lease liabilities on the consolidated balance sheets for operating leases.
The Company does not expect a material impact to the consolidated statements of operations. The new guidance replaces the incurred loss impairment methodology in current U. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
For trade and other receivables, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. The Company expects to adopt this standard as of January 1, at December 31, and is currently in the process of evaluating the impact of this new standard.
The Company expects to adopt this standard as of January 1, at December 31, and is currently in the process of evaluating the impact of this standard. ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic The amendments also improve consistent application of and simplify GAAP for other areas of Topic by clarifying and amending existing guidance. ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, The Company is currently evaluating the timing of adopting this guidance and the impact of adoption on its financial position, results of operations and cash flows.
The DK Merger was accounted for as a reverse recapitalization, in accordance with U. Operating results for SBTech are included in the unaudited condensed consolidated statements of operations as of September 30, from the day of the acquisition. The following summarizes the consideration transferred at Closing for the SBTech Acquisition in thousands :.
The acquired assets and assumed liabilities of SBTech were recorded at their estimated fair values. The purchase price allocation for the Business Combination is preliminary and subject to change within the respective measurement period which will not extend beyond one year from the acquisition date.
Measurement period adjustments will be recognized in the reporting period in which the adjustment amounts are determined. Any such adjustments may be material. The following table summarizes the consideration paid for SBTech and the preliminary fair value of the assets acquired and liabilities assumed at the acquisition date on April 23, These values are considered preliminary pending finalization of valuation analyses pertaining to intangible assets acquired and tax liabilities assumed including the calculation of deferred tax assets and liabilities:.
Goodwill represents the excess of the gross considerations transferred over the fair value of the underlying net assets acquired and liabilities assumed. Qualitative factors that contribute to the recognition of goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets apart from goodwill. Intangible assets not recognized apart from goodwill consist primarily of benefits from securing buyer-specific synergies that increase revenue and profits and are not otherwise available to a marketplace participant, as well as acquiring a talented workforce and cost savings opportunities.
The amount allocated to goodwill and intangible assets is subject to final adjustment to reflect the final valuations. Goodwill recognized is not expected to be deductible for local tax purposes. Intangible Assets. The fair value of the customer relationships was determined by using the With and Without Method, a form of the Income Approach. In this method, the present value of the after-tax cash flows of the business assuming that the intangible asset is in place is compared to the present value of the after-tax cash flows of the business assuming the absence of the intangible asset.
This method isolates the impact of the intangible asset and provides the basis for an estimation of value. The fair value of the trademark and tradename was determined by using the Relief-from-Royalty Method, a form of the Income Approach. The basic tenet of the Relief-from-Royalty Method is that without ownership of the subject intangible asset, the user of that intangible asset would have to make a stream of payments to the owner of the asset in return for the rights to use that asset.
By acquiring the intangible asset, the user avoids these payments. Transaction Costs. Unaudited Pro-Forma Information. The financial information in the table below summarizes the combined results of operations of Old DK and SBTech, on a pro forma basis, as though the companies had been combined as of the beginning of the periods presented. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, or of results that may occur in the future.
The following unaudited pro forma financial information for the three and nine month periods ended September 30, and September 30, , combines the historical results for Old DK for the periods ended September 30, and September 30, and the historical results of SBTech, as converted to U. GAAP, for the respective periods:.
These pro forma results were based on estimates and assumptions, which the Company believes are reasonable. The pro forma results include adjustments primarily related to purchase accounting adjustments. Acquisition costs and other non-recurring charges incurred are included in the earliest period presented. Property and equipment, net consists of the following:. The Company has the following intangible assets, net at September 30, The Company has the following intangible assets, net at December 31, The changes in the carrying amount of goodwill for the nine months ended September 30, by segment refer to Note 12 for segment definitions are:.
Accounts payable and accrued expenses consist of the following:. The Credit Agreement has a maturity date of March 1, There was no principal outstanding as of September 30, Indirect Taxes. The Company frequently reevaluates its tax positions for appropriateness.
Indirect tax statutes and regulations are complex and subject to differences in application and interpretation. The estimated contingent liability for indirect taxes is recorded within other long-term liabilities on the unaudited condensed consolidated balance sheets and general and administrative expenses on the unaudited condensed consolidated statements of operations.
Deferred Rent. In conjunction with certain leased office facilities, the Company has received cash payments from landlords to fund tenant directed leasehold improvements. These payments are recorded as deferred rent and reported in accounts payable and accrued expenses and other long-term liabilities within the unaudited condensed consolidated balance sheets. These amounts are released ratably over the lease term, with an offset to rent expense.
The unaudited condensed consolidated statements of change in equity reflect the Reverse Recapitalization and SBTech Acquisition as defined in Note 1 as of April 23, The consolidated balances as of December 31, and from the audited consolidated financial statements of Old DK as of that date, share activity convertible redeemable preferred stock and common stock and per share amounts in these unaudited condensed consolidated statements of equity were retroactively adjusted, where applicable, using the recapitalization exchange ratio of 0.
All convertible redeemable preferred stock classified as mezzanine was retroactively adjusted, converted into Class A common stock, and reclassified to permanent as a result of the Reverse Recapitalization. Redeemable convertible preferred Series E-1 stock converted into shares of Old DK common stock at a share conversion factor of 1.
Immediately prior to the Business Combination, Old DK issued , shares of Class B common stock to Jason Robins the Chief Executive Officer of Old DK and of the Company which converted into , shares of Class B common stock of the Company as a result of the Business Combination and is recorded as stock-based compensation for the three and nine months ended September 30, As these shares have no economic rights and are non-participating, they are allocated no earnings or losses when calculating earnings per share pursuant to the two-class method.
The noteholders received 11, shares of Class A common stock in New DraftKings as result of the conversion. Deferred Revenue. The Company included deferred revenue within accounts payable and accrued expenses and liabilities to users in the unaudited condensed consolidated balance sheets.
The deferred revenue balances were as follows:. Such obligations are recognized as liabilities when awarded to users and are recognized as revenue when those liabilities are later resolved. The Company included deferred revenue within accounts payable and accrued expenses and liabilities to users on the unaudited condensed consolidated balance sheets. Revenue Disaggregation. Disaggregation of revenue for the three and nine months ended September 30, and is as follows:. Online gaming includes DFS, iGaming and Sportsbook which have certain similar attributes and pattern of recognition.
Gaming software and Other also have similar attributes and pattern of recognition. Time-Based awards are options 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. All stock-based compensation grants expire ten years after the grant date.
The following table shows stock option activity for the nine months ended September 30, and The following table shows stock compensation expense for the three and nine months ended September 30, and Three months ended. September 30, Nine months ended. Three and nine months ended September 30, and September 30, is as follows:.
The effective tax rates for the three and nine months ended September 30, were. 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 the deferred tax assets will not be realized. Prior to the second quarter of fiscal year , the Company operated its business and reported its results through a single reportable segment.
The B2C segment primarily provides users with DFS, Sportsbook and iGaming products while 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.
Any intercompany revenues or expenses are eliminated in consolidation. 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. Loss per share attributable to common stockholders:.
There were no preferred or other dividends declared for the period. For the periods presented, the following securities were not required to be included in the computation of diluted shares outstanding:. The MPA was amended to extend through Private Placement Agent. Receivables from Equity Method Investment. The operational support is primarily general and administrative services.
Transactions with a Shareholder and his Immediate Family Members. The Business Combination Agreement requires payment to a shareholder in the event certain SBTech accounts receivable are collected. There were no related party transactions with the shareholder or their immediate family members for the three or nine months ended September 30, and no related accounts receivable balance as of December 31, The Company rents its corporate office facilities, data centers, and motor vehicles under lease arrangements.
The total amount of rental payments due over each lease term is charged to rent expense ratably over the life of each lease. Future minimum lease payments are as follows:. Other Contractual Obligations and Contingencies. The Company is a party to several non-cancelable contracts with vendors where the Company is obligated to make future minimum payments under the terms of these contracts as follows:. In February , these actions were consolidated in a multi-district litigation in the U.
District Court for the District of Massachusetts. The plaintiffs asserted 27 claims arising under both state and federal law against the DFS defendants. The plaintiffs seek money damages, equitable relief, and disgorgement of gains against us. We intend to vigorously defend this case.
If the claimants successfully compel arbitration and then obtain a judgment in their favor in these arbitrations, we could be subject to substantial damages and we could be restricted from offering DFS contests in certain states. We cannot predict with any degree of certainty the outcome of Abramson or determine the extent of any potential liability or damages should the cases proceed to arbitration. We also cannot provide an estimate of the possible loss or range of loss. Interactive Games LLC.
District Court for the District of Delaware, alleging that our Daily Fantasy Sports product offering infringes two patents and our Sportsbook product offering infringes two additional patents. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages. Internal Revenue Service. We are currently under Internal Revenue Service audit for prior tax years, with the primary unresolved issues relating to excise taxation of fantasy sports contests and informational reporting and withholding.
The final resolution of that audit, and other audits or litigation, may differ from the amounts recorded in these unaudited condensed consolidated financial statements and may materially affect our unaudited condensed consolidated financial statements in the period or periods in which that determination is made. Letters of Credit. The Company considers events or transactions that occur after the balance sheet date, but before the unaudited condensed consolidated financial statements are issued, to provide additional evidence relative to certain estimates or identify matters that require additional disclosures.
The Company evaluated subsequent events through November 13, , the date on which the unaudited condensed consolidated financial statements were available to be issued. The unaudited condensed consolidated financial statements reflect those material items that arose after the balance sheet date, but prior to this date that would be considered recognized subsequent events.
On October 9, , the Company completed an underwritten public offering of 36, shares of its Class A common stock. DraftKings did not receive any proceeds from the sale of Class A common stock offered by the selling stockholders. Item 2. Forward-Looking Statements. This Report contains forward-looking statements that reflect future plans, estimates, beliefs and expected performance. The forward-looking statements depend upon events, risks and uncertainties that may be outside of our control.
Our actual results could differ materially from those discussed in these forward-looking statements. Any statements contained herein that are not statements of historical fact may be forward-looking statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any of these statements to reflect events or circumstances occurring after the date of this Report.
New factors may emerge and it is not possible to predict all factors that may affect our business and prospects. We are a digital sports entertainment and gaming company. We accomplish this by creating an environment where our users can find enjoyment and fulfillment through daily fantasy sports contests, sports betting and iGaming.
We leverage our technology platform, the scale and density of our user base and insights from over four million cumulative unique paid users to continuously improve our analytics, marketing and technology to a continue to invest in our products and platform, b launch our product offerings in new geographies, c effectively integrate SBTech to form a vertically integrated business, d create replicable and predictable state-level unit economics in sports betting and iGaming and e expand our consumer offerings.
For example, in we launched the first mobile app in daily fantasy sports, anticipating the behavioral shift of a user base that had historically relied on a desktop-only experience. Our B2C business is comprised of the legacy DraftKings business, which includes our daily fantasy sports, Sportsbook and iGaming product offerings.
Across these principal offerings, we provide users with a single integrated platform that provides one account, one wallet, a centralized payment system and responsible gaming controls. Currently, we operate our B2C segment primarily in the United States. Our B2B services are delivered through our proprietary software, and our complementary service offerings include trading and risk management and support for reporting, customer management and regulatory reporting requirements.
The operations of our B2B segment are concentrated mainly in Europe and Asia, with a growing presence in the United States. Financial Highlights and Trends. The following table sets forth a summary of our financial results for the periods indicated:.
September 30,. Revenue grew in the quarter ended September 30, compared to the quarter ended September 30, , reflecting the quarter-on-quarter performance of our B2C segment as well as the acquisition of SBTech on April 23, The quarter-on-quarter performance of our B2C segment reflected:. Additionally, while retail casinos where the Company has branded sportsbooks and DFS have reopened, they continue to operate with reduced capacity. As steps taken to mitigate the spread of COVID have necessitated a shift away from traditional office environment for many employees, the Company has business continuity programs in place to ensure that employees are safe and that the business continues to function while its employees work remotely.
Comparability of Financial Results. The amortization of the acquired intangibles is expected to materially increase our consolidated cost of sales and adversely affect our consolidated gross profit margins for the foreseeable future. In addition, we became a public company listed on The Nasdaq Stock Market LLC as a result of the Business Combination and have had to hire personnel and incur costs that are necessary and customary for our operations as a public company, which has contributed to and is expected to continue contributing to higher general and administrative costs in the near term.
On July 7, , we redeemed all of our outstanding public warrants that had not been exercised as of July 2, , which resulted in the exercise of In October , we issued an additional The following discussion includes our results of operations for the three and nine months ended September 30, , which include the financial results of SBTech from April 24, , the day following the completion of the Business Combination, through September 30, Accordingly, our consolidated results of operations for the three and nine months ended September 30, are not comparable to our consolidated results of operations for prior periods and may not be comparable with our consolidated results for future periods.
To facilitate comparability between periods, we have included in this Report a supplemental discussion of our unaudited pro forma results of operations for the three and nine months ended September 30, compared with the three and nine months ended September 30, Those pro forma results were prepared giving effect to the Business Combination as if it had been consummated on January 1, , and are based on estimates and assumptions, which we believe are reasonable and consistent with Article 11 of Regulation S-X.
MUPs is a key indicator of the scale of our B2C user base and awareness of our brand. We believe that year-over-year MUPs is also generally indicative of the long-term revenue growth potential of our B2C segment, although MUPs in individual periods may be less indicative of our longer-term expectations.
We expect the number of MUPs to grow as we attract, retain and re-engage users in new and existing jurisdictions and expand our offerings to appeal to a wider audience. We define MUPs as the number of unique payers per month who had a paid engagement i. For reported periods longer than one month, we average the MUPs for the months in the reported period. We exclude users who have made a deposit but have not yet had a paid engagement.
Unique payers or unique paid users include users who have participated in a paid engagement with promotional incentives, which are fungible with other funds deposited in their wallets on our platform. The number of these users included in MUPs has not been material to date and a substantial majority of such users are repeat users who have had paid engagements both prior to and after receiving incentives. Average Revenue per Monthly Unique Payer.
The charts below present our MUPs for the three and nine months ended September 30, and September 30, , respectively:. Average Monthly Unique Payers. Our period-on-period increases in MUPs for the three and nine months ended September 30, , compared to the same periods in , reflect growth in DFS, the expansion of our Sportsbook and iGaming product offerings into new states, the unique sports calendar, pent-up demand, and the stay-at-home nature of COVID which resulted in increased response rates to our advertising spending.
ARPMUP decreased in the three months ended September 30, , compared to the same period in , due to atypical hold rates from NFL wagering and promotional spending, which were partially offset by increased engagement with our iGaming product offering. ARPMUP for the nine months ended September 30, increased, compared to the same period in , as a result of increased engagement with our iGaming product offering as described above. GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry.
We define and calculate Adjusted EBITDA as net loss before the impact of interest income or expense, income tax expense or benefit, depreciation and amortization, and further adjusted for the following items: stock-based compensation, transaction-related costs, non-core litigation, settlement and related costs and certain other non-recurring, non-cash and non-core items, as described in the reconciliation below. We include these non-GAAP financial measures because they are used by management to evaluate our core operating performance and trends and to make strategic decisions regarding the allocation of capital and new investments.
GAAP because they are non-recurring items for example, in the case of transaction-related costs , non-cash expenditures for example, in the case of depreciation, amortization, and stock-based compensation , or are not related to our underlying business performance for example, in the case of interest income and expense and litigation settlement and related costs. GAAP measure, for the periods indicated:. Results of Operations. The following table sets forth a summary of our consolidated results of operations for the interim periods indicated, and the changes between periods.
Additionally, we had increased engagement with our iGaming product offering, driven by higher volume of play and the geographic expansion of the product offering to Pennsylvania in May and West Virginia in July Cost of Revenue. In general, our iGaming and Sportsbook product offerings produce revenue at a higher cost per revenue dollar relative to our DFS offering. Interest Income Expense. Net Loss. Revenue declined in mid-March due to the suspension and cancellation of sports seasons and sporting events.
Revenue growth resumed towards the end of the second quarter and in the third quarter when many of these seasons and events returned. Revenue growth also reflected the launch of our Sportsbook and iGaming product offerings in several new states. Headcount growth and additions to our estimated contingent liability for indirect taxes also contributed to the increase. Set forth below are our results of operations for the three months ended September 30, compared with the pro forma results of operations for the three months ended September 30, These pro forma results assume that the Business Combination, including our acquisition of SBTech, which comprises the entirety of our new B2B segment, occurred on January 1, and are based on estimates and assumptions which we believe are reasonable.
They are not the results that would have been realized had the Business Combination actually occurred on January 1, and are not indicative of our consolidated results of operations for future periods. Substantially all of the increase was attributable to the performance of our B2C segment, as discussed above. Our B2B segment sales and marketing costs remained relatively steady between periods, reflecting a modest headcount increase that was offset by a substantial decrease in conferences and other marketing spending following the outbreak of COVID Latest News.
February 9, February 8, February 5, Load More. New Jersey Sports Betting. Sports Betting In New York? Curb Your Enthusiasm January 8, December 17, Sports Betting Legalization Map. January 30, Pennsylvania Sports Betting. September 10, Read more. Top Sportsbooks In Your State. Get Email Updates. State Sports Betting Guides.
There are a few different lists to consider. The United States is pretty new to the sports betting world. What are the types of things punters will have access to? Other betting favorites sure to be included are big events like the Olympics, tennis matches, horse racing, and soccer as well as NASCAR, including the Daytona Sports like lacrosse, billiards, and rugby all have carved out niches on certain betting platforms. You can calculate your betting profits with our tool. In sports betting, it literally pays to be prepared with good knowledge, knowing how to place smart bets, and finding great bonuses.
But before you can activate a bonus for online sports betting, like the BetMGM bonus code , there may be certain requirements and conditions to be fulfilled. Read about them here so you can know what to expect when signing up to sports bet online. Gambling Problem? Call Gambler. William Hill. Betfred Sports. Fox Bet. Barstool Sportsbook. BetMGM Casino. Hollywood Casino. Hard Rock Casino. You must register for a betting account at the horse racing book prior to activating any bonus.
Enter bonus code. A bonus code will likely be required to be typed in during the registration process to activate the bonus. Not typing in the code may result in the loss of the bonus. A time limit may apply to the wagering requirements which means you must turnover a set amount of money within a specific time frame.
Money not turned over will be forfeited. The legalization of sports betting in America has been a long-fought war. The repeal of PASPA was a big victory for sports enthusiasts , a whole new form of entertainment has opened up! Fertitta and his affiliates not to exceed As of September 30, September 30, Cash and cash equivalents. Restricted cash.
Accounts receivable - trade and other. Receivable from Parent. Other current assets. Accounts payable. Accrued salary and payroll taxes. Accrued gaming and related taxes. Advances from an affiliate. Interest payable. Income taxes payable. Deferred revenue.
Notes payable. Customer deposits. Common stock, no par value. Note receivable from Parent. Additional paid-in capital. Retained earnings accumulated deficit. Total stockholders' equity deficit. Total liabilities and stockholders' equity deficit. Selling, general and administrative expense. Total operating costs and expenses. Less: Net loss attributable to noncontrolling interest. December 31, Total revenue. Depreciation and amortization.
Total other expense income. Provision benefit for income taxes. Net income loss attributable to common stockholders. Weighted average shares of common stock outstanding - basic. Weighted average shares of common stock outstanding - diluted.
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That said, only Nevada had legalized single-game wagering aka full-service betting at its sportsbooks, while the remaining three states had glorified sports-themed lotteries. After a short time post-PASPA, knowing there was no room for growth or increased profit and due to various NCAA protests , these three states abandoned their meager sports betting products altogether, leaving NV with a monopoly. Even with sports betting being effectively banned in 49 states, US sports fans still managed to wager at offshore sports betting sites.
These sites are licensed in countries such as Costa Rica, Antigua, and Panama where remote sports betting is legal. As they operate outside of the United States, they are not subject to the limitations of PASPA or other federal laws like the Wire Act of or the Unlawful Internet Gambling Enforcement Act of , both of which are solely focused on service providers and not bettors. While many of these sites are safe for US players to use, unregulated sportsbooks hold no accountability to operators, are not overseen by law enforcement, and there is an absence of consumer protections.
Regulating sports betting in the United States presents benefits from state, federal, and consumer standpoints. A report by the Competitive Enterprise Institute explains exactly how the ban on sports betting undermines the 10th amendment by infringing on state sovereignty. With all other forms of gambling casino gaming, poker, horse racing betting, etc. Allowing state-government-regulated sports betting would restore power where it arguably belongs.
Numerous research studies and reports have shown the economic impact that government regulated sports betting markets would have on their respective states and the US itself. Tax revenues could, in turn, be used for education programs, healthcare, and other public services in each state where sports wagering is supported.
The estimate accounts for the aftereffects of the money spent by consumers on sports betting i. Sports enthusiasts want more legal sports betting options for their enjoyment, but there are consumer advantages that would address other issues in the industry. Many of the sports leagues have argued that the widespread regulation of sports betting would damage the integrity of the games. In reality, regulated bookmakers would be more incentivized to report any questionable betting behaviors or corrupt practices, and they would be infinitely more scrutinized as a matter of course than black market or gray market bookmakers.
Without regulation, there is no line of communication between offshore online sportsbooks and law enforcement albeit, again, the most reputable offshore books do not engage in match-fixing or betting fraud of any kind. Regulated US markets would also make it easier to handle the issue of problem gambling.
The government would be able to establish programs that better monitor problem gaming patterns and also implement more effective treatment protocols. Though the options to bet on sports in the United States are still limited, proponents of government-regulated sports betting have been taking legal action to push the agenda. The state of New Jersey wrapped up a six-year push to establish legalized sports betting within its borders.
Starting in , the state has doubled down on its attempts to pass sports betting laws, all of which were struck down at the circuit court level. Finally, however, NJ got its PASPA challenge picked up by the Supreme Court, which expectedly found the law to be wildly unconstitutional, thus overturning it and opening the door to state-by-state sports betting legalization.
Many have risen to that task already, and 18 states now have fully operational sportsbooks, and five more have legalized sports betting but not yet launched it. Many more states have begun considering adopting legal sports betting, especially in light of the COVID pandemic, but the process of legalizing a new industry is long and difficult. Legal sports betting means massive tax collections for states, which has become a big incentive in the post-coronavirus budget crisis.
Legalizing sports betting allows for more consistent tax revenues, more resources toward ensuring responsible gaming, and fairer rules for bettors. Absolutely, there could be a new law for regulated sports betting in the USA at the federal level. While unfettered state regulation is the best option, there has been movement in the US Congress to further regulate gambling at the federal level.
Multiple bills have been proposed, but at this point, the government has better things to do. At this point, there are so many states with legal sports betting options that it seems very unlikely that anything actually happens on the federal level in It prohibited the transmission of wagers or betting information from being carried across state lines via telegraph or telephone. The Federal Wire Act targeted these illegal bookie operations as a means to curb the mafia from manipulating games and making a profit through these tactics.
This law was strictly focused on interstate gambling, and only targeted those accepting bets and not the individuals placing the bets. The goal was to crack down on illegal gambling services, not prosecute bettors. With the changes still being implemented, we are not sure yet how this will affect those states that had entered into interstate gambling pacts with one another, sharing player pools for their online gambling initiatives. Once that aspect of the legal situation becomes more clear we will update that information here.
At the time the bill was passed, there were sports lotteries in Delaware , Montana , and Oregon , as well as licensed and regulated sports betting in Nevada , so those four states were exempt. The law effectively prevented the expansion of the sports betting market throughout the United States in what many categorized as a discriminatory law that favored a few states while restricting others.
New Jersey took on the mission of challenging the law and after several years of court battles, was given a favorable outcome by the highest court in the land as SCOTUS ruled PASPA as unconstitutional, nullifying the law.
As of May 14, , each individual state now has the authority to dictate sports betting laws within their borders. They can now choose to authorize or prohibit sports betting at their pleasure. Following PASPA's repeal, we have seen multiple states move forward with legislation that legalizes sports gambling at the state level.
This is the big one that shook the gambling industry to its core. Online gambling really started to explode during the early 's, especially in the realm of online poker. In a nutshell, the UIGEA placed very stringent regulatory restrictions concerning how gambling-related transactions could be processed. The most reputable sites started a countdown and allowed Americans to withdraw and closeout their accounts. Many trusted gambling sites left the US market at this time.
After the dust settled, and the financial and gambling industries learned how to comply with the regulatory oversight provided by the UIGEA, many of these reputable gambling sites have returned to provide services to US sports bettors. The UIGEA did end up making the online gambling market safer for both the bettors and the operators by imposing a more reliable and stricter regulatory structure for how gambling-related transactions are processed. Gambling sites invested in top tier payment processors while all parties implemented higher-level security protocols to ensure the validity and safety of those transactions that are processed.
While US online gambling funding options are still somewhat limited in some regards, things have stabilized. The emergence of cryptocurrencies have filled the void left by the elimination of US-friendly e-wallets and failed credit card transactions. The law simply regulates how online gambling transactions are processed. With the growth of online commerce, several states became interested in offering lottery game services online. This raised questions concerning the application of the Federal Wire Act, driving the DOJ to issue a clarification of the law's reach.
The Department of Justice ruled , and accurately so, that the federal government had no right to tell states that they could not sanction online gambling and therefore established that each US state has the authority to determine their own fate concerning online gambling with the exception of sports betting.
The repeal of PASPA took care of freeing sports gambling as the last remaining federally prohibited form of state-regulated online gambling. As of now, all 50 states have the legal ability to legalize and offer online gambling such as casinos, poker, bingo, and sports wagering.