10-Q 1 deac-20210930.htm 10-Q deac-20210930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to ___________.
Commission file number 001-38908
 deac-20210930_g1.jpg
DRAFTKINGS INC.
(Exact name of registrant as specified in its charter)
Nevada84-4052441
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
222 Berkeley Street, 5th Floor
Boston, MA 02116
(Address of principal executive offices) (Zip Code)
(617) 986-6744
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report).
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class    Trading symbol    Name of each exchange on which registered
Class A Common Stock, $0.0001 par valueDKNGThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐ 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 3, 2021, there were 406,453,020 shares of the registrant’s Class A common stock, par value $0.0001 per share, and 393,013,951 shares of the registrant’s Class B common stock, par value $0.0001 per share, outstanding.


DraftKings Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2021
Table of Contents

1

PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements.
DRAFTKINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except par value)
September 30, 2021
(Unaudited)December 31, 2020
Assets  
Current assets:  
Cash and cash equivalents$2,394,865 $1,817,258 
Cash reserved for users480,168 287,718 
Receivables reserved for users30,118 30,249 
Accounts receivable45,101 44,522 
Prepaid expenses and other current assets34,820 14,558 
Total current assets2,985,072 2,194,305 
Property and equipment, net45,484 40,827 
Intangible assets, net516,943 555,930 
Goodwill626,090 569,603 
Operating lease right-of-use assets67,834 68,077 
Equity method investment4,808 2,955 
Deposits and other non-current assets12,826 7,632 
Total assets$4,259,057 $3,439,329 
Liabilities and Stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses$416,537 $223,633 
Liabilities to users510,261 317,942 
Operating lease liabilities, current portion13,110 12,837 
Total current liabilities939,908 554,412 
Convertible notes1,247,785 — 
Non-current operating lease liabilities60,904 68,775 
Warrant liabilities63,843 65,444 
Long-term income tax liability75,615 72,066 
Other long-term liabilities44,835 47,287 
Total liabilities$2,432,890 $807,984 
Commitments and contingent liabilities
Stockholders' equity:
Class A common stock, $0.0001 par value; 900,000 shares authorized as of September 30, 2021 and December 31, 2020; 412,395 and 403,110 shares issued and 405,345 and 396,303 outstanding as of September 30, 2021 and December 31, 2020, respectively
$40 $40 
Class B common stock, $0.0001 par value; 900,000 shares authorized as of September 30, 2021 and December 31, 2020; 393,014 shares issued and outstanding as of September 30, 2021 and December 31, 2020
39 39 
Treasury stock, at cost; 7,050 and 6,807 shares as of September 30, 2021 and December 31, 2020, respectively
(303,118)(288,784)
Additional paid-in capital5,505,908 5,067,135 
Accumulated deficit(3,427,517)(2,230,619)
Accumulated other comprehensive income50,815 83,534 
Total stockholders’ equity1,826,167 2,631,345 
Total liabilities and stockholders’ equity$4,259,057 $3,439,329 
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 September 30,Nine months ended September 30,
2021202020212020
Revenue$212,819 $132,836 $822,700 $292,309 
Cost of revenue170,749 96,569 540,980 187,315 
Sales and marketing303,658 203,339 703,056 303,233 
Product and technology65,222 53,909 184,016 102,499 
General and administrative219,706 127,376 587,509 274,180 
Loss from operations(546,516)(348,357)(1,192,861)(574,918)
Other income (expense):
Interest (expense) income, net(1,556)686 1,071 (2,253)
Gain (loss) on remeasurement of warrant liabilities7,091 (47,908)(2,905)(411,269)
Loss before income tax provision (benefit) and loss from equity method investment(540,981)(395,579)(1,194,695)(988,440)
Income tax provision (benefit)3,845 (13)1,654 319 
Loss from equity method investment202 95 549 380 
Net loss attributable to common stockholders$(545,028)$(395,661)$(1,196,898)$(989,139)
Loss per share attributable to common stockholders:
Basic and diluted$(1.35)$(1.11)$(2.98)$(3.56)
See accompanying notes to unaudited condensed consolidated financial statements.
Due to the timing of the Business Combination, the above periods, to the extent applicable, exclude B2B/SBTech activity which occurred prior to April 24, 2020.

3

DRAFTKINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(Amounts in thousands)
Three months ended September 30,Nine months ended September 30,
2021202020212020
Net loss$(545,028)$(395,661)$(1,196,898)$(989,139)
Other comprehensive (loss) income:
Foreign currency translation adjustments arising during period, net of nil tax
(13,098)29,137 (32,719)54,123 
Comprehensive loss$(558,126)$(366,524)$(1,229,617)$(935,016)
See accompanying notes to unaudited condensed consolidated financial statements.
Due to the timing of the Business Combination, the above periods, to the extent applicable, exclude B2B/SBTech activity which occurred prior to April 24, 2020.

4

DRAFTKINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(Amounts in thousands)
Class A Common StockClass B Common StockAdditional
Paid in Capital		Accumulated
Deficit		Accumulated Other
Comprehensive
Income		Treasury Stock AmountTotal Stockholders'
Equity
SharesAmountSharesAmount
Balances at December 31, 2020396,303 $40 393,014 $39 $5,067,135 $(2,230,619)$83,534 $(288,784)$2,631,345 
Exercise of stock options2,857 — — — 7,638 — — — 7,638 
Stock-based compensation expense— — — — 151,843 — — — 151,843 
Purchase of capped call options— — — — (123,970)— — — (123,970)
Equity consideration issued for acquisition464 — — — 29,399 — — — 29,399 
Shares issued for exercise of warrants138 — — — 1,761 — — — 1,761 
Purchase of treasury stock(48)— — — — — — (3,124)(3,124)
Restricted stock unit vesting178 — — — — — — — — 
Foreign currency translation— — — — — — (27,318)— (27,318)
Net loss— — — — — (346,344)— — (346,344)
Balances at March 31, 2021399,892 $40 393,014 $39 $5,133,806 $(2,576,963)$56,216 $(291,908)$2,321,230 
Exercise of stock options1,878 — — — 10,816 — — — 10,816 
Stock-based compensation expense— — — — 171,739 — — — 171,739 
Equity consideration issued for acquisition56 — — — 3,750 — — — 3,750 
Shares issued for exercise of warrants43 — — — 2,419 — — — 2,419 
Purchase of treasury stock(115)— — — — — — (6,773)(6,773)
Restricted stock unit vesting739 — — — — — — — — 
Foreign currency translation— — — — — — 7,697 — 7,697 
Net loss— — — — — (305,526)— — (305,526)
Balances at June 30, 2021402,493 $40 393,014 $39 $5,322,530 $(2,882,489)$63,913 $(298,681)$2,205,352 
Exercise of stock options2,607 — — — 6,664 — — — 6,664 
Stock-based compensation expense— — — — 175,664 — — — 175,664 
Shares issued for exercise of warrants28 — — — 1,050 — — — 1,050 
Purchase of treasury stock(80)— — — — — — (4,437)(4,437)
Restricted stock unit vesting297 — — — — — — — — 
Foreign currency translation— — — — — — (13,098)— (13,098)
Net loss— — — — — (545,028)— — (545,028)
Balances at September 30, 2021405,345 $40 393,014 $39 $5,505,908 $(3,427,517)$50,815 $(303,118)$1,826,167 

5

DRAFTKINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(Amounts in thousands)
Class A Common StockClass B Common StockAdditional
Paid-in Capital		Accumulated
Deficit		Accumulated Other
Comprehensive
Income		Total Stockholder's (Deficit)/Equity
SharesAmountSharesAmount
Balances at December 31, 2019184,626 $18 — $— $949,186 $(998,784)$— $(49,580)
Issuance of Series F preferred stock1,526 — — — 11,000 — — 11,000 
Exercise of stock options456 — — — 467 — — 467 
Stock-based compensation expense— — — — 4,842 — — 4,842 
Net loss— — — — — (68,680)— (68,680)
Balances at March 31, 2020186,608 $18 — $— $965,495 $(1,067,464)$— $(101,951)
Merger recapitalization, net repurchase of $7,192 and issuance costs of $11,564
(278)— — — (18,756)— — (18,756)
Conversion of convertible notes to common shares11,254 1 — — 112,544 — — 112,545 
DEAC shares recapitalized, net of redemptions and equity issuance costs of $10,631
74,122 7 — — 665,478 — — 665,485 
Equity consideration issued to acquire SBTech40,739 4 — — 789,060 — — 789,064 
Shares issued for earn outs - SBTech720 — — — — — — — 
Shares issued for earn outs – DEAC and DK5,280 1 — — (1)— — — 
Shares issued for exercise of warrants17,519 2 — — 515,771 — — 515,773 
Shares issued in offering, net of issuance costs of $19,200
16,000 2 — — 620,798 — — 620,800 
Exercise of stock options2,287 — — — 5,599 — — 5,599 
Stock-based compensation— — 393,014 39 54,447 — — 54,486 
Foreign currency translation— — — — — — 24,986 24,986 
Net loss— — — — — (524,798)— (524,798)
Balances at June 30, 2020354,251 $35 393,014 $39 $3,710,435 $(1,592,262)$24,986 $2,143,233 
Shares issued for exercise of warrants91 — — — 4,893 — — 4,893 
Exercise of stock options3,006 — — — 3,996 — — 3,996 
Stock-based compensation— — — — 117,034 — — 117,034 
Foreign currency translation— — — — — — 29,137 29,137 
Net loss— — — — — (395,661)— (395,661)
Balances at September 30, 2020357,348 $35 393,014 $39 $3,836,358 $(1,987,923)$54,123 $1,902,632 
See accompanying notes to unaudited condensed consolidated financial statements.
Due to the timing of the Business Combination, the above periods, to the extent applicable, exclude B2B/SBTech activity which occurred prior to April 24, 2020.

6

DRAFTKINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Nine months ended September 30,
20212020
Operating Activities:  
Net loss$(1,196,898)$(989,139)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization88,600 49,967 
Non-cash interest expense1,442 3,114 
Stock-based compensation expense499,246 176,362 
Loss from equity method investment549 380 
Loss on remeasurement of warrant liabilities2,905 411,269 
Deferred income taxes(11,737)(544)
Change in operating assets and liabilities, net of effect of business combinations:
Receivables reserved for users131 (9,271)
Accounts receivable(421)(15,427)
Prepaid expenses and other current assets(19,093)534 
Deposits and other non-current assets(4,760)(64)
Operating leases, net(1,212)1,481 
Accounts payable and accrued expenses194,735 112,057 
Other long-term liabilities(856)7,951 
Long-term income tax liability7,789 — 
Liabilities to users192,319 123,471 
Net cash flows used in operating activities(247,261)(127,859)
Cash Flows from Investing Activities:
Purchases of property and equipment(11,171)(8,233)
Cash paid for internally developed software costs(31,242)(18,821)
Acquisition of gaming licenses(7,563)(7,760)
Cash paid for acquisitions, net of cash acquired(64,969)(176,819)
Other investing activities(3,750)— 
Net cash flows used in investing activities(118,695)(211,633)
Financing Activities:
Proceeds from issuance of convertible notes, net1,247,116 41,077 
Purchase of capped call options(123,970)— 
Proceeds from shares issued for warrants199 201,508 
Purchase of treasury stock(14,334)— 
Proceeds from exercise of stock options25,118 10,062 
Cash buyout of unaccredited investors— (7,192)
Issuance costs related to merger recapitalization— (11,564)
Proceeds from recapitalization of DEAC shares, net of issuance costs— 667,999 
Proceeds from issuance of Class A common stock, net of issuance costs— 620,800 
Net payment of revolving credit line— (6,750)
Net cash flows provided by financing activities1,134,129 1,515,940 
Effect of foreign exchange rates on cash and cash equivalents and restricted cash1,884 1,358 
Net increase in cash and cash equivalents and restricted cash770,057 1,177,806 
Cash and cash equivalents and restricted cash at the beginning of period2,104,976 220,533 
Cash and cash equivalents and restricted cash, end of period$2,875,033 $1,398,339 
Disclosure of cash, cash equivalents and restricted cash:
Cash and cash equivalents$2,394,865 $1,140,907 
Cash reserved for users480,168 257,432 
Total cash, cash equivalents and restricted cash, end of period$2,875,033 $1,398,339 


7

DRAFTKINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Nine months ended September 30,
20212020
Supplemental Disclosure of Noncash Investing and Financing Activities:
Equity consideration issued for acquisitions$33,149 $789,064 
Increase in accounts payable and accrued expenses from property and equipment and internally developed software costs2,338 — 
Increase in accounts payable and accrued expenses from convertible notes financing costs773 — 
Decrease of accounts payable and accrued expenses from gaming licenses(4,976)(1,000)
Conversion of convertible notes and accrued interest to common shares— 112,545 
Increase in net liabilities acquired from DEAC— 2,514 
Increase of other current assets from transfer agent related to warrants 525 — 
Supplemental Disclosure of Cash Activities:
Increase in cash reserved for users192,450 113,432 
Cash paid for interest— 417 

See accompanying notes to unaudited condensed consolidated financial statements.
Due to the timing of the Business Combination, the above periods, to the extent applicable, exclude B2B/SBTech activity which occurred prior to April 24, 2020.
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DRAFTKINGS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except loss per share data, unless otherwise noted)
1.Description of Business
DraftKings Inc., a Nevada corporation (the “Company” or “DraftKings”), was incorporated in Nevada as DEAC NV Merger Corp., a wholly owned subsidiary of our legal predecessor, Diamond Eagle Acquisition Corp. (“DEAC”), a special purpose acquisition company. On April 23, 2020, DEAC consummated the transactions contemplated by the Business Combination Agreement (the “Business Combination”) dated December 22, 2019, as amended on April 7, 2020 and, in connection therewith, (i) DEAC merged with and into the Company, whereby the Company survived the merger and became the successor issuer to DEAC by operation of Rule 12g-3(a) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (ii) the Company changed its name to “DraftKings Inc.,” (iii) the Company acquired DraftKings Inc., a Delaware corporation (“Old DK”), by way of a merger and (iv) the Company acquired all of the issued and outstanding share capital of SBTech (Global) Limited (“SBTech”). Upon consummation of the preceding transactions, Old DK and SBTech became wholly owned subsidiaries of the Company.
DraftKings is a digital sports entertainment and gaming company. The Company’s business-to-consumer (“B2C”) segment provides users with daily fantasy sports (“DFS”), sports betting (“Sportsbook”) and online casino (“iGaming”) products, as well as media and other online consumer product offerings. The Company’s business-to-business (“B2B”) segment is involved in the design, development and licensing of sports betting and casino gaming software for its Sportsbook and casino gaming products.
In May 2018, the Supreme Court (the “Court”) struck down on constitutional grounds the Professional and Amateur Sports Protection Act of 1992 (“PASPA”), a law that prohibited most states from authorizing and regulating sports betting. Since the Court’s decision, many states have legalized sports betting. As of September 30, 2021, the U.S. jurisdictions with statutes legalizing online sports betting are Arizona, Colorado, Connecticut, Florida, Illinois, Indiana, Iowa, Louisiana, Maryland, Michigan, Nevada, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Puerto Rico, Rhode Island, Tennessee, Virginia, Washington, D.C, West Virginia and Wyoming. The jurisdictions with statutes legalizing sports betting at certain land-based retail locations are Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Illinois, Indiana, Iowa, Louisiana, Maryland, Michigan, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Puerto Rico, Rhode Island, South Dakota, Virginia, Washington, Washington, D.C. and West Virginia. A few jurisdictions have enacted laws authorizing sports betting in retail locations but have yet to begin operations in those jurisdictions. The jurisdictions with statutes legalizing iGaming are Connecticut, Delaware, Michigan, New Jersey, Pennsylvania and West Virginia.

As of September 30, 2021, the Company operates online Sportsbooks in Arizona, Colorado, Illinois, Indiana, Iowa, Michigan, New Hampshire, New Jersey, Oregon (B2B), Pennsylvania, Tennessee, Virginia, West Virginia and Wyoming and has retail Sportsbooks in Colorado, Connecticut, Illinois, Iowa, Mississippi, New Hampshire, New Jersey and New York. As of September 30, 2021, the Company offers iGaming products in Michigan, New Jersey, Pennsylvania and West Virginia. 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.

The novel coronavirus (“COVID-19”) has adversely impacted global commercial activity, disrupted supply chains and contributed to significant volatility in financial markets. Beginning in 2020 and continuing into 2021, the COVID-19 pandemic adversely impacted many different industries. The ongoing COVID-19 pandemic could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the extent and the duration of the impact of COVID-19. The COVID-19 pandemic therefore presents material uncertainty and risk with respect to us and our performance and could affect our financial results in a materially adverse way.
Since the start of the COVID-19 pandemic, the primary impacts to the Company have been the suspension, cancellation and rescheduling of sports seasons and sporting events. Beginning in March 2020 and continuing into the first month of the third quarter of 2020, many sports seasons and sporting events, including the MLB regular season, domestic soccer leagues and European Cup competitions, the NBA regular season and playoffs, the NCAA college basketball tournament, the Masters golf tournament, and the NHL regular season and playoffs, were suspended or cancelled. The suspension of sports seasons and sporting events reduced customers’ use of, and spending on, the Company’s Sportsbook and DFS product offerings. Starting in the third quarter of 2020 and continuing into the fourth quarter of 2020, major professional sports leagues resumed their
9

activities, many of which were held at limited or reduced capacity. MLB began its season after a three-month delay and also completed the World Series, the NHL resumed its season and completed the Stanley Cup Playoffs, the Masters golf tournament was held, most domestic soccer leagues resumed and several European cup competitions were held, and the NFL season began on its regular schedule. During this period, the NBA also resumed its season, completed the NBA Finals and commenced its 2020-2021 season. The suspension and alteration of sports seasons and sporting events in 2020 reduced customers’ use of, and spending on, the Company’s Sportsbook and DFS product offerings and caused the Company to issue refunds for canceled events. In the nine months ended September 30, 2021, many sports seasons continued and most sporting events were held as planned, including the NFL regular season, the NFL Playoffs and Superbowl LV, the NBA regular season and NBA playoffs, the NHL regular season and the NHL Stanley Cup, the NASCAR Cup Series, various NCAA football bowl games, the NCAA college basketball season and tournament, and the UEFA European Football Championship. The continued return of major sports and sporting events generated significant user interest and activity in our Sportsbook and DFS product offerings. However, the possibility remains that sports seasons and sporting events may be suspended, cancelled or rescheduled due to COVID-19 outbreaks.

The Company’s revenue varies based on sports seasons and sporting events amongst other factors, and cancellations, suspensions or alterations resulting from COVID-19 have the potential to adversely affect its revenue, possibly materially. However, the Company’s product offerings that do not rely on sports seasons and sporting events, such as iGaming, may partially offset this adverse impact on revenue. DraftKings is also developing more innovative products that do not rely on traditional sports seasons and sporting events, for example, products that permit wagering and contests on events such as eSports and simulated NASCAR.
A significant or prolonged decrease in consumer spending on entertainment or leisure activities would also likely have an adverse effect on demand for the Company’s product offerings, reducing cash flows and revenues, and thereby materially harming the Company’s business, financial condition and results of operations. In addition, a materially disruptive resurgence of COVID-19 cases or the emergence of additional variants or strains of COVID-19 could cause other widespread or more severe impacts depending on where infection rates are highest. As steps taken to mitigate the spread of COVID-19 necessitated a shift away from a traditional office environment for many employees, the Company implemented business continuity programs to ensure that employees were safe and that the business continued to function with minimal disruptions to normal work operations while employees worked remotely. The Company will continue to monitor developments relating to disruptions and uncertainties caused by COVID-19.

2.Summary of Significant Accounting Policies and Practices
Basis of Presentation and Principles of Consolidation
These unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States (“U.S. GAAP”) for interim reporting. Accordingly, certain notes or other information that are normally required by U.S. GAAP have been omitted if they substantially duplicate the disclosures contained in the Company’s annual audited consolidated financial statements. Accordingly, the unaudited condensed consolidated financial statements should be read in connection with the Company’s audited financial statements and related notes as of and for the fiscal year ended December 31, 2020, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 as filed with the SEC on February 26, 2021 (“Original Annual Report”) and as amended by the Form 10-K/A filed with the SEC on May 3, 2021 (“2020 Annual Report”). The accompanying condensed consolidated financial statements are unaudited; however, in the opinion of management, they include all normal and recurring adjustments necessary for a fair presentation of the Company’s condensed consolidated financial statements for the periods presented. Results of operations reported for interim periods are not necessarily indicative of results for the entire year, due to seasonal fluctuations in the Company’s revenue as a result of timing of the various sports seasons, sporting events and other factors.
As the Company completed its acquisition of SBTech on April 23, 2020, the presented financial information for the nine months ended September 30, 2021 includes the financial information and activities for SBTech; whereas, the financial information for the nine months ended September 30, 2020 includes the financial information and activities for SBTech for the period from April 24, 2020 to (and including) September 30, 2020.
The accompanying unaudited condensed consolidated financial statements include the accounts and operations of the Company. All intercompany balances and transactions have been eliminated. Certain amounts from a prior period, which are not material, have been reclassified to conform with the current period presentation.
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Prior to the second quarter of 2021, the Company (a) included changes in “cash reserved for users” as a component within the change in operating assets and liabilities on its condensed consolidated statement of cash flows as the Company historically viewed the change in cash reserved for users as offsetting the change in player liabilities and (b) presented “cash reserved for users” separate from cash and cash equivalents on the condensed consolidated balance sheet.

Beginning with the second quarter of 2021, to reflect the Company's total cash position (“cash and cash equivalents” and “cash reserved for users”) and to conform to Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230) — Restricted Cash, the Company revised its presentation to exclude changes in “cash reserved for users” from the “change in operating assets and liabilities” and instead present the total balance as a component of cash and cash equivalents and restricted cash on its condensed consolidated statement of cash flows.

This revision does not have a material impact on the Company's presentation of cash flows as the change in cash reserved for users will continue to be presented as a supplemental disclosure in the condensed consolidated statement of cash flows. In addition, the Company will continue to present cash reserved for users as a separate line item on the Company’s condensed consolidated balance sheet.

These revisions have no impact on the Company’s previously reported consolidated statements of operations or consolidated balance sheets, including the Company’s cash and cash equivalents and cash reserved for user balances. Prior period amounts have been revised to conform to the current period presentation.

The following table presents the condensed consolidated statement of cash flows line items after giving effect to the revision of presentation as discussed above for the nine months ended September 30, 2020. For the effect to the revision of presentation for the six months ended June 30, 2020, year ended December 31, 2020 and three months ended March 31, 2021, refer to the Company’s Form 10-Q for the quarter ended June 30, 2021 filed with the SEC on August 6, 2021.
Nine months ended September 30, 2020
ReportedAdjustmentsRevised
Adjustments to reconcile net loss to net cash flows used in operating activities:
Change in operating assets and liabilities, net of effect of business combinations:
Cash reserved for users$(113,432)$113,432 $— 
Net cash flows used in operating activities(241,291)113,432 (127,859)
Net increase in cash, cash equivalents and restricted cash1,064,374 113,432 1,177,806 
Cash and cash equivalents and restricted cash at the beginning of period76,533 144,000 
(a)
220,533 
Cash and cash equivalents and restricted cash, end of period$1,140,907 $257,432 $1,398,339 
(a)Represents the cash reserved for user balance as of December 31, 2019 as previously included in the Company's 2020 Annual Report filed with the SEC.

Cash and cash equivalents
Cash and cash equivalents consist of highly liquid, unrestricted savings, checking and other bank accounts. The Company also utilizes money market funds and short-term deposits with original maturities of three months or less.
Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company elected to early adopt the new standard as of January 1, 2021 using the modified retrospective approach. In the first quarter of 2021, the Company issued convertible senior notes, whereby the entire proceeds from issuance were recognized as a liability, net of any lender fees
11

and debt financing costs, on our condensed consolidated balance sheet. Please refer to Note 5 included herein for additional information.
In December 2019, the FASB issued ASU 2019-12, Income Taxes—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted this standard as of January 1, 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

3.Business Combinations
Vegas Sports Information Network, Inc. (“VSiN”) Acquisition

On March 24, 2021, the Company acquired 100% of the equity of Vegas Sports Information Network, Inc. (“VSiN”). The following summarizes the consideration transferred at closing for the VSiN acquisition:
Cash consideration$40,599 
Share consideration (1)
29,399 
Total consideration$69,998 
(1)Represents the issuance of 0.5 million shares of the Company’s Class A common stock at a fair value of $63.32 per share to the former stockholders of VSiN.

The acquired assets and assumed liabilities of VSiN were recorded at their estimated fair values. The purchase price allocation is preliminary, and as additional information becomes available, the Company may further revise the preliminary purchase price allocation, including the fair value of identified intangible assets, during the remainder of the measurement period, which will not exceed 12 months from the closing of the acquisition. Measurement period adjustments will be recognized in the reporting period in which the adjustment amounts are determined. Any such adjustments may be material.
The purchase price of the VSiN acquisition was allocated on a preliminary basis as follows:

Operating lease right-of-use assets$6,120 
Intangible assets14,628 
Other assets4,516 
Liabilities(7,910)
Goodwill52,644 
Total$69,998 
Goodwill represents the excess of the gross considerations transferred over the fair value of the underlying net assets acquired and liabilities assumed. Goodwill associated with the VSiN acquisition is assigned as of the acquisition date to the Company’s Media reporting unit. Goodwill recognized is not deductible for local tax purposes.
The intangible assets acquired as part of the VSiN acquisition were as follows:
Fair ValueWeighted-Average Useful Life (in years)
Developed technology - software$558 3.0
Customer relationships11,170 6.0
Trademarks and trade names2,900 4.0
Total$14,628 
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As VSiN’s financial results are not material to the Company’s condensed consolidated financial statements, the Company has elected to not include pro forma results.

Blue Ribbon Software Ltd. (“Blue Ribbon”) Acquisition

On April 1, 2021, the Company acquired 100% of the equity of Blue Ribbon for $17.8 million of cash and approximately $3.8 million of the Company’s Class A common stock (the "Blue Ribbon Acquisition"). The purchase price allocation is preliminary, and as additional information becomes available, the Company may further revise the preliminary purchase price allocation during the remainder of the measurement period, which will not exceed 12 months from the closing of the Blue Ribbon Acquisition. Blue Ribbon’s financial results are included in the Company’s condensed consolidated financial statements, but are not considered material.

Pending Acquisition of Golden Nugget Online Gaming, Inc. (“GNOG”)

On August 9, 2021, the Company and GNOG entered into a definitive agreement for the Company to acquire GNOG in an all-stock transaction with an implied equity value of approximately $1.56 billion (the “GNOG Transaction”). As part of the GNOG Transaction, the Company will undergo a holding company reorganization whereby a new holding company (“New DraftKings”) will become the going-forward public company for both DraftKings and GNOG. It is expected that New DraftKings will be renamed DraftKings Inc. at the closing of the GNOG Transaction. Under the terms of the agreement and subject to certain exclusions contained therein, GNOG stockholders would receive a fixed ratio of 0.365 shares of New DraftKings’ Class A common stock for each share of GNOG that they hold on the record date. As part of the GNOG Transaction, New DraftKings will also acquire that portion of LHGN Holdco, LLC, the operating subsidiary of GNOG, that is not currently owned by GNOG from Landry’s Fertitta, LLC in exchange for shares of New DraftKings’ Class A common stock. The GNOG Transaction was subject to (i) approval by GNOG stockholders, which was obtained through the delivery of a written consent on September 8, 2021 and (ii) approval by DraftKings stockholders, which was obtained through the delivery of a written consent on August 10, 2021, and is subject to the receipt of required regulatory approvals and other customary closing conditions and is expected to close in the first quarter of 2022.

4.Intangible Assets and Goodwill
Intangible Assets
The Company has the following intangible assets, net as of September 30, 2021:
Weighted-Average Remaining Amortization PeriodGross Carrying AmountAccumulated AmortizationNet
Developed technology6.6 years$432,468 $(75,652)$356,816 
Internally developed software2.7 years103,750 (46,153)57,597 
Gaming licenses2.7 years26,217 (11,658)14,559 
Trademarks and tradenames2.7 years9,164 (2,888)6,276 
Customer relationships3.8 years112,073 (30,378)81,695 
Intangible assets, net$683,672 $(166,729)$516,943 
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The Company had the following intangible assets, net as of December 31, 2020:
Weighted-Average Remaining Amortization PeriodGross Carrying AmountAccumulated AmortizationNet
Developed technology7.3 years$439,624 $(37,704)$401,920 
Internally developed software2.3 years72,268 (33,179)39,089 
Gaming licenses3.5 years23,685 (6,354)17,331 
Trademarks and tradenames2.8 years6,537 (1,123)5,414 
Customer relationships4.3 years106,836 (14,660)92,176 
Intangible assets, net$648,950 $(93,020)$555,930 

Amortization expense was $26.7 million and $23.8 million for the three months ended September 30, 2021 and 2020 and $78.6 million and $43.5 million for the nine months ended September 30, 2021 and 2020, respectively.
Goodwill
The changes in the carrying amount of goodwill for the nine months ended September 30, 2021 by reporting unit are:
B2CB2BMediaTotal
Balance as of December 31, 2020$353,083 $216,520 $— $569,603 
Goodwill resulting from acquisitions*7,673 8,300 52,644 68,617 
Cumulative translation adjustment—(12,130)—(12,130)
Balance as of September 30, 2021$360,756 $212,690 $52,644 $626,090 
* = Preliminary allocation

5.Current and Long-term Liabilities
Convertible Notes
In March 2021, the Company issued zero-coupon convertible senior notes in an aggregate principal amount of $1,265.0 million, which includes proceeds from the full exercise of the over-allotment option (collectively, the “Convertible Notes”). In connection with the issuance of the Convertible Notes, the Company incurred $17.0 million of lender fees and $1.0 million of debt financing costs. The Convertible Notes represent senior unsecured obligations of the Company. The Convertible Notes will mature on March 15, 2028, subject to earlier conversion, redemption or repurchase.
The Convertible Notes are convertible at an initial conversion rate of 10.543 shares of the Company’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 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 within the indenture agreement).
Prior to September 15, 2027, the Convertible Notes will be convertible only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The Company will satisfy any conversion election by paying or delivering, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock. During the nine months ended September 30, 2021, the conditions allowing holders of the Convertible Notes to convert their Convertible Notes were not met.
In connection with the pricing of the Convertible Notes and the exercise of the option to purchase additional notes, the Company entered into a privately negotiated capped call transaction (“Capped Call Transactions”). The Capped Call Transactions have a strike price of $94.85 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Convertible Notes. The Capped Call Transactions have an initial cap price of $135.50 per share, subject to certain
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adjustments. The Capped Call Transactions are expected generally to reduce potential dilution to the Company's Class A common stock upon any conversion of Convertible Notes. As the transaction qualifies for equity classification, the net cost of $124.0 million incurred in connection with the Capped Call Transactions was recorded as a reduction to additional paid-in capital on the Company's consolidated balance sheet.
Revolving Line of Credit
In October 2016, Old DK entered into an amended and restated loan and security agreement with Pacific Western Bank, which was most recently amended in September 2020 (as amended, the “Credit Agreement”). The Credit Agreement provides a revolving line of credit of up to $60.0 million. The Credit Agreement has a maturity date of March 1, 2022.
Borrowings under the Credit Agreement bear interest at a variable annual rate equal to the greater of (i) 1.00% above the prime rate then in effect and (ii) 6.50%, and the Credit Agreement requires monthly, interest-only payments. In addition, the Company is required to pay quarterly in arrears a fee equal to 0.25% per annum of the unused portion of the revolving line of credit. As of September 30, 2021 and December 31, 2020, the Credit Agreement provided a revolving line of credit of up to $60.0 million. There was no principal outstanding as of September 30, 2021 or December 31, 2020. Net facility available from the Credit Agreement as of September 30, 2021 and December 31, 2020 totaled $55.8 million, which, in each case, excludes the letters of credit outlined in Note 12. The Company is also subject to certain affirmative and negative covenants until maturity. In connection with the issuance of the Convertible Notes and the entry into the Capped Call Transactions, the Company obtained a waiver from Pacific Western Bank for any breach of the credit agreement that would have resulted from entering into these financing transactions. The Company also obtained a waiver from Pacific Western Bank for any breach of the credit agreement that would have resulted from exceeding a capital expenditure limitation for 2021 and the amendments to its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q for the material weakness identified in Item 4. Controls and Procedures.
Indirect Taxes
Taxation of e-commerce is becoming more prevalent and could negatively affect the Company’s business as it pertains to DFS and its users. The ultimate impact of indirect taxes on the Company’s business is uncertain, as is the period required to resolve this uncertainty. The Company’s estimated contingent liability for indirect taxes represents the Company’s best estimate of tax liability in jurisdictions in which the Company believes taxation is probable. The Company frequently reevaluates its tax positions for appropriateness.
Indirect tax statutes and regulations are complex and subject to differences in application and interpretation. Tax authorities may impose indirect taxes on Internet-delivered activities based on statutes and regulations which, in some cases, were established prior to the advent of the Internet and do not apply with certainty to the Company’s business. The Company’s estimated contingent liability for indirect taxes may be materially impacted by future audit results, litigation and settlements, 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, 2021 and December 31, 2020, the Company’s estimated contingent liability for indirect taxes was $43.4 million and $45.9 million, respectively. The estimated contingent liability for indirect taxes is recorded within other long-term liabilities on the consolidated balance sheets and general and administrative expenses on the condensed consolidated statements of operations.
Warrant Liabilities
As part of DEAC’s initial public offering on May 14, 2019, DEAC issued 13.3 million warrants each of which entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share (the “Public Warrants”). Simultaneously with the closing of the IPO, DEAC completed the private sale of 6.3 million warrants to DEAC’s sponsor (the “Private Warrants”). As of September 30, 2021, there were no Public Warrants outstanding. As of September 30, 2021, 1.7 million Private Warrants remained outstanding at a fair value of $63.8 million. Due to fair value changes throughout the three and nine months ended September 30, 2021, the Company recorded a gain on remeasurement of warrant liabilities of $7.1 million and a loss on the remeasurement of warrant liabilities of $2.9 million, respectively, and a loss on remeasurement of warrant liabilities of $47.9 million and $411.3 million for the three and nine months ended September 30, 2020, respectively. In addition, 0.2 million Private Warrants were exercised during the nine months ended September 30, 2021, resulting in a reclassification to additional paid-in-capital in the amount of $5.2 million, reflecting the reclassification of the warrant liabilities of $4.5 million and proceeds upon exercise of $0.7 million.

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6.Revenue Recognition
Deferred Revenue

The deferred revenue balances were as follows:
Three months ended September 30,Nine months ended September 30,
2021202020212020
Deferred revenue, beginning of the period$51,791 $24,759 $30,627 $20,760 
Deferred revenue, end of the period84,951 33,464 84,951 33,464 
Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period23,946 6,632 27,569 10,505 

Deferred revenue primarily represents contract liabilities related to the Company’s obligation to transfer future value in relation to in period transactions in which the Company has received consideration. Such obligations are recognized as liabilities when awarded to users and are recognized as revenue when those liabilities are later resolved. The Company included deferred revenue within accounts payable and accrued expenses and liabilities to users on its consolidated balance sheets.

Revenue Disaggregation

Disaggregation of revenue for the three and nine months ended September 30, 2021 and 2020 is as follows:
Three months ended September 30,Nine months ended September 30,
2021202020212020
Online gaming$