What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-05 · 110 added, 105 removed, 205 unchanged (51% of the section changed)

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The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Report”) and the section entitled “Risk Factors” 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.

As a result of the GNOG Transaction, which was consummated on May 5, 2022, 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.” at the closing of the GNOG Transaction and is the registrant filing this Report as the successor registrant for Old DraftKings.

Unless otherwise indicated, the terms “DraftKings,” the “Company,” “we,” “us,” or “our” refer to (i) Old DraftKings for periods preceding the Closing Date and (ii) New DraftKings for periods on and subsequent to the Closing Date, in each case, together with their respective consolidated subsidiaries.

On May 5, 2022 (the “GNOG Closing Date”), DraftKings Inc.

consummated its acquisition of Golden Nugget Online Gaming, Inc.

(together with its subsidiaries unless the context requires otherwise, “GNOG”), pursuant to a definitive agreement and plan of merger, dated August 9, 2021 (the “Merger Agreement”), in an all-stock transaction (the “GNOG Transaction”).

DraftKings’ unaudited condensed consolidated financial statements exclude GNOG’s operations prior to the GNOG Closing Date, unless indicated otherwise.

In connection with the GNOG Transaction, DraftKings Inc.

became the going-forward public company and the direct parent company of both DraftKings Holdings Inc.

(formerly DraftKings Inc.), a Nevada corporation (“Old DraftKings”), and GNOG, and DraftKings Inc.

is the registrant filing this Report as the successor registrant for Old DraftKings.

Unless otherwise indicated, the terms “DraftKings,” the “Company,” “we,” “us,” or “our” refer to DraftKings Inc.

(or, in respect of periods prior to the GNOG Closing Date, Old DraftKings), together with its consolidated subsidiaries.

Forward-Looking Statements

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Due to the uncertain nature of these factors, management cannot assess the impact of each factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any 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, except as required by applicable law.

required by applicable law.

New factors may emerge and it is not possible to predict all factors that may affect our business and prospects.

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We are also involved in the design and development of sports betting and casino gaming software for online and retail Sportsbooks and casino gaming products, as well as other online consumer products.

On May 5, 2022, we acquired GNOG in an all-stock transaction to enable us to leverage Golden Nugget’s established brand to broaden our reach into new customer segments and enhance the combined company’s iGaming product offerings through our vertically-integrated tech stack and GNOG’s unique capabilities, including live dealer.

For further details regarding the GNOG Transaction, please see the section entitled “Acquisition of Golden Nugget Online Gaming, Inc.” contained within Note 3 of our condensed consolidated financial statements.

On May 5, 2022, we acquired GNOG in an all-stock transaction to enable us to leverage Golden Nugget’s established brand to broaden our reach into new customer segments and enhance the combined company’s iGaming product offerings through our vertically-integrated technology stack and GNOG’s unique capabilities, including live dealer.

Our mission is to make life more exciting by responsibly creating the world’s favorite real-money games and betting experiences.

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We operate two complementary business segments:

our business-to-consumer (“B2C”) business and our business-to-business (“B2B”) business.

business-to-consumer (“B2C”) and business-to-business (“B2B”).

Our B2C business is comprised of the legacy business of DK Crown Holdings Inc.

(formerly DraftKings Inc.), a Delaware corporation (“DK DE”), which includes our DraftKings-branded Sportsbook, iGaming and DFS products, as well as our other online consumer products, and our GNOG brand.

Across our DraftKings-branded products, we offer users a single integrated product that provides one account, one wallet, a centralized payment system and responsible gaming controls.

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Impact of COVID-19

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.

Beginning in 2020 and continuing into 2022, the novel coronavirus (“COVID-19”) pandemic 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 us 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, our 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.

Beginning in July 2020, major professional sports leagues gradually resumed regular activities with shortened seasons in many instances.

In the nine months ended September 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 our Sportsbook and DFS products.

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As steps taken to mitigate the spread of COVID-19 necessitated a shift away from a traditional office environment for many employees, we implemented business continuity programs to ensure that employees were safe and that our 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.

Since the second quarter of 2022, our primary offices, including our corporate headquarters in Boston, Massachusetts, have been 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.

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The following table sets forth a summary of our financial results for the periods indicated:

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

(amounts in thousands)

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See “— Non-GAAP Information ” below for additional information about this measure and a reconciliation of this measure to the most directly comparable financial measure calculated in accordance with U.S.

Revenue increased by $168.6 million in the three months ended June 30, 2022 compared to the three months ended June 30, 2021 primarily due to the strong performance of our B2C segment as a result of robust customer acquisition and retention and the successful launches of our Sportsbook and iGaming products in additional jurisdictions since the second quarter of 2021.

Revenue increased by $273.5 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to the strong performance of our B2C segment as a result of robust customer acquisition and retention and the successful launches of our Sportsbook and iGaming products in additional jurisdictions since the second quarter of 2021.

These increases were partially offset by an increase in promotional intensity (primarily due to the launch of our Sportsbook product in New York), as well as atypically low hold rates (primarily attributable to NCAA basketball wagering) in the three months ended March 31, 2022.

Revenue increased by $289.1 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

This improvement is primarily due to the strong performance of our B2C segment in the three months ended September 30, 2022 resulting from robust customer acquisition and retention, the successful launches of our Sportsbook and iGaming products in additional jurisdictions since the third quarter of 2021, and atypically strong hold rates (primarily in NFL wagering) and reduced promotional intensity in the three months ended September 30, 2022.

Revenue increased by $562.6 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to the strong performance of our B2C segment as a result of robust customer acquisition and retention, the successful launches of our Sportsbook and iGaming products in additional jurisdictions since the third quarter of 2021 and reduced promotional intensity.

Key Performance Indicators – B2C Operations

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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 believe that year-over-year growth in 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 products to appeal to a wider audience.

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however, the number of such users has not been material to date.

The chart below presents our MUPs for the three and six months ended June 30, 2021 and 2022:

The charts below present our MUPs for the three and nine months ended September 30, 2021 and 2022:

Average Revenue per MUP (“ARPMUP”).

ARPMUP is the average B2C segment revenue per MUP, and this key metric represents our ability to drive usage and monetization of our B2C products.

The chart below presents our ARPMUP for the three and six months ended June 30, 2021 and 2022:

We define and calculate ARPMUP as the average monthly B2C segment revenue for a reporting period, divided by MUPs ( i.e.

, the average number of unique payers) for the same period.

Our period-on-period increase in MUPs for the three and six months ended June 30, 2022, compared to the same periods in 2021, reflects strong unique payer retention and acquisition across our Sportsbook and iGaming products, as well as the expansion of our iGaming and Sportsbook products into new jurisdictions, partially offset by a decline in DFS MUPs.

ARPMUP increased in the three months ended June 30, 2022, compared to the same period in 2021, primarily due to strong customer engagement, a continued mix shift into our iGaming and Sportsbook products and reduced promotional intensity compared to the same period in 2021.

ARPMUP increased in the six months ended June 30, 2022, compared to the same period in 2021, primarily due to strong customer engagement and a continued mix shift into our iGaming and Sportsbook products, which was partially offset by an increase in promotional intensity (primarily due to the launch of our Sportsbook product in New York), as well as atypically low hold rates in the three months ended March 31, 2022 (primarily attributable to NCAA basketball wagering).

The charts below present our ARPMUP for the three and nine months ended September 30, 2021 and 2022:

MUPs increased for the three and nine months ended September 30, 2022, compared to the same periods in 2021, primarily due to strong unique payer retention and acquisition across our Sportsbook and iGaming products as well as the expansion of our Sportsbook and iGaming products into new jurisdictions, partially offset by a decline in Daily Fantasy Sports MUPs.

ARPMUP increased in the three months ended September 30, 2022, compared to the same period in 2021, primarily due to a continued mix shift into our Sportsbook and iGaming products, atypically strong Sportsbook hold rates (primarily in NFL wagering) and reduced promotional intensity.

ARPMUP increased in the nine months ended September 30, 2022, compared to the same period in 2021, primarily due to a continued mix shift into our Sportsbook and iGaming products and reduced promotional intensity.

Non-GAAP Information

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Adjusted EBITDA excludes certain expenses that are required in accordance with U.S.

non-operating items which 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 because they are non-recurring items (for example, in the case of transaction-related costs and advocacy and other related legal expenses), non-cash expenditures (for example, in the case of depreciation and amortization, remeasurement of warrant liabilities and stock-based compensation), or non-operating items which are not related to our underlying business performance (for example, in the case of interest income and expense and litigation, settlement and related costs).

Adjusted EBITDA

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GAAP, for the periods indicated:

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

(amounts in thousands) 2022 2021 2022 2021

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46,089 30,356 120,629 88,600

Interest income, net (1,929) (1,642) (2,077) (2,627)

Income tax (benefit) provision (81,226) 2,404 (80,757) (2,191)

Interest (income) expense, net (6,301) 1,556 (8,378) (1,071)

Income tax provision (benefit) 3,177 3,845 (77,580) 1,654

Stock-based compensation (2)

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16,558 16,667 16,558 27,702

(Gain) loss on remeasurement of warrant liabilities (14,315) (16,984) (26,996) 9,996

Loss (gain) on remeasurement of warrant liabilities 6,797 (7,091) (20,199) 2,905

Other non-recurring and non-operating costs (income) (6)

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B2C $ (247,522) $ (307,700) $ (615,597) $ (541,313)

(1) The amounts include the amortization of acquired intangible assets of $27.1 million and $20.6 million for the three months ended June 30, 2022 and 2021, respectively, and $46.3 million and $39.7 million for the six months ended June 30, 2022 and 2021, respectively.

(2) Primarily reflects stock-based compensation expenses resulting from the issuance of awards under long-term incentive plans.

(1) The amounts include the amortization of acquired intangible assets of $29.8 million and $20.2 million for the three months ended September 30, 2022 and 2021, respectively, and $76.1 million and $59.9 million for the nine months ended September 30, 2022 and 2021, respectively.

(2) Reflects stock-based compensation expenses resulting from the issuance of awards under incentive plans.

(3) Includes capital markets advisory, consulting, accounting and legal expenses related to evaluation, negotiation and integration costs incurred in connection with pending or completed transactions and offerings.

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(5) Includes certain non-recurring costs relating to advocacy efforts and other legal expenses in jurisdictions where we do not operate certain products and are actively seeking licensure, or similar approval, for those products.

For the three and six months ended June 30, 2021, those costs primarily related to our activities in Florida.

For the three and nine months ended September 30, 2022, those costs primarily related to our activities in California.

For the three and nine months ended September 30, 2021, those costs primarily related to our activities in California and Florida.

The amounts presented exclude other costs relating to advocacy efforts and other legal expenses incurred in jurisdictions where related legislation has been passed and we currently operate.

(6) Primarily includes the change in fair value of certain financial assets, as well as our equity method share of the investee’s losses and other costs relating to non-recurring and non-operating items.

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.

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 GNOG Closing Date of May 5, 2022.

Results of Operations

Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021

Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

The following table sets forth a summary of our consolidated results of operations for the interim periods indicated, and the changes between periods.

Due to the timing of the consummation of the GNOG Transaction, the below periods, to the extent applicable, exclude GNOG’s operations prior to the closing date of May 5, 2022.

Three months ended June 30,

Due to the timing of the consummation of the GNOG Transaction, the below periods, to the extent applicable, exclude GNOG’s operations prior to the GNOG Closing Date of May 5, 2022.

Three months ended September 30,

(amounts in thousands, except percentages) 2022 2021 $ Change % Change

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Loss from operations (455,028) (546,516) 91,488 16.7 %

Interest income, net 1,929 1,642 287 17.5 %

Gain on remeasurement of warrant liabilities 14,315 16,984 (2,669) (15.7) %

Other expense, net (5,573) — (5,573) (100.0) %

Loss before income tax (benefit) provision and loss from equity method investment (298,251) (302,928) 4,677 1.5 %

Income tax (benefit) provision (81,226) 2,404 83,630 (3,478.8) %

Interest income (expense), net 6,301 (1,556) 7,857 504.9 %

(Loss) gain on remeasurement of warrant liabilities (6,797) 7,091 (13,888) (195.9) %

Other income, net 8,257 — 8,257 100.0 %

Loss before income tax provision and loss from equity method investment (447,267) (540,981) 93,714 17.3 %

Income tax provision 3,177 3,845 668 17.4 %

Loss from equity method investment 50 202 152 75.2 %

Net loss $ (450,494) $ (545,028) $ 94,534 17.3 %

Revenue increased $168.6 million, or 56.6%, to $466.2 million in the three months ended June 30, 2022, from $297.6 million in the three months ended June 30, 2021.

Revenue increased $289.1 million, or 135.9%, to $501.9 million in the three months ended September 30, 2022, from $212.8 million in the three months ended September 30, 2021.

The increase was attributable to $303.8 million in incremental B2C segment revenue, partially offset by a decrease in B2B segment revenue of $14.6 million.

The $184.5 million increase in our B2C segment revenue was primarily attributable to our online gaming revenues which increased $175.9 million, or 68.1%, to $434.1 million in the three months ended June 30, 2022, from $258.2 million in the three months ended June 30, 2021.

The $303.8 million increase in our B2C segment revenue was primarily attributable to our online gaming revenues which increased $292.2 million, or 165.8%, to $468.5 million in the three months ended September 30, 2022, from $176.3 million in the three months ended September 30, 2021.

The remaining increase in our B2C segment revenue was attributable to “Other” revenue, which primarily includes media, marketplace and retail Sportsbooks.

Online gaming revenue grew in the three months ended June 30, 2022 primarily due to MUPs increasing by 29.7% and ARPMUP also increasing by 29.7% as compared to the three months ended June 30, 2021.

These key performance indicators increased primarily due to strong customer engagement, a continued mix shift into our iGaming and Sportsbook products and reduced promotional intensity compared to the same period in 2021.

Online gaming revenue grew in the three months ended September 30, 2022 primarily due to MUPs increasing by 22.3% and ARPMUP increasing by 114.0% as compared to the three months ended September 30, 2021.

These key performance indicators increased primarily due to strong unique payer retention and acquisition across our Sportsbook and iGaming products as well as the expansion of our Sportsbook and iGaming products into new jurisdictions, atypically strong hold rates (primarily in NFL wagering), a continued mix shift into our Sportsbook and iGaming products and reduced promotional intensity.

Cost of Revenue .

Cost of revenue increased $125.8 million, or 67.2%, to $312.8 million in the three months ended June 30, 2022, from $187.0 million in the three months ended June 30, 2021.

Our B2C segment accounted for substantially all of this increase, reflecting growth in revenue from our expanded product and geographic footprint, including the launch of our Sportsbook product in Arizona, Connecticut, Louisiana, New York and Ontario, Canada and the launch of our iGaming product in Connecticut and Ontario, Canada since the three months ended June 30, 2021.

The cost of revenue increase was primarily attributable to an increase in our variable expenses such as product taxes and payment processing fees, which increased by $65.8 million and $16.7 million, respectively, relative to the expenses incurred during the three months ended June 30, 2021.

Cost of revenue increased $201.9 million, or 118.3%, to $372.7 million in the three months ended September 30, 2022, from $170.7 million in the three months ended September 30, 2021.

Our B2C segment accounted for substantially all of this increase, reflecting growth in revenue from our expanded product and geographic footprint, including the launch of our Sportsbook product in Connecticut, Louisiana, Kansas, New York and Ontario, Canada and the launch of our iGaming product in Connecticut and Ontario, Canada since the three months ended September 30, 2021.

The cost of revenue increase was primarily attributable to an increase in our variable expenses such as product taxes and payment processing fees, which increased by $107.3 million and $24.8 million, respectively, relative to the expenses incurred during the three months ended September 30, 2021.

The remaining increase was primarily attributable to variable platform costs and revenue share arrangements resulting from additional customer activity.

B2C segment cost of revenue as a percentage of B2C revenue increased by 5.4 percentage points to 62.1% in the three months ended June 30, 2022, as compared to 56.7% in the three months ended June 30, 2021, reflecting our changed revenue mix from our more mature DFS product to our iGaming and Sportsbook products as well as higher promotional investment in the launches of our products in new states, principally the launch of our Sportsbook product in New York in January 2022.

In addition, as a result of customer activity in these new states, we incurred variable expenses that are not based on net revenue, including payment processing fees, and revenue share arrangements.

In general, our iGaming and Sportsbook products produce revenue at a higher cost per revenue dollar relative to our more mature DFS product.

B2C segment cost of revenue as a percentage of B2C revenue decreased by 2.8 percentage points to 69.7% in the three months ended September 30, 2022, as compared to 72.5% in the three months ended September 30, 2021, primarily reflecting atypically strong hold rates (primarily in NFL wagering) and reduced promotional intensity, which positively impacted cost of revenue as a percentage of B2C revenue in the three months ended September 30, 2022 compared to the same period in 2021.

Sales and Marketing.

Sales and marketing expense increased $26.8 million, or 15.7%, to $197.5 million in the three months ended June 30, 2022, from $170.7 million in the three months ended June 30, 2021.

Sales and marketing expense increased $18.1 million, or 5.9%, to $321.7 million in the three months ended September 30, 2022, from $303.7 million in the three months ended September 30, 2021.

Our B2C segment accounted for substantially all of this increase.

Of the $26.8 million increase, $21.7 million resulted from activities to acquire and retain players in new states that we operate in, such as marketing costs including advertising and the development of marketing campaigns, as well as headcount and technology associated with analyzing, developing and deploying those campaigns.

The remainder of the increase primarily resulted from an increase in various team and league sponsorships.

Of the $18.1 million increase, $20.3 million resulted from activities to acquire and retain

players in new states that we operate in, such as marketing costs including advertising and the development of marketing campaigns, as well as headcount and technology associated with analyzing, developing and deploying those campaigns.

This increase was partially offset by a decrease in stock-based compensation expense.

Product and Technology.

Product and technology expense increased $14.6 million, or 23.3%, to $77.2 million in the three months ended June 30, 2022, from $62.6 million in the three months ended June 30, 2021, of which $1.3 million was attributable to our B2B segment.

Product and technology expense increased $11.1 million, or 17.0%, to $76.3 million in the three months ended September 30, 2022, from $65.2 million in the three months ended September 30, 2021, of which $0.6 million was attributable to our B2B segment.

The remaining increase of $10.5 million primarily reflects additions to our product operations and engineering headcount in our B2C segment.

General and Administrative.

General and administrative expense decreased $11.2 million, or 5.6%, to $187.6 million in the three months ended June 30, 2022, from $198.8 million in the three months ended June 30, 2021.

General and administrative expense decreased $33.4 million, or 15.2%, to $186.3 million in the three months ended September 30, 2022, from $219.7 million in the three months ended September 30, 2021.

Our B2C segment accounted for substantially all of this decrease, primarily driven by a decrease in stock-based compensation expense of $40.7 million, which was partially offset by an increase of $15.3 million in compensation costs due to an increase in headcount.

Gain on Remeasurement of Warrant Liabilities.

We recorded a gain on remeasurement of warrant liabilities of $14.3 million in the three months ended June 30, 2022, compared to a gain of $17.0 million in the three months ended June 30, 2021 primarily due to changes in the underlying share price of our Class A common stock.

Other Expense .

Other expense, net was $5.6 million in the three months ended June 30, 2022, as compared to no other expense, net in the three months ended June 30, 2021.

This increase was primarily attributable to a change in the fair value of certain financial assets.

Income tax (benefit) provision .

We recorded an income tax benefit of $81.2 million in the three months ended June 30, 2022, as compared to an income tax provision of $2.4 million in the three months ended June 30, 2021.

This increase was primarily due to a discrete income tax benefit of $76.8 million recorded during the second quarter of 2022, which was attributable to non-recurring partial releases of the Company’s U.S.

valuation allowance as a result of the preliminary purchase accounting for GNOG.

Net loss decreased by $88.4 million to $217.1 million in the three months ended June 30, 2022, as compared to a net loss of $305.5 million in the three months ended June 30, 2021, for the reasons discussed above.

Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

(Loss) Gain on Remeasurement of Warrant Liabilities.

We recorded a loss on remeasurement of warrant liabilities of $6.8 million in the three months ended September 30, 2022, compared to a gain of $7.1 million in the three months ended September 30, 2021 primarily due to changes in the underlying share price of DraftKings Inc.’s Class A common stock.

Other Income .

Other income, net was $8.3 million in the three months ended September 30, 2022, as compared to no other income, net in the three months ended September 30, 2021.

This increase was primarily attributable to the recovery of a tax liability indemnity.

Income Tax Provision .

We recorded an income tax provision of $3.2 million in the three months ended September 30, 2022, as compared to an income tax provision of $3.8 million in the three months ended September 30, 2021.

Net loss decreased by $94.5 million to $450.5 million in the three months ended September 30, 2022, as compared to a net loss of $545.0 million in the three months ended September 30, 2021, for the reasons discussed above.

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

The following table sets forth a summary of our consolidated results of operations for the interim periods indicated, and the changes between periods.

Due to the timing of the consummation of the GNOG Transaction, the below periods, to the extent applicable, exclude GNOG’s operations prior to the closing date of May 5, 2022.

Six months ended June 30,

Due to the timing of the consummation of the GNOG Transaction, the below periods, to the extent applicable, exclude GNOG’s operations prior to the GNOG Closing Date of May 5, 2022.

Nine months ended September 30,

(amounts in thousands, except percentages) 2022 2021 $ Change % Change

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Loss before income tax (benefit) provision and loss from equity method investment (1,210,391) (1,194,695) (15,696) (1.3) %

Income tax benefit (80,757) (2,191) 78,566 3,585.9 %

Income tax (benefit) provision (77,580) 1,654 79,234 4,790.4 %

Loss from equity method investment 2,479 549 (1,930) (351.5) %

Net loss $ (1,135,290) $ (1,196,898) $ 61,608 5.1 %

Revenue increased $273.5 million, or 44.8%, to $883.4 million in the six months ended June 30, 2022, from $609.9 million in the six months ended June 30, 2021.

Revenue increased $562.6 million, or 68.4%, to $1,385.3 million in the nine months ended September 30, 2022, from $822.7 million in the nine months ended September 30, 2021.

The increase was attributable to $611.2 million in incremental B2C segment revenue, partially offset by a decrease in B2B segment revenue of $48.5 million.

The $307.4 million increase in our B2C segment revenue was primarily attributable to our online gaming revenues which increased $289.9 million, or 54.6%, to $820.8 million in the six months ended June 30, 2022, from $530.9 million in the six months ended June 30, 2021.

The $611.2 million increase in our B2C segment revenue was primarily attributable to our online gaming revenues which increased $582.1 million, or 82.3%, to $1,289.3 million in the nine months ended September 30, 2022, from $707.1 million in

the nine months ended September 30, 2021.

The remaining increase in our B2C segment revenue was attributable to “Other” revenue, which primarily includes media, marketplace and retail Sportsbooks.

Online gaming revenue grew in the six months ended June 30, 2022 primarily due to MUPs increasing by 29.4% and ARPMUP increasing by 19.9% as compared to the six months ended June 30, 2021.

These key performance indicators increased primarily due to strong customer engagement and a continued mix shift into our iGaming and Sportsbook products, which was partially offset by an increase in promotional intensity (primarily due to the launch of our Sportsbook product in New York), as well as atypically low hold rates in the three months ended March 31, 2022 (primarily attributable to NCAA basketball wagering).

Online gaming revenue grew in the nine months ended September 30, 2022 primarily due to MUPs increasing by 27.0% and ARPMUP increasing by 43.5% as compared to the nine months ended September 30, 2021.

These key performance indicators increased primarily due to strong player retention and acquisition across our Sportsbook and iGaming products as well as the expansion of our Sportsbook and iGaming products into new jurisdictions, a continued mix shift into our Sportsbook and iGaming products and reduced promotional intensity.

Cost of Revenue .

Cost of revenue increased $255.9 million, or 69.1%, to $626.1 million in the six months ended June 30, 2022, from $370.2 million in the six months ended June 30, 2021.

Our B2C segment accounted for substantially all of this increase, reflecting growth in revenue from our expanded product and geographic footprint, including the launch of our Sportsbook product in Arizona, Connecticut, Louisiana, New York and Ontario, Canada and the launch of our iGaming product in Connecticut and in Ontario, Canada since the six months ended June 30, 2021.

The cost of revenue increase was primarily attributable to an increase in our variable expenses such as product taxes and payment processing fees, which increased by $146.2 million and $38.2 million, respectively, relative to the expenses incurred during the six months ended June 30, 2021.

Cost of revenue increased $457.9 million, or 84.6%, to $998.8 million in the nine months ended September 30, 2022, from $541.0 million in the nine months ended September 30, 2021.

Our B2C segment accounted for substantially all of this increase, reflecting growth in revenue from our expanded product and geographic footprint, including the launch of our Sportsbook product in Connecticut, Louisiana, Kansas, New York and Ontario, Canada and the launch of our iGaming product in Connecticut and in Ontario, Canada since the nine months ended September 30, 2021.

The cost of revenue increase was primarily attributable to an increase in our variable expenses such as product taxes and payment processing fees, which increased by $253.5 million and $63.0 million, respectively, relative to the expenses incurred during the nine months ended September 30, 2021.

The remaining increase was primarily attributable to variable platform costs and revenue share arrangements resulting from additional customer activity.

B2C segment cost of revenue as a percentage of B2C revenue increased by 10.5 percentage points to 65.8% in the six months ended June 30, 2022, as compared to 55.3% in the six months ended June 30, 2021, reflecting our changed revenue mix from our more mature DFS product to our iGaming and Sportsbook products as well as higher promotional investment in the launches of our products in new states, principally the launch of our Sportsbook product in New York.

In addition, as a result of customer activity in these new states, we incurred variable expenses that are not based on net revenue, including payment processing fees, and revenue share arrangements.

B2C segment cost of revenue as a percentage of B2C revenue increased by 7.5 percentage points to 67.2% in the nine months ended September 30, 2022, as compared to 59.7% in the nine months ended September 30, 2021, reflecting our changed revenue mix from our more mature DFS product to our iGaming and Sportsbook products.

In addition, as a result of customer activity due to the launches of our products in new states, we incurred variable expenses that are not based on net revenue, including payment processing fees, and revenue share arrangements.

In general, our iGaming and Sportsbook products produce revenue at a higher cost per revenue dollar relative to our more mature DFS product.

Sales and Marketing.

Sales and marketing expense increased $119.6 million, or 29.9%, to $519.0 million in the six months ended June 30, 2022, from $399.4 million in the six months ended June 30, 2021.

Sales and marketing expense increased $137.6 million, or 19.6%, to $840.7 million in the nine months ended September 30, 2022, from $703.1 million in the nine months ended September 30, 2021.

Our B2C segment accounted for substantially all of this increase with $114.4 million of the increase resulting from activities to acquire and retain players in new states that we operate in, such as marketing costs including advertising and the development of marketing campaigns, as well as headcount and technology associated with analyzing, developing and deploying those campaigns.

The remainder of the increase primarily resulted from an increase in various team and league sponsorships.

Product and Technology.

Product and technology expense increased $39.8 million, or 33.5%, to $158.6 million in the six months ended June 30, 2022, from $118.8 million in the six months ended June 30, 2021, of which $6.6 million was attributable to our B2B segment.

Product and technology expense increased $50.8 million, or 27.6%, to $234.9 million in the nine months ended September 30, 2022, from $184.0 million in the nine months ended September 30, 2021, of which $7.2 million was attributable to our B2B segment.

The remaining increase of $43.6 million primarily reflects additions to our product operations and engineering headcount in our B2C segment.

General and Administrative.

General and administrative expense increased $36.4 million, or 9.9%, to $404.2 million in the six months ended June 30, 2022, from $367.8 million in the six months ended June 30, 2021.

Our B2C segment accounted for substantially all of this increase, primarily driven by an increase of $29.7 million in compensation costs due to an increase in headcount, as well as an increase in software and facility fees, which were partially offset by a decrease in stock-based compensation expense of $10.2 million.

General and administrative expense increased $3.0 million, or 0.5%, to $590.5 million in the nine months ended September 30, 2022, from $587.5 million in the nine months ended September 30, 2021.

Our B2C segment accounted for substantially all of this increase, primarily driven by an increase of $45.0 million in compensation costs due to an increase in headcount, as well as an increase in software and facility fees of $11.5 million, which were partially offset by a decrease in stock-based compensation expense of $50.9 million.

Gain (Loss) on Remeasurement of Warrant Liabilities.

We recorded a gain on remeasurement of warrant liabilities of $27.0 million in the six months ended June 30, 2022, compared to a loss of $10.0 million in the six months ended June 30, 2021 primarily due to changes in the underlying share price of our Class A common stock.

We recorded a gain on remeasurement of warrant liabilities of $20.2 million in the nine months ended September 30, 2022, compared to a loss of $2.9 million in the nine months ended September 30, 2021 primarily due to changes in the underlying share price of DraftKings Inc.’s Class A common stock.

Other Income .

Other income, net was $32.3 million in the six months ended June 30, 2022, as compared to no other income, net in the six months ended June 30, 2021.

Other income, net was $40.6 million in the nine months ended September 30, 2022, as compared to no other income, net in the nine months ended September 30, 2021.

This increase was primarily attributable to a change in the fair value of certain financial assets.

Income tax benefit .

We recorded an income tax benefit of $80.8 million in the six months ended June 30, 2022, as compared to an income tax benefit of $2.2 million in the six months ended June 30, 2021.

Income Tax (Benefit) Provision .

We recorded an income tax benefit of $77.6 million in the nine months ended September 30, 2022, as compared to an income tax provision of $1.7 million in the nine months ended September 30, 2021.

valuation allowance as a result of the preliminary purchase accounting for GNOG.

Net loss increased by $32.9 million to $684.8 million in the six months ended June 30, 2022, as compared to a net loss of $651.9 million in the six months ended June 30, 2021, for the reasons discussed above.

Net loss decreased by $61.6 million to $1,135.3 million in the nine months ended September 30, 2022, as compared to a net loss of $1,196.9 million in the nine months ended September 30, 2021, for the reasons discussed above.

Liquidity and Capital Resources

We had $1.5 billion in cash and cash equivalents as of June 30, 2022 (excluding player cash, which we segregate from our operating cash balances on behalf of our paid users for all jurisdictions and products).

We had $1.4 billion in cash and cash equivalents as of September 30, 2022 (excluding player cash, which we segregate from our operating cash balances on behalf of our paid users for all jurisdictions and products).

We believe our cash on hand is sufficient to meet our current working capital and capital expenditure requirements for a period of at least twelve months.

We will continue to evaluate our long-term operating performance and cash needs and believe we are well positioned to continue to fund the operations of the business long-term.

In March 2021, we issued zero-coupon convertible senior notes in an aggregate principal amount of $1,265.0 million.

In March 2021, we issued zero-coupon convertible senior notes in an aggregate principal amount of $1,265.0 million (the “Convertible Notes”).

The Convertible Notes mature on March 15, 2028, subject to earlier conversion, redemption or repurchase.

In connection with the pricing of the Convertible Notes and the exercise of the option to purchase additional Convertible Notes, we entered into privately negotiated Capped Call Transactions.

The Capped Call Transactions are expected generally to reduce potential dilution to our Class A common stock upon any conversion of the Convertible Notes.

In connection with the pricing of the Convertible Notes and the exercise of the option to purchase additional Convertible Notes, we entered into privately negotiated capped call transactions (the “Capped Call Transactions”).

The Capped Call Transactions are expected generally to reduce potential dilution to DraftKings Inc.’s Class A common stock upon any conversion of the Convertible Notes.

The net cost of $124.0 million incurred to enter into the Capped Call Transactions was recorded as a reduction to additional paid-in capital on the Company’s consolidated balance sheet.

As of September 30, 2022, the Convertible Notes, net of issuance costs, balance was $1,250.4 million.

We have lease arrangements for certain corporate office facilities, data centers, and motor vehicles.

As of June 30, 2022, the Company had lease obligations of $83.9 million, with $5.7 million payable within 12 months.

As of September 30, 2022, the Company had lease obligations of $81.7 million, with $5.6 million payable within 12 months.

Other Purchase Obligations .

We have certain non-cancelable contracts with vendors, licensors and others requiring us to make future cash payments.

As of June 30, 2022, these purchase obligations were $1,913.5 million, with $267.7 million payable in the remainder of 2022.

As of September 30, 2022, these purchase obligations were $1,831.6 million, with $164.2 million payable in the remainder of 2022.

The table below summarizes our cash flows for the periods indicated.

Due to the timing of the consummation of the GNOG Transaction, the below periods, to the extent applicable, exclude GNOG’s operations prior to the closing date of May 5, 2022.

Six months ended June 30,

Due to the timing of the consummation of the GNOG Transaction, the below periods, to the extent applicable, exclude GNOG’s operations prior to the GNOG Closing Date of May 5, 2022.

Nine months ended September 30,

(amounts in thousands) 2022 2021

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Operating Activities .

Net cash used in operating activities in the six months ended June 30, 2022 was $529.3 million, compared to $176.4 million in the six months ended June 30, 2021, mainly reflecting a decrease in operating working capital of $199.0 million primarily due to an increase in cash used in accounts payable, accrued expenses, liabilities to users, prepaid expenses and other current assets.

In addition, we incurred a $32.9 million higher net loss, for the reasons discussed above, net of non-cash cost items.

Non-cash cost items decreased $121.0 million period-over-period, primarily driven by deferred income taxes, a gain on remeasurement of warrants liabilities and a gain on various financial assets.

Net cash used in operating activities in the nine months ended September 30, 2022 was $477.1 million, compared to $247.3 million in the nine months ended September 30, 2021, mainly reflecting a decrease in operating working capital of $147.3 million primarily due to an increase in cash used in accounts payable, accrued expenses, liabilities to users and receivables reserved for users.

In addition, we incurred a $61.6 million lower net loss, for the reasons discussed above, net of non-cash cost items.

Non-cash cost items decreased $144.1 million period-over-period, primarily driven by deferred income taxes, a gain on various financial assets and a gain on remeasurement of warrants liabilities.

Investing Activities.

Net cash used in investing activities during the six months ended June 30, 2022 increased by $46.9 million to $147.5 million from $100.6 million during the same period in 2021, mainly reflecting an increase in cash paid for acquisitions during the six months ended June 30, 2022 when compared to the six months ended June 30, 2021.

Net cash used in investing activities during the nine months ended September 30, 2022 increased by $53.2 million to $171.9 million from $118.7 million during the same period in 2021, mainly reflecting an increase in cash paid for acquisitions during the nine months ended September 30, 2022 when compared to the nine months ended September 30, 2021.

Financing Activities.

Net cash provided by (used in) financing activities during the six months ended June 30, 2022 decreased by $1,144.4 million to $(12.5) million from $1,131.9 million during the same period in 2021, mainly reflecting the completion of our issuance of Convertible Notes during the three months ended March 31, 2021.

Net cash provided by (used in) financing activities during the nine months ended September 30, 2022 decreased by $1,151.0 million to $(16.8) million from $1,134.1 million during the same period in 2021, mainly reflecting the completion of our issuance of Convertible Notes during the three months ended March 31, 2021.

Commitments and Contingencies

Refer to Note 13 of our unaudited condensed consolidated financial statements included elsewhere in this Report for a summary of our commitments as of June 30, 2022.

Critical Accounting Policies

Refer to Note 13 of our unaudited condensed consolidated financial statements included elsewhere in this Report for a summary of our commitments as of September 30, 2022.

Critical Accounting Estimates

Our financial statements have been prepared in accordance with U.S.

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Actual results could differ materially from these estimates.

During the six months ended June 30, 2022, there were no changes to the critical accounting policies discussed 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.

During the nine months ended September 30, 2022, there were no changes to the critical accounting policies discussed 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.

Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in our exposure to market risk during the six months ended June 30, 2022.

There have been no significant changes in our exposure to market risk during the nine months ended September 30, 2022.

Refer to Item 7A.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis