What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-16 compared with 2023-02-17 · 71 added, 84 removed, 244 unchanged (39% of the section changed)

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We are a digital sports entertainment and gaming company.

We provide users with online sports betting (“Sportsbook”), online casino (“iGaming”) and daily fantasy sports (“DFS”) product offerings, as well as DraftKings Marketplace ("Marketplace"), retail sportsbook, media and other consumer product offerings.

We provide users with online sports betting (“Sportsbook”), online casino (“iGaming”) and daily fantasy sports (“DFS”) product offerings, as well as retail sportsbook, media and other consumer product offerings.

We are also involved in the design and development of sports betting and casino gaming software for online and retail sportsbooks and iGaming operators.

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Together, these investments have enabled us to create a leading product built on scalable technology, while attracting a user base that has resulted in the rapid growth of our business.

Our priorities are to (a) continue to invest in our product offerings, (b) launch our product offerings in new jurisdictions, (c) create replicable and predictable state-level unit economics in sports betting and iGaming and (d) expand our other online consumer product offerings.

Our priorities are to (a) continue to invest in our product offerings, (b) launch our product offerings in new jurisdictions, (c) create replicable and predictable state-level unit economics in Sportsbook and iGaming and (d) expand our other consumer product offerings.

When we launch our Sportsbook and iGaming product offerings in a new jurisdiction, we invest heavily in user acquisition, retention and cross-selling until the new jurisdiction provides a critical mass of users engaged across our product offerings.

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We will continue to manage our fixed-cost base in conjunction with our market entry plans and focus our variable spend on marketing, user experience and support and regulatory compliance to become the product of choice for users and maintain favorable relationships with regulators.

We also expect to improve our profitability over time as our revenue and gross profit expand as states mature, and our variable marketing expenses and fixed costs stabilize or grow at a slower rate.

Our path to profitability is based on the acceleration of positive contribution profit growth driven by increased revenue and gross profit generation from ongoing efficient customer acquisition enabled by the transition from local to regional to national advertising, strong customer retention, improved monetization from frequency and higher hold percentage, as well as scale benefits from investments in our product and technology and general and administrative functions.

On a consolidated Adjusted EBITDA basis, we expect to achieve profitability when total contribution profit exceeds the fixed costs of our business, which

depends, in part, on the percentage of the U.S.

We also expect to improve our profitability on an annual basis over time as our revenue and gross profit expand as states mature, and our variable marketing expenses and fixed costs stabilize or grow at a slower rate.

Our path to profitability on an annual basis is based on the acceleration of positive contribution profit growth driven by increased revenue and gross profit generation from ongoing efficient customer acquisition enabled by the transition from local to regional to national advertising, strong customer retention, improved monetization from frequency and higher hold percentage, as well as scale benefits from investments in our product and technology and general and administrative functions.

On a consolidated Adjusted EBITDA basis, we expect to achieve profitability on an annual basis when total contribution profit

exceeds the fixed costs of our business, which depends, in part, on the percentage of the U.S.

adult population that has access to our product offerings and the other factors summarized in the section entitled “Cautionary Statement Regarding Forward-Looking Statements”.

Impact of COVID-19

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 product offerings.

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

In the year ended December 31, 2022, sports seasons continued, and sporting events were held as planned, including the NFL regular season, the NFL Playoffs and Superbowl LVI, the NBA regular season and playoffs, the FIFA World Cup 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 product offerings.

However, the possibility remains that sports seasons and sporting events may be suspended, cancelled, rescheduled or shortened due to COVID-19 outbreaks.

Our 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 our revenue, possibly materially.

However, our product offerings that do not rely on sports seasons and sporting events, such as iGaming, may partially offset this adverse impact on revenue.

A significant or prolonged decrease in consumer spending on entertainment or leisure activities would also likely have an adverse effect on demand for our product offerings, reducing cash flows and revenues, and thereby materially harming our 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, 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.

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 and the emergence of additional variants or strains thereof.

Financial Highlights and Trends

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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 $944.4 million in 2022, compared to 2021, primarily due to the strong performance of our Sportsbook and iGaming product offerings as a result of robust customer acquisition and retention, the successful launches of those product offerings in additional jurisdictions and reduced promotional intensity.

Revenue increased by $1,424.9 million in 2023, compared to 2022, primarily due to the strong performance of our Sportsbook and iGaming product offerings as a result of robust customer acquisition and retention, the successful launches of those product offerings in additional jurisdictions, and improved promotional reinvestment for Sportsbook and iGaming.

Key Performance Indicators

Monthly Unique Payers (“MUPs”) .

We define MUPs as the number of unique paid users per month who had one or more real-money, paid engagements across one or more of our Sportsbook, iGaming, DFS, or Marketplace product offerings via our technology.

We define MUPs as the number of unique paid users per month who had one or more real-money, paid engagements across one or more of our Sportsbook, iGaming, DFS, or other consumer product offerings via our technology.

For reported periods longer than one month, we average the MUPs for the months in the reported period.

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The increase in MUPs for 2023, compared to 2022, primarily reflects strong unique payer retention and acquisition across our Sportsbook and iGaming product offerings as well as the expansion of our Sportsbook and iGaming product offerings into new jurisdictions, partially offset by a decline in DFS MUPs.

ARPMUP increased in 2022 compared to 2021, primarily due to structural improvement in our Sportsbook hold rates, reduced promotional intensity, and a continued mix shift into our Sportsbook and iGaming product offerings, as well as favorable sport outcomes.

ARPMUP increased in 2023 compared to 2022, primarily due to structural improvement in our Sportsbook hold rate and improved promotional reinvestment for Sportsbook and iGaming.

Non-GAAP Information

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Adjusted EBITDA

The table below presents our Adjusted EBITDA reconciled to our net loss, which is the most directly comparable financial measure calculated in accordance with U.S.

GAAP, for the periods indicated:

The table below presents our net loss, which is the most directly comparable financial measure calculated in accordance with U.S.

GAAP, reconciled to Adjusted EBITDA for the periods indicated:

Year Ended December 31,

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— 16,558 40,415

(Gain) loss on remeasurement of warrant liabilities (29,396) (30,065) 387,565

Loss (gain) on remeasurement of warrant liabilities 57,543 (29,396) (30,065)

Other non-recurring, special project and non-operating (income) costs (6)

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(1) The amounts include the amortization of acquired intangible assets of $117.3 million, $106.1 million, and $80.1 million for 2023, 2022, and 2021, respectively.

(2) Reflects stock-based compensation expenses resulting from the issuance of awards under incentive plans, and, in 2020, the issuance of our shares of Class B common stock (which have no economic or conversion rights) to our Chief Executive Officer.

(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, including costs relating to the GNOG Transaction in 2022 and 2021 and the SBTech Acquisition in 2020.

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

(4) Primarily includes external legal costs related to litigation and litigation settlement costs deemed unrelated to our core business operations.

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

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

This adjustment excludes (i) costs relating to advocacy efforts and other legal expenses in jurisdictions where we do not operate that are incurred in the ordinary course of business and (ii) costs relating to advocacy efforts and other legal expenses incurred in jurisdictions where related legislation has been passed and we currently operate.

For 2022, those costs primarily related to our support of Proposition 27 in California.

For 2021, those costs primarily related to our support of Proposition 27 in California and our support of the sports betting ballot initiative in Florida.

The amounts presented exclude (i) costs relating to advocacy efforts and other legal expenses in jurisdictions where we do not operate that are incurred in the ordinary course of business and (ii) 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 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 and the SBTech Acquisition, the above periods, to the extent applicable, exclude GNOG’s operations prior to the GNOG Closing Date of May 5, 2022 and exclude SBTech’s operations prior to the SBTech Closing Date of April 24, 2020.

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.

Key Factors Affecting Our Results

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In addition, our growth prospects may suffer if we are unable to develop successful product offerings or if we fail to pursue additional product offerings.

Further, if we fail to make the right investment decisions in our product offerings, technology and services, we may not effectively attract and retain users and our revenue and results of operations may decline.

Legalization, Regulation and Taxation

Our growth prospects depend on the legalization of online sports betting and iGaming in additional jurisdictions, predominantly within the United States.

Our strategy is to expand our Sportsbook and iGaming product offerings in new jurisdictions as they are legalized and become accessible to the extent it is economically beneficial to do so.

Our strategy is to expand our Sportsbook and iGaming product offerings into new jurisdictions as they are legalized and become accessible to the extent it is economically beneficial to do so.

As of February 13, 2024, 35 U.S.

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Of those 32 jurisdictions, 31 are live, and DraftKings operates in 24 of them.

In addition, as of February 15, 2023, 6 U.S.

states have legalized some form of iGaming.

Of those 6 jurisdictions, all of them are live and DraftKings operates in 5 of them.

We also operate our Sportsbook and iGaming product offerings in Ontario, Canada.

jurisdictions with statutes legalizing iGaming are Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, Rhode Island and West Virginia.

The process of securing the necessary licenses or partnerships to operate in each jurisdiction may take longer than we anticipate.

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States that have established state-run monopolies may limit opportunities for private sector participants like us.

We nonetheless believe our proprietary gaming software allows us to become a partner of choice to power state-run sportsbooks.

We nonetheless believe our proprietary gaming software positions us to become a partner of choice to power state-run sportsbooks.

States impose taxes on regulated offerings, the rates of which may vary substantially between states and product offerings.

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We grow our business by attracting new paid users to our product offerings and increasing their level of engagement with our product offerings over time.

To effectively attract and retain paid users and to re-engage former paid users, we invest in a variety of marketing channels in combination with personalized customer promotions, most of which can be used across all of our product offerings (such as free contest entries or bets or matching deposits).

To effectively attract and retain paid users and to re-engage former paid users, we invest in a

variety of marketing channels in combination with personalized customer promotions, most of which can be used across all of our product offerings (such as free contest entries or bets or matching deposits).

These investments and personalized promotions are intended to increase consumer awareness and drive engagement.

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Our revenue is impacted by variations in the hold percentage (the ratio of net win to total amount wagered) on bets placed on, or the actual outcome of, games or events on which users bet.

Although our product offerings generally perform within a defined statistical range of outcomes, actual outcomes may vary for any given period, and a single large bet can have a sizeable impact on our short-term financial performance.

Although our product offerings generally perform within a defined statistical range of outcomes, actual outcomes may vary for any given period, and a single large bet or the result of a significant sporting event can have a sizeable impact on our short-term financial performance.

Our hold is also affected by factors that are beyond our control, such as a user’s experience and behavior, the mix of games played, the financial resources of users and the volume of bets placed.

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The following table sets forth a summary of our consolidated results of operations for the years 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 GNOG Closing Date of May 5, 2022.

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

Year ended December 31,

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Interest income (expense), net 55,739 18,702 37,037 198.0 %

Gain (loss) on remeasurement of warrant liabilities 29,396 30,065 (669) (2.2) %

Other income, net 20,700 11,951 8,749 73.2 %

(Loss) gain on remeasurement of warrant liabilities (57,543) 29,396 (86,939) (295.8) %

Other (loss) income, net (224) 20,700 (20,924) (101.1) %

Loss before income tax (benefit) provision and loss from equity method investment (791,253) (1,442,958) 651,705 45.2 %

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Revenue increased $1,424.9 million, or 63.6%, to $3,665.4 million in 2023, from $2,240.5 million in 2022.

The increase was primarily attributable to our online gaming revenues which increased $961.2 million, or 83.9%, to $2,106.7 million in 2022 due to MUPs increasing by 28.3% and ARPMUP increasing by 43.3%, in each case as compared to 2021.

MUPs and ARPMUP increased primarily due to strong player retention and acquisition across our Sportsbook and iGaming product offerings, as well as the expansion of our Sportsbook and iGaming product offerings into new jurisdictions, a continued mix shift into our Sportsbook and iGaming product offerings and reduced promotional intensity.

The increase was primarily attributable to our online gaming revenues, which increased $1,450.5 million, or 68.9%, to $3,557.2 million in 2023 primarily due to MUPs increasing by 39.5% as compared to 2022.

The increase in MUPs was due to strong player retention and acquisition across our Sportsbook and iGaming product offerings, as well as the expansion of our Sportsbook and iGaming product offerings into new jurisdictions.

Online gaming revenues also increased due to structural improvement in our Sportsbook hold rate and improved promotional reinvestment for our Sportsbook and iGaming product offerings, which contributed to ARPMUP growth of 17.7% compared to 2022.

Cost of Revenue.

Cost of revenue increased $807.9 million, or 54.4%, to $2,292.2 million in 2023, from $1,484.3 million in 2022.

Our online gaming product offerings accounted for substantially all of this increase, reflecting growth in revenue from our expanded product and jurisdictional footprint, including the launch of our Sportsbook product offering in New York, Louisiana, Kansas, Maryland, and Ontario, Canada and the launch of our iGaming product offering in Ontario, Canada since the beginning of 2022.

In particular, the cost of revenue increase was primarily attributable to an increase in our variable expenses, such as product taxes and payment processing fees that increased $401.7 million and $77.9 million, respectively, and the remaining increase was primarily attributable to an increase in our variable platform costs and revenue share arrangements resulting from additional customer activity.

Cost of revenue as a percentage of revenue increased to 66.2% in 2022 from 61.2% in 2021, reflecting, in part, our changed revenue mix from our more mature DFS product to our iGaming and Sportsbook product offerings, which in general, produce revenue at a higher cost per revenue dollar relative to our more mature DFS product.

Our online gaming product offerings accounted for substantially all of this increase, reflecting growth in revenue from our expanded product and jurisdictional footprint, including the launch of our Sportsbook product offering in Kentucky, Maine, Maryland, Massachusetts, and Ohio in 2023.

In particular, 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 $516.1 million and

$107.3 million, respectively.

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

Cost of revenue as a percentage of revenue decreased by 3.7 percentage points to 62.5% in 2023 from 66.2% in 2022, reflecting, in part, structural improvement in our Sportsbook hold rate and improved promotional reinvestment for our Sportsbook and iGaming product offerings, partially offset by a change in revenue mix from our more mature DFS product offering to our Sportsbook and iGaming product offerings, which, in general, produce revenue at a higher cost per revenue dollar relative to our more mature DFS product offering.

Sales and Marketing.

Sales and marketing expense increased $14.7 million, or 1.2%, to $1,200.7 million in 2023, from $1,186.0 million in 2022.

The increase was primarily attributable to an increase of $133.9 million in advertising costs spent to acquire users, as well as an increase in compensation and technology costs associated with analyzing, developing and deploying those advertising campaigns.

The increase was primarily attributable to an increase of $19.5 million in advertising costs spent to acquire users, partially offset by a reduction in compensation expense.

Product and Technology.

Product and technology expense increased $36.9 million, or 11.6%, to $355.2 million in 2023 from $318.2 million in 2022.

The increase primarily reflects additions to our product operations and engineering headcount.

The increase primarily reflects an increase of $35.1 million in compensation expense due to increases in our product operations and engineering headcount.

General and Administrative.

General and administrative expense decreased $157.2 million, or 20.6%, to $606.6 million in 2023 from $763.7 million in 2022.

This decrease was primarily driven by a decrease in stock-based compensation expense of

$100.4 million, partially offset by an increase in cash-based compensation expense due to an increase in headcount and an increase in software and facility fees.

This decrease was primarily driven by a decrease in stock-based compensation expense of $174.1 million, a reduction in transaction-related costs of $14.3 million and a reduction in advocacy expense of $16.6 million partially offset by an increase in non-core litigation costs of $27.5 million and in cash-based compensation expense due to an increase in headcount.

Gain on Remeasurement of Warrant Liabilities.

We recorded a gain on remeasurement of warrant liabilities of $29.4 million in 2022, compared to a gain of $30.1 million in 2021 primarily due to changes in the underlying share price of our Class A common stock.

We recorded a loss on remeasurement of warrant liabilities of $57.5 million in 2023, compared to a gain of $29.4 million in 2022 primarily due to changes in the underlying share price of our Class A common stock.

Other Income, net .

Other income, net was $20.7 million in 2022, as compared to $12.0 million in 2021.

This increase was primarily attributable to an increase in certain Level 1 and Level 3 financial assets recorded at fair value.

Other income (loss), net was a loss of $0.2 million in 2023, as compared to income of $20.7 million in 2022.

This decrease was primarily attributable to an increase in the fair value of certain financial assets recorded in 2022.

Income Tax (Benefit) Provision .

We recorded an income tax benefit of $67.9 million in 2022, as compared to an income tax provision of $8.3 million in 2021.

This decrease to tax provision was primarily due to a discretely recorded income tax benefit of $70.1 million, which was attributable to non-recurring partial releases of the Company’s U.S.

valuation allowance as a result of the GNOG purchase price allocation.

We recorded an income tax provision of $10.2 million in 2023, as compared to an income tax benefit of $67.9 million in 2022.

This change was primarily due to a discretely recorded income tax benefit of $70.1 million, which was attributable to non-recurring partial releases of the Company’s U.S.

valuation allowance as a result of the GNOG purchase price allocation in 2022.

Net loss improved by $575.8 million to $802.1 million in 2023 from $1,378.0 million in 2022 for the reasons discussed above.

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Liquidity and Capital Resources

We had $1.3 billion in cash and cash equivalents as of December 31, 2022 (excluding player cash, which we segregate from our operating cash balances on behalf of our paid users for all jurisdictions and product offerings).

We had $1.3 billion in cash and cash equivalents as of December 31, 2023 (excluding restricted cash and cash reserved for users, which we segregate on behalf of our paid users for all jurisdictions and product offerings).

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.

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 our business long-term.

Our material cash requirements include the following contractual and other obligations.

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

As of December 31, 2022, the Company had lease obligations o f $97.7 million, with $8.7 million payable within 12 months.

As of December 31, 2023, the Company had lease commitments o f $117.8 million, with $16.5 million payable within twelve months.

Other Purchase Obligations .

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

As of December 31, 2022, these purchase obligations wer e $1,706.2 million, with $447.6 million payable within 12 months.

As of December 31, 2023, these purchase obligations wer e $1,404.6 million, with $467.6 million payable within twelve months.

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

Due to the timing of the consummation of the GNOG Transaction and the SBTech Acquisition, the below periods, to the extent applicable, exclude GNOG’s operations prior to the GNOG Closing Date of May 5, 2022 and exclude SBTech’s operations prior to the SBTech Closing Date of April 24, 2020.

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

Year ended December 31,

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Net cash (used in) provided by financing activities (63,221) (16,732) 1,138,813

Effect of foreign exchange rates on cash and cash equivalents and restricted cash — 583 (358)

Net increase (decrease) in cash and cash equivalents and restricted cash (851,017) 524,866 1,884,443

Cash and cash equivalents and restricted cash at beginning of period 2,629,842 2,104,976 220,533

Cash and cash equivalents and restricted cash at end of period $ 1,778,825 $ 2,629,842 $ 2,104,976

Effect of foreign exchange rates on cash and cash equivalents, restricted cash, and cash reserved for users — — 583

Net (decrease) increase in cash and cash equivalents, restricted cash, and cash reserved for users (155,332) (851,017) 524,866

Cash and cash equivalents, restricted cash, and cash reserved for users at beginning of period 1,778,825 2,629,842 2,104,976

Cash and cash equivalents, restricted cash, and cash reserved for users at end of period $ 1,623,493 $ 1,778,825 $ 2,629,842

2023 Compared to 2022

Operating Activities .

Net cash used in operating activities in 2022 was $625.5 million, compared to $419.5 million in 2021, reflecting a decrease in cash from changes in operating assets and liabilities of $235.0 million, primarily due to faster servicing of our accounts payable and higher deposit volume from our users increasing our receivables reserved for users balance.

This cash usage is partially offset by an improvement in our net loss, adjusted for non-cash items, of $29.0 million.

Net cash used in operating activities in 2023 was $1.8 million, compared to $625.5 million in 2022, primarily reflecting an improvement in net loss, net of non-cash items, of $610.6 million for the reasons described above, slightly offset by changes in operating assets and liabilities.

Investing Activities .

Net cash used in investing activities in 2022 decreased by $13.7 million to $208.8 million from $195.0 million in 2021, mainly reflecting an increase in cash paid for property, equipment, and internally developed software costs of $34.0 million partially offset by a decrease in cash paid for gaming licenses and financial assets of $50.5 million.

Net cash used in investing activities in 2023 decreased by $118.4 million to $90.4 million from $208.8 million in 2022, mainly reflecting $24.4 million of proceeds from the sale of marketable equity securities and other financial assets in 2023 and a reduction of $96.5 million from cash paid for acquisitions, net of cash acquired, related to the GNOG Transaction in 2022, partially offset by an increase in cash paid for internally developed software.

Financing Activities.

Net cash used in financing activities in 2022 decreased by $1,155.5 million from cash provided by financing activities of $1,138.8 million in 2021 to cash used in financing activities of $16.7 million in 2022, mainly reflecting the completion of our issuance of Convertible Notes in the first quarter of 2021.

Net cash used in financing activities in 2023 increased by $46.5 million to $63.2 million from $16.7 million in 2022, primarily reflecting an increase in purchases of treasury stock of $54.5 million related to the satisfaction of withholding taxes due upon the vesting of restricted stock units, offset by an increase in proceeds from the exercise of stock options.

2022 Compared to 2021

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Our loss contingencies, which are included within the “other long-term liabilities” caption on our consolidated balance sheets, are uncertain by nature and their estimation requires significant management judgment as to the probability of loss and estimation of the amount of loss.

These contingencies include, but may not be limited to, litigation, regulatory investigations and proceedings and management’s evaluation of complex laws and regulations, including those relating to indirect taxes, and

the extent to which they may apply to our business and industry.

See Notes 7 and 15 to our consolidated financial statements for more information.

We regularly review our contingencies to determine whether the likelihood of loss is probable and to assess whether a reasonable estimate of the loss can be made.

We regularly review our contingencies to determine whether the likelihood of loss is probable or reasonably possible and to assess whether a reasonable estimate of the loss can be made.

Determination of whether a loss estimate can be made is a complex undertaking that considers the judgment of management, third-party research, the prospect of negotiation and interpretations by regulators and courts, among other information.

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Goodwill is tested for impairment at the reporting unit level, which is the same or one level below an operating segment.

In accordance with ASC Topic 350 Intangibles - Goodwill and Other, our business is classified into three reporting units:

(i) business-to-consumer (“B2C”), which includes our Online Sportsbook, iGaming, DFS, Marketplace, and retail sportsbook product offerings, (ii) media, and (iii) business-to-business (“B2B”), which includes our gaming software services.

In accordance with ASC Topic 350 Intangibles - Goodwill and Other, our business is classified into one reporting unit.

Prior to October 1, 2023, the Company had three reporting units to which goodwill was allocated.

On October 1, 2023, the Company reassessed its reporting units and determined it operated as a single reporting unit.

In accordance with ASC 350, because such reassessment redefined previously determined reporting units, all goodwill was reassigned to the consolidated reporting unit.

We review and evaluate our goodwill and indefinite life intangible assets for potential impairment at a minimum annually, in the fourth quarter, or more frequently if circumstances indicate that impairment is possible.

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If we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then perform a quantitative goodwill impairment analysis by comparing the carrying amount to the fair value of the reporting unit.

In estimating the fair value of the reporting unit, we may use key assumptions such as revenue growth rates, gross margin, and estimated costs for future periods and well as peer group market valuation multiples and discount rates.

If the carrying amount exceeds the fair value, goodwill will be written down to the fair value and recorded as impairment expense in the consolidated statements of operations.

We perform our impairment testing annually and when circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

We performed our annual impairment assessment of goodwill as of October 1, 2022 and concluded that goodwill was not impaired.

We performed our annual impairment assessment of goodwill as of October 1, 2023, which included consideration of the change in reporting units, and concluded that goodwill was not impaired.

Business Combinations

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Stock-based Compensation

Our historical and outstanding stock-based compensation awards, including the issuances of options and other stock awards under our equity compensation plans, have typically included service-based, performance-based or market-based vesting conditions.

For awards with only service-based vesting conditions, we record compensation cost for these awards using the straight-line method less an assumed forfeiture rate.

For awards with performance-based or market-based vesting conditions, we recognize compensation cost on a tranche-by-tranche basis (the accelerated attribution method).

For awards with performance-based or market-based vesting conditions, we recognize compensation cost on a tranche-by-tranche basis (the accelerated attribution method), based on the probability of achieving the performance criteria.

Stock-based compensation expense is measured based on the grant-date fair value of the stock-based awards and is recognized over the requisite service period of the awards.

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Following the DEAC Business Combination, the fair value of our Class A common stock is determined based on the quoted market price.

To estimate the fair value of stock option awards, the Black-Scholes model and a Monte Carlo simulation were used to determine the fair value of grants with market-based conditions.

Both the Black-Scholes model and the Monte Carlo simulation requires management to make a number of key assumptions, including expected volatility, expected term, risk-free interest rate and expected dividends.

To estimate the fair value of stock option awards, the Black-Scholes model is used to determine the fair value of grants with market-based conditions.

The Black-Scholes model requires management to make a number of key assumptions, including risk-free interest rate, expected term, and expected volatility.

The risk-free interest rate is estimated using the rate of return on U.S.

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The expected term assumption used in the Black-Scholes model represents the period of time that the options are expected to be outstanding and is estimated using the midpoint between the requisite service period and the contractual term of the option.

The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment.

As a result, if factors or expected outcomes change and our management uses significantly different assumptions or estimates, our stock-based compensation expense for future periods could be materially different, including as a result of adjustments to stock-based compensation expense recorded for prior period.

Expected volatility is based on an average volatility for a representative sample of comparable public companies, including the Company’s own.

The assumptions underlying these valuations and management’s assessment of achieving the performance criteria represent management’s best estimates, which involve inherent uncertainties and the application of management judgment.

As a result, if factors, probabilities, or expected outcomes change and our management uses significantly different assumptions or estimates, our stock-based compensation expense for future periods could be materially different.

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-K

Item 7. Management’s Discussion and Analysis