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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, 2022
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 001-41379
 dkng-20220930_g1.jpg
DRAFTKINGS INC.
(Exact name of registrant as specified in its charter)
Nevada87-2764212
(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 2, 2022, there were 448,848,235 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, 2022
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, 2022
(Unaudited)December 31, 2021
Assets  
Current assets:  
Cash and cash equivalents$1,382,651 $2,152,892 
Cash reserved for users581,355 476,950 
Receivables reserved for users89,454 51,949 
Accounts receivable40,991 45,864 
Prepaid expenses and other current assets98,627 25,675 
Total current assets2,193,078 2,753,330 
Property and equipment, net58,226 46,019 
Intangible assets, net788,647 535,017 
Goodwill894,019 615,655 
Operating lease right-of-use assets74,703 63,831 
Equity method investments8,746 9,825 
Deposits and other non-current assets174,634 45,377 
Total assets$4,192,053 $4,069,054 
Liabilities and Stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses$560,794 $387,737 
Liabilities to users670,784 528,874 
Operating lease liabilities, current portion5,645 12,814 
Other current liabilities47,951 — 
Total current liabilities1,285,174 929,425 
Convertible notes, net of issuance costs1,250,434 1,248,452 
Non-current operating lease liabilities76,080 57,341 
Warrant liabilities19,877 26,911 
Long-term income tax liability67,925 79,125 
Other long-term liabilities57,447 49,272 
Total liabilities$2,756,937 $2,390,526 
Commitments and contingent liabilities (Note 13)
Stockholders' equity:
Class A common stock, $0.0001 par value; 900,000 shares authorized as of September 30, 2022 and December 31, 2021; 457,108 and 414,911 shares issued and 448,664 and 407,781 outstanding as of September 30, 2022 and December 31, 2021, respectively
$45 $41 
Class B common stock, $0.0001 par value; 900,000 shares authorized as of September 30, 2022 and December 31, 2021; 393,014 shares issued and outstanding as of September 30, 2022 and December 31, 2021
39 39 
Treasury stock, at cost; 8,444 and 7,130 shares as of September 30, 2022 and December 31, 2021, respectively
(328,626)(306,614)
Additional paid-in capital6,616,274 5,702,388 
Accumulated deficit(4,889,104)(3,753,814)
Accumulated other comprehensive income36,488 36,488 
Total stockholders’ equity1,435,116 1,678,528 
Total liabilities and stockholders’ equity$4,192,053 $4,069,054 
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,
2022202120222021
Revenue$501,938 $212,819 $1,385,328 $822,700 
Cost of revenue372,692 170,749 998,838 540,980 
Sales and marketing321,714 303,658 840,695 703,056 
Product and technology76,299 65,222 234,853 184,016 
General and administrative186,261 219,706 590,476 587,509 
Loss from operations(455,028)(546,516)(1,279,534)(1,192,861)
Other income (expense):
Interest income (expense), net6,301 (1,556)8,378 1,071 
(Loss) gain on remeasurement of warrant liabilities(6,797)7,091 20,199 (2,905)
Other income, net8,257 — 40,566 — 
Loss before income tax provision (benefit) and loss from equity method investment(447,267)(540,981)(1,210,391)(1,194,695)
Income tax provision (benefit)3,177 3,845 (77,580)1,654 
Loss from equity method investments50 202 2,479 549 
Net loss attributable to common stockholders$(450,494)$(545,028)$(1,135,290)$(1,196,898)
Loss per share attributable to common stockholders:
Basic and diluted$(1.00)$(1.35)$(2.63)$(2.98)
See accompanying notes to unaudited condensed consolidated financial statements.
Due to the timing of the consummation of the GNOG Transaction (as defined below), the above periods, to the extent applicable, exclude the operations of GNOG (as defined below) prior to the closing date of May 5, 2022.
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DRAFTKINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(Amounts in thousands)
Three months ended September 30,Nine months ended September 30,
2022202120222021
Net loss$(450,494)$(545,028)$(1,135,290)$(1,196,898)
Other comprehensive (loss) income:
Foreign currency translation adjustments arising during period, net of nil tax
— (13,098)— (32,719)
Comprehensive loss$(450,494)$(558,126)$(1,135,290)$(1,229,617)
See accompanying notes to unaudited condensed consolidated financial statements.
Due to the timing of the consummation of the GNOG Transaction, the above periods, to the extent applicable, exclude the operations of GNOG prior to the closing date of May 5, 2022.
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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, 2021407,781 $41 393,014 $39 $5,702,388 $(3,753,814)$36,488 $(306,614)$1,678,528 
Exercise of stock options913 — — — 1,770 — — — 1,770 
Stock-based compensation expense— — — — 187,077 — — — 187,077 
Purchase of treasury stock(793)— — — — — — (14,083)(14,083)
Restricted stock unit vesting9,327 1 — — — — — — 1 
Net loss— — — — — (467,693)— — (467,693)
Balances at March 31, 2022417,228 $42 393,014 $39 $5,891,235 $(4,221,507)$36,488 $(320,697)$1,385,600 
Exercise of stock options902 — — — 3,131 — — — 3,131 
Stock-based compensation expense— — — — 135,521 — — — 135,521 
Equity consideration issued for acquisitions29,252 3 — — 460,125 — — — 460,128 
Purchase of treasury stock(254)— — — — — — (3,393)(3,393)
Restricted stock unit vesting894 — — — — — — — — 
Net loss— — — — — (217,103)— — (217,103)
Balances at June 30, 2022448,022 $45 393,014 $39 $6,490,012 $(4,438,610)$36,488 $(324,090)$1,763,884 
Exercise of stock options69 — — — 224 — — — 224 
Stock-based compensation expense— — — — 126,038 — — — 126,038 
Purchase of treasury stock(267)— — — — — — (4,536)(4,536)
Restricted stock unit vesting840 — — — — — — — — 
Net loss— — — — — (450,494)— — (450,494)
Balances at September 30, 2022448,664 $45 393,014 $39 $6,616,274 $(4,889,104)$36,488 $(328,626)$1,435,116 

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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 acquisitions464 — — — 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, net of nil tax
— — — — — — (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 acquisitions56 — — — 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, net of nil tax
— — — — — — 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 
Shares issued for exercise of warrants28 — — — 1,050 — — — 1,050 
Exercise of stock options2,607 — — — 6,664 — — — 6,664 
Stock-based compensation— — — — 175,664 — — — 175,664 
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)$1,826,167 
See accompanying notes to unaudited condensed consolidated financial statements.
Due to the timing of the consummation of the GNOG Transaction, the above periods, to the extent applicable, exclude the operations of GNOG prior to the closing date of May 5, 2022.
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DRAFTKINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Nine months ended September 30,
20222021
Operating Activities:  
Net loss$(1,135,290)$(1,196,898)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization120,629 88,600 
Non-cash interest expense, net985 1,442 
Stock-based compensation expense448,636 499,246 
Loss from equity method investments2,479 549 
(Gain) loss on remeasurement of warrant liabilities(20,199)2,905 
Gain on equity securities and other financial assets, net(32,483)— 
Deferred income taxes(78,051)(11,737)
Other expenses, net(5,109)— 
Change in operating assets and liabilities, net of effect of business combinations:
Receivables reserved for users(34,691)131 
Accounts receivable13,834 (421)
Prepaid expenses and other current assets(20,669)(19,093)
Deposits and other non-current assets(1,989)(4,760)
Operating leases, net698 (1,212)
Accounts payable and accrued expenses129,233 194,735 
Other long-term liabilities9,476 (856)
Long-term income tax liability(11,200)7,789 
Liabilities to users136,650 192,319 
Net cash flows used in operating activities(477,061)(247,261)
Investing Activities:
Purchases of property and equipment(19,903)(11,171)
Cash paid for internally developed software costs(46,513)(31,242)
Acquisition of gaming licenses(3,919)(7,563)
Cash paid for acquisitions, net of cash acquired(96,507)(64,969)
Other investing activities(5,090)(3,750)
Net cash flows used in investing activities(171,932)(118,695)
Financing Activities:
Proceeds from issuance of convertible notes, net— 1,247,116 
Purchase of capped call options— (123,970)
Proceeds from shares issued for warrants44 199 
Purchase of treasury stock(22,012)(14,334)
Proceeds from exercise of stock options5,125 25,118 
Net cash flows (used in) provided by financing activities(16,843)1,134,129 
Effect of foreign exchange rates on cash and cash equivalents and restricted cash— 1,884 
Net (decrease) increase in cash and cash equivalents and restricted cash(665,836)770,057 
Cash and cash equivalents and restricted cash at the beginning of period2,629,842 2,104,976 
Cash and cash equivalents and restricted cash, end of period$1,964,006 $2,875,033 
Disclosure of cash, cash equivalents and restricted cash:
Cash and cash equivalents$1,382,651 $2,394,865 
Cash reserved for users581,355 480,168 
Total cash, cash equivalents and restricted cash, end of period$1,964,006 $2,875,033 


7

DRAFTKINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Nine months ended September 30,
20222021
Supplemental Disclosure of Noncash Investing and Financing Activities:
Equity consideration issued for acquisitions$460,128 $33,149 
Acquisition of property and equipment, internally developed software and other investments included in accounts payable and accrued expenses12,835 2,338 
Convertible notes financing costs included in accounts payable and accrued expenses— 773 
Acquisition of gaming licenses included in accounts payable and accrued expenses— (4,976)
Increase of other current assets from transfer agent related to warrants — 525 
Supplemental Disclosure of Cash Activities:
Increase in cash reserved for users104,405 192,450 
Cash paid for interest— — 

See accompanying notes to unaudited condensed consolidated financial statements.
Due to the timing of the consummation of the GNOG Transaction, the above periods, to the extent applicable, exclude the operations of GNOG prior to the closing date of May 5, 2022.
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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. is a digital sports entertainment and gaming company. The Company’s business-to-consumer (“B2C”) segment provides users with sports betting (“Sportsbook”), online casino (“iGaming”) and daily fantasy sports (“DFS”) products, as well as media and other online consumer products. The Company’s business-to-business (“B2B”) segment’s principal activities involve the design and development of sports betting and casino gaming software.
As further discussed in Note 3 hereof entitled “Acquisition of Golden Nugget Online Gaming, Inc.,” 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 (together with its subsidiaries unless the context requires otherwise, “GNOG”), pursuant to a definitive agreement and plan of merger, dated August 9, 2021 (the “Merger Agreement”), in an all-stock transaction (the “GNOG Transaction”). In connection with the GNOG Transaction, DraftKings Inc. undertook a holding company reorganization whereby DraftKings Inc. became the going-forward public company and the direct parent company of both DraftKings Holdings Inc. (formerly DraftKings Inc.), a Nevada corporation (“Old DraftKings”), and GNOG. DraftKings Inc. is the registrant filing this Quarterly Report on Form 10-Q as the successor registrant for Old DraftKings. Unless otherwise indicated or the context otherwise requires, the terms “DraftKings”, the “Company”, “we”, “us” and “our” refer to DraftKings Inc. (or, in respect of periods prior to the GNOG Closing Date, Old DraftKings), together with its consolidated subsidiaries.

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, 2022, 32 U.S. states, the District of Columbia and Puerto Rico have legalized some form of sports betting. Of those 34 legal jurisdictions in the United States, 27 have legalized online sports betting. Of those 27 jurisdictions, 22 are live, and DraftKings operates in 18 of them. The jurisdictions in the United States with statutes legalizing iGaming are Connecticut, Delaware, Michigan, New Jersey, Pennsylvania and West Virginia.

As of September 30, 2022, the Company operates online Sportsbooks in Arizona, Colorado, Connecticut, Illinois, Indiana, Iowa, Kansas, Louisiana, Michigan, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Tennessee, Virginia, West Virginia, Wyoming, as well as Ontario, Canada and has retail Sportsbooks in Colorado, Connecticut, Illinois, Iowa, Kansas, Louisiana, Michigan, Mississippi, New Hampshire, New Jersey, New York and Washington. As of September 30, 2022, the Company offers iGaming products in Connecticut, Michigan, New Jersey, Pennsylvania and West Virginia, as well as Ontario, Canada. The Company also has arrangements in place with land-based casinos to expand operations into additional states upon the passing of relevant legislation, the issuance of related regulations and the receipt of required licenses.

Beginning in 2020 and continuing into 2022, the novel coronavirus (“COVID-19”) pandemic adversely impacted global commercial activity, disrupted supply chains and contributed to significant volatility in financial markets. The primary impacts of the COVID-19 pandemic on the Company were the suspension, cancellation, rescheduling and shortening of sports seasons and sporting events, particularly between March 2020 and July 2020, when many sports seasons and sporting events, including the MLB regular season, domestic soccer leagues and European Cup competitions, the NBA regular season and playoffs, the NCAA college basketball tournament, the Masters golf tournament, and the NHL regular season and playoffs, were suspended or cancelled. The suspension of sports seasons and sporting events reduced customers’ use of, and spending on, the Company’s Sportsbook and DFS products.

Beginning in July 2020, major professional sports leagues gradually resumed regular activities with shortened seasons in many instances. In the nine months ended September 30, 2022, sports seasons continued and sporting events were held as planned, including the NFL regular season, the NFL Playoffs and Superbowl LVI, the NBA regular season and playoffs, the NHL regular season and playoffs, the NASCAR Cup Series, various NCAA football bowl games, the NCAA college basketball regular season and tournament, the MLB regular season and several golf tournaments. The continued return of major sports and sporting events generated significant user interest and activity in the Company's Sportsbook and DFS products. However, the possibility remains that sports seasons and sporting events may be suspended, cancelled, rescheduled or shortened 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 the Company’s revenue, possibly
9

materially. However, the Company’s products that do not rely on sports seasons and sporting events, such as iGaming, may partially offset this adverse impact on revenue.

A significant or prolonged decrease in consumer spending on entertainment or leisure activities would also likely have an adverse effect on demand for the Company’s products, 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. Since the second quarter of 2022, our primary offices, including our corporate headquarters in Boston, Massachusetts, have been re-opened with many of our employees returning to work onsite in various capacities. We will continue to monitor developments relating to disruptions and uncertainties caused by COVID-19.

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. 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, 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, 2021, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as filed with the SEC on February 18, 2022 (“2021 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.
The accompanying unaudited condensed consolidated financial statements include the accounts and operations of the Company, except that, due to the timing of the consummation of the GNOG Transaction, the accompanying unaudited condensed consolidated financial statements exclude the operations of GNOG prior to the GNOG Closing Date of May 5, 2022. All intercompany balances and transactions have been eliminated.
Foreign Currency

Effective as of January 1, 2022, the Company’s significant non-U.S. subsidiaries’ functional currency changed from the Euro to the U.S. dollar. Accordingly, the Company did not have to translate the financial statements of its significant non-U.S. subsidiaries for the period ended September 30, 2022.
Digital Assets and Liabilities

On March 31, 2022, the SEC issued Staff Accounting Bulletin No. 121 (“SAB 121”). SAB 121 sets out interpretive guidance from the staff of the SEC regarding the accounting for obligations to safeguard digital assets that an entity holds for its users, which is effective from the first interim period commencing after June 15, 2022, with retroactive application as of the beginning of the fiscal year to which the interim or annual period relates. In accordance with SAB 121, the Company recognized a liability for the obligation to safeguard its users’ assets and recognized an associated asset for non-fungible tokens (“NFTs”) held for its users. Both the liability and the associated asset are measured at the fair value of the NFTs being safeguarded. Refer to Note 6 hereof for disclosures required in accordance with Accounting Standards Codification 820, Fair Value Measurement.
10

Recently Issued Accounting Pronouncements Not Yet Adopted

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Accounting Standards Codification Topic 606. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. While the Company is continuing to assess the timing of adoption and the potential impacts of ASU 2021-08, it does not expect ASU 2021-08 to have a material effect on its consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which clarifies the guidance in Accounting Standards Codification Topic 820, Fair Value Measurement (“Topic 820”), when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. While the Company is continuing to assess the timing of adoption and the potential impacts of ASU 2022-03, it does not expect ASU 2022-03 to have a material effect on the Company’s consolidated financial condition, results of operations or cash flows.
3.Business Combination
Acquisition of Golden Nugget Online Gaming, Inc.

On May 5, 2022, DraftKings consummated the GNOG Transaction, and, under the terms of the Merger Agreement and subject to certain exclusions contained therein, GNOG stockholders received a fixed ratio of 0.365 shares of DraftKings Inc.’s Class A common stock for each share of GNOG that they held on the GNOG Closing Date. DraftKings Inc. issued approximately 29.3 million shares of its Class A common stock in connection with the consummation of the GNOG Transaction.

Operating results for GNOG on and after the GNOG Closing Date are included in the Company’s unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2022. Because the Company is integrating GNOG’s operations into its consolidated operating activities, the amount of revenue and earnings attributable to the GNOG business from the GNOG Closing Date through September 30, 2022, which is included within revenue and net 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 GNOG Transaction

On the GNOG Closing Date, the Company acquired 100% of the equity interests of GNOG pursuant to the Merger Agreement. The following is a summary of the consideration issued on the GNOG Closing Date:

Share consideration (1)
$460,128 
Other consideration (2)
143,337 
Total consideration$603,465 

(1)Includes the issuance of approximately 29.3 million shares of DraftKings Inc.’s Class A common stock issued at a price of $15.73.
(2)Includes (i) payments made by the Company on behalf of GNOG, including repayment of the outstanding portion of GNOG’s term loan (including the associated prepayment premium) and payment of certain of GNOG’s transaction expenses incurred in connection with the GNOG Transaction and (ii) warrants that were exercisable for shares of GNOG Class A common stock prior to the GNOG Closing Date, which were assumed by DraftKings in connection with the GNOG Transaction and became eligible to be converted into approximately 2.1 million shares of DraftKings Inc.’s Class A common stock in the aggregate. These payments were partially offset by commercial credits received by the Company from Fertitta Entertainment, Inc. (“FEI”), which can be applied by the Company from time to time to offset future amounts otherwise owed by it to FEI or its affiliates under commercial arrangements among such parties, subject to certain limited exceptions, which partially offsets the other consideration issued in connection with the GNOG Transaction.
11


The purchase price allocation for the GNOG Transaction set forth herein is preliminary and subject to change within the measurement period, which will not extend beyond one year from the GNOG 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, tax liabilities assumed, including the calculation of deferred tax assets and liabilities, and contingent consideration (if any). Any such adjustments may be material.

The following table summarizes the consideration issued or paid in connection with the GNOG Transaction and the preliminary fair value of the assets acquired and liabilities assumed in connection with the consummation of the GNOG Transaction on the GNOG Closing Date. The values set forth below are preliminary, pending finalization of valuation analyses:

Cash and cash equivalents$66,709 
Cash reserved for users7,633 
Receivables reserved for users2,814 
Accounts receivables9,005 
Prepaid expenses and other current assets541 
Property and equipment, net2,674 
Intangible assets, net307,000 
Operating lease right-of-use assets1,185 
Deposits and other non-current assets47,395 
Total identifiable assets acquired444,956 
Liabilities assumed:
Accounts payable and accrued expenses36,660 
Liabilities to users5,260 
Operating lease liabilities1,185 
Other long-term liabilities76,750 
Total liabilities assumed119,855 
Net assets acquired (a)325,101 
Purchase consideration (b)603,465 
Goodwill (b) – (a)$278,364 

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 associated with the GNOG Transaction is assigned as of the GNOG Closing Date to the Company’s B2C reporting unit. Goodwill recognized is partially deductible for tax purposes.

Intangible Assets
Fair ValueWeighted-
Average
Useful Life
Gaming licenses$137,000 12.2 years
Customer relationships170,000 5.9 years
Total$307,000 

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Loan Receivable

The Company acquired a long-term receivable in the amount of $30.5 million in connection with the GNOG Transaction, which originally resulted from a $30.0 million mezzanine loan (the “Danville GN Casino Loan”) by GNOG to certain parties before the GNOG Closing Date to develop and construct a “Golden Nugget”-branded casino in Danville, Illinois, pending regulatory approvals, that would enable GNOG to obtain market access to the State of Illinois. There has been no significant deterioration of credit quality since the origination date of the Danville GN Casino Loan. The receivable related to the Danville GN Casino Loan is classified within deposits and other non-current assets on the Company’s condensed consolidated balance sheet.

Transaction Costs

For the three and nine months ended September 30, 2022, the Company incurred $0.6 million and $14.9 million, respectively, in advisory, legal, accounting and management fees in connection with the GNOG Transaction which are included in general and administrative expenses on the Company’s condensed consolidated statements of operations.

Unaudited Pro-Forma Information

The financial information in the table below summarizes the combined results of operations of Old DraftKings and GNOG, on an actual and a pro forma basis, as applicable, as though the companies had been combined as of the beginning of the periods presented. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the GNOG Transaction had been consummated as of the beginning of the periods presented or of results that may occur in the future.

Three months ended September 30,Nine months ended September 30,
2022 Actual2021 Pro Forma2022 Pro Forma2021 Pro Forma
Revenue$501,938 $246,620 $1,429,463 $911,291 
Net loss(450,494)(558,607)(1,137,037)(1,293,863)
 
The foregoing pro forma results are based on estimates and assumptions, which the Company believes are reasonable. The pro forma results include adjustments primarily related to purchase accounting adjustments. Acquisition costs and other non-recurring charges incurred are included in the earliest period presented.

4.Intangible Assets and Goodwill
Intangible Assets
The Company has the following intangible assets, net as of September 30, 2022:
Weighted-Average Remaining Amortization PeriodGross Carrying AmountAccumulated AmortizationNet
Amortized intangible assets:
Developed technology5.6 years$422,900 $(126,938)$295,962 
Internally developed software2.6 years158,746 (69,114)89,632 
Gaming licenses10.9 years195,361 (24,584)170,777 
Trademarks, tradenames and other3.9 years34,367 (11,490)22,877 
Customer relationships4.8 years269,728 (62,455)207,273 
1,081,102 (294,581)786,521 
Indefinite-lived intangible assets:
Digital assets, net of impairmentIndefinite-lived    2,126 — 2,126 
Intangible assets, net$1,083,228 $(294,581)$788,647 
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The Company had the following intangible assets, net as of December 31, 2021:
Weighted-Average Remaining Amortization PeriodGross Carrying AmountAccumulated AmortizationNet
Amortized intangible assets:
Developed technology6.4 years$422,900 $(87,089)$335,811 
Internally developed software2.6 years117,953 (52,607)65,346 
Gaming licenses7.3 years54,442 (13,466)40,976 
Trademarks and tradenames4.5 years30,639 (5,952)24,687 
Customer relationships3.3 years99,728 (33,526)66,202 
725,662 (192,640)533,022 
Indefinite-lived intangible assets:
Digital assetsIndefinite-lived1,995 — 1,995 
Intangible assets, net$727,657 $(192,640)$535,017 

Amortization expense was $40.6 million and $26.7 million for the three months ended September 30, 2022 and 2021, respectively, and $106.8 million and $78.6 million for the nine months ended September 30, 2022 and 2021, respectively.
Goodwill
The changes in the carrying amount of goodwill for the nine months ended September 30, 2022 by reporting unit are:
 B2CB2BMediaTotal
Balance as of December 31, 2021$360,756 $207,684 $47,215 $615,655 
Goodwill resulting from the GNOG Transaction278,364 — — 278,364 
Balance as of September 30, 2022$639,120 $207,684 $47,215 $894,019 


5.Current and Long-term Liabilities
Revolving Line of Credit
In October 2016, DK Crown Holdings Inc. (formerly DraftKings Inc.), a Delaware corporation (“DK DE”) entered into an amended and restated loan and security agreement with Pacific Western Bank (as amended from time to time, 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 November 26, 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, 2022 and December 31, 2021, the Credit Agreement provided a revolving line of credit of up to $60.0 million. There was no principal outstanding as of September 30, 2022 or December 31, 2021. Net borrowing capacity available from the Credit Agreement as of September 30, 2022 and December 31, 2021 totaled $56.0 million and $55.8 million, respectively, which, in each case, excludes the letters of credit outlined in Note 13. The Company is also subject to certain affirmative and negative covenants until maturity. In connection with the issuance of the Convertible Notes (as defined below) and the entry into the Capped Call Transactions (as defined below), the Company obtained a waiver from Pacific Western Bank for any breach of the Credit Agreement that would have otherwise 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 otherwise resulted from exceeding a capital expenditure limitation for 2021 and the amendments to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and the Company’s Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2021 and June 30, 2021, in each case, for the material weakness previously identified in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020, as filed with the SEC on November 5, 2021. In connection with the GNOG Transaction, the Company obtained a waiver from Pacific Western Bank for any breach
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of the Credit Agreement that would have otherwise resulted from entering into the transactions contemplated thereby, as well as to permit certain transfers of cash from the borrowers thereunder to GNOG and its subsidiaries from time to time.
Convertible Notes and Capped Call
In March 2021, 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. The Convertible Notes represent senior unsecured obligations of Old DraftKings, which are being amortized through the Notes Maturity Date. On May 5, 2022, in connection with the consummation of the GNOG Transaction, (i) DraftKings Inc. agreed to fully and unconditionally guarantee all of Old DraftKings’ obligations under the Convertible Notes and the indenture governing the Convertible Notes and (ii) each Convertible Note which was outstanding as of the consummation of the GNOG Transaction and previously convertible into shares of Old DraftKings Class A common stock became convertible into shares of DraftKings Inc. Class A common stock.
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).
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 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. During the nine months ended September 30, 2022, the conditions allowing holders of the Convertible Notes to convert their Convertible Notes were triggered by the holding company reorganization in connection with the GNOG Transaction, whereby DraftKings Inc. became the going-forward public company and replaced Old DraftKings as the issuer of the Class A common stock issuable upon conversion of the Convertible Notes; such conversion window expired on June 27, 2022, and no holders of the Convertible Notes exercised their conversion rights.

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.
Although recorded at amortized cost on the Company’s consolidated balance sheet, the estimated fair value of the Convertible Notes was $830.5 million and $953.8 million as of September 30, 2022 and December 31, 2021, respectively, which was calculated using level 2 inputs, including 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.
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 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,
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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, 2022 and December 31, 2021, the Company’s estimated contingent liability for indirect taxes was $56.0 million and $47.5 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 Company’s 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”). As of September 30, 2022, there were no Public Warrants outstanding and 1.6 million Private Warrants outstanding. On May 5, 2022, 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 May 5, 2022, 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, 2022, there were 5.9 million GNOG Private Warrants outstanding, which corresponds to an assumed warrant liability of $13.2 million as of the GNOG Closing Date less a loss on remeasurement of $3.7 million for the three months ended September 30, 2022 and a gain on remeasurement of $1.1 million from the GNOG Closing Date through September 30, 2022.

As of September 30, 2022, the fair value of the Company's warrant liability was $19.9 million. Due to fair value changes throughout the three and nine months ended September 30, 2022, the Company recorded a loss on remeasurement of warrant liabilities of $6.8 million and a gain on remeasurement of warrant liabilities $20.2 million, respectively. Due to fair value changes throughout the three and nine months ended September 30, 2021, the Company recorded a gain on remeasurement of warrants liabilities of $7.1 million and a loss on remeasurement of warrant liabilities of $2.9 million, respectively. During the nine months ended September 30, 2022, a de minimis number of Private Warrants and GNOG Private Warrants were exercised. During the nine months ended September 30, 2021, 0.2 million Private Warrants were exercised 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.

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.
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•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, 2022 and December 31, 2021 based on the three-tier fair value hierarchy:

September 30, 2022