DraftKings Inc. 10-Q

Item 1. Financial Statements. DRAFTKINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except par value) September 30, 2024 (Unaudited) December 31, 2023 Assets Current assets: Cash and cash equivalents $ 877,822 $ 1,270,503 Restricted cash 13,807 11,700 Cash reserved for users 264,886 341,290 Receivables reserved for users 341,817 301,770 Accounts receivable 64,358 47,539 Prepaid expenses and other current assets 81,207 98,565 Total current assets 1,643,897 2,071,367 Property and equipment, net 52,924 60,695 Intangible assets, net 891,910 690,620 Goodwill 1,456,009 886,373 Operating lease right-of-use assets 83,292 93,985 Equity method investments 12,598 10,280 Deposits and other non-current assets 132,346 131,546 Total assets $ 4,272,976 $ 3,944,866 Liabilities and Stockholders’ equity Current liabilities: Accounts payable and accrued expenses $ 700,720 $ 639,599 Liabilities to users 930,614 851,898 Operating lease liabilities, current portion 11,277 11,499 Other current liabilities 4,124 46,624 Total current liabilities 1,646,735 1,549,620 Convertible notes, net of issuance costs 1,255,757 1,253,760 Non-current operating lease liabilities 75,762 80,827 Warrant liabilities 25,439 63,568 Long-term income tax liabilities 73,835 72,810 Other long-term liabilities 119,332 83,975 Total liabilities $ 3,196,860 $ 3,104,560 Commitments and contingent liabilities (Note 5 and 12) Stockholders’ equity: Class A common stock, $ 0.0001 par value; 900,000 shares authorized as of September 30, 2024 and December 31, 2023; 501,081 and 484,598 shares issued and 487,169 and 472,697 outstanding as of September 30, 2024 and December 31, 2023, respectively $ 47 $ 46 Class B common stock, $ 0.0001 par value; 900,000 shares authorized as of September 30, 2024 and December 31, 2023; 393,014 shares issued and outstanding as of September 30, 2024 and December 31, 2023 39 39 Treasury stock, at cost; 13,912 and 11,901 shares as of September 30, 2024 and December 31, 2023, respectively ( 490,352 ) ( 412,182 ) Additional paid-in capital 7,836,271 7,149,858 Accumulated deficit ( 6,306,377 ) ( 5,933,943 ) Accumulated other comprehensive income 36,488 36,488 Total stockholders’ equity $ 1,076,116 $ 840,306 Total liabilities and stockholders’ equity $ 4,272,976 $ 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 per share data) Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Revenue $ 1,095,490 $ 789,957 $ 3,374,927 $ 2,434,536 Cost of revenue 742,434 543,454 2,115,917 1,575,517 Sales and marketing 339,943 313,323 896,318 909,943 Product and technology 103,581 89,005 285,051 266,999 General and administrative 208,126 130,761 547,461 427,493 Loss from operations ( 298,594 ) ( 286,586 ) ( 469,820 ) ( 745,416 ) Other income (expense): Interest income 9,200 14,420 38,479 39,626 Interest expense ( 872 ) ( 670 ) ( 2,199 ) ( 1,991 ) Gain (loss) on remeasurement of warrant liabilities 21 ( 7,751 ) ( 8,282 ) ( 44,827 ) Other (loss) gain, net ( 4,620 ) ( 1,217 ) ( 5,801 ) ( 1,153 ) Loss before income tax (benefit) provision and loss from equity method investment ( 294,865 ) ( 281,804 ) ( 447,623 ) ( 753,761 ) Income tax (benefit) provision ( 1,287 ) 1,291 ( 75,208 ) 3,310 Loss from equity method investment 110 8 19 450 Net loss attributable to common stockholders $ ( 293,688 ) $ ( 283,103 ) $ ( 372,434 ) $ ( 757,521 ) Loss per share attributable to common stockholders: Basic and diluted $ ( 0.60 ) $ ( 0.61 ) $ ( 0.78 ) $ ( 1.64 ) 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 — — — — 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 income (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 Exercise of stock options 257 — — — 2,586 — — — 2,586 Stock-based compensation — — — — 93,681 — — — 93,681 Exercise of warrants 6 — — — 217 — — — 217 Purchase of treasury stock ( 631 ) — — — — — — ( 24,413 ) ( 24,413 ) Restricted stock unit vesting 1,970 — — — — — — — — Shares issued in connection with business combinations 7,757 1 — — 331,556 — — — 331,557 Net income (loss) — — — — — 63,822 — — 63,822 Balances at June 30, 2024 485,426 $ 47 393,014 $ 39 $ 7,744,638 $ ( 6,012,689 ) $ 36,488 $ ( 470,094 ) $ 1,298,429 Exercise of stock options 529 — — — 1,355 — — — 1,355 Stock-based compensation — — — — 90,260 — — — 90,260 Exercise of warrants 1 — — — 18 — — — 18 Purchase of treasury stock ( 598 ) — — — — — — ( 20,258 ) ( 20,258 ) Restricted stock unit vesting 1,811 — — — — — — — — Shares issued in connection with business combinations — — — — — — — — — Net income (loss) — — — — — ( 293,688 ) — — ( 293,688 ) Balances at September 30, 2024 487,169 $ 47 393,014 $ 39 $ 7,836,271 $ ( 6,306,377 ) $ 36,488 $ ( 490,352 ) $ 1,076,116 4 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 — — — — 117,400 — — — 117,400 Purchase of treasury stock ( 1,399 ) — — — — — — ( 27,358 ) ( 27,358 ) Restricted stock unit vesting 11,757 1 — — — — — — 1 Net income (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 Exercise of stock options 284 — — — 1,144 — — — 1,144 Stock-based compensation — — — — 89,193 — — — 89,193 Shares issued for exercise of warrants 62 — — — 1,470 — — — 1,470 Purchase of treasury stock ( 587 ) — — — — — — ( 13,826 ) ( 13,826 ) Restricted stock unit vesting 1,864 — — — — — — — — Net income (loss) — — — — — ( 77,270 ) — — ( 77,270 ) Balances at June 30, 2023 463,257 $ 46 393,014 $ 39 $ 6,961,454 $ ( 5,606,219 ) $ 36,488 $ ( 373,317 ) $ 1,018,491 Exercise of stock options 1,359 — — — 5,506 — — — 5,506 Stock-based compensation — — — — 78,353 — — — 78,353 Shares issued for exercise of warrants 11 — — — 342 — — — 342 Purchase of treasury stock ( 617 ) — — — — — — ( 18,167 ) ( 18,167 ) Restricted stock unit vesting 1,896 — — — — — — — — Net income (loss) — — — — — ( 283,103 ) — — ( 283,103 ) Balances at September 30, 2023 465,906 $ 46 393,014 $ 39 $ 7,045,655 $ ( 5,889,322 ) $ 36,488 $ ( 391,484 ) $ 801,422 See accompanying notes to unaudited condensed consolidated financial statements. 5 DRAFTKINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands) Nine months ended September 30, 2024 2023 Cash Flows from Operating Activities: Net loss attributable to common shareholders $ ( 372,434 ) $ ( 757,521 ) Adjustments to reconcile net loss to net cash flows used in operating activities: Depreciation and amortization 204,755 146,722 Non-cash interest (income) expense, net 27 ( 554 ) Stock-based compensation 271,307 284,946 Loss on remeasurement of warrant liabilities 8,282 44,827 (Gain) loss from equity method investment 19 450 Loss on marketable equity securities and other financial assets, net — 75 Loss on sale of Vegas Sports Information Network, LLC 5,817 — Deferred income taxes ( 80,604 ) 4,527 Other income (expenses), net 4,632 ( 1,944 ) Change in operating assets and liabilities, net of effect of acquisitions: Receivables reserved for users ( 30,955 ) ( 49,402 ) Accounts receivable ( 13,792 ) 24,174 Prepaid expenses and other current assets ( 20,704 ) ( 20,757 ) Deposits and other non-current assets 446 ( 3,983 ) Operating leases, net 145 1,907 Accounts payable and accrued expenses 44,635 79,047 Liabilities to users 61,839 170,161 Long-term income tax liability 1,025 ( 1,605 ) Other long-term liabilities 8,138 5,112 Net cash flows provided by (used in) operating activities $ 92,578 $ ( 73,818 ) Cash Flows from Investing Activities: Purchases of property and equipment ( 8,148 ) ( 19,885 ) Cash paid for internally developed software costs ( 71,059 ) ( 60,006 ) Acquisition of gaming licenses ( 14,820 ) ( 10,971 ) Proceeds from marketable equity securities and other financial assets — 24,425 Cash paid for acquisition, net of cash acquired ( 392,501 ) — Other investing activities, net ( 1,656 ) ( 481 ) Net cash flows used in investing activities $ ( 488,184 ) $ ( 66,918 ) Cash Flow from Financing Activities: Proceeds from exercise of warrants — — Purchase of treasury stock ( 78,170 ) ( 59,351 ) Proceeds from exercise of stock options 6,798 8,842 Net cash flows used in financing activities $ ( 71,372 ) $ ( 50,509 ) Net decrease in cash and cash equivalents, restricted cash, and cash reserved for users ( 466,978 ) ( 191,245 ) 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 $ 1,156,515 $ 1,587,580 Disclosure of cash and cash equivalents, restricted cash, and cash reserved for users Cash and cash equivalents $ 877,822 $ 1,111,596 Restricted cash 13,807 — Cash reserved for users 264,886 475,984 Cash and cash equivalents, restricted cash, and cash reserved for users at the end of period $ 1,156,515 $ 1,587,580 Supplemental Disclosure of Noncash Investing and Financing Activities: Investing activities included in accounts payable and accrued expenses $ 1,788 $ ( 408 ) Equity consideration issued in connection with acquisitions $ 331,557 $ — Decrease of warrant liabilities from cashless exercise of warrants $ 46,416 $ 1,812 Supplemental Disclosure of Cash Activities: (Decrease) increase in cash reserved for users $ ( 76,404 ) $ 6,331 See accompanying notes to unaudited condensed consolidated financial statements. 6 DRAFTKINGS INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except 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, digital lottery 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 September 30, 2024, 38 U.S. states, the District of Columbia and Puerto Rico have some form of authorized sports betting. Of those 40 jurisdictions, 32 have legalized online sports betting. All 32 of those jurisdictions are live, and DraftKings operates in 26 of them. As of September 30, 2024, the U.S. jurisdictions with statutes legalizing iGaming are Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, Rhode Island and West Virginia. As of September 30, 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, Washington, D.C., 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, Washington and Wisconsin. As of September 30, 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, and other partners, to expand operations into additional states upon the passing of relevant legislation, the issuance of related regulations and the receipt of required licenses. 2. Summary of Significant Accounting Policies and Practices Basis of Presentation and Principles of Consolidation These unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States 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 Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 7 cryptocurrency transactions. The standard will be effective for fiscal year 2025 including interim periods therein, 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. 3. Business Combinations Acquisition of Jackpocket Inc. ( “ Jackpocket ” ) On February 11, 2024, the Company entered into a definitive agreement (the “Jackpocket Merger Agreement”) to acquire Jackpocket, a digital lottery app in the United States (the “Jackpocket Transaction”). On May 22, 2024 (the “Jackpocket Closing Date”), DraftKings consummated the Jackpocket Transaction, and, under the terms of the Jackpocket Merger Agreement and subject to certain exclusions contained therein, Jackpocket stockholders received approximately $ 450.9 million of cash consideration and approximately $ 320.8 million of equity consideration. The acquisition of Jackpocket allows DraftKings to participate in the U.S. lottery vertical with expected ancillary benefits to its Sportsbook and iGaming product offerings by enhancing customer lifetime value and customer acquisition capabilities. Operating results for Jackpocket on and after the Jackpocket Closing Date are included in the Company’s unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2024. Because the Company is integrating Jackpocket ’ s operations into its consolidated operating activities, the amount of revenue and earnings attributable to the Jackpocket business from the Jackpocket Closing Date through September 30, 2024, which is included within revenue and net income (loss) attributable to common stockholders in the Company’s unaudited condensed consolidated statements of operations, is impracticable to determine. Preliminary Purchase Price Accounting for the Jackpocket Transaction On the Jackpocket Closing Date, the Company acquired 100 % of the equity interests of Jackpocket pursuant to the Jackpocket Merger Agreement. The following is a summary of the consideration issued or paid on the Jackpocket Closing Date: Cash consideration $ 450,924 Equity consideration (1) 320,783 Total consideration $ 771,707 (1) Includes the issuance of approximately 7.5 million shares of DraftKings Inc.’s Class A common stock issued at $ 41.90 per share and $ 6.2 million of options exercisable for shares of DraftKings Inc. ’ s Class A common stock, which were issued to certain Jackpocket employee option holders in exchange for their Jackpocket options. 8 The purchase price allocation for Jackpocket set forth herein is preliminary and subject to change within the measurement period, which will not extend beyond one year from the Jackpocket Closing Date. Measurement period adjustments will be recognized in the reporting period in which the adjustment amounts are determined and may include adjustments pertaining to intangible assets acquired and tax liabilities assumed, including the calculation of deferred tax assets and liabilities. Any such adjustments may be material. The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed in connection with the consummation of the Jackpocket Transaction on the Jackpocket Closing Date. The values set forth below are preliminary, pending finalization of valuation analyses: Cash and cash equivalents $ 45,999 Cash reserved for users 23,349 Receivables reserved for users 9,092 Prepaid expenses and other current assets 4,151 Property and equipment 1,523 Intangible assets 269,736 Operating lease right-of-use assets 2,579 Deposits and other non-current assets 136 Total identifiable assets acquired $ 356,565 Liabilities assumed: Accounts payable and accrued expenses $ 33,961 Liabilities to users 16,877 Operating lease liabilities 2,580 Other long-term liabilities 80,463 Total liabilities assumed $ 133,881 Net assets acquired (a) $ 222,684 Purchase consideration (b) $ 771,707 Goodwill (b) – (a) $ 549,023 Goodwill represents the excess of the gross consideration transferred over the difference between the fair value of the underlying net assets acquired and the underlying liabilities assumed. Qualitative factors that contribute to the recognition of goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets apart from goodwill. Intangible assets not recognized apart from goodwill consist primarily of benefits from securing buyer-specific synergies that increase revenue and profits and are not otherwise available to a market participant, as well as acquiring a talented workforce and cost savings opportunities. Goodwill recognized is not deductible for tax purposes. Goodwill associated with the Jackpocket Transaction is assigned as of the Jackpocket Closing Date to the Company’s consolidated reporting unit. As Jackpocket ’ s financial results are not material to the Company’s consolidated financial statements, the Company has elected to not include pro forma results. Intangible Assets Fair Value Weighted- Average Useful Life Customer Relationships $ 174,000 8.0 years Developed Technology 67,000 5.0 years Trade Name 27,000 7.0 years Market Access 1,736 2.9 years Total $ 269,736 Transaction Costs 9 For the three and nine months ended September 30, 2024, the Company incurred nil and $ 15.3 million in advisory, legal, accounting and management fees in connection with the Jackpocket Transaction, respectively, which are included in general and administrative expenses on the Company’s unaudited condensed consolidated statements of operations. Acquisition of Sports IQ Analytics Inc. ( “ SIQ ” ) On May 7, 2024, the Company acquired 100 % of the equity interests of SIQ for a mix of cash and shares of DraftKings Inc.’s Class A common stock (the “SIQ Transaction”). The acquisition of SIQ allows DraftKings to bring further pricing and trading capabilities in-house in an effort to drive margin expansion and product differentiation. The acquired assets and assumed liabilities of SIQ were recorded at their estimated fair values. Goodwill associated with the SIQ Transaction is assigned as of the acquisition date to the Company’s consolidated reporting unit. The purchase price allocation for the SIQ Transaction is preliminary as of September 30, 2024. Goodwill recognized is not deductible for tax purposes and transaction costs were not significant. As SIQ ’ s financial results are not material to the Company’s consolidated financial statements, the Company has elected to not include pro forma results. 4. Intangible Assets Intangible Assets As of September 30, 2024, intangible assets, net consists of the following: Weighted-Average Remaining Amortization Period Gross Carrying Amount Accumulated Amortization Net Amortized intangible assets: Developed technology 4.2 years $ 513,064 $ ( 237,936 ) $ 275,128 Internally developed software 2.3 years 306,271 ( 149,359 ) 156,912 Gaming licenses 8.5 years 221,317 ( 63,376 ) 157,941 Customer relationships 6.1 years 442,528 ( 176,502 ) 266,026 Trademarks, tradenames and other 6.1 years 46,223 ( 13,204 ) 33,019 $ 1,529,403 $ ( 640,377 ) $ 889,026 Indefinite-lived intangible assets: Digital assets, net of impairment Indefinite-lived 2,884 N/A 2,884 Total $ 1,532,287 $ ( 640,377 ) $ 891,910 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 $ 84.6 million and $ 188.2 million for the three and nine months ended September 30, 2024, respectively, and $ 45.1 million and $ 131.2 million for the three and nine months ended September 30, 2023, respectively. 10 The table below reflects expected amortization expense for the next five years of intangible assets recorded as of September 30, 2024: Year ending December 31, Estimated Amortization October 1, 2024 to December 31, 2024 $ 65,662 2025 217,796 2026 180,233 2027 151,030 2028 92,068 Goodwill The changes in the carrying amount of goodwill for the nine months ended September 30, 2024 are: Total Balance as of December 31, 2023 $ 886,373 Goodwill resulting from acquisitions 569,636 Balance as of September 30, 2024 $ 1,456,009 No impairment of goodwill was recorded in the three or nine months ended September 30, 2024. As of September 30, 2024, the Company had no accumulated goodwill impairment losses. 5. Current and Long-term Liabilities Old Revolving Line of Credit and New Revolving Credit Facility On December 20, 2022, the Company entered into a loan and security agreement with Banc of California (formerly Pacific Western Bank) and Citizens Bank, as lenders (as amended, the “Old Credit Agreement”), which provided the Company with a revolving line of credit of up to $ 125.0 million (the “Old Revolving Line of Credit”). The Old Credit Agreement maturity date was extended from December 20, 2024 to December 20, 2025, effective July 31, 2024. Borrowings under the Old Credit Agreement bore 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 Old Credit Agreement required monthly, interest-only payments on any outstanding borrowings. In addition, the Company was required to pay quarterly in arrear a commitment fee equal to 0.25 % per annum of the unused portion of the Old Revolving Line of Credit. As of September 30, 2024 , the Old Credit Agreement provided the Old Revolving Line of Credit of up to $ 125.0 million, and there was no principal outstanding under the Old Credit Agreement. Net borrowing capacity available from the Old Revolving Line of Credit as of September 30, 2024 totaled $ 122.7 million. The Company was also subject to certain affirmative and negative covenants, including the restriction of dividends, under the Old Credit Agreement which the Company was in compliance with as of September 30, 2024 . One such covenant involved maintaining compensating cash balances. The compensating balances were able to be withdrawn but the availability of the line of credit was dependent upon maintenance of such compensating balances. The performance of the Company’s obligations under the Old Credit Agreement were secured by a first-priority security interest on substantially all of its assets. On November 7, 2024, the Company entered into a credit agreement (the “New Credit Agreement”) with various financial institutions, as lenders, and Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent, providing for a senior secured revolving credit facility of up to $ 500.0 million (the “New Revolving Credit Facility”). The New Revolving Credit Facility has a maturity date of November 7, 2029. In conjunction with the New Credit Agreement and New Revolving Credit Facility, the Old Credit Agreement and Old Rev olving Line of Credit were terminated. Revolving loans under the New Revolving Credit Facility bear interest at the Company’s election at either (i) Term SOFR (as defined in the New Credit Agreement), plus an applicable margin ranging from 1.75 % to 2.25 % depending on the Company’s Net First Lien Leverage Ratio (as defined in the New Credit Agreement) or (ii) a base rate that is equal to the greatest of (a) the federal funds rate plus 0.50 %, (b) the prime rate and (c) Term SOFR for a one month interest period plus 1.00 %, in each case plus an additional applicable margin ranging from 0.75 % to 1.25 % depending on the Company’s Net First Lien Leverage Ratio. In addition, the Company is required to pay a commitment fee quarterly in arrear ranging from 0.25 % to 11 0.375 % per annum of the unused portion of the New Revolving Credit Facility depending on the Company’s Net First Lien Leverage Ratio. The performance of the Company’s obligations under the New Credit Agreement is secured by a first-priority security interest on substantially all of its assets. The New Credit Agreement contains customary representations and warranties and affirmative and negative covenants, including dividend restrictions and a financial covenant that the Company is required to maintain a Net First Lien Leverage Ratio not to exceed 4.50 :1.00, which is tested only if revolving loans outstanding under the New Revolving Credit Facility are in excess of 40 % of the commitments under the New Revolving Credit Facility. 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 September 30, 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 September 30, 2024, the Company’s convertible debt balance was $ 1,255.8 million, net of unamortized debt issuance costs of $ 9.2 million. The amortization of debt issuance costs was $ 0.7 million and $ 2.0 million for the three and nine months ended September 30, 2024, respectively, and $ 0.7 million and $ 2.0 million for the three and nine months ended September 30, 2023, respectively, 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 $ 1,104.2 million and $ 1,025.6 million as of September 30, 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 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. 12 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 September 30, 2024 and December 31, 2023, the Company’s estimated contingent liability for indirect taxes was $ 82.8 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 September 30, 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 September 30, 2024, there were 2.9 million GNOG Private Warrants outstanding, convertible into approximately 1.1 million shares of DraftKings Inc. ’ s Class A common stock. 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 September 30, 2024, the fair value of the Company’s warrant liability was $ 25.4 million. Due to fair value changes, the Company recorded a nominal gain on the remeasurement of its warrant liabilities for the three months ended September 30, 2024 and a loss of $ 7.8 million for the three months ended September 30, 2023. During the nine months ended September 30, 2024 and 2023, the Company recorded losses on the remeasurement of its warrant liabilities of $ 8.3 million and $ 44.8 million, respectively. During the three and nine months ended September 30, 2024, 0.0 million and 1.0 million Private Warrants were exercised, respectively. There were no GNOG Private Warrants exercised during the three months ended September 30, 2024, and 2.9 million GNOG Private Warrants were exercised during the nine months ended September 30, 2024. These GNOG Private Warrants exercises resulted in the issuance of approximately 1.1 million shares of DraftKings Inc. Class A common stock as all were exercised on a cashless basis. 13 6. Fair Value Measurements Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value and nonrecurring fair value measurements are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: • Level 1 — Quoted prices in active markets for identical assets or liabilities. • 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 September 30, 2024 and December 31, 2023 based on the three-tier fair value hierarchy: September 30, 2024 Level 1 Level 2 Level 3 Total Assets Other current assets: Digital assets held for users $ — $ 4,124 (2) $ — $ 4,124 Other non-current assets: Derivative instruments — — 19,999 (4) 19,999 Equity securities — 13,533 (3) — 13,533 Total $ — $ 17,657 $ 19,999 $ 37,656 Liabilities Other current liabilities: Digital assets held for users $ — $ 4,124 (2) $ — $ 4,124 Warrant liabilities — 25,439 (5) — 25,439 Other long-term liabilities — — 24,741 (6) 24,741 Total $ — $ 29,563 $ 24,741 $ 54,304 14 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 nine months ended September 30, 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. September 30, 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) Represents the contingent consideration issuable to former SIQ securityholders in connection with the SIQ Transaction upon the achievement of certain performance targets. The Company measures this contingent consideration at fair value using a Monte Carlo simulation in an option pricing framework and, accordingly, classifies these liabilities as Level 3. The significant unobservable inputs used to measure the fair value include a revenue risk premium of 5.1 %, revenue volatility of 17.3 %, operational leverage ratio of 70.0 %, as well as management judgment regarding the probability of achieving a future performance target. 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) gain, net on the consolidated statements of operations. 15 7. 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: Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Deferred revenue, beginning of the period $ 117,490 $ 105,478 $ 174,212 $ 133,851 Deferred revenue, end of the period $ 179,019 $ 239,225 $ 179,019 $ 239,225 Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period $ 81,146 $ 85,122 $ 169,402 $ 133,054 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 and nine months ended September 30, 2024 and 2023 is as follows: Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Online gaming $ 1,084,215 $ 768,265 $ 3,323,728 $ 2,353,293 Gaming software 1,575 6,304 11,424 23,495 Other 9,700 15,388 39,775 57,748 Total Revenue $ 1,095,490 $ 789,957 $ 3,374,927 $ 2,434,536 Online gaming includes online Sportsbook, iGaming, digital lottery, 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 $ 64.4 million for the nine months ended September 30, 2024, respectively, and $ 51.1 million and $ 27.8 million for the nine months ended September 30, 2023, respectively. 8. 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. 16 The following table shows restricted stock unit (“RSU”) and stock option activity for the nine months ended September 30, 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 561 7,190 — 1,449 — — 9,200 26.22 42.64 Exercised options / vested RSUs ( 1,184 ) ( 6,040 ) ( 2 ) — ( 230 ) ( 261 ) ( 7,717 ) 2.56 26.18 Change in awards due to performance-based multiplier — — — — — — — — — Forfeited ( 5 ) ( 1,373 ) — ( 748 ) — ( 134 ) ( 2,260 ) 15.79 22.94 Outstanding at September 30, 2024 9,732 17,658 1,387 14,510 10,276 860 54,423 $ 7.75 $ 27.81 As of September 30, 2024, total unrecognized stock-based compensation expense of $ 691.2 million related to granted and unvested stock-based compensation arrangements is expected to be recognized over a weighted-average period of 2.5 years. The following tables shows stock compensation expense for the three and nine months ended September 30, 2024 and 2023: Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 Options RSUs Total Options RSUs Total Time-based (1) $ 1,632 $ 45,073 $ 46,705 $ 1,849 $ 39,936 $ 41,785 PSP (2) — 38,814 38,814 — 21,876 21,876 LTIP (2) — 2,033 2,033 — 14,692 14,692 Total $ 1,632 $ 85,920 $ 87,552 $ 1,849 $ 76,504 $ 78,353 Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 Options RSUs Total Options RSUs Total Time-based (1) $ 11,610 $ 127,870 $ 139,480 $ 8,239 $ 123,495 $ 131,734 PSP (2) — 128,615 128,615 — 81,763 81,763 LTIP (2) — 3,212 3,212 — 71,449 71,449 Total $ 11,610 $ 259,697 $ 271,307 $ 8,239 $ 276,707 $ 284,946 (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. 9. Income Taxes The Company’s (benefit) provision for income taxes for the three and nine months ended September 30, 2024 and 2023 is as follows: Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Income tax (benefit) provision $ ( 1,287 ) $ 1,291 $ ( 75,208 ) $ 3,310 The effective tax rates for the three months ended September 30, 2024 and 2023 were 0.4 % and ( 0.5 )%, respectively, and the effective tax rates for the nine months ended September 30, 2024 and 2023 were 16.8 % and ( 0.4 )%, respectively. The difference between the Company’s effective tax rates for the three and nine month periods in 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. Additionally, the Company recorded a discrete income tax benefit of $ 75.8 million during the second quarter of 2024, which was attributable to non-recurring partial releases of the Company ’ s U.S. valuation allowance as a result of the purchase accounting for Jackpocket. The Company regularly evaluates the realizability of 17 its deferred tax assets and establishes a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. 10. Earnings (Loss) Per Share The computation of loss per share and weighted-average shares of the Company ’ s Class A common stock outstanding for the periods presented are as follows: Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Net loss attributable to common stockholders $ ( 293,688 ) $ ( 283,103 ) $ ( 372,434 ) $ ( 757,521 ) Basic and diluted weighted-average common shares outstanding 486,219 464,773 479,981 460,762 Loss per share attributable to common stockholders: Basic and diluted $ ( 0.60 ) $ ( 0.61 ) $ ( 0.78 ) $ ( 1.64 ) There were no preferred or other dividends declared for the three and nine months ended September 30, 2024. For the periods presented, the following securities were not required to be included in the computation of diluted shares outstanding, as they would have been anti-dilutive for the three and nine months ended September 30, 2024 and 2023: September 30, 2024 September 30, 2023 Class A common stock resulting from exercise of all warrants 1,441 3,630 Stock Options and RSUs 54,423 62,324 Convertible notes 13,337 13,337 Total 69,201 79,291 11. 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. The Company has also committed to invest up to $ 17.5 million in DBDK Venture Fund I, LP and $ 21.0 million in DBDK Fund II, LP. Both funds are Delaware limited partnerships and are both subsidiaries of DKFS, LLC. As of September 30, 2024, the Company had invested a total of $ 10.0 million and none of the total commitment in DBDK Venture Fund I, LP and DBDK Fund II, LP, respectively. Transactions with a Former Director and their Immediate Family Members For the three and nine months ended September 30, 2024, the Company had no sales to entities owned by an immediate family member of a former director of the Company. For the three and nine months ended September 30, 2023, the Company had $ 0.2 million and $ 1.4 million in sales, respectively, to entities owned by an immediate family member of a former director of the Company. The Company had no associated accounts receivable balance as of September 30, 2024 or December 31, 2023. 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 the three and nine months ended September 30, 2024, the Company incurred $ 0.1 million and $ 0.4 million of expense under the Aircraft Leases as well as $ 0.3 million for upgrades related to the aircraft. During the three and nine months ended September 30, 2023, the Company incurred $ 0.1 million and $ 0.5 million of expense under the Aircraft Leases, respectively. 18 12. 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 September 30, 2024, the Company’s lease agreements typically have terms not exceeding ten years. Payments under the Company’s lease arrangements may be fixed or variable, and variable lease payments primarily represent costs related to common area maintenance and utilities. The components of lease expense are as follows: Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Operating lease cost $ 5,418 $ 5,779 $ 15,288 $ 14,298 Short term lease cost 262 361 605 2,221 Variable lease cost 1,664 1,382 3,602 4,215 Sublease income — ( 236 ) — ( 704 ) Total lease cost $ 7,344 $ 7,286 $ 19,495 $ 20,030 Supplemental cash flow and other information for the nine months ended September 30, 2024 and 2023 related to operating leases was as follows: Nine months ended September 30, 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used for operating leases $ 5,020 $ 9,830 Right-of-use assets obtained in exchange for new operating lease liabilities $ 3,626 $ 22,221 The weighted-average remaining lease term and weighted-average discount rate for the Company’s operating leases were 6.6 years and 6.5 % as of September 30, 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 October 1, 2024 to December 31, 2024 $ 4,302 2025 16,426 2026 15,722 2027 16,104 2028 16,549 Thereafter 40,223 Total undiscounted future cash flows 109,326 Less: Imputed interest ( 22,287 ) Present value of undiscounted future cash flows $ 87,039 19 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 October 1, 2024 to December 31, 2024 $ 128,697 2025 348,355 2026 174,441 2027 109,959 2028 88,211 Thereafter 181,979 Total $ 1,031,642 Surety Bonds As of September 30, 2024 , the Company has been issued $ 340.0 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. Stock Repurchase Program On July 30, 2024, our Board of Directors authorized the repurchase of an aggregate of up to $ 1.0 billion of our Class A common stock through open market purchases, privately negotiated transactions or other transactions in accordance with applicable securities laws. As of September 30, 2024, we have not purchased any shares of Class A common stock under this stock repurchase program. 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. 20 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. 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. In September, 2024, the Company entered into a settlement with the SEC regarding alleged violations of Regulation FD in connection with the disclosure on July 27, 2023 of certain information concerning DraftKings’ business through certain social media platforms. Without admitting or denying the substantive allegations, DraftKings agreed to the entry of a cease and desist order and the payment of a $ 200,000 penalty. Following the settlement, the Company considers that all the above SEC matters have concluded. 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 August 30, 2024, DraftKings filed a motion for summary judgment. On September 15, 2024, the court entered a stipulated order dismissing the action with prejudice. 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. On July 9, 2024, the Delaware Court entered its Order and Final Judgment approving the settlement and dismissing the action with prejudice. The Order and Final Judgment is now final as no appeal was filed by the August 8, 2024 deadline. The estimated loss was accrued as of December 31, 2023 in the accounts payable and accrued expenses line-item on the consolidated balance sheet. 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. 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. 21 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. 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. 22 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 Arising From DraftKings Marketplace and Related Matters 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. Beginning in July 2023, the Company received a subpoena from the Securities Division of the Office of the Secretary of the Commonwealth of Massachusetts and the United States Securities and Exchange Commission seeking documents and/or requesting answers to interrogatories concerning, among other things, DK Marketplace NFTs that are sold on DK Marketplace, the blockchain on which the NFTs were minted and digital assets and validator nodes associated with that blockchain, and related matters. We intend to comply with these requests. The Company cannot predict with any degree of certainty the outcome of the subpoena 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 the subpoena 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. Despite the potential for significant damages, the Company does not believe, based on currently available information, that the outcome of the subpoena 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 23 On May 31, 2023, the first of three substantially similar, putative shareholder derivative actions was filed in Nevada state court by an alleged shareholder of the Company. The actions purport to assert 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, aiding-and-abetting breach of fiduciary duty, unjust enrichment, and corporate waste based primarily on allegations that the defendants caused or allowed the Company to sell NFTs in violation of applicable law and/or operate the Company as an unregistered broker-dealer or securities exchange in violation of applicable law. Two of the actions also assert that certain of the defendants are liable for causing or allowing the Company to disseminate misleading and inaccurate information to its shareholders in connection with NFTs that are sold and traded on the DK Marketplace. One of the actions also alleges that certain individuals are liable for trading in Company stock at artificially inflated prices. The actions seek unspecified compensatory damages, changes to corporate governance and internal procedures, restitution, disgorgement, costs and attorney’s fees, and other unspecified relief. On October 29, 2024, the court entered a stipulated order consolidating the three actions under the caption In re DraftKings Inc. Stockholder Derivative Litigation and appointed lead counsel and further ordered that plaintiffs shall file a consolidated amended complaint within sixty days . 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. On August 9, 2024, plaintiff voluntarily dismissed the lawsuit with prejudice as to plaintiff’s individual claims. McAfee On June 10, 2024, Plaintiff Matthew McAfee, individually and on behalf of all others similarly situated, filed a purported class action lawsuit against DraftKings in the Hamilton County Superior Court, State of Indiana. On July 12, 2024, DraftKings 24 removed the matter to the United States District Court for the Southern District of Indiana. Among other things, Plaintiff alleges that those customers who had winning bets placed and accepted on the October 24, 2023 Lakers versus Nuggets basketball game that were subsequently canceled by DraftKings for obvious error were not timely canceled and should have been paid. Plaintiff brings claims for: (1) Indiana Deceptive Consumer Sales Act – Incurable Deceptive Act; (2) Indiana Deceptive Consumer Sales Act – Uncured Deceptive Act; and (3) breach of contract. Plaintiff seeks, among other things, actual and statutory damages, treble and exemplary damages, interest, and attorney fees and costs. 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. Aminov On September 30, 2024, plaintiff Nerye Aminov, individually and on behalf of others similarly situated, filed a purported class action lawsuit against DraftKings in the Supreme Court of the State of New York, County of Queens. Among other things, Plaintiff alleges that the Company’s promotion that offered new customers an opportunity to earn up to 1,000 in site credits, and related advertisements were unfair or deceptive practices in violation of New York General Business Law §§ 349-350. Plaintiff also asserts claims for intentional misrepresentation, fraudulent inducement, and quasi-contract/unjust enrichment. Plaintiff seeks, among other things, injunctive relief, actual damages, punitive damages, and attorneys’ fees. Plaintiff seeks to certify a nationwide class, with a New York subclass. The complaint has not yet been served. 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. National Football League Players Association On August 20, 2024, the plaintiffs, National Football League Players Association and National Football League Players Incorporated, filed a complaint against DraftKings in the United States District Court for the Southern District of New York alleging, among other things, that DraftKings breached its Licensing Agreement (the “Agreement”) with the plaintiffs. The plaintiffs are seeking, among other things, payment of all purported unpaid sums due under the Agreement. 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 25 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. 26