DraftKings Inc. 10-Q

Item 1. Financial Statements. DRAFTKINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except par value) June 30, 2022 (Unaudited) December 31, 2021 Assets Current assets: Cash and cash equivalents $ 1,514,371 $ 2,152,892 Cash reserved for users 426,169 476,950 Receivables reserved for users 56,820 51,949 Accounts receivable 45,060 45,864 Prepaid expenses and other current assets 95,249 25,675 Total current assets 2,137,669 2,753,330 Property and equipment, net 53,926 46,019 Intangible assets, net 810,525 535,017 Goodwill 894,019 615,655 Operating lease right-of-use assets 77,338 63,831 Equity method investment 8,796 9,825 Deposits and other non-current assets 171,491 45,377 Total assets $ 4,153,764 $ 4,069,054 Liabilities and Stockholders’ equity Current liabilities: Accounts payable and accrued expenses $ 414,680 $ 387,737 Liabilities to users 482,940 528,874 Operating lease liabilities, current portion 5,726 12,814 Other current liabilities 17,283 — Total current liabilities 920,629 929,425 Convertible notes, net of issuance costs 1,249,766 1,248,452 Non-current operating lease liabilities 78,176 57,341 Warrant liabilities 13,081 26,911 Long-term income tax liability 73,859 79,125 Other long-term liabilities 54,369 49,272 Total liabilities $ 2,389,880 $ 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 June 30, 2022 and December 31, 2021; 456,199 and 414,911 shares issued and 448,022 and 407,781 outstanding as of June 30, 2022 and December 31, 2021, respectively $ 45 $ 41 Class B common stock, $ 0.0001 par value; 900,000 shares authorized as of June 30, 2022 and December 31, 2021; 393,014 shares issued and outstanding as of June 30, 2022 and December 31, 2021 39 39 Treasury stock, at cost; 8,177 and 7,130 shares as of June 30, 2022 and December 31, 2021, respectively ( 324,090 ) ( 306,614 ) Additional paid-in capital 6,490,012 5,702,388 Accumulated deficit ( 4,438,610 ) ( 3,753,814 ) Accumulated other comprehensive income 36,488 36,488 Total stockholders’ equity 1,763,884 1,678,528 Total liabilities and stockholders’ equity $ 4,153,764 $ 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 June 30, Six months ended June 30, 2022 2021 2022 2021 Revenue $ 466,185 $ 297,605 $ 883,390 $ 609,881 Cost of revenue 312,767 187,006 626,146 370,231 Sales and marketing 197,529 170,712 518,981 399,398 Product and technology 77,202 62,635 158,554 118,794 General and administrative 187,609 198,806 404,215 367,803 Loss from operations ( 308,922 ) ( 321,554 ) ( 824,506 ) ( 646,345 ) Other income (expense): Interest income, net 1,929 1,642 2,077 2,627 Gain (loss) on remeasurement of warrant liabilities 14,315 16,984 26,996 ( 9,996 ) Other (expense) income, net ( 5,573 ) — 32,309 — Loss before income tax (benefit) provision and loss from equity method investment ( 298,251 ) ( 302,928 ) ( 763,124 ) ( 653,714 ) Income tax (benefit) provision ( 81,226 ) 2,404 ( 80,757 ) ( 2,191 ) Loss from equity method investment 78 194 2,429 347 Net loss attributable to common stockholders $ ( 217,103 ) $ ( 305,526 ) $ ( 684,796 ) $ ( 651,870 ) Loss per share attributable to common stockholders: Basic and diluted $ ( 0.50 ) $ ( 0.76 ) $ ( 1.61 ) $ ( 1.63 ) See accompanying notes to unaudited condensed consolidated financial statements. Due to the timing of the consummation of the GNOG Transaction, the above periods, to the extent applicable, exclude GNOG’s operations prior to the closing date of May 5, 2022. 3 DRAFTKINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (Amounts in thousands) Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 Net loss $ ( 217,103 ) $ ( 305,526 ) $ ( 684,796 ) $ ( 651,870 ) Other comprehensive (loss) income: Foreign currency translation adjustments arising during period, net of nil tax — 7,697 — ( 19,621 ) Comprehensive loss $ ( 217,103 ) $ ( 297,829 ) $ ( 684,796 ) $ ( 671,491 ) See accompanying notes to unaudited condensed consolidated financial statements. Due to the timing of the consummation of the GNOG Transaction, the above periods, to the extent applicable, exclude GNOG’s operations prior to the closing date of May 5, 2022. 4 DRAFTKINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (Amounts in thousands) Class A Common Stock Class B Common Stock Additional Paid in Capital Accumulated Deficit Accumulated Other Comprehensive Income Treasury Stock Amount Total Stockholders’ Equity Shares Amount Shares Amount Balances at December 31, 2021 407,781 $ 41 393,014 $ 39 $ 5,702,388 $ ( 3,753,814 ) $ 36,488 $ ( 306,614 ) $ 1,678,528 Exercise of stock options 913 — — — 1,770 — — — 1,770 Stock-based compensation expense — — — — 187,077 — — — 187,077 Purchase of treasury stock ( 793 ) — — — — — — ( 14,083 ) ( 14,083 ) Restricted stock unit vesting 9,327 1 — — — — — — 1 Net loss — — — — — ( 467,693 ) — — ( 467,693 ) Balances at March 31, 2022 417,228 $ 42 393,014 $ 39 $ 5,891,235 $ ( 4,221,507 ) $ 36,488 $ ( 320,697 ) $ 1,385,600 Exercise of stock options 902 — — — 3,131 — — — 3,131 Stock-based compensation expense — — — — 135,521 — — — 135,521 Equity consideration issued for acquisitions 29,252 3 — — 460,125 — — — 460,128 Purchase of treasury stock ( 254 ) — — — — — — ( 3,393 ) ( 3,393 ) Restricted stock unit vesting 894 — — — — — — — — Net loss — — — — — ( 217,103 ) — — ( 217,103 ) Balances at June 30, 2022 448,022 $ 45 393,014 $ 39 $ 6,490,012 $ ( 4,438,610 ) $ 36,488 $ ( 324,090 ) $ 1,763,884 5 Class A Common Stock Class B Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income Treasury Stock Amount Total Stockholders’ Equity Shares Amount Shares Amount Balances at December 31, 2020 396,303 $ 40 393,014 $ 39 $ 5,067,135 $ ( 2,230,619 ) $ 83,534 $ ( 288,784 ) $ 2,631,345 Exercise of stock options 2,857 — — — 7,638 — — 7,638 Stock-based compensation expense — — — — 151,843 — — — 151,843 Purchase of capped call options — — — — ( 123,970 ) — — — ( 123,970 ) Equity consideration issued for acquisitions 464 — — — 29,399 — — — 29,399 Shares issued for exercise of warrants 138 — — — 1,761 — — — 1,761 Purchase of treasury stock ( 48 ) — — — — — — ( 3,124 ) ( 3,124 ) Restricted stock unit vesting 178 — — — — — — — — Foreign currency translation, net of nil tax — — — — — — ( 27,318 ) — ( 27,318 ) Net loss — — — — — ( 346,344 ) — — ( 346,344 ) Balances at March 31, 2021 399,892 $ 40 393,014 $ 39 $ 5,133,806 $ ( 2,576,963 ) $ 56,216 $ ( 291,908 ) $ 2,321,230 Exercise of stock options 1,878 — — — 10,816 — — — 10,816 Stock-based compensation expense — — — — 171,739 — — — 171,739 Equity consideration issued for acquisitions 56 — — — 3,750 — — — 3,750 Shares issued for exercise of warrants 43 — — — 2,419 — — — 2,419 Purchase of treasury stock ( 115 ) — — — — — — ( 6,773 ) ( 6,773 ) Restricted stock unit vesting 739 — — — — — — — — Foreign currency translation, net of nil tax — — — — — — 7,697 — 7,697 Net loss — — — — — ( 305,526 ) — — ( 305,526 ) Balances at June 30, 2021 402,493 $ 40 393,014 $ 39 $ 5,322,530 $ ( 2,882,489 ) $ 63,913 $ ( 298,681 ) $ 2,205,352 See accompanying notes to unaudited condensed consolidated financial statements. Due to the timing of the consummation of the GNOG Transaction, the above periods, to the extent applicable, exclude GNOG’s operations prior to the closing date of May 5, 2022. 6 DRAFTKINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands) Six months ended June 30, 2022 2021 Operating Activities: Net loss $ ( 684,796 ) $ ( 651,870 ) Adjustments to reconcile net loss to net cash flows used in operating activities: Depreciation and amortization 74,540 58,244 Non-cash interest expense 931 775 Stock-based compensation expense 322,598 323,582 Loss from equity method investment 2,429 347 (Gain) loss on remeasurement of warrant liabilities ( 26,996 ) 9,996 Gain on equity securities and other financial assets ( 31,808 ) — Deferred income taxes ( 76,656 ) ( 9,548 ) Other expenses, net ( 2,667 ) — Change in operating assets and liabilities, net of effect of business combinations: Receivables reserved for users ( 2,057 ) 5,334 Accounts receivable 9,765 ( 993 ) Prepaid expenses and other current assets ( 47,574 ) ( 9,136 ) Deposits and other non-current assets ( 135 ) ( 2,944 ) Operating leases, net 240 ( 432 ) Accounts payable and accrued expenses ( 15,659 ) 73,309 Other long-term liabilities 5,003 1,883 Long-term income tax liability ( 5,266 ) 3,874 Liabilities to users ( 51,195 ) 21,204 Net cash flows used in operating activities ( 529,303 ) ( 176,375 ) Investing Activities: Purchases of property and equipment ( 14,457 ) ( 6,221 ) Cash paid for internally developed software costs ( 29,419 ) ( 19,489 ) Acquisition of gaming licenses ( 3,388 ) ( 6,200 ) Cash paid for acquisitions, net of cash acquired ( 96,507 ) ( 64,969 ) Other investing activities ( 3,697 ) ( 3,700 ) Net cash flows used in investing activities ( 147,468 ) ( 100,579 ) Financing Activities: Proceeds from issuance of convertible notes, net — 1,247,125 Purchase of capped call options — ( 123,970 ) Proceeds from shares issued for warrants 44 199 Purchase of treasury stock ( 17,476 ) ( 9,897 ) Proceeds from exercise of stock options 4,901 18,454 Net cash flows (used in) provided by financing activities ( 12,531 ) 1,131,911 Effect of foreign exchange rates on cash and cash equivalents and restricted cash — 824 Net (decrease) increase in cash and cash equivalents and restricted cash ( 689,302 ) 855,781 Cash and cash equivalents and restricted cash at the beginning of period 2,629,842 2,104,976 Cash and cash equivalents and restricted cash, end of period $ 1,940,540 $ 2,960,757 Disclosure of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 1,514,371 $ 2,646,500 Cash reserved for users 426,169 314,257 Total cash, cash equivalents and restricted cash, end of period $ 1,940,540 $ 2,960,757 7 DRAFTKINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands) Six months ended June 30, 2022 2021 Supplemental Disclosure of Noncash Investing and Financing Activities: Equity consideration issued for acquisitions $ 460,128 $ 33,149 Acquisition of property and equipment, internally developed software and other investments included in accounts payable and accrued expenses 9,425 ( 114 ) Convertible notes financing costs included in accounts payable and accrued expenses — 782 Acquisition of gaming licenses included in accounts payable and accrued expenses — ( 4,976 ) Increase of other current assets from transfer agent related to warrants — 494 Supplemental Disclosure of Cash Activities: (Decrease) increase in cash reserved for users ( 50,781 ) 26,539 Cash paid for interest — — See accompanying notes to unaudited condensed consolidated financial statements. Due to the timing of the consummation of the GNOG Transaction, the above periods, to the extent applicable, exclude GNOG’s operations prior to the closing date of May 5, 2022. 8 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 sports betting (“Sportsbook”), online casino (“iGaming”) and daily fantasy sports (“DFS”) products, as well as media and other online consumer products. The Company’s business-to-business (“B2B”) segment’s principal activities involve the design and development of sports betting and casino gaming software. As further discussed in the Explanatory Note and Note 3 hereof entitled “Acquisition of Golden Nugget Online Gaming, Inc.,” on May 5, 2022, Old DraftKings consummated the GNOG Transaction pursuant to the Merger Agreement. In connection with the GNOG Transaction, Old DraftKings 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. Unless otherwise indicated, the terms “DraftKings”, the “Company”, “we”, “us” and “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. 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 June 30, 2022, 29 U.S. states, the District of Columbia and Puerto Rico have legalized some form of sports betting. Of those 31 legal jurisdictions in the United States, 25 have legalized online sports betting. Of those 25 jurisdictions, 20 are live, and DraftKings operates in 17 of them. The jurisdictions in the United States with statutes legalizing iGaming are Connecticut, Delaware, Michigan, New Jersey, Pennsylvania and West Virginia. As of June 30, 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 well as Ontario, Canada. As of June 30, 2022, the Company offers iGaming products in Connecticut, Michigan, New Jersey, Pennsylvania and West Virginia, as well as Ontario, Canada. 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. Beginning in 2020 and continuing into 2022, the novel coronavirus (“COVID-19”) pandemic has adversely impacted global commercial activity, disrupted supply chains and contributed to significant volatility in financial markets. The primary impacts of the COVID-19 pandemic on the Company were the suspension, cancellation, rescheduling and shortening of sports seasons and sporting events, particularly between March 2020 and July 2020, when 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. Beginning in July 2020, major professional sports leagues started to resume their activities, many of which with shortened seasons, and gradually resumed regular activities. In the six months ended June 30, 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 and playoffs, the NHL regular season and playoffs, the NASCAR Cup Series, various NCAA football bowl games, the NCAA college basketball regular season and tournament, the MLB regular season and several golf tournaments. The continued return of major sports and sporting events 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, rescheduled or shortened 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 the Company’s 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. 9 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. During the second quarter of 2022, our primary offices, including our corporate headquarters in Boston, Massachusetts, re-opened with many of our employees returning to work onsite in various capacities. We 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. Foreign Currency Effective as of January 1, 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 for the period ended June 30, 2022. Digital Assets and Liabilities On March 31, 2022, the SEC issued Staff Accounting Bulletin No. 121 (“SAB 121”). SAB 121 sets out interpretive guidance from the staff of the SEC regarding the accounting for obligations to safeguard digital assets that an entity holds for its platform users. In accordance with SAB 121, the Company recognized a liability for the obligation to safeguard its users’ assets and recognized an associated asset for its non-fungible token (“NFTs”) held for its users. Both the liability and the associated asset are measured at the fair value of the NFTs being safeguarded. Refer to Note 6 hereof for disclosures required in accordance with Accounting Standards Codification 820, Fair Value Measurement . Recently Issued Accounting Pronouncements Not Yet Adopted In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 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 on its consolidated financial statements. In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820) : Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which clarifies the guidance in Accounting Standards 10 Codification Topic 820, Fair Value Measurement (“Topic 820”), when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. While the Company is continuing to assess the timing of adoption and the potential impacts of ASU 2022-03, it does not expect ASU 2022-03 to have a material effect on the Company’s consolidated financial condition, results of operations or cash flows. 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. On May 5, 2022, 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 in connection with the consummation of the GNOG Transaction. New DraftKings is the registrant filing this Report as the successor registrant for Old DraftKings. Operating results for GNOG on and after the Closing Date are included in the Company’s unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2022. Because the Company is integrating GNOG's operations into its consolidated operating activities, the amount of revenue and earnings attributable to the GNOG business from the Closing Date through June 30, 2022, which is included within revenue and net loss attributable to common stockholders in the Company’s unaudited condensed consolidated statements of operations, is impracticable to determine. Preliminary Purchase Price Accounting for the GNOG Transaction On the Closing Date, the Company acquired 100 % of the equity interests of GNOG pursuant to the Merger Agreement. The following is a summary of the consideration issued on the Closing Date: Share consideration (1) $ 460,128 Other consideration (2) 143,337 Total consideration $ 603,465 (1) Includes the issuance of approximately 29.3 million shares of New DraftKings’ Class A common stock issued at a price of $ 15.73 . (2) Includes (i) payments made by the Company on behalf of GNOG, including repayment of the outstanding portion of GNOG’s term loan (including the associated prepayment premium) and payment of certain of GNOG’s transaction expenses incurred in connection with the GNOG Transaction and (ii) warrants that were exercisable for shares of GNOG Class A common stock prior to the Closing Date, which were assumed by New DraftKings in connection with the GNOG Transaction and became eligible to be converted into approximately 2.1 million shares of New DraftKings Class A common stock in the aggregate. These payments were partially offset by commercial credits received by the Company from Fertitta Entertainment, Inc. (“FEI”), which can be applied by the Company from time to time to offset future amounts otherwise owed by it to FEI or its affiliates under commercial arrangements among such parties, subject to certain limited exceptions, which partially offsets the other consideration issued in connection with the GNOG Transaction. The purchase price allocation for the GNOG Transaction set forth herein is preliminary and subject to change within the measurement period, which will not extend beyond one year from the Closing Date. Measurement period adjustments will be recognized in the reporting period in which the adjustment amounts are determined and may include adjustments pertaining to intangible assets acquired, tax liabilities assumed, including the calculation of deferred tax assets and liabilities, and contingent consideration (if any). Any such adjustments may be material. 11 The following table summarizes the consideration issued or paid in connection with the GNOG Transaction and the preliminary fair value of the assets acquired and liabilities assumed in connection with the consummation of the GNOG Transaction on the Closing Date. The values set forth below are preliminary, pending finalization of valuation analyses: Cash and cash equivalents $ 66,709 Cash reserved for users 7,633 Receivables reserved for users 2,814 Accounts receivables 9,005 Prepaid expenses and other current assets 541 Property and equipment, net 2,674 Intangible assets, net 307,000 Operating lease right-of-use assets 1,185 Deposits and other non-current assets 47,395 Total identifiable assets acquired 444,956 Liabilities assumed: Accounts payable and accrued expenses 36,660 Liabilities to users 5,260 Operating lease liabilities 1,185 Other long-term liabilities 76,750 Total liabilities assumed 119,855 Net assets acquired (a) 325,101 Purchase consideration (b) 603,465 Goodwill (b) – (a) $ 278,364 Goodwill represents the excess of the gross consideration transferred over the difference between the fair value of the underlying net assets acquired and the underlying 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. Goodwill associated with the GNOG Transaction is assigned as of the Closing Date to the Company’s B2C reporting unit. Goodwill recognized is partially deductible for tax purposes. Intangible Assets Fair Value Weighted- Average Useful Life Gaming licenses $ 137,000 12.2 years Customer relationships 170,000 5.9 years Total $ 307,000 Loan Receivable The Company acquired a long-term receivable in the amount of $ 30.5 million in connection with the GNOG Transaction, which originally resulted from a $ 30.0 million mezzanine loan (the “Danville GN Casino Loan”) by GNOG to certain parties before the Closing Date to develop and construct a “Golden Nugget”-branded casino in Danville, Illinois, pending regulatory approvals, that would enable GNOG to obtain market access to the State of Illinois. There has been no significant deterioration of credit quality since the origination date of the Danville GN Casino Loan. The receivable related to the Danville GN Casino Loan is classified within deposits and other non-current assets on the Company’s condensed consolidated balance sheet. 12 Transaction Costs For the three and six months ended June 30, 2022, the Company incurred $ 10.7 million and $ 14.4 million in advisory, legal, accounting and management fees in connection with the GNOG Transaction, respectively, which are included in general and administrative expenses on the Company’s condensed consolidated statements of operations. Unaudited Pro-Forma Information The financial information in the table below summarizes the combined results of operations of Old DraftKings and GNOG, 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 GNOG Transaction had been consummated as of the beginning of the periods presented or of results that may occur in the future. Three months ended June 30, Six months ended June 30, 2022 Pro Forma 2021 Pro Forma 2022 Pro Forma 2021 Pro Forma Revenue $ 478,416 $ 327,482 $ 927,525 $ 664,671 Net loss ( 210,769 ) ( 318,087 ) ( 686,543 ) ( 735,256 ) The foregoing pro forma results are 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. 4. Intangible Assets and Goodwill Intangible Assets The Company has the following intangible assets, net as of June 30, 2022: Weighted-Average Remaining Amortization Period Gross Carrying Amount Accumulated Amortization Net Amortized intangible assets: Developed technology 5.9 years $ 422,900 $ ( 113,677 ) $ 309,223 Internally developed software 2.6 years 142,574 ( 61,268 ) 81,306 Gaming licenses 11.0 years 194,830 ( 20,277 ) 174,553 Trademarks, tradenames and other 4.1 years 32,971 ( 9,627 ) 23,344 Customer relationships 5.0 years 269,728 ( 49,118 ) 220,610 1,063,003 ( 253,967 ) 809,036 Indefinite-lived intangible assets: Digital assets, net of impairment Indefinite-lived 1,489 — 1,489 Intangible assets, net $ 1,064,492 $ ( 253,967 ) $ 810,525 13 The Company had the following intangible assets, net as of December 31, 2021: Weighted-Average Remaining Amortization Period Gross Carrying Amount Accumulated Amortization Net Amortized intangible assets: Developed technology 6.4 years $ 422,900 $ ( 87,089 ) $ 335,811 Internally developed software 2.6 years 117,953 ( 52,607 ) 65,346 Gaming licenses 7.3 years 54,442 ( 13,466 ) 40,976 Trademarks and tradenames 4.5 years 30,639 ( 5,952 ) 24,687 Customer relationships 3.3 years 99,728 ( 33,526 ) 66,202 725,662 ( 192,640 ) 533,022 Indefinite-lived intangible assets: Digital assets Indefinite-lived 1,995 — 1,995 Intangible assets, net $ 727,657 $ ( 192,640 ) $ 535,017 Amortization expense was $ 38.1 million and $ 26.6 million for the three months ended June 30, 2022 and 2021, respectively, and $ 66.2 million and $ 51.9 million for the six months ended June 30, 2022 and 2021, respectively. Goodwill The changes in the carrying amount of goodwill for the six months ended June 30, 2022 by reporting unit are: B2C B2B Media Total Balance as of December 31, 2021 $ 360,756 $ 207,684 $ 47,215 $ 615,655 Goodwill resulting from the GNOG Transaction 278,364 — — 278,364 Balance as of June 30, 2022 $ 639,120 $ 207,684 $ 47,215 $ 894,019 5. Current and Long-term Liabilities Revolving Line of Credit In October 2016, DK Crown Holdings Inc. (formerly DraftKings Inc.), a Delaware corporation (“DK DE”) entered into an amended and restated loan and security agreement with Pacific Western Bank, which was most recently amended in May 2022 (as amended, the “Credit Agreement”). The Credit Agreement provides a revolving line of credit of up to $ 60.0 million. The Credit Agreement has a maturity date of August 28, 2022. Borrowings under the Credit Agreement bear interest at a variable annual rate equal to the greater of (i) 1.00 % above the prime rate then in effect and (ii) 6.50 %, and the Credit Agreement requires monthly, interest-only payments. In addition, the Company is required to pay quarterly in arrears a fee equal to 0.25 % per annum of the unused portion of the revolving line of credit. As of June 30, 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 June 30, 2022 or December 31, 2021. Net facility available from the Credit Agreement as of June 30, 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 14 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 Old DraftKings, which are being amortized through the Notes Maturity Date. On May 5, 2022, in connection with the GNOG Transaction, (i) New DraftKings agreed to fully and unconditionally guarantee all of Old DraftKings’ obligations under the Convertible Notes and the indenture governing the Convertible Notes and (ii) each Convertible Note which was outstanding as of the consummation of the GNOG Transaction and previously convertible into shares of Old DraftKings Class A common stock became convertible into shares of New DraftKings Class A common stock. The Convertible Notes are convertible at an initial conversion rate of 10.543 shares of New DraftKings’ 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 New DraftKings’ 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. Old DraftKings will satisfy any conversion election by paying or delivering, as the case may be, cash, shares of New DraftKings’ Class A common stock or a combination of cash and shares of New DraftKings’ Class A common stock. During the six months ended June 30, 2022, the conditions allowing holders of the Convertible Notes to convert their Convertible Notes were triggered by the holding company reorganization in connection with the GNOG Transaction, whereby New DraftKings became the going-forward public company and replaced Old DraftKings as the issuer of the Class A common stock issuable upon conversion of the Convertible Notes; such conversion window expired on June 27, 2022, and no holders of the Convertible Notes exercised their conversion rights. 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 $ 747.9 million and $ 953.8 million as of June 30, 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 hierarchy. Indirect Taxes Taxation of e-commerce is becoming more prevalent and could negatively affect the Company’s business as it primarily pertains to DFS and its users. The ultimate impact of indirect taxes on the Company’s business is uncertain, as is the period required to resolve this uncertainty. The Company’s estimated contingent liability for indirect taxes represents the Company’s best estimate of tax liability in jurisdictions in which the Company believes taxation is probable. The Company frequently reevaluates its tax positions for appropriateness. Indirect tax statutes and regulations are complex and subject to differences in application and interpretation. Tax authorities may impose indirect taxes on Internet-delivered activities based on statutes and regulations which, in some cases, were established prior to the advent of the Internet and do not apply with certainty to the Company’s business. The Company’s estimated contingent liability for indirect taxes may be materially impacted by future audit results, litigation and settlements, 15 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 June 30, 2022 and December 31, 2021, the Company’s estimated contingent liability for indirect taxes was $ 52.7 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 Company’s 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 the Company’s 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 June 30, 2022, there were no Public Warrants outstanding and 1.6 million Private Warrants outstanding. On May 5, 2022, in connection with the consummation of the GNOG Transaction, Old DraftKings entered into an assignment and assumption agreement (the “Old DraftKings Warrant Assignment Agreement”) with New DraftKings, Computershare Trust Company, N.A. and Computershare Inc. (together, “Computershare”), pursuant to which Old DraftKings assigned to New DraftKings all of its rights, interests and obligations under the warrant agreement, dated as of May 10, 2019 (the “Old DraftKings Warrant Agreement”), by and between DEAC and Continental Stock Transfer & Trust Company, as warrant agent, as assumed by Old DraftKings and assigned to Computershare by that certain assignment and assumption agreement, dated as of April 23, 2020, governing Old DraftKings’ outstanding Private Warrants, on the terms and conditions set forth in the Old DraftKings Warrant Assignment Agreement. In connection with the consummation of the GNOG Transaction and pursuant to the Old DraftKings Warrant Assignment Agreement, each of the outstanding Private Warrants became exercisable for one share of New DraftKings Class A common stock on the existing terms and conditions, except as otherwise described in the Old DraftKings Warrant Assignment Agreement. In addition, on May 5, 2022, in connection with the consummation of the GNOG Transaction, the Company assumed an additional 5.9 million warrants, each of which entitled the holder to purchase one share of GNOG’s Class A common stock at an exercise price of $ 11.50 per share (the “GNOG Private Warrants”). Effective as of the consummation of the GNOG Transaction, each of the outstanding GNOG Private Warrants became exercisable for 0.365 of a share of the Company’s Class A common stock, or approximately 2.1 million shares of the Company’s Class A common stock in the aggregate, on the existing terms and conditions of such GNOG Private Warrants, except as otherwise described in the assignment and assumption agreement relating to the GNOG Private Warrants entered into on the Closing Date. As of June 30, 2022, there were 5.9 million GNOG Private Warrants outstanding, which corresponds to an assumed warrant liability of $ 13.2 million as of the Closing Date less a gain on remeasurement of $ 4.8 million from the Closing Date through June 30, 2022. As of June 30, 2022, the fair value of the Company's warrant liability was $ 13.1 million. Due to fair value changes throughout the three and six months ended June 30, 2022, the Company recorded gains on remeasurement of warrant liabilities of $ 14.3 million and $ 27.0 million, respectively. Due to fair value changes throughout the three and six months ended June 30, 2021, the Company recorded a gain on remeasurement of warrants liabilities of $ 17.0 million and a loss on remeasurement of warrant liabilities of $ 10.0 million, respectively. During the six months ended June 30, 2022, a de minimis number of Private Warrants and GNOG Private Warrants were exercised. During the six months ended June 30, 2021, 0.2 million Private Warrants were exercised resulting in a reclassification to additional paid-in-capital in the amount of $ 4.2 million, reflecting the reclassification of the warrant liabilities of $ 3.5 million and proceeds upon exercise of $ 0.7 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. 16 • 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 June 30, 2022 and December 31, 2021 based on the three-tier fair value hierarchy: June 30, 2022 Level 1 Level 2 Level 3 Total Assets Cash equivalents: Money market funds $ 200,537 (1) $ — $ — $ 200,537 Other current assets: Digital assets held for users — 17,283 (2) — 17,283 Other non-current assets: Derivative instruments — — 46,633 (5) 46,633 Equity securities 18,675 (3) 13,533 (4) — 32,208 Total $ 219,212 $ 30,816 $ 46,633 $ 296,661 Liabilities Other current liabilities: Digital assets held for users $ — $ 17,283 (2) $ — $ 17,283 Warrant liabilities — 13,081 (6) — 13,081 Total $ — $ 30,364 $ — $ 30,364 December 31, 2021 Level 1 Level 2 Level 3 Total Assets Cash equivalents: Money market funds $ 550,169 (1) $ — $ — $ 550,169 Other non-current assets: Derivative instruments — — 3,850 (5) 3,850 Equity securities 27,200 (3) — — 27,200 Total $ 577,369 $ — $ 3,850 $ 581,219 Liabilities Warrant liabilities $ — $ 26,911 (6) $ — $ 26,911 Total $ — $ 26,911 $ — $ 26,911 (1) Represents the Company’s money market funds, which are classified as Level 1 because the Company measures these assets to fair value using quoted market prices. (2) Represents the asset and liability balance for the digital assets held by the Company for its users, which are classified as Level 2 because the Company measures these digital assets to fair value using observable inputs for similar transactions. (3) Represents the Company’s marketable equity securities, which are classified as Level 1 because the Company measures these assets to fair value using quoted market prices. 17 (4) Represents the Company’s non-marketable equity securities, which are classified as Level 2 because the Company measures these assets to fair value using observable inputs for similar investments of the same issuer. The Company has elected the remeasurement alternative for these assets. (5) Represents the Company’s derivative instruments held in other public and privately held entities. The Company measures these derivative instruments to fair value using option pricing models and, accordingly, classifies these assets as Level 3. During the six months ended June 30, 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 measure these Level 3 derivative instruments to fair value. A change in these significant unobservable inputs might result in a significantly higher or lower fair value measurement at the reporting date. June 30, 2022 December 31, 2021 Significant Unobservable Input Range (Weighted Average) Underlying stock price $ 7.47 - $ 39.22 ($ 34.35 ) $ 10.88 Volatility 70.0 % - 75.0 % ( 73.5 %) 60.0 % Risk-free rate 1.3 % - 1.6 % ( 1.4 %) 0.3 % (6) The Company measures its Private Warrants and the GNOG Private Warrants to fair value using a binomial lattice model with the significant assumptions being observable inputs and, accordingly, classifies these liabilities as Level 2. During the three and six months ended June 30, 2022, the Company recorded $ 5.6 million of unrealized loss and $ 31.8 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 Company’s condensed consolidated statements of operations. During the three and six months ended June 30, 2021, no such gains or losses were recorded. 7. Revenue Recognition Deferred Revenue The Company included deferred revenue within accounts payable and accrued expenses and liabilities to users in its condensed consolidated balance sheets. The deferred revenue balances were as follows: Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 Deferred revenue, beginning of the period $ 95,402 $ 41,849 $ 91,554 $ 30,627 Deferred revenue, end of the period 84,674 51,791 84,674 51,791 Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period 51,946 20,664 64,478 26,613 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 and six months ended June 30, 2022 and 2021 is as follows: Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 Online gaming $ 434,123 $ 258,229 $ 820,801 $ 530,890 Gaming software 11,470 27,432 24,965 58,862 Other 20,592 11,944 37,624 20,129 Total Revenue $ 466,185 $ 297,605 $ 883,390 $ 609,881 18 Online gaming includes Sportsbook, iGaming and DFS, which have certain similar attributes and patterns of recognition. Sources of Other revenue primarily includes media, Marketplace and retail Sportsbooks. The following table presents the Company’s revenue by geographic region for the periods indicated: Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 United States $ 456,075 $ 269,532 $ 858,671 $ 549,648 International 10,110 28,073 24,719 60,233 Total Revenue $ 466,185 $ 297,605 $ 883,390 $ 609,881 8. Stock-Based Compensation The Company, historically, has issued three types of stock-based compensation: Time-Based awards, Long Term Incentive Plan (“LTIP”) awards and Performance-Based Stock Compensation Plan (“PSP”) awards. Time-Based awards are equity awards which generally vest over a 4 -year period. LTIP awards are performance-based equity awards that are used to establish longer-term performance objectives and incentivize management to meet those objectives. PSP awards are short-term performance-based equity awards which establish performance objectives related to one or two particular fiscal years. LTIP awards generally vest when revenue, Adjusted EBITDA or share price targets are achieved amongst other conditions, while PSP awards generally vest upon achievement of revenue targets and have a range of payouts amongst other conditions. The following table shows restricted stock unit (“RSU”) and stock option activity for the six months ended June 30, 2022: Time-based PSP LTIP Total Weighted Average Exercise Price of Options Weighted Average FMV of RSUs Options RSUs Options RSUs Options RSUs Outstanding at December 31, 2021 14,695 4,195 2,354 1,488 11,671 19,343 53,746 $ 5.46 $ 49.94 Granted 200 9,270 — 2 — 434 9,906 31.40 21.96 Exercised options / vested RSUs ( 1,592 ) ( 1,299 ) ( 54 ) ( 2,671 ) ( 169 ) ( 6,251 ) ( 12,036 ) 2.70 44.96 Change in awards due to performance-based multiplier — — — 1,806 — — 1,806 — 33.69 Forfeited ( 118 ) ( 549 ) — ( 6 ) — ( 281 ) ( 954 ) 4.76 39.29 Outstanding at June 30, 2022 13,185 11,617 2,300 619 11,502 13,245 52,468 $ 5.83 $ 40.48 As of June 30, 2022, total unrecognized stock-based compensation expense of $ 608.4 million related to granted and unvested share-based compensation arrangements is expected to be recognized over a weighted-average period of 1.9 years. The following table shows stock compensation expense for the three and six months ended June 30, 2022 and 2021: Three months ended June 30, 2022 Three months ended June 30, 2021 Options RSUs Total Options RSUs Total Time Based (1) $ 3,830 $ 26,983 $ 30,813 $ 4,034 $ 15,223 $ 19,257 PSP (2) — 13,764 13,764 — 19,090 19,090 LTIP (2) — 90,944 90,944 — 133,392 133,392 Total $ 3,830 $ 131,691 $ 135,521 $ 4,034 $ 167,705 $ 171,739 Six months ended June 30, 2022 Six months ended June 30, 2021 Options RSUs Total Options RSUs Total Time Based (1) $ 7,694 $ 48,769 $ 56,463 $ 6,467 $ 29,491 $ 35,958 PSP (2) — 57,131 57,131 — 35,404 35,404 LTIP (2) — 209,004 209,004 — 252,220 252,220 Total $ 7,694 $ 314,904 $ 322,598 $ 6,467 $ 317,115 $ 323,582 19 (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 and six months ended June 30, 2022 and 2021 is as follows: Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 Income tax (benefit) provision $ ( 81,226 ) $ 2,404 $ ( 80,757 ) $ ( 2,191 ) The effective tax rates for the three months ended June 30, 2022 and 2021 were 27.2 % and ( 0.8 )%, respectively, and the effective tax rates for the six months ended June 30, 2022 and 2021 were 10.6 % and 0.3 %, respectively. The difference between the Company’s effective tax rates for the three and six month periods in 2022 and 2021 and the U.S. statutory tax rate of 21% was primarily due to a valuation allowance related to the Company’s deferred tax assets, offset partially by current state tax and current foreign tax. Additionally, the Company recorded a discrete income tax benefit of $ 76.8 million during the second quarter of 2022, as well as a discrete tax benefit of $ 6.8 million during the first quarter of 2021, which were attributable to non-recurring partial releases of the Company’s U.S. valuation allowance as a result of the preliminary purchase accounting for GNOG and Vegas Sports Information Network, Inc. (“VSIN”), respectively. 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 Sportsbook, iGaming and DFS products, as well as media and other online consumer products. The B2B segment is involved in the design and development of sports betting and casino gaming software, which is primarily comprised of the Company’s wholly-owned subsidiary, SBTech (Global) Limited (“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. The Company defines and calculates Adjusted EBITDA as net loss before the impact of interest income or expense (net), income tax provision or benefit, and depreciation and amortization, and further adjusted for the following items: stock-based compensation, transaction-related costs, litigation, settlement and related costs, advocacy and other related legal expenses, gain or loss on remeasurement of warrant liabilities and other non-recurring and non-operating costs or income, as described in the reconciliation below. 20 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 June 30, Six months ended June 30, 2022 2021 2022 2021 Revenue: B2C $ 454,715 $ 270,173 $ 858,425 $ 551,019 B2B 11,470 27,432 24,965 58,862 Total revenue 466,185 297,605 883,390 609,881 Adjusted EBITDA: B2C ( 98,904 ) ( 92,259 ) ( 368,075 ) ( 233,613 ) B2B ( 19,230 ) ( 3,043 ) ( 39,568 ) ( 951 ) Total adjusted EBITDA ( 118,134 ) ( 95,302 ) ( 407,643 ) ( 234,564 ) Adjusted for: Depreciation and amortization 42,315 30,051 74,540 58,244 Interest income, net ( 1,929 ) ( 1,642 ) ( 2,077 ) ( 2,627 ) Income tax provision (benefit) ( 81,226 ) 2,404 ( 80,757 ) ( 2,191 ) Stock-based compensation 135,521 171,739 322,598 323,582 Transaction-related costs 10,505 7,890 14,279 10,913 Litigation, settlement and related costs 2,446 3,599 4,396 4,221 Advocacy and other related legal expenses — 11,035 — 11,035 (Gain) loss on remeasurement of warrant liabilities ( 14,315 ) ( 16,984 ) ( 26,996 ) 9,996 Other non-recurring and non-operating costs (income) 5,652 2,132 ( 28,830 ) 4,133 Net loss attributable to common shareholders $ ( 217,103 ) $ ( 305,526 ) $ ( 684,796 ) $ ( 651,870 ) Due to the timing of the consummation of the GNOG Transaction, the above periods, to the extent applicable, exclude GNOG’s operations prior to the closing date of May 5, 2022. 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 June 30, Six months ended June 30, 2022 2021 2022 2021 Net loss $ ( 217,103 ) $ ( 305,526 ) $ ( 684,796 ) $ ( 651,870 ) Basic and diluted weighted-average common shares outstanding 437,033 401,447 424,121 399,545 Loss per share attributable to common stockholders: Basic and diluted $ ( 0.50 ) $ ( 0.76 ) $ ( 1.61 ) $ ( 1.63 ) 21 There were no preferred or other dividends declared for the three and six months ended June 30, 2022. For the periods presented, the following securities were not required to be included in the computation of diluted shares outstanding: June 30, 2022 2021 Class A common stock resulting from exercise of all warrants 3,761 1,769 Stock options and RSUs 52,468 58,031 Convertible notes 13,337 13,337 Total 69,566 73,137 12. Related-Party Transactions Financial Advisor The Company entered into an engagement letter with a related party (the “Financial Advisor”) in August 2019, as amended in December 2019. For the three and six months ended June 30, 2022, the Company incurred $ 8.5 million of fees payable to its Financial Advisor. For the three and six months ended June 30, 2021, the Company incurred no fees payable to its Financial Advisor. Receivables from Equity Method Investment The Company provides office space and general operational support to DKFS, LLC, an equity-method affiliate. The operational support is primarily in the form of general and administrative services. As of June 30, 2022 and December 31, 2021, the Company had $ 0.4 million and $ 0.6 million, respectively, of receivables from DKFS, LLC related to those services and expenses to be reimbursed to the Company, which are included within non-current assets in its consolidated balance sheets. The Company has committed to invest up to $ 17.5 million into DBDK Venture Fund I, LP, a Delaware limited partnership and a subsidiary of DKFS LLC. As of June 30, 2022, the Company had invested a total of $ 4.9 million of the total commitment. Transactions with a Shareholder and their Immediate Family Members As of June 30, 2022 and December 31, 2021, the Company had $ 0.0 million and $ 3.8 million of receivables due from former shareholders of SBTech, respectively, which includes a current director and shareholder of the Company. For the three months ended June 30, 2022 and June 30, 2021, the Company had $ 0.5 million and $ 1.7 million in sales, respectively, to entities that are wholly owned by an immediate family member of a current director of the Company. The Company recorded $ 1.1 million and $ 3.1 million of such sales in the six months ended June 30, 2022 and June 30, 2021, respectively. The Company had an associated accounts receivable balance of $ 0.2 million and $ 0.2 million as of June 30, 2022 and December 31, 2021, respectively, included in accounts receivable in its condensed consolidated balance sheets. Aircraft Starting in 2022, from time to time, the Company has chartered, without mark-up, the private plane owned by Jason Robins, the Company’s Chief Executive Officer, utilizing aircraft services from Jet Aviation Flight Services, Inc. for the business and personal travel of Mr. Robins and his family. The Company had no direct or indirect interest in such private plane. During the three and six months ended June 30, 2022, the Company incurred $ 0.0 million and $ 0.7 million of expense for use of the aircraft under these chartering services, respectively. In March 2022, the Company entered into a one-year lease of an aircraft from an entity controlled by Mr. Robins. Pursuant to such agreement, Mr. Robins’ entity leases the aircraft to the Company for $ 0.6 million for a one-year period. The Company covers all operating, maintenance and other expenses associated with the aircraft. The audit and compensation committees of the Company’s board of directors approved this arrangement based, among other things, on the requirements of the overall security program that Mr. Robins and his family fly private and their assessment that such an arrangement is more efficient and flexible and better ensures safety, confidentiality and privacy. During the three and six months ended June 30, 2022, the Company incurred $ 0.1 million of expense under the aircraft lease. 22 13. Leases, Commitments and Contingencies Leases The Company primarily leases corporate office facilities, data centers and motor vehicles under operating lease agreements. Some of the Company’s leases include one or more options to renew. For a majority of our leases, we do not assume renewals in our determination of the lease term as the renewals are not deemed to be reasonably certain to exercise. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. As of June 30, 2022, the Company’s lease agreements typically have terms not exceeding ten years . Payments under the Company’s lease arrangements may be fixed or variable, and variable lease payments primarily represent costs related to common area maintenance and utilities. The components of lease cost are as follows: Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 Operating lease cost $ 5,679 $ 4,229 $ 9,909 $ 8,362 Short term lease cost 1,323 440 3,078 867 Variable lease cost 1,073 982 1,879 1,683 Sublease income ( 230 ) ( 93 ) ( 460 ) ( 204 ) Total lease cost $ 7,845 $ 5,558 $ 14,406 $ 10,708 Supplemental cash flow and other information for the six months ended June 30, 2022 and 2021 related to operating leases was as follows: Six months ended June 30, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used by operating leases $ 8,489 $ 8,687 Right-of-use assets obtained in exchange for new operating lease liabilities $ 21,338 $ 2,413 The weighted-average remaining lease term and weighted-average discount rate for the Company’s operating leases were 7.1 years and 6.5 % as of June 30, 2022. The Company calculated the weighted-average discount rates using incremental borrowing rates, which equal the rates of interest that it would pay to borrow funds on a fully collateralized basis over a similar term. Maturity of lease liabilities are as follows: Years Ending December 31, From July 1, 2022 to December 31, 2022 $ 8,030 2023 11,110 2024 15,862 2025 13,931 2026 12,309 Thereafter 48,683 Total undiscounted future cash flows 109,925 Less: Imputed interest ( 26,023 ) Operating lease liabilities $ 83,902 23 As of June 30, 2022, the Company had long-lived assets, which consists of operating lease right-of-use assets and property and equipment, net, of $ 106.3 million and $ 25.0 million located in the United States and internationally, respectively. As of December 31, 2021, the company had long-lived assets of $ 77.2 million and $ 32.6 million located in the United States and internationally, respectively. 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: Years Ending December 31, From July 1, 2022 to December 31, 2022 $ 267,708 2023 431,068 2024 383,967 2025 292,138 2026 179,888 Thereafter 358,772 Total $ 1,913,541 Contingencies From time to time, and in the ordinary course of business, the Company may be subject to certain claims, charges and litigation concerning matters arising in connection with the conduct of the Company’s business activities. In Re: Daily Fantasy Sports Litigation (Multi-District Litigation) Between late 2015 and early 2016, certain individuals who allegedly registered and competed in daily sports fantasy contests on our and FanDuel’s websites, and their family members, filed numerous actions (primarily purported class actions) against us, FanDuel, and other related parties in courts across the United States (the “DFS defendants”). In February 2016, these actions were consolidated in a multi-district litigation in the U.S. 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’ claims against us generally fell into four categories: (1) the Company’s online daily fantasy sports contests constitute illegal gambling; (2) the Company promulgated false or misleading advertisements that emphasized the ease of play and likelihood of winning; (3) the Company induced consumers to lose money through a deceptive bonus program; and (4) the Company allowed our employees to participate in competitors’ fantasy sports contests using non-public information, which gave such employees an unfair advantage over other contestants. The plaintiffs sought money damages, equitable relief, and disgorgement of gains against the Company. On October 6, 2021, the court entered judgment and an order approving a settlement and dismissing the claims with prejudice brought by all plaintiffs except the family members plaintiffs and one plaintiff asserting claims against the DFS defendants as a concerned citizen of the State of Florida (the “Concerned Citizen Claims”). This settlement agreement became effective on November 5, 2021; as a result, the only remaining plaintiffs were the family member plaintiffs and the plaintiff who asserted the Concerned Citizen Claims . On January 21, 2022, DraftKings and the family member plaintiffs filed a joint motion for preliminary approval of a proposed settlement. On February 18, 2022, the court entered an order preliminarily approving the proposed settlement and scheduled a fairness hearing for final approval of the settlement on June 8, 2022. On June 8, 2022, the court entered judgment and an order approving the settlement and dismissing all claims with prejudice other than the Concerned Citizens Claims. On June 23, 2022, with all claims other than the Concerned Citizen Claims resolved, the court dismissed the Concerned Citizen Claims from federal court for lack of Article III standing and remanded the Concerned Citizens Claims to state court in Florida. On July 8, 2022, the court officially closed the docket for In Re: Daily Fantasy Sports Litigation (Multi-District Litigation) . The Company previously provided an accrual for this matter. The Company intends to vigorously defend the Concerned Citizen Claims . If the plaintiff obtains a judgment in his favor in this matter, the Company could be subject to substantial damages and it could be restricted from offering DFS contests in Florida. The Company cannot provide any assurance as to the outcome of the Concerned Citizen Claims . 24 Despite the potential for significant damages, the Company does not believe, based on currently available information, that the outcome of the Concerned Citizen Claims will have a material adverse effect on DraftKings’ financial condition, although the outcome could be material to DraftKings’ operating results for any particular period, depending, in part, upon the operating results for such period. Interactive Games LLC On June 14, 2019, Interactive Games LLC filed suit against the Company in the U.S. District Court for the District of Delaware, alleging that our Daily Fantasy Sports product infringes two patents and the Company’s Sportsbook product infringes two different patents. DraftKings intends to vigorously defend this case. In the event that a court ultimately determines that the Company is infringing the asserted patents, it may be subject to substantial damages, which may include treble damages and/or an injunction that could require the Company to modify certain features that we currently offer. The Company cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages. The Company also cannot provide an estimate of the possible loss or range of loss. Any adverse outcome in these matters could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows. Despite the potential for significant damages, the Company does not believe, based on currently available information, that the outcome of this proceeding will have a material adverse effect on DraftKings’ financial condition, although the outcome could be material to DraftKings’ operating results for any particular period, depending, in part, upon the operating results for such period. Winview Inc. On July 7, 2021, Winview Inc., a Delaware corporation, filed suit against the Company in the U.S. District Court for the District of New Jersey, which was subsequently amended on July 28, 2021, alleging that our Sportsbook product infringes two patents, our Daily Fantasy Sports product infringes one patent, and that our Sportsbook product and Daily Fantasy Sports product infringe another patent. On November 15, 2021, Winview Inc. filed a second amended complaint (the “SAC”), adding as defendants DK DE and Crown Gaming Inc., a Delaware corporation, which are wholly-owned subsidiaries of the Company. The SAC largely repeats the allegations of the first amended complaint. DraftKings intends to vigorously defend this case. In the event that a court ultimately determines that the Company is infringing the asserted patents, it may be subject to substantial damages, which may include treble damages and/or an injunction that could require the Company to modify certain features that we currently offer. The Company cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages. The Company also cannot provide an estimate of the possible loss or range of loss. Any adverse outcome in these matters could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows. Despite the potential for significant damages, the Company does not believe, based on currently available information, that the outcome of this proceeding will have a material adverse effect on DraftKings’ financial condition, although the outcome could be material to DraftKings’ operating results for any particular period, depending, in part, upon the operating results for such period. Securities Matters On July 2, 2021, the first of two substantially similar federal securities law putative class actions was filed in the U.S. District Court for the Southern District of New York against the Company and certain of its officers. The actions allege violations of Sections 10(b) and 20(a) of the Exchange Act on a behalf of a putative class of persons who purchased or otherwise acquired DraftKings stock between December 23, 2019 and June 15, 2021. The allegations relate to, among other things, allegedly false and misleading statements and/or failures to disclose information about the Company’s business and prospects, based primarily upon the allegations concerning SBTech that were contained in a report published about the Company on June 15, 2021 by Hindenburg Research (the “Hindenburg Report”). The Company intends to vigorously defend against these claims. On November 12, 2021, the court consolidated the two actions under the caption In re DraftKings Securities Litigation and appointed a lead plaintiff. The lead plaintiff filed a consolidated amended complaint on January 11, 2022. 25 Beginning on July 9, 2021, the Company received subpoenas from the SEC seeking documents concerning, among other things, certain of the allegations raised in the Hindenburg Report, as well as the Company’s disclosures regarding its compliance policies and procedures, and related matters. The Company intends to comply with the related requests and is cooperating with the SEC’s ongoing inquiry. The Company cannot predict with any degree of certainty the outcome of these matters or determine the extent of any potential liabilities. The Company also cannot provide an estimate of the possible loss or range of loss. Any adverse outcome in these matters could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows. Despite the potential for significant damages, the Company does not believe, based on currently available information, that the outcome of this proceeding will have a material adverse effect on DraftKings’ financial condition, although the outcome could be material to DraftKings’ operating results for any particular period, depending, in part, upon the operating results for such period. Shareholder Derivative Litigation On October 21, 2021, the first of five substantially similar putative shareholder derivative actions was filed in Nevada by alleged shareholders of the Company. The actions purport to assert claims on behalf of the Company against certain current and former officers and/or members of the board of directors of the Company and DEAC. The two actions filed in the U.S. District Court for the District of Nevada have since been consolidated, and two of the actions filed in Nevada state District Court in Clark County likewise have been consolidated. A substantially identical fifth action was filed in Nevada state District Court in Clark County and has been dismissed voluntarily by the plaintiff. The same plaintiff filed a substantially identical action in Massachusetts Superior Court, which has also been dismissed voluntarily by the plaintiff. The Nevada actions purport to assert claims on behalf of the Company for, among other things, breach of fiduciary duty and corporate waste based primarily upon the allegations concerning SBTech that were contained in the Hindenburg Report. The federal court action in Nevada also contends that certain individuals are liable to the Company for any adverse judgment in the federal securities class actions described above under Sections 10(b) and 21D of the Exchange Act. The Nevada actions seek unspecified compensatory damages, changes to corporate governance and internal procedures, equitable and injunctive relief, restitution, costs and attorney’s fees. The Company cannot predict with any degree of certainty the outcome of these matters or determine the extent of any potential liabilities. The Company also cannot provide an estimate of the possible loss or range of loss. Because the Nevada actions allege claims on behalf of the Company and purport to seek judgments in favor of the Company, the Company does not believe, based on currently available information, that the outcome of these proceedings will have a material adverse effect on DraftKings’ financial condition, although the outcome could be material to DraftKings’ operating results for any particular period, depending, in part, upon the operating results for such period. AG 18, LLC d/b/a/ Arrow Gaming On August 19, 2021, AG 18, LLC d/b/a/ Arrow Gaming (“Arrow Gaming”) filed a complaint against DraftKings in the United States District Court for the District of New Jersey alleging that DraftKings’ DFS and Casino products infringe four patents. On October 12, 2021, Arrow Gaming filed an amended complaint to add one additional patent. On December 20, 2021, Arrow Gaming filed a second amended complaint adding new allegations with respect to alleged willful infringement. DraftKings intends to vigorously defend this case. In the event that a court ultimately determines that the Company is infringing the asserted patents, it may be subject to substantial damages, which may include treble damages and/or an injunction that could require the Company to modify certain features that we currently offer. The Company cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages. The Company also cannot provide an estimate of the possible loss or range of loss. Any adverse outcome in these matters could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows. Despite the potential for significant damages, the Company does not believe, based on currently available information, that the outcome of this proceeding will have a material adverse effect on DraftKings’ financial condition, although the outcome could be material to DraftKings’ operating results for any particular period, depending, in part, upon the operating results for such period. 26 Beteiro, LLC On November 22, 2021, Beteiro, LLC filed a complaint against the Company in the United States District Court for the District of New Jersey alleging that the Company’s Sportsbook and Casino products infringe four patents. DraftKings intends to vigorously defend this case. In the event that a court ultimately determines that the Company is infringing the asserted patents, it may be subject to substantial damages, which may include treble damages and/or an injunction that could require the Company to modify certain features that we currently offer. The Company cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages. The Company also cannot provide an estimate of the possible loss or range of loss. Any adverse outcome in these matters could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows. Despite the potential for significant damages, the Company does not believe, based on currently available information, that the outcome of this proceeding will have a material adverse effect on DraftKings’ financial condition, although the outcome could be material to DraftKings’ operating results for any particular period, depending, in part, upon the operating results for such period. Diogenes Ltd. & Colossus(IOM) Ltd. On December 1, 2021, Diogenes Ltd. & Colossus (IOM) Ltd. (“Colossus”), filed a complaint against the Company in the United States District Court for the District of Delaware alleging that the Company’s Sportsbook product infringes seven patents. Colossus amended its complaint on February 7, 2022 to, among other things, add one additional patent. DraftKings intends to vigorously defend this case. In the event that a court ultimately determines that the Company is infringing the asserted patents, it may be subject to substantial damages, which may include treble damages and/or an injunction that could require the Company to modify certain features that we currently offer. The Company cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages. The Company also cannot provide an estimate of the possible loss or range of loss. Any adverse outcome in these matters could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows. Despite the potential for significant damages, the Company does not believe, based on currently available information, that the outcome of this proceeding will have a material adverse effect on DraftKings’ financial condition, although the outcome could be material to DraftKings’ operating results for any particular period, depending, in part, upon the operating results for such period. Internal Revenue Service The Company is 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 consolidated financial statements and may materially affect the Company’s consolidated financial statements in the period or periods in which that determination is made. Letters of Credit In connection with the Credit Agreement with Pacific Western Bank, the Company has entered into several letters of credit totaling $ 4.0 million and $ 4.2 million as of June 30, 2022 and December 31, 2021, respectively, for the Company’s leases of office space. 27