DraftKings Inc. 10-Q

Item 1. Financial Statements. DRAFTKINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except par value) March 31, 2024 (Unaudited) December 31, 2023 Assets Current assets: Cash and cash equivalents $ 1,192,662 $ 1,270,503 Restricted cash 12,454 11,700 Cash reserved for users 278,141 341,290 Receivables reserved for users 265,961 301,770 Accounts receivable 53,321 47,539 Prepaid expenses and other current assets 135,434 98,565 Total current assets 1,937,973 2,071,367 Property and equipment, net 59,797 60,695 Intangible assets, net 682,350 690,620 Goodwill 886,373 886,373 Operating lease right-of-use assets 90,554 93,985 Equity method investments 11,380 10,280 Deposits and other non-current assets 132,226 131,546 Total assets $ 3,800,653 $ 3,944,866 Liabilities and Stockholders’ equity Current liabilities: Accounts payable and accrued expenses $ 605,880 $ 639,599 Liabilities to users 770,535 851,898 Operating lease liabilities, current portion 11,274 11,499 Other current liabilities 53,921 46,624 Total current liabilities 1,441,610 1,549,620 Convertible notes, net of issuance costs 1,254,408 1,253,760 Non-current operating lease liabilities 78,930 80,827 Warrant liabilities 35,485 63,568 Long-term income tax liability 71,283 72,810 Other long-term liabilities 87,958 83,975 Total liabilities $ 2,969,674 $ 3,104,560 Commitments and contingent liabilities (Note 11) Stockholders' equity: Class A common stock, $ 0.0001 par value; 900,000 shares authorized as of March 31, 2024 and December 31, 2023; 488,750 and 484,598 shares issued and 476,067 and 472,697 outstanding as of March 31, 2024 and December 31, 2023, respectively $ 46 $ 46 Class B common stock, $ 0.0001 par value; 900,000 shares authorized as of March 31, 2024 and December 31, 2023; 393,014 shares issued and outstanding as of March 31, 2024 and December 31, 2023 39 39 Treasury stock, at cost; 12,683 and 11,901 shares as of March 31, 2024 and December 31, 2023, respectively ( 445,681 ) ( 412,182 ) Additional paid-in capital 7,316,598 7,149,858 Accumulated deficit ( 6,076,511 ) ( 5,933,943 ) Accumulated other comprehensive income 36,488 36,488 Total stockholders’ equity $ 830,979 $ 840,306 Total liabilities and stockholders’ equity $ 3,800,653 $ 3,944,866 See accompanying notes to unaudited condensed consolidated financial statements. 2 DRAFTKINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except loss per share data) Three months ended March 31, 2024 2023 Revenue $ 1,174,996 $ 769,652 Cost of revenue 710,069 521,740 Sales and marketing 340,699 389,133 Product and technology 88,815 88,088 General and administrative 174,251 160,476 Loss from operations ( 138,838 ) ( 389,785 ) Other income (expense): Interest income 15,067 11,795 Interest expense ( 649 ) ( 655 ) Loss on remeasurement of warrant liabilities ( 18,094 ) ( 17,035 ) Other (loss) gain, net ( 735 ) 19 Loss before income tax (benefit) provision and (income) loss from equity method investment ( 143,249 ) ( 395,661 ) Income tax (benefit) provision ( 351 ) 1,368 (Income) loss from equity method investment ( 330 ) 119 Net loss attributable to common stockholders $ ( 142,568 ) $ ( 397,148 ) Loss per share attributable to common stockholders: Basic and diluted $ ( 0.30 ) $ ( 0.87 ) See accompanying notes to unaudited condensed consolidated financial statements. 3 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, 2023 472,697 $ 46 393,014 $ 39 $ 7,149,858 $ ( 5,933,943 ) $ 36,488 $ ( 412,182 ) $ 840,306 Exercise of stock options 630 — — — 2,857 — — — 2,857 Stock-based compensation expense — — — — 117,702 — — — 117,702 Exercise of warrants 1,002 — — — 46,181 — — — 46,181 Purchase of treasury stock ( 782 ) — — — — — — ( 33,499 ) ( 33,499 ) Restricted stock unit vesting 2,520 — — — — — — — — Net loss — — — — — ( 142,568 ) — — ( 142,568 ) Balances at March 31, 2024 476,067 $ 46 393,014 $ 39 $ 7,316,598 $ ( 6,076,511 ) $ 36,488 $ ( 445,681 ) $ 830,979 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, 2022 450,575 $ 45 393,014 $ 39 $ 6,750,055 $ ( 5,131,801 ) $ 36,488 $ ( 332,133 ) $ 1,322,693 Exercise of stock options 701 — — — 2,192 — — — 2,192 Stock-based compensation expense — — — — 117,400 — — — 117,400 Purchase of treasury stock ( 1,399 ) — — — — — — ( 27,358 ) ( 27,358 ) Restricted stock unit vesting 11,757 1 — — — — — — 1 Net loss — — — — — ( 397,148 ) — — ( 397,148 ) Balances at March 31, 2023 461,634 $ 46 393,014 $ 39 $ 6,869,647 $ ( 5,528,949 ) $ 36,488 $ ( 359,491 ) $ 1,017,780 See accompanying notes to unaudited condensed consolidated financial statements. 4 DRAFTKINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands) Three months ended March 31, 2024 2023 Cash Flows from Operating Activities: Net loss attributable to common shareholders $ ( 142,568 ) $ ( 397,148 ) Adjustments to reconcile net loss to net cash flows used in operating activities: Depreciation and amortization 53,180 48,213 Non-cash interest expense, net 59 157 Stock-based compensation expense 93,535 117,400 Loss on remeasurement of warrant liabilities 18,094 17,035 (Gain) loss from equity method investment ( 330 ) 119 Loss on marketable equity securities and other financial assets, net — 136 Deferred income taxes 540 2,254 Other expenses, net 627 ( 2,726 ) Change in operating assets and liabilities: Receivables reserved for users 35,809 35,547 Accounts receivable ( 5,782 ) 9,674 Prepaid expenses and other current assets ( 29,572 ) ( 10,069 ) Deposits and other non-current assets ( 202 ) ( 3,464 ) Operating leases, net 34 1,864 Accounts payable and accrued expenses ( 14,341 ) ( 6,292 ) Liabilities to users ( 81,363 ) ( 15,717 ) Long-term income tax liability ( 1,527 ) ( 620 ) Other long-term liabilities 3,412 2,145 Net cash flows used in operating activities $ ( 70,395 ) $ ( 201,492 ) Cash Flows from Investing Activities: Purchases of property and equipment ( 3,025 ) ( 7,094 ) Cash paid for internally developed software costs ( 22,665 ) ( 19,419 ) Acquisition of gaming licenses ( 11,594 ) ( 1,362 ) Other investing activities, net ( 1,915 ) 311 Net cash flows used in investing activities $ ( 39,199 ) $ ( 27,564 ) Cash Flow from Financing Activities: Purchase of treasury stock ( 33,499 ) ( 27,358 ) Proceeds from exercise of stock options 2,857 2,192 Net cash flows used in financing activities $ ( 30,642 ) $ ( 25,166 ) Net decrease in cash and cash equivalents, restricted cash, and cash reserved for users ( 140,236 ) ( 254,222 ) Cash and cash equivalents, restricted cash, and cash reserved for users at the beginning of period 1,623,493 1,778,825 Cash and cash equivalents, restricted cash, and cash reserved for users at the end of period $ 1,483,257 $ 1,524,603 Disclosure of cash and cash equivalents, restricted cash, and cash reserved for users Cash and cash equivalents $ 1,192,662 $ 1,087,668 Restricted cash 12,454 — Cash reserved for users 278,141 436,935 Cash and cash equivalents, restricted cash, and cash reserved for users at the end of period $ 1,483,257 $ 1,524,603 Supplemental Disclosure of Noncash Investing and Financing Activities: Investing activities included in accounts payable and accrued expenses $ 688 $ ( 679 ) Decrease of warrant liabilities from cashless exercise of warrants $ 46,181 $ — Supplemental Disclosure of Cash Activities: Decrease in cash reserved for users $ ( 63,149 ) $ ( 32,718 ) Cash paid for interest $ — $ — See accompanying notes to unaudited condensed consolidated financial statements. 5 DRAFTKINGS INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except loss per share data, unless otherwise noted) 1. Description of Business 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 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. In May 2018, the Supreme Court (the “Court”) struck down on constitutional grounds the Professional and Amateur Sports Protection Act of 1992, a law that prohibited most states from authorizing and regulating sports betting. As of March 31, 2024, 35 U.S. states, the District of Columbia and Puerto Rico have legalized some form of sports betting. Of those 37 legal jurisdictions, 32 have legalized online sports betting. All 32 of those jurisdictions are live, and DraftKings operates in 25 of them. The U.S. jurisdictions with statutes legalizing iGaming are Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, Rhode Island and West Virginia. As of March 31, 2024, we operate our Sportsbook product offering in Arizona, Colorado, Connecticut, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Vermont, Virginia, West Virginia, Wyoming and Ontario, Canada, and we operate retail sportsbooks in Arizona, Colorado, Connecticut, Illinois, Iowa, Kansas, Kentucky, Louisiana, Michigan, Mississippi, New Hampshire, New Jersey and Washington. As of March 31, 2024, we operate our iGaming product offering in Connecticut, Michigan, New Jersey, Pennsylvania, West Virginia and 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. Pending Acquisition of JackPocket Inc. (“Jackpocket”) On February 11, 2024, the Company entered into a definitive agreement (the “Merger Agreement”) to acquire Jackpocket for total consideration of $ 750 million, with approximately 55 percent of the consideration payable in cash funded from the Company’s existing cash and cash equivalents balance, and approximately 45 percent of the consideration payable in the Company’s Class A common stock, subject to customary purchase price adjustments and the collar mechanism described below (the “Jackpocket Transaction”). Under the terms of the Merger Agreement and subject to the terms and conditions set forth therein, the stock consideration will be subject to a collar pursuant to which a variable number of shares of DraftKings’ Class A common stock will be issued to Jackpocket stockholders in order to deliver a value of $ 337.5 million, so long as the 30 -trading-day volume weighted average price of DraftKings’ Class A common stock as of the second trading day immediately preceding the closing of the Jackpocket Transaction (the “Closing Stock Price”) remains between $ 31.68 and $ 42.86 . In the event that DraftKings’ Closing Stock Price is above $ 42.86 or below $ 31.68 , Jackpocket stockholders will receive a fixed number of approximately 7,874,806 shares and 10,654,149 shares, respectively, of DraftKings’ Class A common stock, subject to adjustment in certain limited circumstances to the minimum extent necessary to maintain a tax-free transaction. The consummation of the Jackpocket Transaction is subject to the receipt of required regulatory approvals and other customary closing conditions. 2. Summary of Significant Accounting Policies and Practices 6 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 of America (“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, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and related notes as of and for the fiscal year ended December 31, 2023, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on February 16, 2024 (the “2023 Annual Report”). These 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 the timing of various sports seasons, sporting events and other factors. All intercompany accounts and transactions are eliminated upon consolidation. Certain amounts, which are not material, in the prior year’s consolidated financial statements have been reclassified to conform to the current year's presentation. Recently Issued Accounting Pronouncements Not Yet Adopted In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , designed to improve reportable segment disclosures. The guidance expands the disclosures required for reportable segments in our annual and interim consolidated financial statements, primarily through enhanced disclosures about significant segment expenses. The standard will be effective for us beginning with our annual reporting for fiscal year 2024 and interim periods thereafter, with early adoption permitted. We are currently evaluating the impact of this standard on our segment disclosures. In December 2023, the FASB issued ASU 2023-08, Accounting for and Disclosure of Crypto Assets (Topic 820) , a new standard designed to enhance decision-useful information about such assets and to better reflect the underlying economics of cryptocurrency transactions. The standard will be effective for us beginning with our annual reporting for fiscal year 2025 and interim periods thereafter, with early adoption permitted. We are currently evaluating the impact of this standard on our digital assets’ accounting and disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes—Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 modifies the rules on income tax disclosures to enhance the transparency and decision-usefulness of income tax disclosures, particularly in the rate reconciliation table and disclosures about income taxes paid. The amendments are intended to address investors’ requests for income tax disclosures that provide more information to help them better understand an entity’s exposure to potential changes in tax laws and the ensuing risks and opportunities and to assess income tax information that affects cash flow forecasts and capital allocation decisions. The guidance also eliminates certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024. All entities are required to apply the guidance prospectively but have the option to apply it retrospectively. Early adoption is permitted. The Company is continuing to assess the timing of adoption and the potential impacts of ASU 2023-09. 7 3. Intangible Assets Intangible Assets As of March 31, 2024, intangible assets, net consists of the following: Weighted-Average Remaining Amortization Period Gross Carrying Amount Accumulated Amortization Net Amortized intangible assets: Developed technology 4.1 years $ 422,900 $ ( 206,509 ) $ 216,391 Internally developed software 2.3 years 262,949 ( 123,352 ) 139,597 Gaming licenses 10.2 years 230,354 ( 52,010 ) 178,344 Customer relationships 3.9 years 269,728 ( 141,006 ) 128,722 Trademarks, tradenames and other 3.3 years 38,819 ( 22,407 ) 16,412 $ 1,224,750 $ ( 545,284 ) $ 679,466 Indefinite-lived intangible assets: Digital assets, net of impairment Indefinite-lived 2,884 N/A 2,884 Total $ 1,227,634 $ ( 545,284 ) $ 682,350 As of December 31, 2023, intangible assets, net consists of the following: Weighted-Average Remaining Amortization Period Gross Carrying Amount Accumulated Amortization Net Amortized intangible assets: Developed technology 4.4 years $ 422,900 $ ( 193,247 ) $ 229,653 Internally developed software 2.3 years 236,644 ( 108,169 ) 128,475 Gaming licenses 10.6 years 218,760 ( 47,941 ) 170,819 Customer relationships 4.1 years 269,728 ( 127,862 ) 141,866 Trademarks, tradenames and other 3.3 years 37,674 ( 20,751 ) 16,923 $ 1,185,706 $ ( 497,970 ) $ 687,736 Indefinite-lived intangible assets: Digital assets, net of impairment Indefinite-lived 2,884 N/A 2,884 Total $ 1,188,590 $ ( 497,970 ) $ 690,620 Amortization expense was $ 47.3 million and $ 43.1 million for the three months ended March 31, 2024 and 2023, respectively. 4. Current and Long-term Liabilities Revolving Line of Credit On December 20, 2022, the Company entered into a loan and security agreement with Pacific Western Bank and Citizens Bank, as lenders (as amended, the “Credit Agreement”), which provides the Company with a revolving line of credit of up to $ 125.0 million (the “Revolving Line of Credit”). The Credit Agreement has a maturity date of December 20, 2024 and replaced the Company’s amended and restated loan and security agreement entered into with Pacific Western Bank in October 2016, which provided a revolving line of credit of up to $ 60.0 million and was terminated in connection with the Company’s entry into the Credit Agreement. 8 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) 5.00 %, and the Credit Agreement requires monthly, interest-only payments on any outstanding borrowings. In addition, the Company is required to pay quarterly in arrears a commitment fee equal to 0.25 % per annum of the unused portion of the Revolving Line of Credit. As of March 31, 2024 , the Credit Agreement provided a revolving line of credit of up to $ 125.0 million, and there was no principal outstanding under the Credit Agreement. Net borrowing capacity available from the Credit Agreement as of March 31, 2024 totaled $ 122.7 million. The Company is also subject to certain affirmative and negative covenants, including the restriction of dividends, under the Credit Agreement which the Company is in compliance with as of March 31, 2024 . One such covenant involves maintaining compensating cash balances. The compensating balances may be withdrawn but the availability of the line of credit is dependent upon maintenance of such compensating balances. The performance of the Company’s obligations under the Credit Agreement are secured by a first-priority security interest on substantially all of its assets. Convertible Notes and Capped Call Transactions In March 2021, DraftKings Holdings Inc. (formerly DraftKings Inc.), a Nevada corporation (“Old DraftKings”) 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, Old DraftKings incurred $ 17.0 million of lender fees and $ 1.7 million of debt financing costs, which are being amortized through the Notes Maturity Date. The Convertible Notes represent senior unsecured obligations of Old DraftKings, which are being amortized through the Notes Maturity Date. The Convertible Notes are convertible at an initial conversion rate of 10.543 shares of DraftKings Inc.’s Class A common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $ 94.85 per share of DraftKings Inc.’s 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). Since the issuance of the Convertible Notes, there have been no changes to the initial conversion price. Prior to September 15, 2027, the Convertible Notes will be convertible by the holder 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 DraftKings Inc.’s Class A common stock or a combination of cash and shares of DraftKings Inc.’s Class A common stock. As of March 31, 2024, no conditions were met to allow for the conversion of the Convertible Notes by any holder. In connection with the pricing of the Convertible Notes and the exercise of the over-allotment option to purchase additional notes, Old DraftKings 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 DraftKings Inc.’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. As of March 31, 2024, the Company’s convertible debt balance was $ 1,254.4 million, net of unamortized debt issuance costs of $ 10.6 million. The amortization of debt issuance costs was $ 0.6 million for the three months ended March 31, 2024 and $ 0.7 million for the three months ended March 31, 2023, which are included in the interest expense line-item on the Company's consolidated statements of operations. Although recorded at amortized cost on the Company’s consolidated balance sheets, the estimated fair value of the Convertible Notes was $ 1,096.0 million and $ 1,025.6 million as of March 31, 2024 and December 31, 2023, 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, which is a Level 1 fair value measurement. 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 contestants. 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 9 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, should they occur. The Company’s activities by jurisdiction may vary from period to period, which could result in differences in the applicability of indirect taxes from period to period. As of March 31, 2024 and December 31, 2023, the Company’s estimated contingent liability for indirect taxes was $ 74.9 million and $ 71.2 million, respectively. The estimated contingent liability for indirect taxes is recorded within other long-term liabilities on the condensed consolidated balance sheets and general and administrative expenses on the condensed consolidated statements of operations. Warrant Liabilities As part of the initial public offering of Diamond Eagle Acquisition Corp. ("DEAC") on May 14, 2019 (the “IPO”), DEAC issued 13.3 million warrants each of which entitles the holder to purchase one share of DraftKings Inc.’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”), each of which entitles the holder to purchase one share of DraftKings Inc.’s Class A common stock at an exercise price of $ 11.50 per share. As of March 31, 2024, there were no Public Warrants outstanding and 0.4 million Private Warrants outstanding. On May 5, 2022 (the “GNOG Closing Date”), DraftKings Inc. (formerly New Duke Holdco, Inc.) consummated the acquisition of Golden Nugget Online Gaming, Inc., a Delaware corporation, pursuant to a definitive agreement and plan of merger, dated August 9, 2021, in an all-stock transaction (the “GNOG Transaction”). On the GNOG Closing Date, 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 DraftKings Inc., Computershare Trust Company, N.A. and Computershare Inc. (together, “Computershare”), pursuant to which Old DraftKings assigned to DraftKings Inc. 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 DraftKings Inc. Class A common stock on the existing terms and conditions, except as otherwise described in the Old DraftKings Warrant Assignment Agreement. In addition, on the GNOG Closing Date, 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 DraftKings Inc.'s Class A common stock, or approximately 2.1 million shares of DraftKings Inc.’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 GNOG Closing Date. As of March 31, 2024, there were 2.9 million GNOG Private Warrants outstanding. The Company classifies the Public Warrants, the Private Warrants and the GNOG Private Warrants pursuant to Accounting Standards Codification Topic 815, Derivatives and Hedging, as derivative liabilities with subsequent changes in their respective fair values recognized in its consolidated statement of operations at each reporting date. As of March 31, 2024, the fair value of the Company’s warrant liability was $ 35.5 million. Due to fair value changes during the three months ended March 31, 2024 and 2023, the Company recorded losses on the remeasurement of its warrant liabilities of $ 18.1 million and $ 17.0 million, respectively. During the three months ended March 31, 2024, 1.0 million Private Warrants were exercised and 2.9 million GNOG Private Warrants were exercised. These exercises resulted in the issuance of 1.0 million shares of DraftKings Inc. Class A common stock as some were exercised on a cashless basis. 10 5. Fair Value Measurements Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value and nonrecurring fair value measurements are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: • Level 1 — Quoted prices in active markets for identical assets or liabilities. • Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. • Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value as of March 31, 2024 and December 31, 2023 based on the three-tier fair value hierarchy: March 31, 2024 Level 1 Level 2 Level 3 Total Assets Cash equivalents: Money market funds $ 178,092 (1) $ — $ — $ 178,092 Other current assets: Digital assets held for users — 53,921 (2) — 53,921 Other non-current assets: Derivative instruments — — 19,999 (4) 19,999 Equity securities — 13,533 (3) — 13,533 Total $ 178,092 $ 67,454 $ 19,999 $ 265,545 Liabilities Other current liabilities: Digital assets held for users $ — $ 53,921 (2) $ — $ 53,921 Warrant liabilities — 35,485 (5) — 35,485 Total $ — $ 89,406 $ — $ 89,406 11 December 31, 2023 Level 1 Level 2 Level 3 Total Assets Cash equivalents: Money market funds $ 250,055 (1) $ — $ — $ 250,055 Other current assets: Digital assets held for users — 46,624 (2) — 46,624 Other non-current assets: Derivative instruments — — 19,999 (4) 19,999 Equity securities — 13,533 (3) — 13,533 Total $ 250,055 $ 60,157 $ 19,999 $ 330,211 Liabilities Other current liabilities: Digital assets held for users $ — $ 46,624 (2) $ — $ 46,624 Warrant liabilities — 63,568 (5) — 63,568 Total $ — $ 110,192 $ — $ 110,192 (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 latest transaction price for similar transactions. (3) 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. (4) 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. There were no new Level 3 derivative instruments sold, purchased by or issued to the Company during the three months ended March 31, 2024. 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. Changes to fair value of these instruments are recorded in Other (loss) income, net on the consolidated statements of operations and loss (gain) on marketable equity securities and other financial assets, net in the consolidated statement of cash flows. March 31, 2024 December 31, 2023 Significant Unobservable Input of Level 3 Investments Range (Weighted Average) Range (Weighted Average) Underlying stock price $ 12.79 - $ 19.80 ($ 19.41 ) $ 12.79 - $ 19.80 ($ 19.41 ) Volatility 75.0 % - 80.0 % ( 79.7 %) 75.0 % - 80.0 % ( 79.7 %) Risk-free rate 1.3 % - 4.2 % ( 4.0 %) 1.3 % - 4.2 % ( 4.0 %) (5) The Company measures its Private Warrants and the GNOG Private Warrants to fair value using a binomial lattice model or a Black-Scholes model, where appropriate, with the significant assumptions being observable inputs and, accordingly, classifies these liabilities as Level 2. Key assumptions used in the valuation of the Private Warrants and GNOG Private Warrants include term, risk free rate and volatility. 6. Revenue Recognition Deferred Revenue The Company includes deferred revenue within accounts payable and accrued expenses and liabilities to users in the condensed consolidated balance sheets. The deferred revenue balances were as follows: 12 Three months ended March 31, 2024 2023 Deferred revenue, beginning of the period $ 174,212 $ 133,851 Deferred revenue, end of the period $ 128,869 $ 132,213 Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period $ 143,197 $ 112,426 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. These obligations are primarily related to incentive programs and wagered amounts associated with unsettled or pending outcomes that fluctuate based on volume of activity. Such obligations are recognized as liabilities when awarded to users and are recognized as revenue when those liabilities are later resolved, often within the following year. Revenue Disaggregation Disaggregation of revenue for the three months ended March 31, 2024 and 2023 is as follows: Three months ended March 31, 2024 2023 Online gaming $ 1,152,186 $ 735,189 Gaming software 6,231 8,610 Other 16,579 25,853 Total Revenue $ 1,174,996 $ 769,652 Online gaming includes online Sportsbook, iGaming, and DFS, which have certain similar attributes and patterns of recognition. Other revenue primarily includes media, retail sportsbooks and other consumer product offerings. The opening and closing balances of the Company's accounts receivable from contracts with customers were $ 47.5 million and $ 53.3 million for the three months ended March 31, 2024, respectively, and $ 51.1 million and $ 41.4 million for the three months ended March 31, 2023 , respectively. 7. Stock-Based Compensation The Company has historically 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 that tie vesting to length of service with the Company and generally vest over a four-year period in annual and/or quarterly installments. 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 performance-based equity awards which establish performance objectives related to one or two particular fiscal years. LTIP awards generally vest when revenue and/or Adjusted EBITDA targets are achieved amongst other conditions, while PSP awards generally vest upon achievement of revenue and/or Adjusted EBITDA targets and have a range of payouts amongst other conditions. All stock-based compensation awards expire seven to ten years after the grant date thereof. 13 The following table shows restricted stock unit (“RSU”) and stock option activity for the three months ended March 31, 2024: 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, 2023 10,360 17,881 1,389 13,809 10,506 1,255 55,200 $ 7.10 $ 21.01 Granted 200 5,287 — 942 — — 6,429 49.67 43.86 Exercised options / vested RSUs ( 400 ) ( 2,259 ) — — ( 230 ) ( 261 ) ( 3,150 ) 4.54 26.04 Change in awards due to performance-based multiplier — — — — — — — — — Forfeited — ( 558 ) — ( 201 ) — ( 73 ) ( 832 ) — 24.86 Outstanding at March 31, 2024 10,160 20,351 1,389 14,550 10,276 921 57,647 $ 7.56 $ 26.34 As of March 31, 2024, total unrecognized stock-based compensation expense of $ 784.7 million related to granted and unvested stock-based compensation arrangements is expected to be recognized over a weighted-average period of 2.8 years. The following tables shows stock compensation expense for the three months ended March 31, 2024 and 2023: Three months ended March 31, 2024 Three months ended March 31, 2023 Options RSUs Total Options RSUs Total Time-based (1) $ 2,044 $ 39,057 $ 41,101 $ 3,844 $ 44,807 $ 48,651 PSP (2) — 52,352 52,352 — 24,015 24,015 LTIP (2) — 82 82 — 44,734 44,734 Total $ 2,044 $ 91,491 $ 93,535 $ 3,844 $ 113,556 $ 117,400 (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. 8. Income Taxes The Company’s provision (benefit) for income taxes for the three months ended March 31, 2024 and 2023 is as follows: Three months ended March 31, 2024 2023 Income tax (benefit) provision $ ( 351 ) $ 1,368 The effective tax rates for the three months ended March 31, 2024 and 2023 were 0.3 % and ( 0.3 )%, respectively. The difference between the Company’s effective tax rates for the three months ended March 31, 2024 and 2023 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. 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 such deferred tax assets will not be realized. The Company's provision for income taxes during interim reporting periods has historically been calculated by applying an estimate of the annual effective tax rate for the full year to ordinary pre-tax income (loss), excluding unusual or infrequently occurring discrete items, for the reporting period. As small changes in the estimated ordinary income (loss) may result in a significant change in the estimated annual effective tax rate, the Company computed its provision for US Federal and state income taxes based on the actual effective tax rate for the three months ended March 31, 2024. 9. 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: 14 Three months ended March 31, 2024 2023 Net loss $ ( 142,568 ) $ ( 397,148 ) Basic and diluted weighted-average common shares outstanding 474,228 455,081 Loss per share attributable to common stockholders (in dollars): Basic and diluted $ ( 0.30 ) $ ( 0.87 ) There were no preferred or other dividends declared for the three months ended March 31, 2024. For the periods presented, the following securities were not required to be included in the computation of diluted shares outstanding: March 31, 2024 March 31, 2023 Class A common stock resulting from exercise of all warrants 1,449 3,761 Stock options and RSUs 57,647 68,422 Convertible notes 13,337 13,337 Total 72,433 85,520 10. Related-Party Transactions Receivables from Equity Method Investments 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. There were no receivables related to these services as of March 31, 2024 or December 31, 2023. The Company has also 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 March 31, 2024, the Company had invested a total of $ 8.3 million of the total commitment. Transactions with a Former Director and their Immediate Family Members For the three months ended March 31, 2024 and March 31, 2023, the Company had zero sales and $ 0.7 million in sales, respectively, to entities owned by an immediate family member of a former director of the Company. Aircraft On each of March 30, 2024 and 2023, the Company renewed a one-year lease of an aircraft from an entity controlled by Mr. Robins, pursuant to which Mr. Robins’ entity leased the aircraft to the Company for $ 0.6 million for a one-year period (the “Aircraft Leases”). The Company covered 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, as well as the Aircraft Leases, based on, among other things, the requirements of the overall security program that Mr. Robins and his family fly private and the committees' assessment that such an arrangement is more efficient and flexible and better ensures safety, confidentiality and privacy. During each of the three months ended March 31, 2024 and March 31, 2023, the Company incurred $ 0.1 million of expense under the Aircraft Leases. 11. Leases, Commitments and Contingencies Leases The Company 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 the Company’s leases, it does not assume renewals in its determination of the lease term as the renewals are not deemed to be reasonably assured. The Company’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. As of March 31, 2024, the Company’s lease agreements typically have terms not exceeding ten years . 15 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 expense are as follows: Three months ended March 31, 2024 2023 Operating lease cost $ 4,828 $ 5,028 Short term lease cost 343 1,331 Variable lease cost 1,516 1,119 Sublease income — ( 236 ) Total lease cost $ 6,687 $ 7,242 Supplemental cash flow and other information for the three months ended March 31, 2024 and 2023 related to operating leases was as follows: Three months ended March 31, 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used for operating leases $ 4,034 $ 3,165 Right-of-use assets obtained in exchange for new operating lease liabilities $ 720 $ 366 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 March 31, 2024. 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. Maturities of lease liabilities are as follows: Years Ending December 31, From April 1, 2024 to December 31, 2024 $ 12,821 2025 15,255 2026 14,699 2027 15,548 2028 16,232 Thereafter 39,654 Total undiscounted future cash flows 114,209 Less: Imputed interest ( 24,005 ) Present value of undiscounted future cash flows $ 90,204 16 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 April 1, 2024 to December 31, 2024 $ 368,569 2025 364,708 2026 206,989 2027 120,238 2028 86,952 Thereafter 181,979 Total $ 1,329,435 Surety Bonds As of March 31, 2024, the Company has been issued $ 235.0 million in surety bonds at a combined annual premium cost of 0.4 %, which are held for certain regulators’ use and benefit in order for the Company to satisfy state license requirements. There have been no claims against such bonds and the likelihood of future claims is remote. 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. 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 offering infringes two patents and the Company’s Sportsbook product offering infringes two different patents. On April 9, 2024, Interactive Games LLC dismissed the lawsuit without prejudice. 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 offering infringes two patents, our Daily Fantasy Sports product offering infringes one patent, and that our Sportsbook product offering and Daily Fantasy Sports product offering infringe another patent. On November 15, 2021, Winview Inc. filed a second amended complaint (the “SAC”), adding as defendants DK Crown Holdings Inc. (“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. The Company 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 the Company's financial condition, although the outcome could be material to the Company's operating results for any particular period, depending, in part, upon the operating results for such period. 17 Securities Matters Arising From the Hindenburg Report and Related Matters Beginning on July 9, 2021, the Company received subpoenas from the SEC seeking documents concerning, among other things, allegations concerning SBTech that were contained in a report published about the Company on June 15, 2021 by Hindenburg Research, as well as the Company’s adherence to and 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 the SEC matter 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 the SEC matter 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 the SEC matter will have a material adverse effect on the Company’s financial condition, although the outcome could be material to the Company’s operating results for any particular period, depending, in part, upon the operating results for such period. Matters Related to the GNOG Transaction On August 12, 2022, a putative class action was filed in Nevada state District Court in Clark County against Golden Nugget Online Gaming, Inc. (“GNOG Inc.”), the Company and one of its officers and two affiliates, as well as former officers or directors and the former controlling stockholder of GNOG Inc. and Jefferies LLC. The lawsuit asserts claims on behalf of a putative class of former minority stockholders of GNOG Inc. alleging that certain former officers and directors of GNOG Inc. and its former controlling stockholder (Tilman Fertitta and/or Fertitta Entertainment, Inc.) breached their fiduciary duties to minority stockholders of GNOG Inc. in connection with the GNOG Transaction, and the other defendants aided and abetted the alleged breaches of fiduciary duty. On September 9, 2022, two similar putative class actions were filed in the Delaware Court of Chancery against former directors of GNOG Inc. and its former controlling stockholder, one of which also names the Company and Jefferies Financial Group, Inc. as defendants. These pending actions in Delaware assert substantially similar claims on behalf of a putative class of former minority stockholders of GNOG Inc. alleging that certain former officers and directors of GNOG Inc. and its former controlling stockholder (Tilman Fertitta) breached their fiduciary duties to minority stockholders of GNOG Inc. in connection with the GNOG Transaction, and one of the actions also alleges that the Company aided and abetted the alleged breaches of fiduciary duty. On October 12, 2022, the Delaware Court of Chancery consolidated these two actions under the caption In re Golden Nugget Online Gaming, Inc. Stockholders Litigation. At a mediation held on January 24, 2024, the parties reached an agreement in principle to settle the Delaware action, which was reflected in a written settlement agreement, dated March 1, 2024, which remains, subject to, among other things, court approval. The estimated loss was accrued as of December 31, 2023 in the accounts payable and accrued expenses line-item on the consolidated balance sheet. The Company intends to vigorously defend the Nevada action. The Company cannot predict with any degree of certainty the outcome of the Nevada action or determine the extent of any potential liabilities. The Company also cannot provide an estimate of the possible loss or range of loss of the Nevada action. Any adverse outcome in the Nevada action 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 the Nevada action will have a material adverse effect on the Company's financial condition, although the outcome could be material to the Company's 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 the Company in the United States District Court for the District of New Jersey alleging that the Company's DFS and Casino product offerings 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. 18 The Company 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 the Company's financial condition, although the outcome could be material to the Company's operating results for any particular period, depending, in part, upon the operating results for such period. 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 product offerings infringe four patents. The Company 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 the Company's financial condition, although the outcome could be material to the Company's 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 offering infringes seven patents. Colossus amended its complaint on February 7, 2022 to, among other things, add one additional patent. The Company 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 the Company's financial condition, although the outcome could be material to the Company's operating results for any particular period, depending, in part, upon the operating results for such period. Steiner Nelson Steiner filed suit against the Company and FanDuel Inc. in Florida state court on November 9, 2015. The action was subsequently transferred to In Re: Daily Fantasy Sports Litigation (Multi-District Litigation) (the “MDL”), and Mr. 19 Steiner’s action was consolidated into the MDL’s amended complaint, which, in February 2016, consolidated numerous actions (primarily purported class actions) filed against the Company, FanDuel, and other related parties in courts across the United States. By June 23, 2022, the MDL was resolved, except for Mr. Steiner’s action, and the court officially closed the MDL docket on July 8, 2022. Mr. Steiner brings this action as a concerned citizen of the state of Florida alleging that, among other things, defendants’ daily fantasy sports contests are illegal gambling under the state laws of Florida and seeks disgorgement of “gambling losses” purportedly suffered by Florida citizens on behalf of the state. On June 23, 2022, the MDL court remanded Mr. Steiner’s action to the Circuit Court for Pinellas County, Florida. Plaintiff has not yet filed an amended pleading. The Company intends to vigorously defend this suit. Any adverse outcome in this matter could be subject the Company 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 this matter. 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 matter will have a material adverse effect on Company’s financial condition, although the outcome could be material to the Company’s operating results for any particular period, depending, in part, upon the operating results for such period. Turley On January 9, 2023, Simpson G. Turley, individually and on behalf of all others similarly situated, filed a purported class action against the Company in the United States District Court for the District of Massachusetts. Plaintiff alleges, among other things, that he was a contestant in the Company’s daily fantasy showdown contest for the January 2, 2023, NFL game between the Cincinnati Bengals and the Buffalo Bills (the “Bengals-Bills Game”). The Bengals-Bills Game was postponed and eventually cancelled due to Damar Hamlin collapsing during the game. Plaintiff alleges that he was winning prizes in multiple showdown contests at the point in time that the Bengals-Bills Game was cancelled (with 5:58 remaining in the first quarter). Plaintiff alleges that, instead of paying out the prize money, the Company refunded entry fees to contestants that entered showdown or flash draft fantasy contests. On May 8, 2023, plaintiff Turley and a new plaintiff (Erik Ramos) filed a First Amended Class Action Complaint. The plaintiffs assert claims for breach of contract, unfair and deceptive acts and practices, false advertising, and unjust enrichment. Among other things, plaintiffs seek statutory damages, monetary damages, punitive damages, attorney fees and interest. On March 29, 2024, the court granted DraftKings’ motion to dismiss plaintiffs’ complaint with prejudice. Securities Matters Related to DraftKings Marketplace On March 9, 2023, a putative class action was filed in Massachusetts federal court by alleged purchasers of non-fungible tokens (“NFTs”) on the DraftKings Marketplace (“DK Marketplace”). The complaint asserts claims for violations of federal and state securities laws against the Company and three of its officers on the grounds that, among other things, the NFTs that are sold and traded on the DK Marketplace allegedly constitute securities that were not registered with the SEC in accordance with federal and Massachusetts law, and that the DK Marketplace is a securities exchange that is not registered in accordance with federal and Massachusetts law. Based on these allegations, plaintiff brings claims seeking rescissory damages and other relief on behalf of himself and a putative class of persons who purchased NFTs on the DK Marketplace between August 11, 2021 and the present. The Company intends to vigorously defend this matter. On July 17, 2023, the Company received a subpoena from the Securities Division of the Office of the Secretary of the Commonwealth of Massachusetts seeking documents and requesting answers to interrogatories concerning, among other things, DK Marketplace and NFTs that are sold on DK Marketplace, and related matters. We intend to comply with these requests. The Company cannot predict with any degree of certainty the outcome of these matters 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, penalties and/or require alterations to the Company’s business that may have a material adverse impact on the Company’s operations and cash flows. 20 Despite the potential for significant damages, the Company does not believe, based on currently available information, that the outcome of these matters will have a material adverse effect on Company’s financial condition, although the outcome could be material to the Company’s operating results for any particular period, depending, in part, upon the operating results for such period. Shareholder Derivative Litigation Related to DraftKings Marketplace On May 31, 2023, a putative shareholder derivative action was filed in Nevada state court by an alleged shareholder of the Company. The action asserts claims on behalf of the Company against certain senior officers and members of the Board of Directors of the Company for breach of fiduciary duty and unjust enrichment based primarily on allegations that the defendants caused or allowed the Company to disseminate misleading and inaccurate information to its shareholders in connection with NFTs that are sold and traded on the DK Marketplace. The action also alleges that certain individuals are liable for trading in Company stock at artificially inflated prices. The action seeks unspecified compensatory damages, changes to corporate governance and internal procedures, restitution, disgorgement, costs and attorney’s fees, and other unspecified relief. The Company cannot predict with any degree of certainty the outcome of this matter or determine the extent of any potential liabilities. The Company also cannot provide an estimate of the possible loss or range of loss. Because this action alleges claims on behalf of the Company and purports to seek a judgment in favor of the Company, the Company does not believe, based on currently available information, that the outcome of the proceedings will have a material adverse effect on the Company’s financial condition, although the outcome could be material to the Company’s operating results for any particular period, depending, in part, upon the operating results for such period. Scanlon On December 8, 2023, plaintiffs Melissa Scanlon and Shane Harris, individually and on behalf of others similarly situated, filed a purported class action lawsuit against DraftKings in Middlesex County Superior Court of Massachusetts. On March 26, 2024, the case was transferred to the Business Litigation Session of the Massachusetts Superior Court. Among other things, Plaintiffs allege that the Company’s promotion that offered new customers an opportunity to earn up to 1,000 in site credits, and related advertisements, were: (1) unfair or deceptive practices in violation of Massachusetts General Laws (“M.G.L.”) c. 93A, §§ 2, 9; and (2) untrue and misleading advertising in violation of M.G.L. c. 266, § 91. The Plaintiffs are seeking, among other things, injunctive relief, actual damages, double or treble damages, and attorneys’ fees. The Company intends to vigorously defend this case. Any adverse outcome in this matter could subject the Company to substantial damages and/or require alterations to the Company’s business. The Company cannot provide any assurance as to the outcome of this matter. 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 this matter 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 matter will have a material adverse effect on Company’s financial condition, although the outcome could be material to the Company’s operating results for any particular period, depending, in part, upon the operating results for such period. Guery On April 17, 2024, plaintiff Samantha Guery, individually and on behalf of all others similarly situated, filed a purported class action lawsuit against DraftKings in the United States District Court for the Southern District of New York. Among other things, Plaintiff alleges that the Company’s promotion that offered new customers an opportunity to place their first wager “risk free” was (1) “deceptive, unlawful, fraudulent, and unfair” in violation of New York General Business Law Section 349; and (2) false advertising under New York General Business Law Section 350. The plaintiffs are seeking, among other things, injunctive relief, actual damages, punitive damages, treble damages, and attorneys’ fees. The Company intends to vigorously defend this case. Any adverse outcome in this matter could subject the Company to substantial damages and/or require alterations to the Company’s business. The Company cannot provide any assurance as to the outcome of this matter. 21 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 this matter 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 matter will have a material adverse effect on Company’s financial condition, although the outcome could be material to the Company’s 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. 22