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~~March 31, 2023


☐			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

DRAFTKINGS INC.

(Exact name of registrant as specified in its charter)


Nevada			87-2764212
(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 value

DKNG

The 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,~~May 3, 2023, there were ~~448,848,235~~461,865,825 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~~March 31, 2023

Table of Contents

PART I. - FINANCIAL INFORMATION

Item 1. Financial Statements.

DRAFTKINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except par value)


		September 30, 2022					March 31, 2023
		(Unaudited)		December 31, 2021			(Unaudited)		December 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,382,651	$	2,152,892	Cash and cash equivalents	$	1,087,668	$	1,309,172
Cash reserved for users	Cash reserved for users	581,355		476,950		Cash reserved for users	436,935		469,653
Receivables reserved for users	Receivables reserved for users	89,454		51,949		Receivables reserved for users	124,536		160,083
Accounts receivable	Accounts receivable	40,991		45,864		Accounts receivable	41,423		51,097
Prepaid expenses and other current assets	Prepaid expenses and other current assets	98,627		25,675		Prepaid expenses and other current assets	115,194		94,836
Total current assets	Total current assets	2,193,078		2,753,330		Total current assets	1,805,756		2,084,841
Property and equipment, net	Property and equipment, net	58,226		46,019		Property and equipment, net	62,273		60,102
Intangible assets, net	Intangible assets, net	788,647		535,017		Intangible assets, net	754,509		776,934
Goodwill	Goodwill	894,019		615,655		Goodwill	886,373		886,373
Operating lease right-of-use assets	Operating lease right-of-use assets	74,703		63,831		Operating lease right-of-use assets	60,804		65,957
Equity method investments		8,746		9,825
Equity method investment						Equity method investment	9,961		10,080
Deposits and other non-current assets	Deposits and other non-current assets	174,634		45,377		Deposits and other non-current assets	159,598		155,865
Total assets	Total assets	$	4,192,053	$	4,069,054	Total assets	$	3,739,274	$	4,040,152

Liabilities and Stockholders’ equity	Liabilities and Stockholders’ equity					Liabilities and Stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	560,794	$	387,737	Accounts payable and accrued expenses	$	508,725	$	517,587
Liabilities to users	Liabilities to users	670,784		528,874		Liabilities to users	670,456		686,173
Operating lease liabilities, current portion	Operating lease liabilities, current portion	5,645		12,814		Operating lease liabilities, current portion	3,975		4,253
Other current liabilities	Other current liabilities	47,951		—		Other current liabilities	48,733		38,444
Total current liabilities	Total current liabilities	1,285,174		929,425		Total current liabilities	1,231,889		1,246,457
Convertible notes, net of issuance costs	Convertible notes, net of issuance costs	1,250,434		1,248,452		Convertible notes, net of issuance costs	1,251,758		1,251,103
Non-current operating lease liabilities	Non-current operating lease liabilities	76,080		57,341		Non-current operating lease liabilities	66,466		69,332
Warrant liabilities	Warrant liabilities	19,877		26,911		Warrant liabilities	27,715		10,680
Long-term income tax liability	Long-term income tax liability	67,925		79,125		Long-term income tax liability	69,238		69,858
Other long-term liabilities	Other long-term liabilities	57,447		49,272		Other long-term liabilities	74,428		70,029
Total liabilities	Total liabilities	$	2,756,937	$	2,390,526	Total liabilities	$	2,721,494	$	2,717,459
Commitments and contingent liabilities (Note 13)
Commitments and contingent liabilities (Note 12)						Commitments and contingent liabilities (Note 12)

Stockholders' equity:	Stockholders' equity:					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)
Class A common stock, $0.0001 par value; 900,000 shares authorized as of March 31, 2023 and December 31, 2022; 471,723 and 459,265 shares issued and 461,634 and 450,575 outstanding as of March 31, 2023 and December 31, 2022, respectively						Class A common stock, $0.0001 par value; 900,000 shares authorized as of March 31, 2023 and December 31, 2022; 471,723 and 459,265 shares issued and 461,634 and 450,575 outstanding as of March 31, 2023 and December 31, 2022, respectively	$	46	$	45
Class B common stock, $0.0001 par value; 900,000 shares authorized as of March 31, 2023 and December 31, 2022; 393,014 shares issued and outstanding as of March 31, 2023 and December 31, 2022						Class B common stock, $0.0001 par value; 900,000 shares authorized as of March 31, 2023 and December 31, 2022; 393,014 shares issued and outstanding as of March 31, 2023 and December 31, 2022	39		39
Treasury stock, at cost; 10,089 and 8,690 shares as of March 31, 2023 and December 31, 2022, respectively						Treasury stock, at cost; 10,089 and 8,690 shares as of March 31, 2023 and December 31, 2022, respectively	(359,491)		(332,133)
Additional paid-in capital	Additional paid-in capital	6,616,274		5,702,388		Additional paid-in capital	6,869,647		6,750,055
Accumulated deficit	Accumulated deficit	(4,889,104)		(3,753,814)		Accumulated deficit	(5,528,949)		(5,131,801)
Accumulated other comprehensive income	Accumulated other comprehensive income	36,488		36,488		Accumulated other comprehensive income	36,488		36,488
Total stockholders’ equity	Total stockholders’ equity	1,435,116		1,678,528		Total stockholders’ equity	$	1,017,780	$	1,322,693
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	4,192,053	$	4,069,054	Total liabilities and stockholders’ equity	$	3,739,274	$	4,040,152

See accompanying notes to unaudited condensed consolidated financial statements.

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,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022
Revenue	Revenue	$	501,938	$	212,819	$	1,385,328	$	822,700	Revenue	$	769,652	$	417,205
Cost of revenue	Cost of revenue	372,692		170,749		998,838		540,980		Cost of revenue	521,740		313,379
Sales and marketing	Sales and marketing	321,714		303,658		840,695		703,056		Sales and marketing	389,133		321,452
Product and technology	Product and technology	76,299		65,222		234,853		184,016		Product and technology	88,088		81,352
General and administrative	General and administrative	186,261		219,706		590,476		587,509		General and administrative	160,476		216,606
Loss from operations	Loss from operations	(455,028)		(546,516)		(1,279,534)		(1,192,861)		Loss from operations	(389,785)		(515,584)
Other income (expense):	Other income (expense):									Other income (expense):
Interest income (expense), net		6,301		(1,556)		8,378		1,071
Interest income										Interest income	11,795		801
Interest expense										Interest expense	(655)		(653)
(Loss) gain on remeasurement of warrant liabilities	(Loss) gain on remeasurement of warrant liabilities	(6,797)		7,091		20,199		(2,905)		(Loss) gain on remeasurement of warrant liabilities	(17,035)		12,681
Other income, net	Other income, net	8,257		—		40,566		—		Other income, net	19		37,882
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 investments		50		202		2,479		549
Loss before income tax provision and loss from equity method investment										Loss before income tax provision and loss from equity method investment	(395,661)		(464,873)
Income tax provision										Income tax provision	1,368		469
Loss from equity method investment										Loss from equity method investment	119		2,351
Net loss attributable to common stockholders	Net loss attributable to common stockholders	$	(450,494)	$	(545,028)	$	(1,135,290)	$	(1,196,898)	Net loss attributable to common stockholders	$	(397,148)	$	(467,693)

Loss per share attributable to common stockholders:	Loss per share attributable to common stockholders:									Loss per share attributable to common stockholders:
Basic and diluted	Basic and diluted	$	(1.00)	$	(1.35)	$	(2.63)	$	(2.98)	Basic and diluted	$	(0.87)	$	(1.14)

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.~~

~~DRAFTKINGS INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS~~

~~(Unaudited)~~

~~(Amounts in thousands)~~

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
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 GNOGprior to the closing date of May 5, 2022.~~

DRAFTKINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(Amounts in thousands)

Class A Common Stock Class B Common Stock Additional
Paid in Capital Accumulated
Deficit Accumulated Other
Comprehensive
Income Treasury Stock Amount Total Stockholders’ Equity
Shares Amount Shares Amount
Balances at December 31, 2021 407,781 $ 41 393,014 $ 39 $ 5,702,388 $ (3,753,814) $ 36,488 $ (306,614) $ 1,678,528
Exercise of stock options 913 — — — 1,770 — — — 1,770
Stock-based compensation expense — — — — 187,077 — — — 187,077
Purchase of treasury stock (793) — — — — — — (14,083) (14,083)
Restricted stock unit vesting 9,327 1 — — — — — — 1
Net loss — — — — — (467,693) — — (467,693)
Balances at March 31, 2022 417,228 $ 42 393,014 $ 39 $ 5,891,235 $ (4,221,507) $ 36,488 $ (320,697) $ 1,385,600
Exercise of stock options 902 — — — 3,131 — — — 3,131
Stock-based compensation expense — — — — 135,521 — — — 135,521
Equity consideration issued for acquisitions 29,252 3 — — 460,125 — — — 460,128
Purchase of treasury stock (254) — — — — — — (3,393) (3,393)
Restricted stock unit vesting 894 — — — — — — — —
Net loss — — — — — (217,103) — — (217,103)
Balances at June 30, 2022 448,022 $ 45 393,014 $ 39 $ 6,490,012 $ (4,438,610) $ 36,488 $ (324,090) $ 1,763,884
Exercise of stock options 69 — — — 224 — — — 224
Stock-based compensation expense — — — — 126,038 — — — 126,038
Purchase of treasury stock (267) — — — — — — (4,536) (4,536)
Restricted stock unit vesting 840 — — — — — — — —
Net loss — — — — — (450,494) — — (450,494)
Balances at September 30, 2022 448,664 $ 45 393,014 $ 39 $ 6,616,274 $ (4,889,104) $ 36,488 $ (328,626) $ 1,435,116


	Class A Common Stock			Class B Common Stock			Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Treasury Stock Amount		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balances at December 31, 2022	450,575	$	45	393,014	$	39	$	6,750,055	$	(5,131,801)	$	36,488	$	(332,133)	$	1,322,693
Exercise of stock options	701	—		—	—		2,192		—		—		—		2,192
Stock-based compensation expense	—	—		—	—		117,400		—		—		—		117,400
Purchase of treasury stock	(1,399)	—		—	—		—		—		—		(27,358)		(27,358)
Restricted stock unit vesting	11,757	1		—	—		—		—		—		—		1
Net loss	—	—		—	—		—		(397,148)		—		—		(397,148)
Balances at March 31, 2023	461,634	$	46	393,014	$	39	$	6,869,647	$	(5,528,949)	$	36,488	$	(359,491)	$	1,017,780


	Class A Common Stock			Class B Common Stock			Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Treasury Stock Amount		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balances at December 31, 2021	407,781	$	41	393,014	$	39	$	5,702,388	$	(3,753,814)	$	36,488	$	(306,614)	$	1,678,528
Exercise of stock options	913	—		—	—		1,770		—		—		—		1,770
Stock-based compensation expense	—	—		—	—		187,077		—		—		—		187,077
Purchase of treasury stock	(793)	—		—	—		—		—		—		(14,083)		(14,083)
Restricted stock unit vesting	9,327	1		—	—		—		—		—		—		1
Net loss	—	—		—	—		—		(467,693)		—		—		(467,693)
Balances at March 31, 2022	417,228	$	42	393,014	$	39	$	5,891,235	$	(4,221,507)	$	36,488	$	(320,697)	$	1,385,600

Class A Common Stock Class B Common Stock Additional
Paid-in Capital Accumulated
Deficit Accumulated Other
Comprehensive
Income Treasury Stock Amount Total Stockholders’ Equity
Shares Amount Shares Amount
Balances at December 31, 2020 396,303 $ 40 393,014 $ 39 $ 5,067,135 $ (2,230,619) $ 83,534 $ (288,784) $ 2,631,345
Exercise of stock options 2,857 — — — 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 acquisitions 464 — — — 29,399 — — — 29,399
Shares issued for exercise of warrants 138 — — — 1,761 — — — 1,761
Purchase of treasury stock (48) — — — — — — (3,124) (3,124)
Restricted stock unit vesting 178 — — — — — — — —
Foreign currency translation, net of nil tax — — — — — — (27,318) — (27,318)
Net loss — — — — — (346,344) — — (346,344)
Balances at March 31, 2021 399,892 $ 40 393,014 $ 39 $ 5,133,806 $ (2,576,963) $ 56,216 $ (291,908) $ 2,321,230
Exercise of stock options 1,878 — — — 10,816 — — — 10,816
Stock-based compensation expense — — — — 171,739 — — — 171,739
Equity consideration issued for acquisitions 56 — — — 3,750 — — — 3,750
Shares issued for exercise of warrants 43 — — — 2,419 — — — 2,419
Purchase of treasury stock (115) — — — — — — (6,773) (6,773)
Restricted stock unit vesting 739 — — — — — — — —
Foreign currency translation, net of nil tax — — — — — — 7,697 — 7,697
Net loss — — — — — (305,526) — — (305,526)
Balances at June 30, 2021 402,493 $ 40 393,014 $ 39 $ 5,322,530 $ (2,882,489) $ 63,913 $ (298,681) $ 2,205,352
Shares issued for exercise of warrants 28 — — — 1,050 — — — 1,050
Exercise of stock options 2,607 — — — 6,664 — — — 6,664
Stock-based compensation — — — — 175,664 — — — 175,664
Purchase of treasury stock (80) — — — — — — (4,437) (4,437)
Restricted stock unit vesting 297 — — — — — — — —
Foreign currency translation — — — — — — (13,098) — (13,098)
Net loss — — — — — (545,028) — — (545,028)
Balances at September 30, 2021 405,345 $ 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 GNOGprior to the closing date of May 5, 2022.~~

DRAFTKINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)

Nine months ended September 30,
2022 2021
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 amortization 120,629 88,600
Non-cash interest expense, net 985 1,442
Stock-based compensation expense 448,636 499,246
Loss from equity method investments 2,479 549
(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 receivable 13,834 (421)
Prepaid expenses and other current assets (20,669) (19,093)
Deposits and other non-current assets (1,989) (4,760)
Operating leases, net 698 (1,212)
Accounts payable and accrued expenses 129,233 194,735
Other long-term liabilities 9,476 (856)
Long-term income tax liability (11,200) 7,789
Liabilities to users 136,650 192,319
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 warrants 44 199
Purchase of treasury stock (22,012) (14,334)
Proceeds from exercise of stock options 5,125 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 period 2,629,842 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 users 581,355 480,168
Total cash, cash equivalents and restricted cash, end of period $ 1,964,006 $ 2,875,033

~~DRAFTKINGS INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

~~(Amounts in thousands)~~

Nine months ended September 30,
2022 2021
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 expenses 12,835 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 users 104,405 192,450
Cash paid for interest — —


	Three months ended March 31,
	2023		2022
Operating Activities:
Net loss	$	(397,148)	$	(467,693)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization	48,213		32,225
Non-cash interest expense	157		654
Stock-based compensation expense	117,400		187,077
Loss from equity method investment	119		2,351
Loss (gain) on remeasurement of warrant liabilities	17,035		(12,681)
Loss (gain) on marketable equity securities and other financial assets	136		(37,433)
Deferred income taxes	2,254		256
Other expenses, net	(2,726)		(768)
Change in operating assets and liabilities:
Receivables reserved for users	35,547		(3,997)
Accounts receivable	9,674		(2,347)
Prepaid expenses and other current assets	(10,069)		(30,887)
Deposits and other non-current assets	(3,464)		(493)
Operating leases, net	1,864		(125)
Accounts payable and accrued expenses	(6,292)		(16,087)
Liabilities to users	(15,717)		(8,099)
Long-term income tax liability	(620)		(178)
Other long-term liabilities	2,145		1,507
Net cash flows used in operating activities	$	(201,492)	$	(356,718)
Investing Activities:
Purchases of property and equipment	(7,094)		(8,614)
Cash paid for internally developed software costs	(19,419)		(13,195)
Acquisition of gaming licenses	(1,362)		(267)
Other investing activities, net	311		(989)
Net cash flows used in investing activities	$	(27,564)	$	(23,065)
Financing Activities:
Purchase of treasury stock	(27,358)		(14,083)
Proceeds from exercise of stock options	2,192		1,770
Net cash flows used in financing activities	$	(25,166)	$	(12,313)
Net decrease in cash and cash equivalents and restricted cash	(254,222)		(392,096)
Cash and cash equivalents and restricted cash at the beginning of period	1,778,825		2,629,842
Cash and cash equivalents and restricted cash, end of period	$	1,524,603	$	2,237,746

Disclosure of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	1,087,668	$	1,772,892
Cash reserved for users	436,935		464,854
Total cash, cash equivalents and restricted cash, end of period	$	1,524,603	$	2,237,746

Supplemental Disclosure of Noncash Investing and Financing Activities:
Investing activities included in changes in accounts payable and accrued expenses	$	(679)	$	7,604
Supplemental Disclosure of Cash Activities:
Decrease in cash reserved for users	$	(32,718)	$	(12,096)
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 GNOGprior to the closing date of May 5, 2022.~~

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~~We are a digital sports entertainment and gaming ~~company. The Company’s business-to-consumer (“B2C”) segment~~company that provides users with online sports betting (“Sportsbook”), online casino (“iGaming”) and daily fantasy sports (“DFS”) ~~products,~~product offerings, as well as DraftKings Marketplace (“Marketplace”), retail sportsbook, media and other ~~online~~ consumer ~~products. The Company’s business-to-business (“B2B”) segment’s principal activities involve~~product offerings. We are also involved in the design and development of sports betting and casino gaming ~~software.~~software for online and retail sportsbooks and iGaming operators.

In May 2018, the Supreme Court (the “Court”) struck down on constitutional grounds the Professional and Amateur Sports Protection Act of 1992 (“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 March 31, 2023, 33 U.S. states, the District of Columbia and Puerto Rico have legalized some form of sports betting. Of those 35 legal jurisdictions, 28 have legalized online sports betting. Of those 28 jurisdictions, 24 are live, and DraftKings operates in 21 of them. The U.S. jurisdictions with statutes legalizing iGaming are Connecticut, Delaware, Michigan, New Jersey, Pennsylvania and West Virginia.

As ~~further discussed~~of March 31, 2023, we operate our Sportsbook product offering in ~~Note 3 hereof entitled “Acquisition~~Arizona, Colorado, Connecticut, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Tennessee, Virginia, West Virginia, Wyoming and Ontario, Canada, and we operate retail sportsbooks in Colorado, Connecticut, Illinois, Iowa, Kansas, Louisiana, Michigan, Mississippi, New Hampshire, New Jersey and Washington. As of ~~Golden Nugget Online Gaming, Inc.,” on~~March 31, 2023, we operate our iGaming product offering in Connecticut, Michigan, New Jersey, Pennsylvania, West Virginia and Ontario, Canada. The Company also has arrangements in place with land-based casinos to expand operations into additional states upon the passing of relevant legislation, the issuance of related regulations and the receipt of required licenses.

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~~“GNOG Merger Agreement”), in an all-stock transaction (the “GNOG Transaction”). In connection with the GNOG Transaction, DraftKings Inc. undertook a holding company reorganization whereby (i) each share of DraftKings Holdings Inc. (formerly DraftKings Inc.), a Nevada corporation (“Old DraftKings”), Class A common stock and Class B common stock was converted on a one-for-one basis into a share of DraftKings Inc. Class A common stock and Class B common stock, respectively, and (ii) 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”),~~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

~~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 of America (“U.S. GAAP”) for interim reporting. As such, certain notes or other information that are normally required by U.S. GAAP have been omitted if they substantially duplicate the disclosures contained in the Company’s annual audited consolidated financial statements. Accordingly, ~~the~~these unaudited condensed consolidated financial statements should be read in ~~connection~~conjunction with the Company’s audited financial statements and related notes as of and for the fiscal year ended December 31, ~~2021,~~2022, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021~~2022, as filed with the SEC on February ~~18, 2022 (“2021~~17, 2023 (the “2022 Annual Report”). ~~The accompanying~~These condensed consolidated financial statements are unaudited; however, in the opinion of management, they include all normal and recurring adjustments necessary for a fair presentation of the Company’s condensed consolidated financial statements for the periods presented. Results of operations reported for interim periods are not necessarily indicative of results for the entire year, due to seasonal fluctuations in the Company’s revenue as a result of timing of ~~the~~ various sports seasons, sporting events and other factors.

The ~~accompanying~~Company consummated the GNOG Transaction on the GNOG Closing Date. In the GNOG Transaction, the Company was determined to be the accounting acquirer and, as such, the acquisition is considered a business combination under

Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), and was accounted for using the acquisition method of accounting. These 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~~these 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~~Date.

~~Effective as of January 1, 2022,~~All intercompany accounts and transactions are eliminated upon consolidation. Certain amounts, which are not material, in the ~~Company’s significant non-U.S. subsidiaries’ functional currency changed from the Euro~~prior year’s consolidated financial statements have been reclassified to conform 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~~current year presentation.

Segments

~~On March 31, 2022,~~

The Company regularly reviews its operating segments and the ~~SEC issued Staff Accounting Bulletin No. 121~~approach used by the chief operating decision maker (“~~SAB 121”~~CODM”)~~. SAB 121 sets out interpretive guidance from the staff~~ to evaluate performance and allocate resources. As a result of the ~~SEC regarding~~Company’s acquisition of DK Crown Holdings Inc. (formerly DraftKings Inc.), a Delaware corporation (“DK DE”), and SBTech (Global) Limited (“SBTech”) and 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 asconsummation of the transactions contemplated by the business combination agreement, dated December 22, 2019 (as amended), in April 2020, the Company began to identify two distinct operating segments: a business-to-consumer (“B2C”) segment, which included its Sportsbook, iGaming and DFS product offerings, as well as media and other consumer product offerings, and a business-to-business (“B2B”) segment, which had principal activities involving the design and development of gaming software.

However, beginning in the fourth quarter of 2022, as a result of the ~~fiscal year to which~~Company’s integration of the ~~interim or annual period relates. In accordance with SAB 121,~~technology and expertise of SBTech, the Company ~~recognized~~began to view the B2B segment primarily as 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 valuecost center of the ~~NFTs being safeguarded. Refer~~B2C segment and, therefore, began to ~~Note 6 hereof~~operate its business and report its results as a single operating segment. The Company’s determination that it operates as a single segment is consistent with the financial information regularly reviewed by the CODM for ~~disclosures required in accordance~~purposes of evaluating performance, allocating resources and planning and forecasting for future periods. The Company’s CODM allocates resources and assesses financial performance on a consolidated basis. Prior periods have been reclassified to conform with ~~Accounting Standards Codification 820,~~ ~~Fair Value Measurement~~.the new segment presentation.

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 GNOG 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.March 31, 2023.

~~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 GNOG 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) $170.9 million of 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.~~exceptions.

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:~~Date:


Cash and cash equivalents	$	66,709
Cash reserved for users	7,633
Receivables reserved for users	2,814
Accounts receivables	~~9,005~~7,783
Prepaid expenses and other current assets	~~541~~64
Property and equipment, net	~~2,674~~1,433
Intangible assets, net	~~307,000~~315,000
Operating lease right-of-use assets	1,185
Deposits and other non-current assets	47,395
Total identifiable assets acquired	~~444,956~~450,016
Liabilities assumed:
Accounts payable and accrued expenses	~~36,660~~32,989
Liabilities to users	~~5,260~~4,314
Operating lease liabilities	1,185
Other long-term liabilities	~~76,750~~78,781
Total liabilities assumed	~~119,855~~117,269
Net assets acquired (a)	~~325,101~~$	332,747
Purchase consideration (b)	$	603,465
Goodwill (b) – (a)	$	~~278,364~~270,718

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 iswas assigned as of the GNOG Closing Date to the Company’s B2C reporting unit. Goodwill recognized is partially deductible for tax ~~purposes.~~purposes, and the amount of deductible goodwill was determined to be $160.7 million.

Intangible Assets

Fair Value

Weighted-
Average
Useful Life

Gaming licenses

~~137,000~~145,000

12.2 years

Customer relationships

170,000

5.9 years

Total

~~307,000~~315,000

Loan Receivable

The Company acquired a long-term receivable in the amount of ~~$30.5~~$30.1 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 that, 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.~~January 1, 2021. 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,					Three months ended March 31,
		2022 Actual		2021 Pro Forma		2022 Pro Forma		2021 Pro Forma			2023 Actual		2022 Pro Forma
Revenue	Revenue	$	501,938	$	246,620	$	1,429,463	$	911,291	Revenue	$	769,652	$	449,109
Net loss	Net loss	(450,494)		(558,607)		(1,137,037)		(1,293,863)		Net loss	$	(397,148)	$	(475,774)

The foregoing pro forma ~~results are~~financial information is based on estimates and assumptions, which the Company believes are reasonable. The pro forma ~~results include~~financial information includes adjustments primarily related to purchase accounting adjustments. Acquisition costs and other non-recurring charges incurred are included in the ~~earliest~~ period ~~presented.~~of assumed acquisition.

4.Intangible Assets ~~and Goodwill~~

Intangible Assets

The Company has the following intangible assets, net as of ~~September 30, 2022:~~March 31, 2023:

Weighted-Average Remaining Amortization Period Gross Carrying Amount Accumulated Amortization Net
Amortized intangible assets:
Developed technology 5.6 years $ 422,900 $ (126,938) $ 295,962
Internally developed software 2.6 years 158,746 (69,114) 89,632
Gaming licenses 10.9 years 195,361 (24,584) 170,777
Trademarks, tradenames and other 3.9 years 34,367 (11,490) 22,877
Customer relationships 4.8 years 269,728 (62,455) 207,273
1,081,102 (294,581) 786,521
Indefinite-lived intangible assets:
Digital assets, net of impairment Indefinite-lived 2,126 — 2,126
Intangible assets, net $ 1,083,228 $ (294,581) $ 788,647


	Weighted-Average Remaining Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net
Amortized intangible assets:
Developed technology	5.1 years	$	422,900	$	(153,462)	$	269,438
Internally developed software	2.4 years	187,017		(80,807)		106,210
Gaming licenses	10.9 years	208,017		(33,747)		174,270
Customer relationships	4.4 years	269,728		(89,127)		180,601
Trademarks, tradenames and other	3.7 years	36,882		(15,518)		21,364
Indefinite-lived intangible assets:
Digital assets, net of impairment	Indefinite-lived	2,626		—		2,626
Total		$	1,127,170	$	(372,661)	$	754,509

The Company had the following intangible assets, net as of December 31, ~~2021:~~2022:


		Weighted-Average Remaining Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net			Weighted-Average Remaining Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net
Amortized intangible assets:	Amortized intangible assets:								Amortized intangible assets:
Developed technology	Developed technology	6.4 years	$	422,900	$	(87,089)	$	335,811	Developed technology	5.4 years	$	422,900	$	(140,200)	$	282,700
Internally developed software	Internally developed software	2.6 years	117,953		(52,607)		65,346		Internally developed software	2.4 years	168,277		(70,575)		97,702
Gaming licenses	Gaming licenses	7.3 years	54,442		(13,466)		40,976		Gaming licenses	11.0 years	206,655		(29,487)		177,168
Trademarks and tradenames		4.5 years	30,639		(5,952)		24,687
Customer relationships	Customer relationships	3.3 years	99,728		(33,526)		66,202		Customer relationships	4.6 years	269,728		(75,791)		193,937
			725,662		(192,640)		533,022
Trademarks, tradenames and other									Trademarks, tradenames and other	3.8 years	36,193		(13,463)		22,730
Indefinite-lived intangible assets:	Indefinite-lived intangible assets:								Indefinite-lived intangible assets:
Digital assets		Indefinite-lived	1,995		—		1,995
Digital assets, net of impairment									Digital assets, net of impairment	Indefinite-lived	2,697		—		2,697
Intangible assets, net	Intangible assets, net		$	727,657	$	(192,640)	$	535,017	Intangible assets, net		$	1,106,450	$	(329,516)	$	776,934

Amortization expense was ~~$40.6~~$43.1 million and ~~$26.7~~$28.1 million for the three months ended ~~September 30,~~March 31, 2023 and 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:~~

B2C B2B Media Total
Balance as of December 31, 2021 $ 360,756 $ 207,684 $ 47,215 $ 615,655
Goodwill resulting from the GNOG Transaction 278,364 — — 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”)~~On December 20, 2022, the Company entered into ~~an amended and restated~~a loan and security agreement with Pacific Western Bank and Citizens Bank, as lenders (as amended, ~~from time to time,~~ the “Credit Agreement”), which provides the Company with a revolving line of credit of up to $125.0 million (the “Revolving Line of Credit”). The Credit Agreement ~~provides~~has a maturity date of December 20, 2024 and replaced the Company’s amended and restated loan and security agreement entered into with Pacific Western Bank in October 2016, which provided a revolving line of credit of up to $60.0 ~~million. The~~million and was terminated in connection with the Company’s entry into the Credit ~~Agreement has a maturity date of November 26, 2022.~~Agreement.

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%~~5.00%, and the Credit Agreement requires monthly, interest-only ~~payments.~~payments on any outstanding borrowings. In addition, the Company is required to pay quarterly in arrears a commitment fee equal to 0.25% per annum of the unused portion of the ~~revolving line~~Revolving Line of ~~credit.~~Credit. As of ~~September 30, 2022 and December~~March 31, ~~2021,~~2023, the Credit Agreement provided a revolving line of credit of up to ~~$60.0 million. There~~$125.0 million, and there was no principal outstanding ~~as of September 30, 2022 or December 31, 2021.~~under the Credit Agreement. Net borrowing capacity available from the Credit Agreement as of ~~September 30, 2022 and December~~March 31, ~~2021~~2023 totaled ~~$56.0 million and $55.8 million, respectively, which, in each case, excludes the letters of credit outlined in Note 13.~~$122.7 million. 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 ofunder the Credit Agreement, ~~that would~~with which the Company was in compliance with as of March 31, 2023.

Surety Bonds

As of March 31, 2023, the Company has been issued $125.0 million in surety bonds at a combined annual premium cost of 0.5%, which are held for certain regulators’ use and benefit in order for the Company to satisfy state license requirements. There 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 2021been no claims against such bonds 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 breachlikelihood of future claims is remote.

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 Transactions

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.~~costs, which are being amortized through the Notes Maturity Date. The Convertible Notes represent senior unsecured obligations of Old DraftKings, which are being amortized through the Notes Maturity Date. 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'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~~(the “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~~the Company’s Class A common stock upon any conversion of Convertible Notes. As the ~~transaction qualifies~~Capped Call Transactions qualify for equity classification, the net cost of $124.0 million incurred in connection with the Capped Call Transactions was recorded as a reduction to additional paid-in capital on the Company’s consolidated balance sheet.

As of March 31, 2023, the Company’s convertible debt balance was $1,251.8 million, net of unamortized debt issuance costs of $13.2 million. Amortization of debt issuance costs was $0.7 million for the three months ended March 31, 2023 and $0.7 million for the three months ended March 31, 2022, which are included in the interest expense line-item on the Company's consolidated statements of operations. Although recorded at amortized cost on the Company’s consolidated balance ~~sheet,~~sheets, the estimated fair value of the Convertible Notes was ~~$830.5~~$883.9 million and ~~$953.8~~$786.5 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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.~~period, which is a Level 1 fair value measurement.

Indirect Taxes

Taxation of e-commerce is becoming more prevalent and could negatively affect the Company’s business as it ~~primarily~~ pertains to DFS and its ~~users.~~contestants. The ultimate impact of indirect taxes on the Company’s business is uncertain, as is the period required to resolve this uncertainty. The Company’s estimated contingent liability for indirect taxes represents the Company’s best estimate of tax liability in jurisdictions in which the Company believes taxation is probable. The Company frequently reevaluates its tax positions for appropriateness.

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, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company’s estimated contingent liability for indirect taxes was ~~$56.0~~$63.6 million and ~~$47.5~~$60.3 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”~~("DEAC") on May 14, 2019 (the “IPO”), DEAC issued 13.3 million warrants each of which entitles the holder to purchase one share of DraftKings Inc.’s Class A common stock at an exercise price of $11.50 per share (the “Public Warrants”). Simultaneously with the closing of the IPO, DEAC completed the private sale of 6.3 million warrants to DEAC’s sponsor (the “Private Warrants”)., each of which entitles the holder to purchase one share of DraftKings Inc.’s Class A common stock at an exercise price of $11.50 per share. As of ~~September 30,~~March 31, 2023 and 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, at an exercise price of $31.50, 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,~~March 31, 2023, 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.outstanding.

The Company classifies the Public Warrants, the Private Warrants and the GNOG Private Warrants pursuant to ASC 815 as derivative liabilities with subsequent changes in their respective fair values recognized in its consolidated statement of operations at each reporting date. As of ~~September 30, 2022,~~March 31, 2023, the fair value of the ~~Company's~~Company’s warrant liability was ~~$19.9~~$27.7 million. Due to fair value changes throughout the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, the Company recorded a loss on remeasurement of warrant liabilities of ~~$6.8~~$17.0 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$12.7 million, respectively. During the ~~nine~~three months ended ~~September 30, 2022, a de minimis number of~~March 31, 2023, no Private Warrants ~~and~~or 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.

•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~~March 31, 2023 and December 31, ~~2021~~2022 based on the three-tier fair value hierarchy:


		September 30, 2022												March 31, 2023
		Level 1			Level 2			Level 3			Total			Level 1			Level 2			Level 3			Total
Assets	Assets												Assets
Cash equivalents:	Cash equivalents:												Cash equivalents:
Money market funds	Money market funds	$	201,560	(1)	$	—		$	—		$	201,560	Money market funds	$	206,939	(1)	$	—		$	—		$	206,939
Other current assets:	Other current assets:												Other current assets:
Digital assets held for users	Digital assets held for users	—			47,951		(2)	—			47,951		Digital assets held for users	—			48,733		(6)	—			48,733
Other non-current assets:	Other non-current assets:												Other non-current assets:
Derivative instruments	Derivative instruments	—			—			46,833		(5)	46,833		Derivative instruments	—			—			25,287		(4)	25,287
Equity securities	Equity securities	19,150		(3)	13,533		(4)	—			32,683		Equity securities	19,075		(2)	13,533		(3)	—			32,608

Total	Total	$	220,710		$	61,484		$	46,833		$	329,027	Total	$	226,014		$	62,266		$	25,287		$	313,567

Liabilities	Liabilities												Liabilities
Other current liabilities:
Digital assets held for users	Digital assets held for users	$	—		$	47,951	(2)	$	—		$	47,951	Digital assets held for users	$	—		$	48,733	(6)	$	—		$	48,733
Warrant liabilities	Warrant liabilities	—			19,877		(6)	—			19,877		Warrant liabilities	—			27,715		(5)	—			27,715
Total	Total	$	—		$	67,828		$	—		$	67,828	Total	$	—		$	76,448		$	—		$	76,448

December 31, 2021
Level 1 Level 2 Level 3 Total
Assets
Cash equivalents:
Money market funds $ 550,169 (1) $ — $ — $ 550,169
Other non-current assets:
Derivative instruments — — 3,850 (5) 3,850
Equity securities 27,200 (3) — — 27,200
Total $ 577,369 $ — $ 3,850 $ 581,219
Liabilities
Warrant liabilities $ — $ 26,911 (6) $ — $ 26,911
Total $ — $ 26,911 $ — $ 26,911


	December 31, 2022
	Level 1			Level 2			Level 3			Total
Assets
Cash equivalents:
Money market funds	$	304,216	(1)	$	—		$	—		$	304,216
Other current assets:
Digital assets held for users	—			38,444		(6)	—			38,444
Other non-current assets:
Derivative instruments	—			—			26,248		(4)	26,248
Equity securities	18,250		(2)	13,533		(3)	—			31,783

Total	$	322,466		$	51,977		$	26,248		$	400,691

Liabilities
Digital assets held for users	—			$	38,444	(6)	—			$	38,444
Warrant liabilities	$	—		$	10,680	(5)	$	—		10,680
Total	$	—		$	49,124		$	—		$	49,124

(1)Represents the Company’s money market funds, which are classified as Level 1 because the Company measures the fair value of these assets ~~to fair value~~ using quoted market prices.

(2)Represents the asset and liability balance for the digital assets held by the Company for its users, which are classified as Level 2 because the Company measures these digital assets to fair value using observable inputs for similar transactions.

~~(3)~~Represents the Company’s marketable equity securities, which are classified as Level 1 because the Company measures the fair value of these assets ~~to fair value~~ using quoted market prices.

~~(4)~~(3)Represents the Company’s non-marketable equity securities, which are classified as Level 2 because the Company measures the fair value of these assets ~~to fair value~~ using observable inputs for similar investments of the same issuer. The Company has elected the remeasurement alternative for these assets.

~~(5)~~(4)Represents the Company’s derivative instruments held in other public and privately held entities. The Company measures the fair value of these derivative instruments ~~to fair value~~ using option pricing models and, accordingly, classifies these assets as Level 3. During the ~~nine~~three months ended ~~September 30, 2022, the Company did not purchase or issue a significant amount of~~March 31, 2023, there were no new derivative ~~instruments.~~instruments purchased by or issued to the Company. The table below includes a range and an average weighted by relative fair value of the significant unobservable inputs used to measure ~~these~~the fair value of the Level 3 derivative ~~instruments to fair value.~~instruments. A change in these significant unobservable inputs might result in a significantly higher or lower fair value measurement at the reporting date.

~~September 30, 2022~~March 31, 2023

December 31, ~~2021~~2022

Significant Unobservable Input

Range (Weighted Average)

Underlying stock price

$~~7.66~~7.63 - ~~$39.22~~$19.80 ($~~34.26)~~16.95)

~~10.88~~

7.30 - $19.80 ($16.53)

Volatility

~~65.0%~~56.0% - ~~75.0% (72.8%~~80.0% (74.8%)

~~60.0~~

%56.0% - 80.0% (74.1%)

Risk-free rate

1.3% - ~~3.8% (1.7%~~4.7% (4.2%)

~~0.3~~

%1.3% - 4.3% (4.1%)

~~(6)~~(5)The Company measures ~~its Private Warrants and~~ the ~~GNOG Private Warrants to~~ fair value of its warrant liabilities using a binomial lattice model or a Black-Scholes model, where appropriate, with the significant assumptions being observable inputs and, accordingly, classifies these liabilities as Level 2.

(6)Represents the asset and liability balance for the digital assets held by the Company for its users, which are classified as Level 2 because the Company measures the fair value of these digital assets using observable inputs for similar transactions.

~~During~~For the three months ended ~~September 30,~~March 31, 2023 and 2022, the Company recorded ~~$0.5~~$0.1 million and ~~$0.2~~$37.4 million of unrealized gains ~~for~~on its ~~Level 1 and Level 3~~ financial assets respectively. During the nine months ended September 30, 2022, the Company recorded $8.0 million of unrealized losses and $40.5 million of unrealized gains for its Level 1 and Level 3 financial assets,carried at fair value, respectively. Those unrealized gains ~~and losses~~ are included within other income, net in the ~~Company’s~~ condensed consolidated statements of operations. ~~During the three and nine months ended September 30, 2021, no such gains or losses were recorded.~~

7.Revenue Recognition

Deferred Revenue

The Company includes deferred revenue within accounts payable and accrued expenses and liabilities to users in ~~its~~the condensed consolidated balance sheets. The deferred revenue balances were as follows:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022
Deferred revenue, beginning of the period	Deferred revenue, beginning of the period	$	84,674	$	51,791	$	91,554	$	30,267	Deferred revenue, beginning of the period	$	133,851	$	91,554
Deferred revenue, end of the period	Deferred revenue, end of the period	165,185		84,951		165,185		84,951		Deferred revenue, end of the period	$	132,213	$	95,402
Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period	Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period	34,621		23,946		70,042		27,569		Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period	$	112,426	$	51,680

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.

Revenue Disaggregation

Disaggregation of revenue for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ is as follows:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022
Online gaming	Online gaming	$	468,455	$	176,257	$	1,289,257	$	707,146	Online gaming	$	735,189	$	386,678
Gaming software	Gaming software	9,093		23,725		34,057		82,587		Gaming software	8,610		13,495
Other	Other	24,390		12,837		62,014		32,967		Other	25,853		17,032
Total Revenue	Total Revenue	$	501,938	$	212,819	$	1,385,328	$	822,700	Total Revenue	$	769,652	$	417,205

Online gaming includes Sportsbook, iGaming and DFS, which have certain similar attributes and patterns of recognition. ~~Other~~Sources of other revenue primarily ~~includes~~include media, ~~marketplace~~Marketplace and ~~retail Sportsbooks.~~

~~The following table presents the Company’s revenue by geographic region for the periods indicated:~~

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
United States $ 495,563 $ 188,166 $ 1,354,234 $ 737,814
International 6,375 24,653 31,094 84,886
Total Revenue $ 501,938 $ 212,819 $ 1,385,328 $ 822,700
other online consumer products.

8.Stock-Based Compensation

The Company has historically ~~has~~ issued three types of stock-based compensation: ~~Time-Based~~time-based awards, ~~Long Term Incentive Plan~~long-term incentive plan (“LTIP”) awards and ~~Performance-Based Stock Compensation Plan~~performance-based stock compensation plan (“PSP”) awards. ~~Time-Based~~Time-based awards are equity awards ~~which~~that tie vesting to length of service with the Company and generally vest over a ~~4-year period.~~four-year period in annual and/or quarterly installments. LTIP awards are performance-based equity awards that are used to establish longer-term performance objectives and incentivize management to meet those objectives. PSP awards are ~~short-term~~ performance-based equity awards which establish performance objectives related to one or two particular fiscal years. LTIP awards generally vest when revenue or Adjusted EBITDA ~~or share price~~ targets are achieved amongst other conditions, while PSP awards generally vest upon achievement of revenue and Adjusted EBITDA targets and have a range of payouts amongst other conditions. All stock-based compensation awards expire seven to ten years after the grant date thereof.

The following table shows restricted stock unit (“RSU”) and stock option activity for the ~~nine~~three months ended ~~September 30, 2022:~~March 31, 2023:


		Time-based		PSP		LTIP		Total	Weighted Average Exercise Price of Options		Weighted Average FMV of RSUs			Time-Based		PSP		LTIP		Total	Weighted Average Exercise Price of Options		Weighted Average FMV of RSUs
		Options	RSUs	Options	RSUs	Options	RSUs							Options	RSUs	Options	RSUs	Options	RSUs
Outstanding at December 31, 2021		14,695	4,195	2,354	1,488	11,671	19,343	53,746	$	5.46	$	49.94
Outstanding at December 31, 2022													Outstanding at December 31, 2022	12,259	15,273	2,273	13,119	11,152	13,864	67,940	$	6.17	$	29.64
Granted	Granted	200	10,485	—	2	—	1,080	11,767	31.40		20.68		Granted	600	9,560	—	1,990	—	113	12,263	25.81		17.24
Exercised options / vested RSUs	Exercised options / vested RSUs	(1,661)	(2,139)	(54)	(2,671)	(169)	(6,251)	(12,945)	2.85		44.03		Exercised options / vested RSUs	(530)	(1,700)	(171)	(1,715)	—	(8,342)	(12,458)	3.13		48.49
Change in awards due to performance-based multiplier	Change in awards due to performance-based multiplier	—	—	—	1,806	—	—	1,806	—		33.69		Change in awards due to performance-based multiplier	—	—	—	1,142	—	—	1,142	—		60.25
Forfeited	Forfeited	(154)	(971)	(5)	(26)	—	(501)	(1,657)	4.71		35.06		Forfeited	—	(369)	—	(55)	—	(41)	(465)	4.53		25.67
Outstanding at September 30, 2022		13,080	11,570	2,295	599	11,502	13,671	52,717	$	5.84	$	39.10
Outstanding at March 31, 2023													Outstanding at March 31, 2023	12,329	22,764	2,102	14,481	11,152	5,594	68,422	$	6.71	$	21.99

As of ~~September 30, 2022,~~March 31, 2023, total unrecognized stock-based compensation expense of ~~$471.9~~$689.8 million related to granted and unvested ~~share-based~~stock-based compensation arrangements is expected to be recognized over a weighted-average period of ~~2.0~~ 3.1 years. The following table shows stock compensation expense for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Three months ended September 30, 2022						Three months ended September 30, 2021							Three months ended March 31, 2023						Three months ended March 31, 2022
		Options		RSUs		Total		Options		RSUs		Total			Options		RSUs		Total		Options		RSUs		Total
Time Based (1)		$	3,577	$	25,924	$	29,501	$	3,787	$	15,512	$	19,299
Time-based (1)														Time-based (1)	$	3,844	$	44,807	$	48,651	$	3,864	$	21,786	$	25,650
PSP (2)	PSP (2)	—		11,368		11,368		—		18,537		18,537		PSP (2)	—		24,015		24,015		—		43,367		43,367
LTIP (2)	LTIP (2)	—		85,169		85,169		—		137,828		137,828		LTIP (2)	—		44,734		44,734		—		118,060		118,060
Total	Total	$	3,577	$	122,461	$	126,038	$	3,787	$	171,877	$	175,664	Total	$	3,844	$	113,556	$	117,400	$	3,864	$	183,213	$	187,077

		Nine months ended September 30, 2022						Nine months ended September 30, 2021
		Options		RSUs		Total		Options		RSUs		Total
Time Based (1)		$	11,271	$	74,693	$	85,964	$	10,254	$	45,003	$	55,257
PSP (2)		—		68,499		68,499		—		53,941		53,941
LTIP (2)		—		294,173		294,173		—		390,048		390,048
Total		$	11,271	$	437,365	$	448,636	$	10,254	$	488,992	$	499,246

(1) Time-based awards vest and are expensed over a defined service period.

(2) PSP and LTIP awards vest based on defined performance criteria and are expensed based on the probability of achieving such criteria. During the three months ended March 31, 2022, the Company recorded a cumulative catch-up adjustment of $20.7 million in additional stock-based compensation expense related to its updated expectation on achieving higher revenue targets than originally estimated for certain PSP awards which have a range of payouts.

9.Income Taxes

The Company’s provision for income taxes for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ is as follows:

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Income tax provision (benefit) $ 3,177 $ 3,845 $ (77,580) $ 1,654


	Three months ended March 31,
	2023		2022
Income tax provision	$	1,368	$	469

The effective tax rates for the three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ were ~~(0.7)~~(0.3)% ~~and (0.7)%, respectively, and the effective tax rates for the nine months ended September 30, 2022 and 2021 were 6.4%~~ and (0.1)%, respectively. The difference between the Company’s effective tax rates for the three ~~and nine~~ month periods inended March 31, 2023 and 2022 ~~and 2021~~ and the U.S. statutory tax rate of 21% was primarily due to a valuation allowance related to the Company’s deferred tax assets, offset partially by current state tax and current foreign tax. Additionally, the Company recorded a discrete income tax benefit of $76.8 million during the second quarter of 2022, as well as a discrete tax benefit of $6.8 million during the first quarter of 2021, which were attributable to non-recurring partial releases of the Company’s U.S. valuation allowance as a result of the preliminary purchase accounting for GNOG and Vegas Sports Information Network, Inc., respectively. The Company regularly evaluates the realizability of its deferred tax assets and establishes a valuation allowance if it is more likely than not that some or all ~~of the~~such deferred tax assets will not be realized.

10.~~Segment Information~~

The Company operates its business and reports its results through two operating and reportable segments: B2C and B2B, in accordance with ASC Topic 280, Segment Reporting. The B2C segment provides users with Sportsbook, iGaming and DFS products, as well as media and other online consumer products. The B2B segment is involved in the design and development of sports betting and casino gaming software, which is primarily comprised of the Company’s wholly-owned subsidiary, SBTech (Global) Limited (together with its subsidiaries unless the context requires otherwise, “SBTech”).

Operating segments are components of the Company for which separate discrete financial information is available to and evaluated regularly by the chief operating decision maker (“CODM”), who is the Company’s Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. The CODM assesses a combination of metrics such as revenue and Adjusted EBITDA to evaluate the performance of each operating and reportable segment.

Any intercompany revenues or expenses are eliminated in consolidation. All of the Company’s operating revenues and expenses, other than those excluded from Adjusted EBITDA as detailed below, are allocated to the Company’s reportable segments. The Company defines and calculates Adjusted EBITDA as net loss before the impact of interest income or expense (net), income tax provision or benefit, and depreciation and amortization, and further adjusted for the following items: stock-based compensation, transaction-related costs, litigation, settlement and related costs, advocacy and other related legal expenses, gain or loss on remeasurement of warrant liabilities and other non-recurring and non-operating costs or income, as described in the reconciliation below.

~~A measure of segment assets and liabilities has not been currently provided to the Company’s CODM and therefore is not shown below.~~

~~Summarized financial information for the Company’s segments is shown in the following table:~~

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Revenue:
B2C $ 492,846 $ 189,094 $ 1,351,271 $ 740,113
B2B 9,092 23,725 34,057 82,587
Total revenue 501,938 212,819 1,385,328 822,700
Adjusted EBITDA:
B2C (247,522) (307,700) (615,597) (541,313)
B2B (16,689) (5,903) (56,257) (6,854)
Total adjusted EBITDA (264,211) (313,603) (671,854) (548,167)
Adjusted for:
Depreciation and amortization 46,089 30,356 120,629 88,600
Interest (income) expense, net (6,301) 1,556 (8,378) (1,071)
Income tax provision (benefit) 3,177 3,845 (77,580) 1,654
Stock-based compensation 126,038 175,664 448,636 499,246
Transaction-related costs 751 4,348 15,030 15,261
Litigation, settlement and related costs 1,390 4,712 5,786 8,933
Advocacy and other related legal expenses 16,558 16,667 16,558 27,702
(Gain) loss on remeasurement of warrant liabilities 6,797 (7,091) (20,199) 2,905
Other non-recurring and non-operating costs (income) (8,216) 1,368 (37,046) 5,501
Net loss attributable to common shareholders $ (450,494) $ (545,028) $ (1,135,290) $ (1,196,898)

~~11.~~Loss Per Share

The computation of loss per share and weighted-average shares of ~~DraftKings Inc.’s~~the Company's Class A common stock outstanding for the periods presented are as follows:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022
Net loss		$	(450,494)	$	(545,028)	$	(1,135,290)	$	(1,196,898)
Net loss attributable to common stockholders										Net loss attributable to common stockholders	$	(397,148)	$	(467,693)
Basic and diluted weighted-average common shares outstanding	Basic and diluted weighted-average common shares outstanding	448,331		403,844		432,278		400,994		Basic and diluted weighted-average common shares outstanding	455,081		411,066
Loss per share attributable to common stockholders:	Loss per share attributable to common stockholders:									Loss per share attributable to common stockholders:
Basic and diluted	Basic and diluted	$	(1.00)	$	(1.35)	$	(2.63)	$	(2.98)	Basic and diluted	$	(0.87)	$	(1.14)

There were no preferred or other dividends declared for the three ~~and nine~~ months ended ~~September 30, 2022.~~March 31, 2023. For the periods presented, the following securities were not required to be included in the computation of diluted shares outstanding:


		September 30,			Three months ended March 31,
		2022	2021		2023	2022
Class A common stock resulting from exercise of all warrants	Class A common stock resulting from exercise of all warrants	3,761	1,741	Class A common stock resulting from exercise of all warrants	3,761	1,613
Stock options and RSUs	Stock options and RSUs	52,717	55,620	Stock options and RSUs	68,422	53,512
Convertible notes	Convertible notes	13,337	13,337	Convertible notes	13,337	13,337
Total	Total	69,815	70,698	Total	85,520	68,462

~~12.~~11.Related-Party Transactions

~~Financial Advisor~~

The Company entered into an engagement letter with a related party (the “Financial Advisor”) in August 2019, as amended in December 2019. For the three and nine months ended September 30, 2022, the Company incurred $0.0 million and $8.5 million, respectively, of fees payable to its Financial Advisor. During the three and nine months ended September 30, 2021, the Company incurred no fees payable to its Financial Advisor.

Receivables from Equity Method ~~Investments~~Investment

The Company provides office space and general operational support to DKFS, LLC, an equity-method affiliate. The operational support is primarily in the form of general and administrative services. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company had ~~$0.3~~ $0.1 million and ~~$0.6~~$0.2 million, respectively, of receivables from DKFS, LLC related to those services and expenses to be reimbursed to the Company, which are included within non-current assets in ~~its~~the consolidated balance sheets. The Company has committed to invest up to $17.5 million into DBDK Venture Fund I, LP, a Delaware limited partnership and a subsidiary of DKFS, LLC. As of ~~September 30, 2022,~~March 31, 2023, the Company had invested a total of ~~$4.9~~$6.7 million of the total commitment.

Transactions with a Shareholder and their Immediate Family Members

As of September 30, 2022 and December 31, 2021, the Company had $0.0 million and $3.8 million of receivables due from former shareholders of SBTech, respectively, which includes a current director and shareholder of the Company. For the three months ended ~~September 30,~~March 31, 2023 and March 31, 2022, ~~and September 30, 2021,~~ the Company had ~~$0.6~~$0.7 million and ~~$0.9~~$0.6 million in sales, respectively, to entities ~~that are wholly~~ owned by an immediate family member of a current director of the Company. The Company ~~recorded $1.7 million and $4.0 million of such sales in the nine months ended September 30, 2022 and September 30, 2021, respectively. The Company~~ had an associated accounts receivable balance of ~~$0.2~~$0.3 million and ~~$0.2~~$0.2 million asas of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, included in accounts receivable in its condensed consolidated balance sheets.

Aircraft

~~Starting in~~In 2022, from time to time, the Company ~~has~~ chartered, without mark-up, ~~the~~a private plane owned by an entity controlled by Jason Robins, the Company’s Chief Executive Officer, utilizing aircraft services from Jet Aviation Flight Services, Inc. for the business and personal travel of Mr. Robins and his family. The Company had no direct or indirect interest in such private plane. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, the Company incurred ~~$0.0 million and~~ $0.7 million of expense for use of the aircraft under these chartering ~~services, respectively.~~services. During the three months ended March 31, 2023, the Company incurred no expense for use of the aircraft under these chartering services.

On March 30, 2022, the Company entered into a one-year lease of an aircraft from an entity controlled by Mr. ~~Robins. Pursuant~~Robins, pursuant to ~~such agreement,~~which Mr. Robins’ entity ~~leases~~leased the aircraft to the Company for $0.6 million for a one-year ~~period.~~period (the “Original Aircraft Lease”). The Company ~~covers~~covered all operating, maintenance and other expenses associated with the aircraft. The Original Aircraft Lease expired in accordance with its terms on March 30, 2023, and DraftKings entered into a new one-year lease of such aircraft from an entity controlled by Mr. Robins for $0.6 million and otherwise on terms and conditions substantially the same as the Original Aircraft Lease, effective upon the expiration thereof (collectively with the Original Aircraft Lease, the “Aircraft Leases”). The audit and compensation committees of the Company’s board of directors approved this arrangement, as well as the Aircraft Leases, based, among other things, on the requirements of the overall security program that Mr. Robins and his family fly private and ~~their~~the committees' assessment that such an arrangement is more efficient and flexible and better ensures safety, confidentiality and privacy. During the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, the Company incurred $0.1 million ~~and $0.3 million, respectively,~~ of expense under the ~~aircraft lease.~~Original Aircraft Lease.

~~13.~~12.Leases, Commitments and Contingencies

Leases

The Company primarily leases corporate office facilities, data centers and motor vehicles under operating lease agreements. Some of the Company’s leases include one or more options to renew. For a majority of our leases, we do not assume renewals in our determination of the lease term as the renewals are not deemed to be reasonably ~~certain to exercise.~~assured. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. As of ~~September 30, 2022,~~March 31, 2023, the Company’s lease agreements typically have terms not exceeding ten years.

Payments under the Company’s lease arrangements may be fixed or variable, and variable lease payments primarily represent costs related to common area maintenance and utilities. The components of lease cost are as follows:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022
Operating lease cost	Operating lease cost	$	5,562	$	4,207	$	15,471	$	12,569	Operating lease cost	$	5,028	$	4,230
Short term lease cost	Short term lease cost	1,550		1,051		4,628		1,918		Short term lease cost	1,331		1,755
Variable lease cost	Variable lease cost	984		1,008		2,863		2,691		Variable lease cost	1,119		806
Sublease income	Sublease income	(255)		(340)		(715)		(544)		Sublease income	(236)		(230)
Total lease cost	Total lease cost	$	7,841	$	5,926	$	22,247	$	16,634	Total lease cost	$	7,242	$	6,561

Supplemental cash flow and other information for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ related to operating leases was as follows:


		Nine months ended September 30,					Three months ended March 31,
		2022		2021			2023		2022
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used by operating leases	Operating cash flows used by operating leases	$	12,511	$	13,393	Operating cash flows used by operating leases	$	3,165	$	4,283
Right-of-use assets obtained in exchange for new operating lease liabilities	Right-of-use assets obtained in exchange for new operating lease liabilities	$	23,056	$	3,055	Right-of-use assets obtained in exchange for new operating lease liabilities	$	366	$	619

The weighted-average remaining lease term for the Company's operating leases was 8.3 years, and the weighted-average discount rate for the ~~Company’s~~Company's operating leases ~~were 7.3 years and~~was 6.5%, in each case as of ~~September 30, 2022.~~March 31, 2023. The Company calculated the weighted-average discount ~~rates~~rate using incremental borrowing rates, which equal the rates of interest that it would pay to borrow funds on a fully collateralized basis over a similar term.

Maturity of lease liabilities are as follows:


		Years Ending December 31,			Years Ending December 31,
From October 1, 2022 to December 31, 2022		$	3,861
2023		10,721
From April 1, 2023 to December 31, 2023				From April 1, 2023 to December 31, 2023	$	5,240
2024	2024	15,381		2024	12,252
2025	2025	13,442		2025	11,920
2026	2026	11,817		2026	11,660
2027				2027	11,518
Thereafter	Thereafter	52,416		Thereafter	40,445
Total undiscounted future cash flows	Total undiscounted future cash flows	107,638		Total undiscounted future cash flows	93,035
Less: Imputed interest	Less: Imputed interest	(25,913)		Less: Imputed interest	(22,594)
Operating lease liabilities		$	81,725
Present value of undiscounted future cash flows				Present value of undiscounted future cash flows	$	70,441

2318

As of September 30, 2022, the Company had long-lived assets, which consists of operating lease right-of-use assets and property and equipment, net, of $109.7 million and $23.2 million located in the United States and internationally, respectively. As of December 31, 2021, the company had long-lived assets of $77.2 million and $32.6 million located in the United States and internationally, respectively.

Other Contractual Obligations and Contingencies

The Company is a party to several non-cancelable contracts with vendors where the Company is obligated to make future minimum payments under the terms of these contracts as follows:


		Years Ending December 31,			Years Ending December 31,
From October 1, 2022 to December 31, 2022		$	164,209
2023		435,256
From April 1, 2023 to December 31, 2023				From April 1, 2023 to December 31, 2023	$	326,823
2024	2024	387,199		2024	418,437
2025	2025	302,259		2025	327,388
2026	2026	187,588		2026	188,672
2027				2027	107,988
Thereafter	Thereafter	355,050		Thereafter	247,196
Total	Total	$	1,831,561	Total	$	1,616,504

Contingencies

From time to time, and in the ordinary course of business, the Company may be subject to certain claims, charges and litigation concerning matters arising in connection with the conduct of the Company’s business activities.

~~In Re: Daily Fantasy Sports Litigation (Multi-District Litigation)~~

Between late 2015 and early 2016, certain individuals who allegedly registered and competed in daily sports fantasy contests on our and FanDuel’s websites, and their family members, filed numerous actions (primarily purported class actions) against us, FanDuel, and other related parties in courts across the United States (the “DFS defendants”). In February 2016, these actions were consolidated in a multi-district litigation in the U.S. District Court for the District of Massachusetts. The plaintiffs asserted 27 claims arising under both state and federal law against the DFS defendants. The plaintiffs’ claims against us generally fell into four categories: (1) the Company’s online daily fantasy sports contests constitute illegal gambling; (2) the Company promulgated false or misleading advertisements that emphasized the ease of play and likelihood of winning; (3) the Company induced consumers to lose money through a deceptive bonus program; and (4) the Company allowed our employees to participate in competitors’ fantasy sports contests using non-public information, which gave such employees an unfair advantage over other contestants. The plaintiffs sought money damages, equitable relief, and disgorgement of gains against the Company.

On October 6, 2021, the court entered judgment and an order approving a settlement and dismissing the claims with prejudice brought by all plaintiffs except the family members plaintiffs and one plaintiff asserting claims against the DFS defendants as a concerned citizen of the State of Florida (the “Concerned Citizen Claims”). This settlement agreement became effective on November 5, 2021; as a result, the only remaining plaintiffs were the family member plaintiffs and the plaintiff who asserted the Concerned Citizen Claims. On January 21, 2022, DraftKings and the family member plaintiffs filed a joint motion for preliminary approval of a proposed settlement. On February 18, 2022, the court entered an order preliminarily approving the proposed settlement and scheduled a fairness hearing for final approval of the settlement on June 8, 2022. On June 8, 2022, the court entered judgment and an order approving the settlement and dismissing all claims with prejudice other than the Concerned Citizens Claims. On June 23, 2022, with all claims other than the Concerned Citizen Claims resolved, the court dismissed the Concerned Citizen Claims from federal court for lack of Article III standing and remanded the Concerned Citizens Claims to state court in Florida. On July 8, 2022, the court officially closed the docket for ~~In Re: Daily Fantasy Sports Litigation (Multi-District Litigation). The Company previously provided an accrual for this matter.~~

~~The Company intends to vigorously defend the~~ ~~Concerned Citizen Claims~~. If the plaintiff obtains a judgment in his favor in this matter, the Company could be subject to substantial damages and it could be restricted from offering DFS contests in Florida. The Company cannot provide any assurance as to the outcome of the ~~Concerned Citizen Claims~~.

~~Despite the potential for significant damages, the Company does not believe, based on currently available information, that the outcome of the~~ ~~Concerned Citizen Claims~~ will have a material adverse effect on DraftKings’ financial condition, although the outcome could be material to DraftKings’ operating results for any particular period, depending, in part, upon the operating results for such period.

Interactive Games LLC

On June 14, 2019, Interactive Games LLC filed suit against the Company in the U.S. District Court for the District of Delaware, alleging that our Daily Fantasy Sports product offering infringes two patents and the Company’s Sportsbook product offering infringes two different patents. ~~DraftKings~~The Company intends to vigorously defend this case. In the event that a court ultimately determines that the Company is infringing the asserted patents, it may be subject to substantial damages, which may include treble damages and/or an injunction that could require the Company to modify certain features that we currently offer.

The Company cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages. The Company also cannot provide an estimate of the possible loss or range of loss. Any adverse outcome in these matters could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows.

Despite the potential for significant damages, the Company does not believe, based on currently available information, that the outcome of this proceeding will have a material adverse effect on ~~DraftKings’~~the Company's financial condition, although the outcome could be material to ~~DraftKings’~~the Company's operating results for any particular period, depending, in part, upon the operating results for such period.

Winview Inc.

On July 7, 2021, Winview Inc., a Delaware corporation, filed suit against the Company in the U.S. District Court for the District of New Jersey, which was subsequently amended on July 28, 2021, alleging that our Sportsbook product offering infringes two patents, our Daily Fantasy Sports product offering infringes one patent, and that our Sportsbook product offering and Daily Fantasy Sports product offering infringe another patent. On November 15, 2021, Winview Inc. filed a second amended complaint (the “SAC”), adding as defendants DK DECrown Holdings Inc. and Crown Gaming Inc., a Delaware corporation, which are wholly-owned subsidiaries of the Company. The SAC largely repeats the allegations of the first amended complaint.

~~DraftKings~~The Company intends to vigorously defend this case. In the event that a court ultimately determines that the Company is infringing the asserted patents, it may be subject to substantial damages, which may include treble damages and/or an injunction that could require the Company to modify certain features that we currently offer.

in these matters could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows.

Securities Matters Related to Allegations in the Hindenburg Report

On July 2, 2021, the first of two substantially similar federal securities law putative class actions was filed in the U.S. District Court for the Southern District of New York against the Company and certain of its officers. The actions ~~allege~~alleged violations of Sections 10(b) and 20(a) of the Exchange Act on a behalf of a putative class of persons who purchased or otherwise acquired ~~DraftKings~~the Company's stock between December 23, 2019 and June 15, 2021. The allegations ~~relate~~related to, among other things, allegedly false and misleading statements and/or failures to disclose information about the Company’s business and prospects, based primarily upon the allegations concerning SBTech that were contained in a report published about the Company on June 15, 2021 by Hindenburg Research (the “Hindenburg Report”). ~~The Company intends to vigorously defend against these claims.~~ On November 12, 2021, the court consolidated the two actions under the caption In re DraftKings Securities Litigation and appointed a lead plaintiff. The lead plaintiff filed a consolidated amended complaint on January 11, 2022.

On January 10, 2023, the court granted the Company's motion to dismiss and final judgment was entered dismissing the action with prejudice.

Beginning on July 9, 2021, the Company received subpoenas from the SEC seeking documents concerning, among other things, certain of the allegations raised in the Hindenburg Report, as well as the Company’s disclosures regarding its compliance policies and procedures, and related matters. The Company intends to comply with the related requests and is cooperating with the SEC’s ongoing inquiry.

The Company cannot predict with any degree of certainty the outcome of ~~these matters~~the SEC matter or determine the extent of any potential liabilities. The Company also cannot provide an estimate of the possible loss or range of loss. Any adverse outcome in ~~these matters~~the SEC matter could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows.

Despite the potential for significant damages, the Company does not believe, based on currently available information, that the outcome of ~~this proceeding~~the SEC matter will have a material adverse effect on ~~DraftKings’~~the Company's financial condition, although the outcome could be material to ~~DraftKings’~~the Company's operating results for any particular period, depending, in part, upon the operating results for such period.

Shareholder Derivative Litigation Related to Allegations in the Hindenburg Report

~~Securities~~ On October 21, 2021, the first of five substantially similar putative shareholder derivative actions was filed in Nevada by alleged shareholders of the Company. The actions purported to assert claims on behalf of the Company against certain current and former officers and/or members of the board of directors of the Company and DEAC. The two actions filed in the U.S. District Court for the District of Nevada were subsequently consolidated, and two of the actions filed in Nevada state District Court in Clark County likewise were consolidated. A substantially identical fifth action was filed in Nevada state District Court in Clark County and was subsequently dismissed voluntarily by the plaintiff. The same plaintiff filed a substantially identical action in Massachusetts Superior Court, which was also dismissed voluntarily by the plaintiff. The Nevada actions purported to assert claims on behalf of the Company for, among other things, breach of fiduciary duty and corporate waste based primarily upon the allegations concerning SBTech that were contained in the Hindenburg Report. The federal court action in Nevada also contended that certain individuals are liable to the Company for any adverse judgment in the federal securities class actions described above under Sections 10(b) and 21D of the Exchange Act. The Nevada actions sought unspecified compensatory damages, changes to corporate governance and internal procedures, equitable and injunctive relief, restitution, costs and attorney’s fees. The Nevada actions were voluntarily dismissed without prejudice by the plaintiffs in state court on February 27, 2023 and in federal court on March 3, 2023.

Matters Related to the GNOG Transaction

controlling stockholder (Tilman Fertitta and/or Fertitta Entertainment, Inc.) breached their fiduciary duties to minority stockholders of GNOG Inc. in connection with the GNOG Transaction, and the other defendants aided and abetted the alleged breaches of fiduciary duty.

On September 9, 2022, two similar putative class actions were filed in the Delaware Court of Chancery against former directors of GNOG Inc. and its former controlling stockholder, one of which also names the Company and Jefferies Financial Group, Inc. as defendants. These pending actions in Delaware assert substantially similar claims on behalf of a putative class of former minority stockholders of GNOG Inc. alleging that certain former officers and directors of GNOG Inc. and its former controlling stockholder (Tilman Fertitta) breached their fiduciary duties to minority stockholders of GNOG Inc. in connection with the GNOG Transaction, and one of the actions also alleges that ~~DraftKings~~the Company aided and abetted the alleged breaches of fiduciary duty. On October 12, 2022, the Delaware Court of Chancery consolidated these two actions under the caption In re Golden Nugget Online Gaming, Inc. Stockholders ~~Litigation~~.

Litigation.

The Company intends to vigorously defend against these claims. The Company cannot predict with any degree of certainty the outcome of these matters or determine the extent of any potential liabilities. The Company also cannot provide an estimate of the possible loss or range of loss. Any adverse outcome in these matters could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows.

Despite the potential for significant damages, the Company does not believe, based on currently available information, that the outcome of these proceedings will have a material adverse effect on ~~DraftKings’~~the Company's financial condition, although the outcome could be material to ~~DraftKings’~~the Company's operating results for any particular period, depending, in part, upon the operating results for such period.

~~Shareholder Derivative Litigation~~

On October 21, 2021, the first of five substantially similar putative shareholder derivative actions was filed in Nevada by alleged shareholders of the Company. The actions purport to assert claims on behalf of the Company against certain current and former officers and/or members of the board of directors of the Company and DEAC. The two actions filed in the U.S. District Court for the District of Nevada have since been consolidated, and two of the actions filed in Nevada state District Court in Clark County likewise have been consolidated. A substantially identical fifth action was filed in Nevada state District Court in Clark County and has been dismissed voluntarily by the plaintiff.The same plaintiff filed a substantially identical action in Massachusetts Superior Court, which has also been dismissed voluntarily by the plaintiff. The Nevada actions purport to assert claims on behalf of the Company for, among other things, breach of fiduciary duty and corporate waste based primarily upon the allegations concerning SBTech that were contained in the Hindenburg Report. The federal court action in Nevada also contends that certain individuals are liable to the Company for any adverse judgment in the federal securities class actions described above under Sections 10(b) and 21D of the Exchange Act. The Nevada actions seek unspecified compensatory

~~damages, changes to corporate governance and internal procedures, equitable and injunctive relief, restitution, costs and attorney’s fees.~~

The Company cannot predict with any degree of certainty the outcome of these matters or determine the extent of any potential liabilities. The Company also cannot provide an estimate of the possible loss or range of loss. Because the Nevada actions allege claims on behalf of the Company and purport to seek judgments in favor of the Company, the Company does not believe, based on currently available information, that the outcome of these proceedings will have a material adverse effect on DraftKings’ financial condition, although the outcome could be material to DraftKings’ operating results for any particular period, depending, in part, upon the operating results for such period.

AG 18, LLC d/b/a/ Arrow Gaming

Beteiro, LLC

On November 22, 2021, Beteiro, LLC filed a complaint against the Company in the United States District Court for the District of New Jersey alleging that the Company’s Sportsbook and Casino ~~products~~product offerings infringe four patents.

Diogenes Ltd. & ~~Colossus(IOM)~~Colossus (IOM) Ltd.

On December 1, 2021, Diogenes Ltd. & Colossus (IOM) Ltd. (“Colossus”), filed a complaint against the Company in the United States District Court for the District of Delaware alleging that the Company’s Sportsbook product offering infringes seven patents. Colossus amended its complaint on February 7, 2022 to, among other things, add one additional patent.

Steiner

Nelson Steiner filed suit against the Company and FanDuel Inc. in Florida state court on November 9, 2015. The action was subsequently transferred to In Re: Daily Fantasy Sports Litigation (Multi-District Litigation) (the “MDL”), and Mr. Steiner’s action was consolidated into the MDL’s amended complaint, which, in February 2016, consolidated numerous actions (primarily purported class actions) filed against the Company, FanDuel, and other related parties in courts across the United States. By June 23, 2022, the MDL was resolved, except for Mr. Steiner’s action, and the court officially closed the MDL docket on July 8, 2022.

Mr. Steiner brings this action as a concerned citizen of the state of Florida alleging that, among other things, defendants’ daily fantasy sports contests are illegal gambling under the state laws of Florida and seeks disgorgement of “gambling losses” purportedly suffered by Florida citizens on behalf of the state. On June 23, 2022, the MDL court remanded Mr. Steiner’s action to the Circuit Court for Pinellas County, Florida. Plaintiff has not yet filed an amended pleading.

The Company intends to vigorously defend this suit. Any adverse outcome in this matter could subject the Company to substantial damages and it could be restricted from offering DFS contests in Florida. The Company cannot provide any assurance as to the outcome of this matter.

Despite the potential for significant damages, the Company does not believe, based on currently available information, that the outcome of this matter will have a material adverse effect on Company’s financial condition, although the outcome could be material to the Company’s operating results for any particular period, depending, in part, upon the operating results for such period.

Turley

eventually cancelled due to Damar Hamlin collapsing during the game. Plaintiff alleges that he was winning prizes in multiple showdown contests at the point in time that the Bengals-Bills Game was cancelled (with 5:58 remaining in the first quarter). Plaintiff alleges that, instead of paying out the prize money, the Company refunded entry fees to contestants that entered showdown or flash draft fantasy contests. Plaintiff asserts claims for breach of contract, unfair and deceptive acts and practices, false advertising, and unjust enrichment. Among other things, Plaintiffs seeks statutory damages, monetary damages, punitive damages, attorney fees and interest.

The Company intends to vigorously defend this case. Any adverse outcome in this matter could subject the Company to substantial damages and/or require alterations to the Company’s business. The Company cannot provide any assurance as to the outcome of this matter.

The Company cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages. The Company also cannot provide an estimate of the possible loss or range of loss. Any adverse outcome in this matter could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows.

Matter Related to DraftKings Marketplace

On March 9, 2023, a putative class action was filed in Massachusetts federal court by alleged purchasers of non-fungible tokens (“NFTs”) on the DraftKings Marketplace (“DK Marketplace”). The complaint asserts claims for violations of federal and state securities laws against the Company and three of its officers on the grounds that, among other things, the NFTs that are sold and traded on the DK Marketplace allegedly constitute securities that were not registered with the SEC in accordance with federal and Massachusetts law, and that the DK Marketplace is a securities exchange that is not registered in accordance with federal and Massachusetts law. Based on these allegations, plaintiff brings claims seeking rescissory damages and other relief on behalf of himself and a putative class of persons who purchased NFTs on the DK Marketplace between August 11, 2021 and the present.

The Company intends to vigorously defend this matter. Any adverse outcome in this matter could subject the Company to substantial damages and/or require alterations to the Company’s business. The Company cannot provide any assurance as to the outcome of this matter.

The Company cannot predict with any degree of certainty the outcome of this matter or determine the extent of any potential liability or damages. The Company also cannot provide an estimate of the possible loss or range of loss. Any adverse outcome in this matter could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows.

Internal Revenue Service

The Company is currently under Internal Revenue Service audit for prior tax years, with the primary unresolved issues relating to excise taxation of fantasy sports contests and informational reporting and withholding. The final resolution of that audit, and other audits or litigation, may differ from the amounts recorded in these consolidated financial statements and may materially affect the Company’s consolidated financial statements in the period or periods in which that determination is made.

~~Letters of Credit~~

In connection with the Credit Agreement with Pacific Western Bank, the Company has entered into several letters of credit totaling $4.0 million and $4.2 million as of September 30, 2022 and December 31, 2021, respectively, for the Company’s leases of office space.

2823

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this “Report”) and the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, as filed with the SEC on February ~~18, 2022.~~17, 2023 (the "2022 Annual Report").

On May 5, 2022 (the “GNOG Closing Date”), DraftKings Inc. consummated its acquisition of Golden Nugget Online Gaming, Inc. (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~~“GNOG Merger Agreement”), in an all-stock transaction (the “GNOG Transaction”). DraftKings’ ~~unaudited condensed~~ consolidated financial statements exclude GNOG’s operations prior to the GNOG Closing Date, unless indicated otherwise. In connection with the GNOG Transaction, 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, and DraftKings Inc. is the registrant filing this Report as the successor registrant for Old DraftKings. Unless otherwise indicated, the terms “DraftKings,” the “Company,” “we,” “us,” or “our” refer to DraftKings Inc. (or, in respect of periods prior to the GNOG Closing Date, Old DraftKings), together with its consolidated subsidiaries.

Cautionary Statement Regarding Forward-Looking Statements

This Report contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 that reflect future plans, estimates, beliefs and expected performance. The forward-looking statements depend upon events, risks and uncertainties that may be outside of our control. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. You are cautioned that our business and operations are subject to a variety of risks and uncertainties, many of which are beyond our control, and, consequently, our actual results may differ materially from those projected.

Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” included elsewhere in this Report. Any statements contained herein that are not statements of historical fact may be forward-looking statements.

•factors relating to our business, operations and financial performance, including:

•our ability to effectively compete in the global entertainment and gaming industries;

•our ability to successfully acquire and integrate new operations;

•our ability to obtain and maintain licenses with gaming authorities;

•our inability to recognize deferred tax assets and tax loss carryforwards;

•market and global conditions and economic factors beyond our control, including the potential adverse effects of the ~~ongoing~~ global coronavirus (“COVID-19”) pandemic ~~on capital markets,~~(or the emergence of additional variants or strains thereof), as well as the potential impact of general economic conditions, including inflation, ~~unemployment~~rising interest rates and instability in the banking system, on our liquidity, operations and personnel;

•~~intense~~significant competition and competitive pressures from other companies worldwide in the industries in which we operate;

•our ability to raise financing in the future;

•our success in retaining or recruiting officers, key employees or directors; and

•litigation and the ability to adequately protect our intellectual property rights.

These risks and other factors include those set forth under the caption “Risk Factors” in our 2022 Annual ~~Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 18, 2022.~~Report. Due to the uncertain nature of these factors, management cannot assess the impact of each factor on ~~the~~our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any of these statements to reflect events or circumstances occurring after the date of this Report, except as

required by applicable law. New factors may emerge, and it is not possible to predict all factors that may affect our business and prospects.

Our Business

We are a digital sports entertainment and gaming ~~company. We provide~~company that provides users with online sports betting (“Sportsbook”), online casino (“iGaming”) and daily fantasy sports (“DFS”) ~~products,~~product offerings, as well as DraftKings Marketplace ("Marketplace"), retail sportsbook, media and other ~~online~~ consumer ~~products.~~product offerings. We are also involved in the design and development of sports betting and casino gaming software for online and retail ~~Sportsbooks~~sportsbooks and casino gaming products, as well as other online consumer products. On May 5, 2022, we acquired GNOG in an all-stock transaction to enable us to leverage Golden Nugget’s established brand to broaden our reach into new customer segments and enhance the combined company’s iGaming ~~product offerings through our vertically-integrated technology stack and GNOG’s unique capabilities, including live dealer.~~operators.

Our mission is to make life more exciting by responsibly creating the world’s favorite real-money games and betting experiences. We accomplish this by creating an environment where our users can find enjoyment and fulfillment through Sportsbook, iGaming and DFS, as well as media and other online consumer ~~products.~~product offerings. We are also highly focused on our responsibility as a steward of this new era in real-money gaming. Our ethics guide our decision making, with respect to both the tradition and integrity of sports and our investments in regulatory compliance and consumer protection.

We continue to make deliberate and substantial investments in support of our mission and long-term growth. For example, we have invested in our ~~products~~product offerings and technology in order to continuously launch new product ~~innovations,~~innovations; improve marketing, merchandising, and operational efficiency through data ~~science,~~science; and deliver a great user experience. We also make significant investments in sales and marketing and incentives to grow and retain our paid user base, including personalized cross-product offers and promotions, and promote brand awareness to attract the “skin-in-the-game” sports fan. Together, these investments have enabled us to create a leading product built on scalable technology, while attracting a user base that has resulted in the rapid growth of our business.

Our priorities are to (a) continue to invest in our ~~products and services,~~product offerings, (b) launch our ~~products~~product offerings in new ~~geographies,~~jurisdictions, (c) create replicable and predictable state-level unit economics in sports betting and iGaming and (d) expand our other online consumer ~~products.~~product offerings. When we launch our Sportsbook and iGaming product offerings in a new jurisdiction, we invest heavily in user acquisition, retention and cross-selling until the new jurisdiction provides a critical mass of users engaged across our ~~products.~~product offerings.

Our current technology is highly scalable with relatively minimal incremental spend required to launch our ~~products~~product offerings in new jurisdictions. We will continue to manage our fixed-cost base in conjunction with our market entry plans and focus our variable spend on marketing, user experience and support and regulatory compliance to become the product of choice for users and to maintain favorable relationships with regulators. We also expect to improve our profitability over time ~~through cost synergies~~as our revenue and ~~new opportunities driven by the continued optimization of~~gross profit expand as states mature, and our ~~technology infrastructure.~~variable marketing expenses and fixed costs stabilize or grow at a slower rate.

Our path to profitability is based on the acceleration of positive contribution profit growth driven ~~primarily~~ by ~~marketing efficiencies as we continue~~increased revenue and gross profit generation from ongoing efficient customer acquisition enabled by the transition from local to regional to national advertising, strong customer retention, improved monetization from increased frequency of customer play and higher hold percentage, as well as scale benefits from investments in our product offerings and technology and general and administrative functions. On a consolidated Adjusted EBITDA basis, we expect to achieve profitability when total contribution profit exceeds the fixed costs of our business, which depends, in part, on the percentage of the U.S. adult population that has access to our ~~products~~product offerings and the other factors summarized in the section entitled ~~“Forward-Looking~~“Cautionary Statement Regarding Forward-Looking Statements”.

~~Basis of Presentation~~

~~We operate two complementary business segments: business-to-consumer (“B2C”) and business-to-business (“B2B”).~~

~~B2C~~

Our B2C business is comprised of the legacy business of DK Crown Holdings Inc. (formerly DraftKings Inc.), a Delaware corporation (“DK DE”), which includes our DraftKings-branded Sportsbook, iGaming and DFS products, as well as our other online consumer products, and our GNOG-branded Sportsbooks and iGaming products. Across our DraftKings-branded products, we offer users a single integrated product that provides one account, one wallet, a centralized payment system and responsible gaming controls. Currently, we operate our B2C segment primarily in the United States.

~~B2B~~

Our B2B business is primarily comprised of the operations of SBTech, which we acquired on April 23, 2020. Our B2B segment’s principal activities involve the design and development of sports betting and casino gaming software. Our B2B services are delivered through our proprietary software, and our complementary service offerings include trading and risk management and support for reporting, customer management and regulatory reporting requirements. The operations of our B2B segment are concentrated mainly in Europe and the United States.

~~Impact of COVID-19~~

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

Our revenue varies based on sports seasons and sporting events amongst other factors, and cancellations, suspensions or alterations resulting from COVID-19 have the potential to adversely affect our revenue, possibly materially. However, our 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 our products, reducing cash flows and revenues, and thereby materially harming our business, financial condition and results of operations. In addition, a materially disruptive resurgence of COVID-19 cases or the emergence of additional variants or strains of COVID-19 could cause other widespread or more severe impacts depending on where infection rates are highest. As steps taken to mitigate the spread of COVID-19 necessitated a shift away from a traditional office environment for many employees, we implemented business continuity programs to ensure that employees were safe and that our business continued to function with minimal disruptions to normal work operations while employees worked remotely. Since the second quarter of 2022, our primary offices, including our corporate headquarters in Boston, Massachusetts, have been re-opened with many of our employees returning to work onsite in various capacities. We will continue to monitor developments relating to disruptions and uncertainties caused by COVID-19.

Financial Highlights and Trends

The following table sets forth a summary of our financial results for the periods indicated:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
(amounts in thousands)	(amounts in thousands)	2022		2021		2022		2021		(amounts in thousands)	2023		2022
Revenue	Revenue	$	501,938	$	212,819	$	1,385,328	$	822,700	Revenue	$	769,652	$	417,205
Net Loss	Net Loss	(450,494)		(545,028)		(1,135,290)		(1,196,898)		Net Loss	(397,148)		(467,693)
Adjusted EBITDA (1)	Adjusted EBITDA (1)	(264,211)		(313,603)		(671,854)		(548,167)		Adjusted EBITDA (1)	(221,611)		(289,509)

(1)Adjusted EBITDA is a non-GAAP financial measure. See “—~~Non-GAAP Information~~”“Non-GAAP Information” below for additional information about this measure and a reconciliation of this measure to the most directly comparable financial measure calculated in accordance with U.S. GAAP.

Revenue increased by ~~$289.1~~$352.4 million in the three months ended ~~September 30, 2022~~March 31, 2023 compared to the three months ended ~~September 30, 2021. This improvement is~~ March 31, 2022 primarily due to the strong performance of our ~~B2C segment in the three months ended September 30, 2022 resulting from robust customer acquisition and retention, the successful launches of our~~ Sportsbook and iGaming products in additional jurisdictions since the third quarter of 2021, and atypically strong hold rates (primarily in NFL wagering) and reduced promotional intensity in the three months ended September 30, 2022.

~~Revenue increased by $562.6 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to the strong performance of our B2C segment~~product offerings as a result of robust customer acquisition and retention, the successful launches of ~~our Sportsbook and iGaming products~~those product offerings in additional jurisdictions ~~since the third quarter of 2021~~ and reduced promotional intensity.

Key Performance Indicators ~~– B2C Operations~~

Monthly Unique Payers (“MUPs”). We define MUPs isas the ~~average~~ number of unique paid users (“per month who had one or more real-money, paid engagements across one or more of our Sportsbook, iGaming, DFS, or Marketplace product offerings via our technology. For reported periods longer than one month, we average the MUPs for the months in the reported period. Although the number of unique ~~payers”)~~paid users includes those users that ~~use~~have participated in a real-money, paid engagement using only promotional incentives (which has not been a material number of users to date), which are fungible with other funds deposited into their wallets on our ~~B2C products on~~technology, it does not include users who have made a ~~monthly basis.~~deposit but have not yet had a real-money, paid engagement.

MUPs is a key indicator of the scale of our ~~B2C~~online gaming user base and awareness of our brand. We believe that year-over-year growth in MUPs is also generally indicative of the long-term revenue growth potential of our ~~B2C segment,~~online gaming product offerings, although MUPs in individual periods may be less indicative of our longer-term expectations. We expect the number of MUPs to grow as we attract, retain and re-engage users in new and existing jurisdictions and expand our ~~products~~product offerings to appeal to a wider audience.

~~We define MUPs as the number of unique payers per month who had a paid engagement (i.e., participated in a real-money engagement with one of~~The chart below presents our ~~B2C products such as a DFS contest, sports bet or casino game) across one or more of our products via our technology. For reported periods longer than one month, we~~ average ~~the MUPs for the months in the reported period.~~

~~A “unique paid user” or “unique payer” is any person who had one or more paid engagements via our B2C technology during the period (i.e.~~, a user that participates in a paid engagement with one of our B2C products counts as a single unique paid user or unique payer for the period). We exclude users who have made a deposit but have not yet had a paid engagement. Unique payers or unique paid users include users who have participated in a paid engagement with only promotional incentives, which are fungible with other funds deposited into their wallets on our technology; however, the number of such users has not been material to date.

~~The charts below present our~~ MUPs for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2022:~~2023:

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Average Revenue per MUP (“ARPMUP”). ~~ARPMUP is the average B2C segment revenue per MUP, and this key metric represents our ability to drive usage and monetization of our B2C products.~~

We define and calculate ARPMUP as the average monthly ~~B2C segment~~ revenue, excluding revenue from gaming software services, for a reporting period, divided by ~~MUPs (i.e.~~, the average number of ~~unique payers)~~MUPs for the same period. ARPMUP is a key indicator of our ability to drive usage and monetization of our product offerings.

The ~~charts~~chart below ~~present~~presents our ARPMUP for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2022:~~2023:

The increase in MUPs ~~increased~~ for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, compared to the same ~~periods~~period in ~~2021,~~2022, primarily ~~due to~~reflects strong unique payer retention and acquisition across our Sportsbook and iGaming products as well as the expansion of our Sportsbook and iGaming products into new ~~jurisdictions,~~states, partially offset by a decline in ~~Daily Fantasy Sports~~DFS MUPs.

ARPMUP increased in the three months ended ~~September 30, 2022,~~March 31, 2023, compared to the same period in ~~2021,~~2022, primarily due to ~~a continued mix shift into~~structural improvement in our Sportsbook ~~and iGaming products, atypically strong Sportsbook~~ hold rates ~~(primarily in NFL wagering) and reduced promotional intensity.~~

~~ARPMUP increased in the nine months ended September 30, 2022, compared to the same period in 2021, primarily due to a continued mix shift into our Sportsbook and iGaming products~~ and reduced promotional intensity.

Non-GAAP Information

This Report includes Adjusted EBITDA, which is a non-GAAP financial measure that we use to supplement our results presented in accordance with U.S. GAAP. We believe Adjusted EBITDA is useful in evaluating our operating performance, similar to measures reported by our publicly-listed U.S. competitors, and regularly used by security analysts, institutional investors and other interested parties in analyzing operating performance and prospects. Adjusted EBITDA is not intended to be a substitute for any U.S. GAAP financial measure. As calculated, it may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry.

We define and calculate Adjusted EBITDA as net loss before the impact of interest income or expense (net), income tax provision or benefit, and depreciation and amortization, and further adjusted for the following items: stock-based ~~compensation,~~compensation; transaction-related ~~costs,~~costs; litigation, settlement and related ~~costs,~~costs; advocacy and other related legal ~~expenses,~~expenses; gain or loss on remeasurement of warrant ~~liabilities~~liabilities; and other non-recurring and non-operating costs or income, as described in the reconciliation below.

We include non-GAAP financial measures because they are used by management to evaluate our core operating performance and trends and to make ~~strategic~~ decisions regarding the allocation of capital and new investments. Adjusted EBITDA excludes certain expenses that are required in accordance with U.S. GAAP because they are non-recurring items (for example, in the case of transaction-related costs and advocacy and other related legal expenses), non-cash expenditures (for example, in the case of depreciation and amortization, remeasurement of warrant liabilities and stock-based compensation), or non-operating items which are not related to our underlying business performance (for example, in the case of interest income and expense and litigation, settlement and related costs).

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Adjusted EBITDA

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


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
(amounts in thousands)	(amounts in thousands)	2022		2021		2022		2021		(amounts in thousands)	2023		2022
Net loss	Net loss	$	(450,494)	$	(545,028)	$	(1,135,290)	$	(1,196,898)	Net loss	$	(397,148)	$	(467,693)
Adjusted for:	Adjusted for:									Adjusted for:
Depreciation and amortization (1)	Depreciation and amortization (1)	46,089		30,356		120,629		88,600		Depreciation and amortization (1)	48,213		32,225
Interest (income) expense, net		(6,301)		1,556		(8,378)		(1,071)
Income tax provision (benefit)		3,177		3,845		(77,580)		1,654
Interest income, net										Interest income, net	(11,140)		(148)
Income tax provision										Income tax provision	1,368		469
Stock-based compensation (2)	Stock-based compensation (2)	126,038		175,664		448,636		499,246		Stock-based compensation (2)	117,400		187,077
Transaction-related costs (3)	Transaction-related costs (3)	751		4,348		15,030		15,261		Transaction-related costs (3)	—		3,774
Litigation, settlement, and related costs (4)	Litigation, settlement, and related costs (4)	1,390		4,712		5,786		8,933		Litigation, settlement, and related costs (4)	2,563		1,950
Advocacy and other related legal expenses (5)	Advocacy and other related legal expenses (5)	16,558		16,667		16,558		27,702		Advocacy and other related legal expenses (5)	—		—
Loss (gain) on remeasurement of warrant liabilities	Loss (gain) on remeasurement of warrant liabilities	6,797		(7,091)		(20,199)		2,905		Loss (gain) on remeasurement of warrant liabilities	17,035		(12,681)
Other non-recurring and non-operating costs (income) (6)		(8,216)		1,368		(37,046)		5,501
Other non-recurring costs and non-operating (income) costs (6)										Other non-recurring costs and non-operating (income) costs (6)	98		(34,482)
Adjusted EBITDA	Adjusted EBITDA	$	(264,211)	$	(313,603)	$	(671,854)	$	(548,167)	Adjusted EBITDA	$	(221,611)	$	(289,509)
Adjusted EBITDA by segment:
B2B		$	(16,689)	$	(5,903)	$	(56,257)	$	(6,854)
B2C		$	(247,522)	$	(307,700)	$	(615,597)	$	(541,313)

(1)The amounts include the amortization of acquired intangible assets of $29.8 million and ~~$20.2~~$19.2 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $76.1 million and $59.9 million for the nine months ended September 30, 2022 and 2021,~~ respectively.

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

(3)Includes capital markets advisory, consulting, accounting and legal expenses related to evaluation, negotiation and integration costs incurred in connection with pending or completed transactions and ~~offerings.~~offerings, including costs relating to the GNOG Transaction in 2022.

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

(5)~~Includes certain~~Reflects non-recurring and non-ordinary course costs relating to advocacy efforts and other legal expenses in jurisdictions where we do not operate certain ~~products~~product offerings and are actively seeking licensure, or similar approval, for those ~~products.~~product offerings. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~those~~we did not incur any such costs. This adjustment excludes (i) costs ~~primarily related~~relating to ~~our activities~~advocacy efforts and other legal expenses in ~~California. For~~jurisdictions where we do not operate that are incurred in the ~~three~~ordinary course of business and ~~nine months ended September 30, 2021, those costs primarily related to our activities in California and Florida. The amounts presented exclude other~~(ii) costs relating to advocacy efforts and other legal expenses incurred in jurisdictions where related legislation has been passed and we currently operate.

(6)Primarily includes the change in fair value of certain financial assets, as well as our equity method share of the investee’s losses and other costs relating to non-recurring and non-operating items.

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

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Results of Operations

Three Months Ended ~~September 30, 2022~~March 31, 2023 Compared to the Three Months Ended ~~September 30, 2021~~March 31, 2022

The following table sets forth a summary of our consolidated results of operations for the interim periods indicated, and the changes between ~~periods. Due to the timing of the consummation of the GNOG Transaction, the below periods, to the extent applicable, exclude GNOG’s operations prior to the GNOG Closing Date of May 5, 2022.~~periods:


		Three months ended September 30,									Three months ended March 31,
(amounts in thousands, except percentages)	(amounts in thousands, except percentages)	2022		2021		$ Change		% Change		(amounts in thousands, except percentages)	2023		2022		$ Change		% Change
Revenue	Revenue	$	501,938	$	212,819	$	289,119	135.9	%	Revenue	$	769,652	$	417,205	$	352,447	84.5	%
Cost of revenue	Cost of revenue	372,692		170,749		(201,943)		(118.3)	%	Cost of revenue	521,740		313,379		(208,361)		(66.5)	%
Sales and marketing	Sales and marketing	321,714		303,658		(18,056)		(5.9)	%	Sales and marketing	389,133		321,452		(67,681)		(21.1)	%
Product and technology	Product and technology	76,299		65,222		(11,077)		(17.0)	%	Product and technology	88,088		81,352		(6,736)		(8.3)	%
General and administrative	General and administrative	186,261		219,706		33,445		15.2	%	General and administrative	160,476		216,606		56,130		25.9	%
Loss from operations	Loss from operations	(455,028)		(546,516)		91,488		16.7	%	Loss from operations	(389,785)		(515,584)		125,799		24.4	%
Interest income (expense), net		6,301		(1,556)		7,857		504.9	%
Interest income, net										Interest income, net	11,140		148		10,992		7,427.0	%
(Loss) gain on remeasurement of warrant liabilities	(Loss) gain on remeasurement of warrant liabilities	(6,797)		7,091		(13,888)		(195.9)	%	(Loss) gain on remeasurement of warrant liabilities	(17,035)		12,681		(29,716)		234.3	%
Other income, net	Other income, net	8,257		—		8,257		100.0	%	Other income, net	19		37,882		(37,863)		100.0	%
Loss before income tax provision and loss from equity method investment	Loss before income tax provision and loss from equity method investment	(447,267)		(540,981)		93,714		17.3	%	Loss before income tax provision and loss from equity method investment	(395,661)		(464,873)		69,212		14.9	%
Income tax provision	Income tax provision	3,177		3,845		668		17.4	%	Income tax provision	1,368		469		(899)		191.7	%
Loss from equity method investment	Loss from equity method investment	50		202		152		75.2	%	Loss from equity method investment	119		2,351		2,232		94.9	%
Net loss	Net loss	$	(450,494)	$	(545,028)	$	94,534	17.3	%	Net loss	$	(397,148)	$	(467,693)	$	70,545	15.1	%

Revenue. Revenue increased ~~$289.1~~$352.4 million, or ~~135.9%~~84.5%, to ~~$501.9~~$769.7 million in the three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$212.8~~$417.2 million in the three months ended ~~September 30, 2021.~~ March 31, 2022. The increase ~~was attributable to $303.8 million in incremental B2C segment revenue, partially offset by a decrease in B2B segment revenue of $14.6 million.~~

~~The $303.8 million increase in our B2C segment revenue~~ was primarily attributable to our online gaming revenues, which increased ~~$292.2~~$348.5 million, or ~~165.8%~~90.1%, to ~~$468.5~~$735.2 million in the three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$176.3~~$386.7 million in the three months ended ~~September 30, 2021. The remaining increase in our B2C segment revenue was attributable to “Other” revenue, which primarily includes media, marketplace and retail Sportsbooks.~~

~~Online gaming revenue grew in the three months ended September 30,~~March 31, 2022, primarily due to MUPs increasing by ~~22.3%~~39.2% and ARPMUP increasing by ~~114.0%~~35.4%, in each case, as compared to the three months ended ~~September 30, 2021. These key performance indicators~~March 31, 2022. MUPs and ARPMUP increased primarily due to strong ~~unique payer~~player retention and acquisition across our Sportsbook and iGaming ~~products~~product offerings, as well as the expansion of our Sportsbook and iGaming ~~products~~product offerings into new jurisdictions, ~~atypically strong hold rates (primarily~~structural improvement in ~~NFL wagering), a continued mix shift into~~ our Sportsbook ~~and iGaming products~~hold rate and reduced promotional intensity.

Cost of Revenue. Cost of revenue increased ~~$201.9~~$208.4 million, or ~~118.3%~~66.5%, to ~~$372.7~~$521.7 million in the three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$170.7~~$313.4 million in the three months ended ~~September 30, 2021.~~ March 31, 2022. Our ~~B2C segment~~online gaming product offerings accounted for substantially all of this increase, reflecting growth in revenue from our expanded product and ~~geographic~~jurisdictional footprint, including the launch of our Sportsbook product offering in ~~Connecticut, Louisiana,~~ Kansas, ~~New York~~Maryland, Massachusetts, Ohio and Ontario, Canada and the launch of our iGaming product offering in ~~Connecticut and~~ Ontario, Canada since March 31, 2022. In particular, the ~~three months ended September 30, 2021. The~~ cost of revenue increase was primarily attributable to an increase in our variable expenses, such as product taxes and payment processing fees which increased ~~by $107.3~~$123.9 million and ~~$24.8~~$22.2 million, ~~respectively, relative to the expenses incurred during the three months ended September 30, 2021.~~respectively. The remaining increase was primarily attributable to an increase in our variable platform costs and revenue share arrangements resulting from additional customer activity.

~~B2C segment cost~~Cost of revenue as a percentage of ~~B2C~~ revenue decreased by ~~2.8~~7.3 percentage points to ~~69.7%~~67.8% in the three months ended ~~September 30, 2022,~~March 31, 2023, as compared to ~~72.5%~~75.1% in the three months ended ~~September 30, 2021, primarily~~ March 31, 2022, reflecting, ~~atypically strong~~in part, structural improvement in our Sportsbook hold ~~rates (primarily in NFL wagering)~~rate and reduced promotional intensity, partially offset by a change in revenue mix from our more mature DFS product offering to our Sportsbook and iGaming product offerings, which ~~positively impacted~~in general, produce revenue at a higher cost ofper revenue ~~as a percentage of B2C revenue in the three months ended September 30, 2022 compared~~dollar relative to ~~the same period in 2021.~~our more mature DFS product offering.

Sales and Marketing. Sales and marketing expense increased ~~$18.1~~$67.7 million, or ~~5.9%~~21.1%, to ~~$321.7~~$389.1 million in the three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$303.7~~$321.5 million in the three months ended ~~September 30, 2021. Our B2C segment accounted for substantially all~~March 31, 2022. The increase was primarily attributable to an increase of ~~this increase. Of the $18.1~~$42.2 million ~~increase, $20.3 million resulted~~ from activities to acquire and retain

players in new ~~states~~jurisdictions that we operate in, such as marketing costs, including advertising and the development of marketing ~~campaigns, as well as headcount and technology associated with analyzing, developing and deploying those~~ campaigns. ~~This increase was partially offset by a decrease in stock-based compensation expense.~~

Product and Technology. Product and technology expense increased ~~$11.1~~$6.7 million, or ~~17.0%~~8.3%, to ~~$76.3~~$88.1 million in the three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$65.2~~$81.4 million in the three months ended ~~September 30, 2021, of which $0.6 million was attributable to our B2B segment.~~ March 31, 2022. The ~~remaining~~ increase ~~of $10.5 million~~ primarily reflects additions to our product operations and engineering ~~headcount in our B2C segment.~~headcount.

General and Administrative. General and administrative expense decreased ~~$33.4~~$56.1 million, or ~~15.2%~~25.9%, to ~~$186.3~~$160.5 million in the three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$219.7~~$216.6 million in the three months ended ~~September 30, 2021. Our B2C segment accounted for substantially all of this~~March 31, 2022. This decrease was primarily driven by a ~~decrease~~reduction in stock-based compensation expense of ~~$40.7~~$66.3 million, ~~which was~~ partially offset by an increase ~~of $15.3 million~~ in cash-based compensation ~~costs~~expense due to an increase in headcount.

(Loss) Gain on Remeasurement of Warrant Liabilities. We recorded a loss on remeasurement of warrant liabilities of ~~$6.8~~$17.0 million in the three months ended ~~September 30, 2022,~~March 31, 2023, compared to a gain of ~~$7.1~~$12.7 million in the three months ended ~~September 30, 2021~~March 31, 2022 primarily due to changes in the underlying share price of ~~DraftKings Inc.’s~~our Class A common stock.

Other Income, Net. ~~Other~~We had de minimis other income ~~net was $8.3~~in the three months ended March 31, 2023, as compared to $37.9 million in the three months ended ~~September 30, 2022, as compared to no other income, net in the three months ended September 30, 2021.~~March 31, 2022. This ~~increase was primarily attributable to the recovery of a tax liability indemnity.~~

~~Income Tax Provision. We recorded an income tax provision of $3.2 million in the three months ended September 30, 2022, as compared to an income tax provision of $3.8 million in the three months ended September 30, 2021.~~

~~Net Loss.~~ Net loss decreased by $94.5 million to $450.5 million in the three months ended September 30, 2022, as compared to a net loss of $545.0 million in the three months ended September 30, 2021, for the reasons discussed above.

~~Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021~~

The following table sets forth a summary of our consolidated results of operations for the interim periods indicated, and the changes between periods. Due to the timing of the consummation of the GNOG Transaction, the below periods, to the extent applicable, exclude GNOG’s operations prior to the GNOG Closing Date of May 5, 2022.

Nine months ended September 30,
(amounts in thousands, except percentages) 2022 2021 $ Change % Change
Revenue $ 1,385,328 $ 822,700 $ 562,628 68.4 %
Cost of revenue 998,838 540,980 (457,858) (84.6) %
Sales and marketing 840,695 703,056 (137,639) (19.6) %
Product and technology 234,853 184,016 (50,837) (27.6) %
General and administrative 590,476 587,509 (2,967) (0.5) %
Loss from operations (1,279,534) (1,192,861) (86,673) (7.3) %
Interest income, net 8,378 1,071 7,307 682.3 %
Gain (loss) on remeasurement of warrant liabilities 20,199 (2,905) 23,104 795.3 %
Other income, net 40,566 — 40,566 100.0 %
Loss before income tax (benefit) provision and loss from equity method investment (1,210,391) (1,194,695) (15,696) (1.3) %
Income tax (benefit) provision (77,580) 1,654 79,234 4,790.4 %
Loss from equity method investment 2,479 549 (1,930) (351.5) %
Net loss $ (1,135,290) $ (1,196,898) $ 61,608 5.1 %

~~Revenue~~. Revenue increased $562.6 million, or 68.4%, to $1,385.3 million in the nine months ended September 30, 2022, from $822.7 million in the nine months ended September 30, 2021. The increase was attributable to $611.2 million in incremental B2C segment revenue, partially offset by a decrease ~~in B2B segment revenue of $48.5 million.~~

The $611.2 million increase in our B2C segment revenue was primarily attributable to our online gaming revenues which increased $582.1 million, or 82.3%, to $1,289.3 million in the nine months ended September 30, 2022, from $707.1 million in

~~the nine months ended September 30, 2021. The remaining increase in our B2C segment revenue was attributable to “Other” revenue, which primarily includes media, marketplace and retail Sportsbooks.~~

Online gaming revenue grew in the nine months ended September 30, 2022 primarily due to MUPs increasing by 27.0% and ARPMUP increasing by 43.5% as compared to the nine months ended September 30, 2021. These key performance indicators increased primarily due to strong player retention and acquisition across our Sportsbook and iGaming products as well as the expansion of our Sportsbook and iGaming products into new jurisdictions, a continued mix shift into our Sportsbook and iGaming products and reduced promotional intensity.

~~Cost of Revenue~~. Cost of revenue increased $457.9 million, or 84.6%, to $998.8 million in the nine months ended September 30, 2022, from $541.0 million in the nine months ended September 30, 2021. Our B2C segment accounted for substantially all of this increase, reflecting growth in revenue from our expanded product and geographic footprint, including the launch of our Sportsbook product in Connecticut, Louisiana, Kansas, New York and Ontario, Canada and the launch of our iGaming product in Connecticut and in Ontario, Canada since the nine months ended September 30, 2021. The cost of revenue increase was primarily attributable to an increase in our variable expenses such as product taxes and payment processing fees, which increased by $253.5 million and $63.0 million, respectively, relative to the expenses incurred during the nine months ended September 30, 2021. The remaining increase was primarily attributable to variable platform costs and revenue share arrangements resulting from additional customer activity.

B2C segment cost of revenue as a percentage of B2C revenue increased by 7.5 percentage points to 67.2% in the nine months ended September 30, 2022, as compared to 59.7% in the nine months ended September 30, 2021, reflecting our changed revenue mix from our more mature DFS product to our iGaming and Sportsbook products. In addition, as a result of customer activity due to the launches of our products in new states, we incurred variable expenses that are not based on net revenue, including payment processing fees, and revenue share arrangements. In general, our iGaming and Sportsbook products produce revenue at a higher cost per revenue dollar relative to our more mature DFS product.

~~Sales and Marketing.~~ Sales and marketing expense increased $137.6 million, or 19.6%, to $840.7 million in the nine months ended September 30, 2022, from $703.1 million in the nine months ended September 30, 2021. Our B2C segment accounted for substantially all of this increase with $114.4 million of the increase resulting from activities to acquire and retain players in new states that we operate in, such as marketing costs including advertising and the development of marketing campaigns, as well as headcount and technology associated with analyzing, developing and deploying those campaigns.

~~Product and Technology.~~ Product and technology expense increased $50.8 million, or 27.6%, to $234.9 million in the nine months ended September 30, 2022, from $184.0 million in the nine months ended September 30, 2021, of which $7.2 million was attributable to our B2B segment. The remaining increase of $43.6 million primarily reflects additions to our product operations and engineering headcount in our B2C segment.

~~General and Administrative.~~ General and administrative expense increased $3.0 million, or 0.5%, to $590.5 million in the nine months ended September 30, 2022, from $587.5 million in the nine months ended September 30, 2021. Our B2C segment accounted for substantially all of this increase, primarily driven by an increase of $45.0 million in compensation costs due to an increase in headcount, as well as an increase in software and facility fees of $11.5 million, which were partially offset by a decrease in stock-based compensation expense of $50.9 million.

~~Gain (Loss) on Remeasurement of Warrant Liabilities.~~ We recorded a gain on remeasurement of warrant liabilities of $20.2 million in the nine months ended September 30, 2022, compared to a loss of $2.9 million in the nine months ended September 30, 2021 primarily due to changes in the underlying share price of DraftKings Inc.’s Class A common stock.

~~Other Income. Other income, net was $40.6 million in the nine months ended September 30, 2022, as compared to no other income, net in the nine months ended September 30, 2021. This increase~~ was primarily attributable to a change in the fair value of certain financial assets.

~~Income Tax (Benefit) Provision~~. We recorded an income tax benefit of $77.6 million in the nine months ended September 30, 2022, as compared to an income tax provision of $1.7 million in the nine months ended September 30, 2021. This increase was primarily due to a discrete income tax benefit of $76.8 million recorded during the second quarter of 2022, which was attributable to non-recurring partial releases of the Company’s U.S. valuation allowance as a result of the preliminary purchase accounting for GNOG.

Net Loss. Net loss decreased by ~~$61.6~~$70.5 million to ~~$1,135.3~~$397.1 million in the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, as compared to a net loss of ~~$1,196.9~~$467.7 million in the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, for the reasons discussed above.

Liquidity and Capital Resources

We had ~~$1.4~~$1.1 billion in cash and cash equivalents as of ~~September 30, 2022~~March 31, 2023 (excluding player cash, which we segregate from our operating cash balances on behalf of our paid users for all jurisdictions and ~~products)~~product offerings). We believe our cash on hand is sufficient to meet our current working capital and capital expenditure requirements for a period of at least twelve months. We will continue to evaluate our long-term operating performance and cash needs and believe we are well positioned to continue to fund the operations of ~~the~~our business long-term.

Debt. In March 2021, we issued zero-coupon convertible senior notes in an aggregate principal amount of $1,265.0 million (the “Convertible Notes”). The Convertible Notes mature on March 15, 2028, subject to earlier conversion, redemption or repurchase. In connection with the pricing of the Convertible Notes and the exercise of the option to purchase additional Convertible Notes, we entered into privately negotiated capped call transactions (the “Capped Call Transactions”). The Capped Call Transactions are expected generally to reduce potential dilution to DraftKings Inc.’s Class A common stock upon any conversion of the Convertible Notes. The net cost of $124.0 million incurred to enter into the Capped Call Transactions was recorded as a reduction to additional paid-in capital on the Company’s consolidated balance sheet. As of ~~September 30, 2022,~~March 31, 2023, the Convertible Notes, net of issuance costs, balance was ~~$1,250.4 million.~~$1,251.8 million.

Leases. We have lease arrangements for certain corporate office facilities, data centers, and motor vehicles. As of ~~September 30, 2022,~~March 31, 2023, the Company had lease ~~obligations~~obligations of ~~$81.7~~$70.4 million, with ~~$5.6~~$4.0 million ~~payable~~payable within 12 months.

Other Purchase Obligations. We have certain non-cancelable contracts with vendors, licensors and others requiring us to make future cash payments. As of ~~September 30, 2022,~~March 31, 2023, these purchase obligations were ~~$1,831.6~~$1,616.5 million, with ~~$164.2~~$326.8 million payable in the remainder of ~~2022.~~2023.

Cash Flows

The following table ~~below~~ summarizes our cash flows for the periods ~~indicated. Due to the timing of the consummation of the GNOG Transaction, the below periods, to the extent applicable, exclude GNOG’s operations prior to the GNOG Closing Date of May 5, 2022.~~indicated:


		Nine months ended September 30,					Three months ended March 31,
(amounts in thousands)	(amounts in thousands)	2022		2021		(amounts in thousands)	2023		2022
Net cash used in operating activities	Net cash used in operating activities	$	(477,061)	$	(247,261)	Net cash used in operating activities	$	(201,492)	$	(356,718)
Net cash used in investing activities	Net cash used in investing activities	(171,932)		(118,695)		Net cash used in investing activities	(27,564)		(23,065)
Net cash (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
Net cash used in financing activities						Net cash used in financing activities	(25,166)		(12,313)
Net decrease in cash and cash equivalents and restricted cash						Net decrease in cash and cash equivalents and restricted cash	(254,222)		(392,096)
Cash and cash equivalents and restricted cash at beginning of period	Cash and cash equivalents and restricted cash at beginning of period	2,629,842		2,104,976		Cash and cash equivalents and restricted cash at beginning of period	1,778,825		2,629,842
Cash and cash equivalents and restricted cash at end of period	Cash and cash equivalents and restricted cash at end of period	$	1,964,006	$	2,875,033	Cash and cash equivalents and restricted cash at end of period	$	1,524,603	$	2,237,746

Operating Activities. Net cash used in operating activities in the ~~nine~~three months ended ~~September 30, 2022 was $477.1~~March 31, 2023 decreased $155.2 million to $201.5 million, compared to ~~$247.3~~$356.7 million in the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, mainly reflecting an improved net loss, net of non-cash items, of $81.5 million, as well as a ~~decrease~~cash in-flow from changes in operating ~~working capital~~assets and liabilities of ~~$147.3~~$13.1 million compared to an outflow of $60.7 million in the three months ended March 31, 2022, primarily due to ~~an increase in cash used in~~improved collection of accounts ~~payable, accrued expenses, liabilities to users~~receivable and ~~receivables reserved for users. In addition, we incurred a $61.6 million lower net loss, for the reasons discussed above, net~~timing of non-cash cost items. Non-cash cost items decreased $144.1 million period-over-period, primarily driven by deferred income taxes, a gain on various financial assets and a gain on remeasurement of warrants liabilities.payments.

3930

Investing Activities. Net cash used in investing activities during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 increased by ~~$53.2~~$4.5 million to ~~$171.9~~$27.6 million from ~~$118.7~~$23.1 million during the same period in ~~2021,~~2022, mainly reflecting an increase in cash paid for ~~acquisitions during the nine months ended September 30, 2022 when compared to the nine months ended September 30, 2021.~~internally developed software costs.

Financing Activities. Net cash ~~provided by (used in)~~used in financing activities during the nine months ended September 30, 2022 decreased by $1,151.0 million to $(16.8) million from $1,134.1 million during the same period in 2021, mainly reflecting the completion of our issuance of Convertible Notes during the three months ended March 31, ~~2021.~~2023 increased by $12.9 million to $25.2 million from $12.3 million during the same period in 2022, primarily reflecting purchases of treasury stock related to the satisfaction of withholding taxes due upon the vesting of restricted stock units.

Commitments and Contingencies

Refer to Note 1312 of our unaudited condensed consolidated financial statements included elsewhere in this Report for a summary of our commitments as of ~~September 30, 2022.~~March 31, 2023.

Critical Accounting Estimates

Our financial statements have been prepared in accordance with U.S. GAAP. Our discussion and analysis of the financial condition and results of operations are based on these financial statements. The preparation of these financial statements requires the application of accounting policies in addition to certain estimates and judgments by our management. Our estimates and judgments are based on currently available information, historical results and other assumptions we believe are reasonable. Actual results could differ materially from these estimates.

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, there were no changes to the critical accounting ~~policies~~estimates discussed in ~~our~~the 2022 Annual ~~Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 18, 2022.~~Report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in our exposure to market risk during the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. Refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk in ~~our 2021~~the 2022 Annual Report.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~September 30, 2022.~~March 31, 2023. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this ~~report.~~Report.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, as specified above. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met.

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PART II. —OTHER INFORMATION

Item 1. Legal Proceedings.

We are involved in a number of legal proceedings (including those described below) concerning matters arising in connection with the conduct of our business activities. These proceedings are at varying stages, and many of these proceedings seek an indeterminate amount of damages. We regularly evaluate the status of the legal proceedings in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss or an additional loss may have been incurred and to determine if accruals are appropriate. If accruals are not appropriate, we further evaluate each legal proceeding to assess whether an estimate of the possible loss or range of possible loss can be made.

For certain cases described on the following pages, management is unable to provide a meaningful estimate of the possible loss or range of possible loss because, among other reasons, (i) the proceedings are in various stages; (ii) damages have not been sought; (iii) damages are unsupported and/or exaggerated; (iv) there is uncertainty as to the outcome of pending appeals or motions; (v) there are significant factual issues to be resolved; and/or (vi) there are novel legal issues or unsettled legal theories to be presented or a large number of parties involved. For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material adverse effect on our financial condition, though the outcomes ~~could be material to our operating results for any particular period, depending, in part, upon the operating results for such period.~~

~~In Re: Daily Fantasy Sports Litigation (Multi-District Litigation)~~

The plaintiffs asserted 27 claims arising under both state and federal law against the DFS defendants. The plaintiffs’ claims against us generally fell into four categories: (1) our online daily fantasy sports contests constitute illegal gambling; (2) we promulgated false or misleading advertisements that emphasized the ease of play and likelihood of winning; (3) we induced consumers to lose money through a deceptive bonus program; and (4) we allowed our employees to participate in competitors’ fantasy sports contests using non-public information, which gave such employees an unfair advantage over other contestants. The plaintiffs sought money damages, equitable relief, and disgorgement of gains against us.

On November 16, 2016, the DFS defendants filed a motion to compel arbitration against all named plaintiffs except one plaintiff asserting claims against the DFS defendants as a concerned citizen of the State of Florida (the “Concerned Citizen Claims”). On November 27, 2019, the Court granted the DFS defendants’ motion to compel arbitration with respect to all named plaintiffs other than a small set of plaintiffs who are family members of individuals who have DraftKings or FanDuel accounts and who asserted claims under various state laws regarding gambling (the “Family Member Plaintiffs”). On March 9, 2020, the DFS defendants moved to dismiss the Family Member Plaintiffs’ claims and the Concerned Citizen Claims. On April 7, 2020, an opposition to the motion to dismiss the Concerned Citizen Claim was filed. On April 20, 2020, the Family Member Plaintiffs filed their opposition to the DFS defendants’ motion to dismiss, and on April 29, 2020, the Family Member Plaintiffs filed a motion for leave to amend the First Amended Master Class Action Complaint. On May 11, 2020, the DFS defendants filed their reply in support of their motion to dismiss the Family Member Plaintiffs’ claims and the Concerned Citizen Claims, and on May 13, 2020, the DFS defendants filed their opposition to the Family Member Plaintiffs’ motion for leave to amend the First Amended Master Class Action Complaint. On March 5, 2020, one named plaintiff with respect to whom the motion to compel was granted filed a renewed motion to remand his case to state court. On May 29, 2020, we filed an opposition to that motion.

On March 3, 2021, DraftKings and the plaintiffs (other than the Family Member Plaintiffs) filed in Court a joint motion for preliminary approval of a proposed settlement, which the Court granted on June 15, 2021. On October 6, 2021, the Court entered judgment and an order approving a settlement and dismissing the claims with prejudice brought by all plaintiffs except the Family Member Plaintiffs and the Concerned Citizen Claims. This settlement agreement became effective on November 5, 2021; as a result, the only remaining plaintiffs were the Family Member Plaintiffs and the plaintiff who asserted the Concerned Citizen Claims. On January 21, 2022, DraftKings and the Family Member Plaintiffs filed a joint motion for preliminary approval of a proposed settlement.~~On February 18, 2022, the Court entered an order preliminarily approving the proposed settlement and scheduled a fairness hearing for final approval of the settlement on June 8, 2022.~~ ~~On June 8, 2022, the court~~

entered judgment and an order approving the settlement and dismissing all claims with prejudice other than the Concerned Citizens Claims. On June 23, 2022, with all claims other than the Concerned Citizen Claims resolved, the court dismissed the Concerned Citizen Claims from federal court for lack of Article III standing and remanded the Concerned Citizen Claims to state court in Florida. On July 8, 2022, the court officially closed the docket for ~~In Re: Daily Fantasy Sports Litigation (Multi-District Litigation)~~. ~~The Company previously provided an accrual for this matter.~~

We intend to vigorously defend the Concerned Citizen Claims. If the plaintiff obtains a judgment in his favor in this matter, we may be subject to substantial damages and we may have to withdraw our DFS operation in Florida. We cannot predict with any degree of certainty the outcome of the Concerned Citizen Claims.

Despite the potential for significant damages, we do not believe, based on currently available information, that the outcome of the Concerned Citizen Claims will have a material adverse effect on our financial condition, although the outcome could be material to our operating results for any particular period, depending, in part, upon the operating results for such period.

Attorney General of Texas

On January 19, 2016, the Texas Attorney General issued an opinion letter that “odds are favorable that a court would conclude that participation in paid daily fantasy sports leagues constitutes illegal gambling” under Texas law. In response to the opinion letter, we sued the Texas Attorney General on March 4, 2016 in Dallas County, Texas.

The lawsuit makes five claims: (1) a claim for a declaratory judgment that daily fantasy sports contests do not violate Texas law; (2) a claim of denial of due process under the Fifth and Fourteenth Amendments to the U.S. Constitution; (3) a claim of denial of due course of law under Article I of the Texas Constitution; (4) a claim of denial of equal protection under the Fourteenth Amendment to the U.S. Constitution; and (5) a claim of denial of equal rights under Article I of the Texas Constitution. We are also seeking reimbursement of our costs and attorneys’ fees.

On May 2, 2016, the Texas Attorney General filed a motion to transfer venue to Travis County, Texas. On April 16, 2018, the parties filed a notice of agreed non-suit without prejudice, and we re-filed our lawsuit against the Texas Attorney General in Travis County. On April 17, 2018, the Dallas County court granted the parties’ agreed non-suit without prejudice, thereby dismissing the Dallas County lawsuit without prejudice.

On May 24, 2018, the Texas Attorney General answered the complaint filed in Travis County, Texas.

FanDuel filed a petition in intervention on August 24, 2018, seeking essentially the same relief as ~~DraftKings~~the Company seeks. The Court entered an updated scheduling order setting the case for a non-jury trial on April 20, 2021. The parties subsequently filed an agreed motion to extend the scheduling order seeking, among other things, to change the non-jury trial date to January 29, 2024.

We intend to vigorously pursue our claims. In the event a court ultimately determines that daily fantasy sports contests violate Texas law, that determination could cause financial harm to us and loss of business in Texas.

We cannot predict with any degree of certainty the outcome of these matters or determine the extent of any potential liabilities.

We do not believe, based on currently available information, that the outcome of this proceeding will have a material adverse effect on our financial condition, although the outcome could be material to our operating results for any particular period, depending, in part, upon the operating results for such period.

Interactive Games LLC

On June 14, 2019, Interactive Games LLC (“IG”) filed suit against us in the U.S. District Court for the District of Delaware. In the Complaint, IG alleges that our daily fantasy sports (“DFS”) product offering infringes two patents: U.S. Patent No. 8,956,231 (the “231 Patent”), which is entitled “Multi-process communication regarding gaming information”, and U.S.

Patent No. 8,974,302 (the “302 Patent”), which is entitled “Multi-process communication regarding gaming information.” That same Complaint alleges that our Sportsbook product offering infringes two additional patents: U.S. Patent No. 8,616,967 (the “967 Patent”), which is entitled “System and method for convenience gaming” and U.S. Patent No. 9,430,901 (the “901 Patent”), which is entitled “System and method for wireless gaming with location determination.” All four of these patents are collectively referred to as the “IG Patents.”

In response to the complaint, we filed a motion to dismiss the complaint under 35 U.S.C. Section 101, asserting the IG Patents are directed to non-patentable subject matter. The Court has not yet ruled on that motion, as the judge previously stayed the District Court litigation pending resolution of the inter partes reviews and dismissed the motion to dismiss (without ruling on the merits), but granted leave to refile such motion with updated briefing if the stay is lifted.

On June 17, 2020, we filed petitions for inter partes review with the Patent Trial and Appeal Board (the “PTAB”) challenging the validity of each of the IG Patents. The PTAB instituted review for the ‘901 Patent, the ‘231 Patent, and the ‘967 Patent but denied institution for the ‘302 Patent. On February 5, 2021, we filed a request for rehearing regarding the decision on the ‘302 Patent, which was denied by the PTAB on March 2, 2021. On October 13, 2021, the PTAB heard oral argument on the ’901 Patent, the ’231 Patent, and the ’967 Patent. On January 4, 2022, the PTAB issued a final written decision finding all challenged claims of the ’901 Patent, the ’231 Patent, and the ’967 Patent unpatentable. On March 8, 2022, IG appealed the final written decisions for all three instituted inter partes reviews. On April 19, 2022, IG moved to voluntarily dismiss the appeal for the inter partes review related to the ’901 Patent, which was granted on April 20, 2022. On July 15, 2022, IG filed its opening briefs in the appeals of the inter partes reviews for the ’231 Patent and ’967 Patent. On October 5, 2022, we filed our responsive briefs in the appeals of the IPRs related to the ’231 Patent and ’967 Patent. On November 23, 2022, IG filed its reply briefs in the appeals of the IPRs related to the ’231 Patent and ’967 Patent. Oral argument for both appeals has been set for June 7, 2023. The District Court litigation remains stayed pending resolution of all appeals from the inter partes reviews.

We intend to vigorously defend this case. In the event that a court ultimately determines that we are infringing the asserted patents, we may be subject to substantial damages, which may include treble damages and/or an injunction that could require us to modify certain features that we currently offer.

We cannot predict with any degree of certainty the outcome of this matter or determine the extent of any potential liabilities. We also cannot provide an estimate of the possible loss or range of loss. Any adverse outcome in this matter could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows.

Despite the potential for significant damages, we do not believe, based on currently available information, that the outcome of this proceeding will have a material adverse effect on our financial condition, although the outcome could be material to our operating results for any particular period, depending, in part, upon the operating results for such period.

Winview Inc.

On July 7, 2021, Winview Inc., a Delaware corporation (“Winview”) filed suit against ~~DraftKings Inc., a Nevada corporation~~the Company in the U.S. District Court for the District of New Jersey. In the complaint, Winview alleges that ~~DraftKings infringe~~the Company infringes two patents: U.S. Patent No. 9,878,243 (“the ’243 Patent”), entitled “Methodology for Equalizing Systemic Latencies in Television Reception in Connection with Games of Skill Played in Connection with Live Television Programming”, and U.S. Patent No. 10,721,543 (“the ’543 Patent”), entitled “Method of and System for Managing Client Resources and Assets for Activities on Computing Devices”. The allegations based on the ’243 Patent are directed to Sportsbook, and the allegations based on the ‘543 Patent are directed to both Sportsbook and DFS.

On July 28, 2021, Winview filed an amended complaint, in which it alleges that ~~DraftKings~~the Company infringes two additional patents: U.S. Patent No. 9,993,730 (“the ’730 Patent”), entitled ”Methodology for Equalizing Systemic Latencies in Television Reception in Connection with Games of Skill Played in Connection with Live Television Programming”, and U.S. Patent No. 10,806,988 (“the ’988 Patent”), entitled “Method Of and System For Conducting Multiple Contests of Skill with a Single Performance”. The allegations based on the ’730 Patent are directed at Sportsbook, and the allegations based on the ’988 Patent are directed at DFS.

On October 4, 2021, we filed a motion to dismiss Winview’s direct infringement claims for the ’543 Patent and the ’~~730~~’730 Patent, as well as its claims for willful, induced, and contributory infringement for all four asserted patents. On October 29, 2021, the parties filed a stipulation that allowed Winview to file a second amended complaint on or before November 15, 2021, which the court signed and ordered on November 1, 2021.

On November 15, 2021, Winview filed a second amended complaint (the “SAC”), adding as defendants DK DECrown Holdings Inc. and Crown Gaming Inc., a Delaware corporation, which are wholly-owned subsidiaries of ~~DraftKings.~~the Company. The SAC, among other allegations, repeats the allegations of the first amended complaint that the defendants infringe the ’243 Patent, the ’543 Patent, the ’730 Patent, and the ’988 Patent. On December 15, 2021, ~~DraftKings~~the Company filed its motion to dismiss the SAC, again arguing that Winview failed to state a claim for direct infringement of the ’543 Patent and the ’730 Patent, and for willful, induced, and contributory infringement for all four asserted patents. Winview filed its memorandum in opposition to the motion to dismiss on January 24, 2022, and ~~DraftKings~~the Company filed its reply brief to Winview’s opposition on January 31, 2022. On August 3, 2022, we

filed a petition for inter partes review with the PTAB challenging the validity of the ‘243 Patent. On September 20, 2022, the court entered an order staying the pending motion to dismiss and staying all discovery pending final resolution of the petition for inter partes review through a final written decision. On January 31, 2023, the PTAB granted institution of the inter partes review, and it is expected to issue a final written decision by January 31, 2024. On February 15, 2023, the District Court administratively terminated the lawsuit pending the PTAB’s final written decision.

We cannot predict with any degree of certainty the outcome of this matter or determine the extent of any potential liabilities. We also cannot provide an estimate of the possible loss or range of loss.Any adverse outcome in this matter could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows.

Securities Matters Related to Allegations in the Hindenburg Report

On July 2, 2021, the first of two substantially similar federal securities law putative class actions was filed in the U.S. District Court for the Southern District of New York against the Company and certain of its officers. The actions ~~allege~~alleged violations of Sections 10(b) and 20(a) of the Exchange Act on a behalf of a putative class of persons who purchased or otherwise acquired ~~DraftKings~~the Company's stock between December 23, 2019 and June 15, 2021. The allegations ~~relate~~related to, among other things, allegedly false and misleading statements and/or failures to disclose information about the Company’s business and prospects, based primarily upon the allegations concerning SBTech that were contained in a report published about ~~DraftKings~~the Company on June 15, 2021 by Hindenburg Research (the “Hindenburg Report”). ~~We intend to vigorously defend against these claims.~~ On November 12, 2021, the court consolidated the two actions under the caption In re DraftKings Securities Litigation and appointed a lead plaintiff. The lead plaintiff filed a consolidated amended complaint on January 11, 2022. On February 22, 2022, defendants filed a motion seeking dismissal of this action, and in response, the lead plaintiff filed a second amended complaint on April 5, 2022. On April 26, 2022, defendants again filed a motion seeking dismissal of this action. ~~That~~On January 10, 2023, the court granted the motion ~~remains pending.~~to dismiss and final judgment was entered dismissing the action with prejudice.

We cannot predict with any degree of certainty the outcome of ~~these matters~~the SEC matter or determine the extent of any potential liabilities. We also cannot provide an estimate of the possible loss or range of loss. Any adverse outcome in ~~these matters~~the SEC matter could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows.

Despite the potential for significant damages, we do not believe, based on currently available information, that the outcome of ~~this proceeding~~the SEC matter will have a material adverse effect on our financial condition, although the outcome could be material to our operating results for any particular period, depending, in part, upon the operating results for such ~~perio~~d.period.

~~Securities~~ Shareholder Derivative Litigation Related to Allegations in the Hindenburg Report

and former officers and/or members of the board of directors of the Company and DEAC. The two actions filed in the U.S. District Court for the District of Nevada were subsequently consolidated, and two of the actions filed in Nevada state District Court in Clark County likewise were consolidated. A substantially identical fifth action was filed in Nevada state District Court in Clark County and was subsequently dismissed voluntarily by the plaintiff. The same plaintiff filed a substantially identical action in Massachusetts Superior Court, which was also dismissed voluntarily by the plaintiff. The Nevada actions purported to assert claims on behalf of the Company for, among other things, breach of fiduciary duty and corporate waste based primarily upon the allegations concerning SBTech that were contained in the Hindenburg Report. The federal court action in Nevada also contended that certain individuals are liable to the Company for any adverse judgment in the federal securities class actions described above under Sections 10(b) and 21D of the Exchange Act. The Nevada actions sought unspecified compensatory damages, changes to corporate governance and internal procedures, equitable and injunctive relief, restitution, costs and attorney’s fees. The Nevada actions were voluntarily dismissed without prejudice by the plaintiffs in state court on February 27, 2023 and in federal court on March 3, 2023.

Matters Related to the GNOG Transaction

On August 12, 2022, a putative class action was filed in Nevada state District Court in Clark County against Golden Nugget Online Gaming, Inc. (“GNOG Inc.”), the Company and one of its officers, as well as former officers or directors and the former controlling stockholder of GNOG Inc. and Jefferies LLC. The lawsuit asserts claims on behalf of a putative class of former minority stockholders of GNOG Inc. alleging that certain former officers and directors of GNOG Inc. and its former controlling stockholder (Tilman Fertitta and/or Fertitta Entertainment, Inc.) breached their fiduciary duties to minority stockholders of GNOG Inc. in connection with the GNOG Transaction, and the other defendants aided and abetted the alleged breaches of fiduciary duty. On November 1, 2022, defendants filed motions to dismiss the action on the grounds of improper forum and lack of personal jurisdiction over certain defendants. On December 22, 2022, plaintiff filed its opposition to defendants’ motions to dismiss. On January 23, 2023, defendants filed reply briefs in further support of their motions to dismiss. On February 7, 2023, the parties filed supplemental briefs with respect to the motions to dismiss. Those motions remain pending.

Group, Inc. as defendants. These pending actions in Delaware assert substantially similar claims on behalf of a putative class of former minority stockholders of GNOG Inc. alleging that certain former officers and directors of GNOG Inc. and its former controlling stockholder (Tilman Fertitta) breached their fiduciary duties to minority stockholders of GNOG Inc. in connection with the GNOG Transaction, and one of the actions also alleges that ~~DraftKings~~the Company and Jefferies Financial Group, Inc. aided and abetted the alleged breaches of fiduciary duty. On October 12, 2022, the Delaware Court of Chancery consolidated these two actions under the caption In re Golden Nugget Online Gaming, Inc. Stockholders ~~Litigation~~.Litigation. On October 29, 2022, the court appointed co-lead plaintiffs in the consolidated action. ~~The Company’s obligation to respond to~~On November 3, 2022, co-lead plaintiffs designated an operative complaint in the consolidated ~~action has been stayed by~~action. On January 13, 2023, defendants filed a motion seeking dismissal of the ~~court until the filing~~action. On March 1, 2023, co-lead plaintiffs filed their opposition to defendants motion to dismiss. On April 3, 2023, defendants filed their reply brief in further support of ~~a consolidated amended complaint.~~their motion. The motion to dismiss remains pending.

Despite the potential for significant damages, the Company does not believe, based on currently available information, that the outcome of these proceedings will have a material adverse effect on ~~DraftKings’~~the Company's financial condition, although the outcome could be material to ~~DraftKings’ operating results for any particular period, depending, in part, upon~~ the ~~operating results for such period.~~

~~Shareholder Derivative Litigation~~

On October 21, 2021, the first of five substantially similar putative shareholder derivative actions was filed in Nevada by alleged shareholders of the Company. The actions purport to assert claims on behalf of the Company against certain current and former officers and/or members of the board of directors of the Company and DEAC. The two actions filed in the U.S. District Court for the District of Nevada have since been consolidated, and two of the actions filed in Nevada state District Court in Clark County likewise have been consolidated. A substantially identical fifth action was filed in Nevada state District Court in Clark County and has been dismissed voluntarily by the plaintiff. The same plaintiff filed a substantially identical action in Massachusetts Superior Court, which has also been dismissed voluntarily by the plaintiff. The Nevada actions purport to assert claims on behalf of the Company for, among other things, breach of fiduciary duty and corporate waste based primarily upon the allegations concerning SBTech that were contained in the Hindenburg Report. The federal court action in Nevada also contends that certain individuals are liable to the Company for any adverse judgment in the federal securities class actions described above under Sections 10(b) and 21D of the Exchange Act. The Nevada actions seek unspecified compensatory damages, changes to corporate governance and internal procedures, equitable and injunctive relief, restitution, costs and attorney's fees. All proceedings in both pending Nevada actions have been stayed by agreement of the parties pending resolution of the above-referenced motion to dismiss in ~~In re DraftKings Securities Litigation~~.

The Company cannot predict with any degree of certainty the outcome of these matters or determine the extent of any potential liabilities. The Company also cannot provide an estimate of the possible loss or range of loss. Because the Nevada actions allege claims on behalf of the Company and purport to seek judgments in favor of the Company, the Company does not believe, based on currently available information, that the outcome of these proceedings will have a material adverse effect on DraftKings’ financial condition, although the outcome could be material to DraftKings’Company's operating results for any particular period, depending, in part, upon the operating results for such period.

AG 18, LLC d/b/a/ Arrow Gaming

On August 19, 2021, AG 18, LLC d/b/a/ Arrow Gaming (“Arrow Gaming”) filed a complaint against ~~DraftKings~~the Company in the United States District Court for the District of New Jersey alleging that ~~DraftKings’~~the Company's DFS and Casino ~~products~~product offerings infringe four patents. On October 12, 2021, Arrow Gaming filed an amended complaint to add one additional patent. The following U.S. Patents are asserted against one or both of ~~DraftKings’~~the Company's DFS and Casino ~~products~~product offerings in the amended complaint: (1) U.S. Patent No. 9,613,498 (“the ’498 Patent”), entitled “Systems and Methods For Peer-to-Peer Gaming”; (2) U.S. Patent No. 9,978,205 (“the ’205 Patent”), entitled “Location Based Restrictions on Networked Gaming”; (3) U.S. Patent No. 10,497,220 (“the ’220 Patent”) entitled “Location Based Restrictions on Networked Gaming”); (4) U.S. Patent No.

10,614,657 (“the ’657 Patent”) entitled “Location Based Restrictions on Networked Gaming”; and (5) U.S. Patent No. 11,024,131 (“the ’131 Patent”) entitled “Location Based Restrictions on Networked Gaming” (collectively, the “Arrow Gaming Patents”).

On November 9, 2021, we filed a motion to dismiss plaintiff’s complaint. On November 10, 2021, we answered the complaint and filed counterclaims (the “Counterclaims”). In the Counterclaims we seek, among other things, a declaratory judgment that the Arrow Gaming Patents are invalid. On December 1, 2021, Arrow Gaming answered our Counterclaims. On

December 20, 2021, Arrow Gaming filed a second amended complaint adding new allegations with respect to the alleged willful infringement.

On January 21, 2022, ~~DraftKings~~the Company filed a motion to dismiss plaintiff’s second amended complaint. On February 22, 2022, plaintiff filed its opposition to ~~DraftKings’~~the Company's motion to dismiss plaintiff’s second amended complaint, and on March 25, 2022, ~~DraftKings~~the Company filed its reply thereto. On March 7, 2022, ~~DraftKings~~the Company filed a motion to disqualify plaintiff’s counsel. On March 21, 2022, plaintiff filed its opposition to ~~DraftKings’~~the Company's motion to disqualify plaintiff’s counsel, and on March 28, 2022, ~~DraftKings~~the Company filed its reply thereto. On September 21, 2022, ~~DraftKings’~~the Company's motion to dismiss was administratively terminated, pending the outcome of the disqualification motion. On October 4, 2022, the presiding Magistrate Judge denied ~~DraftKings’~~the Company's motion to disqualify plaintiff’s counsel. On October 21, 2022, ~~DraftKings~~the Company filed a renewed motion to dismiss plaintiff’s complaint. On November 4, 2022, Arrow Gaming filed an opposition to the renewed motion to dismiss. On November 14, 2022, the Company filed its reply in support of the motion to dismiss. On November 4, 2022, the Company filed a motion to stay the case pending resolution of the below-referenced petitions for inter partes review. On November 23, 2022 Arrow Gaming filed an opposition to the motion to stay. On December 2, 2022, the Company filed a reply in support of the motion to stay.

Between August 22, 2022 and August 30, 2022, ~~DraftKings~~the Company filed petitions for inter partes review with the Patent Trial and Appeal Board challenging the validity of each of the Arrow Gaming Patents. On March 14, 2023, the PTAB granted institution of all inter partes review petitions, and it is expected to issue final written decisions by March 14, 2024. On April 3, 2023, the District Court administratively terminated the lawsuit pending the PTAB’s final written decisions.

Beteiro, LLC

On November 22, 2021, Beteiro, LLC (“Beteiro”) filed a complaint against the Company in the United States District Court for the District of New Jersey alleging that the Company’s Sportsbook and Casino ~~products~~product offerings infringe four patents. The following U.S. Patents are asserted against Company’s Sportsbook and Casino products in the complaint: U.S. Patent No. 9,965,920, entitled “Apparatus and Method for Facilitating Gaming Activity and/or Gambling Activity” (“the ’920 Patent”); U.S. Patent No. 10,043,341, entitled “Apparatus and Method for Facilitating Gaming Activity and/or Gambling Activity” (“the ’341 Patent”); U.S. Patent No. 10,147,266, entitled “Apparatus and Method for Facilitating Gaming Activity and/or Gambling Activity” (“the ’266 Patent”); and U.S. Patent No. 10,255,755, entitled “Apparatus and Method for Facilitating Gaming Activity and/or Gambling Activity” (“the ’755 Patent”) (collectively, the “Beteiro Patents”).

~~DraftKings’~~The Company filed its motion to dismiss plaintiff’s complaint on February 9, 2022. On April 7, 2022, Plaintiff filed its opposition to ~~DraftKings’~~the Company's motion to dismiss, and on April 25, 2022, ~~DraftKings~~the Company filed its reply thereto. On September 7, 2022, ~~DraftKings’~~the Company's motion to dismiss the complaint was granted. On September 22, 2022, Beteiro filed its notice to appeal the ruling on the motion to dismiss. On October 5, 2022, Beteiro filed a motion for reconsideration of the ruling on the motion to dismiss at the District Court, which was denied by the District Court on November 2, 2022. On March 9, 2023, Beteiro filed its opening appellate brief. DraftKings’ responsive brief is due on June 2, 2023.

On October 28, 2022, ~~DraftKings~~the Company filed petitions for inter partes review with the Patent Trial and Appeal Board challenging the validity of each of the Beteiro Patents.

Diogenes Ltd. & Colossus (IOM) Ltd.

On December 1, 2021, Diogenes Ltd. & Colossus (IOM) Ltd. (“Colossus”), filed a complaint against ~~DraftKings~~the Company in the United States District Court for the District of Delaware alleging that the Company’s Sportsbook product offering infringes seven of its patents. The following U.S. Patents, each entitled “Wagering apparatus, methods and systems”, are asserted against the Company’s Sportsbook product offering in the complaint: U.S. Patent No. 8,721,439 (“the ’439 patent”); U.S. Patent No. 9,117,341 (“the ’341 patent”); U.S. Patent No. 9,275,516 (“the ’516 patent”); U.S. Patent No. 9,424,716 (“the ’716 patent”); U.S. Patent No. 9,704,338 (“the ’338 patent”); U.S. Patent No. 10,970,969 (“the ’969 patent”); and U.S. Patent No. 10,997,822 (“the ’822 patent”).

On January 24, 2022, ~~DraftKings~~the Company filed its motion to dismiss the original complaint. On February 7, 2022, Colossus filed an amended complaint (the “Amended Complaint”) to, among other things, assert one additional patent against ~~DraftKings,~~the Company, U.S. Patent No. 11,200,779 (“the ’779 patent”). The patents asserted by Colossus are collectively referred to as the “Colossus Patents.”

~~DraftKings~~The Company filed its motion to dismiss the Amended Complaint on February 22, 2022. On March 15, 2022, ~~Plaintiffs~~plaintiffs filed their opposition to ~~DraftKings’~~the Company's motion to dismiss, and on March 29, 2022, ~~DraftKings’~~the Company's filed its reply thereto. On March 25, 2022, a scheduling order was entered in which, among other things, trial was scheduled for January 13, 2025. On July 18, 2022, Magistrate Judge Burke issued a report and recommendation (the “Report and Recommendation”) that the motion to dismiss be granted-in-part and denied-in-part. The Company and Colossus each filed their objections to the Report and Recommendation on August 1, 2022. On August 26, 2022, District Court Judge Noreika overruled both parties’ respective objections and adopted the Report and Recommendation of Magistrate Judge Burke regarding the motion to dismiss. On December 27, 2022, the Company filed an Answer to the Amended Complaint, including certain affirmative defenses. On January 17, 2023, Colossus filed a motion to strike the affirmative defense of unenforceability from the Company’s Answer. On February 7, 2023, the Company filed an Amended Answer and Counterclaims to the Amended Complaint, and also filed a response to Colossus’ motion to strike. On February 28, 2023, Colossus filed another motion to strike DraftKings’ inequitable conduct affirmative defense and counterclaim. DraftKings filed its responsive brief on March 28, 2023. Colossus filed its reply brief on April 11, 2023. A hearing has been set for the motion to strike on June 6, 2023.

Between November 29, 2022, and February 7, 2023, the Company filed petitions for inter partes review with the PTAB challenging the validity of the Colossus Patents.

Steiner

Turley

On January 9, 2023, Simpson G. Turley, individually and on behalf of all others similarly situated, filed a purported class action against the Company in the United States District Court for the District of Massachusetts. Plaintiff alleges, among other things, that he was a contestant in the Company’s daily fantasy showdown contest for the January 2, 2023, NFL game between the Cincinnati Bengals and the Buffalo Bills (the “Bengals-Bills Game”). The Bengals-Bills Game was postponed and eventually cancelled due to Damar Hamlin collapsing during the game. Plaintiff alleges that he was winning prizes in multiple showdown contests at the point in time that the Bengals-Bills Game was cancelled (with 5:58 remaining in the first quarter). Plaintiff alleges that, instead of paying out the prize money, the Company refunded entry fees to contestants that entered showdown or flash draft fantasy contests. Plaintiff asserts claims for breach of contract, unfair and deceptive acts and practices, false advertising, and unjust enrichment. Among other things, Plaintiffs seeks statutory damages, monetary damages, punitive damages, attorney fees and interest.

On April 14, 2023 the court granted plaintiff’s motion to file an Amended Complaint on or before May 8, 2023 and extended the time for DraftKings to respond to May 15, 2023.

The Company intends to vigorously defend this case. Any adverse outcome in this matter could subject the Company to substantial damages and /or require alterations to the Company’s business. The Company cannot provide any assurance as to the outcome of this matter.

The Company cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages. The Company also cannot provide an estimate of the possible loss or range of loss. Any adverse outcome in this matter could expose the Company to substantial damages or penalties that may have a material adverse impact on the Company’s operations and cash flows.

material to the Company’s operating results for any particular period, depending, in part, upon the operating results for such period.

Matter Related to DraftKings Marketplace

On March 9, 2023, a putative class action was filed in Massachusetts federal court by an alleged purchaser of non-fungible tokens (“NFTs”) on the DraftKings Marketplace (“DK Marketplace”). The complaint asserts claims for violations of federal and state securities laws against the Company and three of its officers on the grounds that, among other things, the NFTs that are sold and traded on the DK Marketplace allegedly constitute securities that were not registered with the SEC in accordance with federal and Massachusetts law, and that the DK Marketplace is a securities exchange that is not registered in accordance with federal and Massachusetts law. Based on these allegations, plaintiff brings claims seeking rescissory damages and other relief on behalf of himself and a putative class of persons who purchased NFTs on the DK Marketplace between August 11, 2021 and the present.

Other

In addition to the above actions, we are subject to various other legal proceedings and claims that arise in the ordinary course of business. In our opinion, the amount of ultimate liability with respect to any of these actions is unlikely to materially affect our financial condition, results of operations or liquidity, though the outcomes could be material to our operating results for any particular period, depending, in part, upon the operating results for such period.

Item 1A. Risk Factors.

Factors that could cause our actual results to differ materially from those in this Report are any of the risks described in ~~our 2021~~the 2022 Annual Report. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On and after November 2, 2022, certain DraftKings’ executives agreed to delay vesting of the third tranche of their restricted stock units granted under a long-term incentive plan and to add a service condition through an extended vesting date. This modification impacts the issuance of approximately 4 million shares of DraftKings Inc.’s Class A common stock, which are now expected to vest approximately one year after the performance condition is met.None.

Item 6. Exhibits.

The following exhibits are filed as part of, or incorporated by reference into, this ~~Quarterly Report on Form 10-Q.~~Report:

4840

Exhibit Index


Exhibit No.						Description
31.1*						Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934.
31.2*						Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934.
32.1**						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*						Inline XBRL Taxonomy Extension Schema Document.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*						Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104.1						Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit).

*Filed herewith.

**Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this ~~report~~Report to be signed on its behalf by the undersigned thereunto duly authorized.


	DRAFTKINGS INC.
Date: ~~November 4, 2022~~May 5, 2023
	By:	/s/ Jason K. Park
	Name: Jason K. Park
	Title: Chief Financial Officer
	(Principal Financial Officer)


	By:	/s/ Erik Bradbury
	Name: Erik Bradbury
	Title: Chief Accounting Officer
	(Principal Accounting Officer)

5042


			Page
PART I. FINANCIAL INFORMATION			2
Item 1. Financial Statements			2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2924
Item 3. Quantitative and Qualitative Disclosures About Market Risk			4031
Item 4. Controls and Procedures			4031
PART II. —OTHER INFORMATION			4132
Item 1. Legal Proceedings			4132
Item 1A. Risk Factors			4739
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			4739
Item 3. Defaults Upon Senior Securities			4739
Item 4. Mine Safety Disclosures			4839
Item 5. Other Information			4839
Item 6. Exhibits			4840


	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Treasury Stock Amount		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balances at December 31, 2020	396,303	$	40	393,014	$	39	$	5,067,135	$	(2,230,619)	$	83,534	$	(288,784)	$	2,631,345
Exercise of stock options	2,857	—		—	—		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 acquisitions	464	—		—	—		29,399		—		—		—		29,399
Shares issued for exercise of warrants	138	—		—	—		1,761		—		—		—		1,761
Purchase of treasury stock	(48)	—		—	—		—		—		—		(3,124)		(3,124)
Restricted stock unit vesting	178	—		—	—		—		—		—		—		—
Foreign currency translation, net of nil tax	—	—		—	—		—		—		(27,318)		—		(27,318)
Net loss	—	—		—	—		—		(346,344)		—		—		(346,344)
Balances at March 31, 2021	399,892	$	40	393,014	$	39	$	5,133,806	$	(2,576,963)	$	56,216	$	(291,908)	$	2,321,230
Exercise of stock options	1,878	—		—	—		10,816		—		—		—		10,816
Stock-based compensation expense	—	—		—	—		171,739		—		—		—		171,739
Equity consideration issued for acquisitions	56	—		—	—		3,750		—		—		—		3,750
Shares issued for exercise of warrants	43	—		—	—		2,419		—		—		—		2,419
Purchase of treasury stock	(115)	—		—	—		—		—		—		(6,773)		(6,773)
Restricted stock unit vesting	739	—		—	—		—		—		—		—		—
Foreign currency translation, net of nil tax	—	—		—	—		—		—		7,697		—		7,697
Net loss	—	—		—	—		—		(305,526)		—		—		(305,526)
Balances at June 30, 2021	402,493	$	40	393,014	$	39	$	5,322,530	$	(2,882,489)	$	63,913	$	(298,681)	$	2,205,352
Shares issued for exercise of warrants	28	—		—	—		1,050		—		—		—		1,050
Exercise of stock options	2,607	—		—	—		6,664		—		—		—		6,664
Stock-based compensation	—	—		—	—		175,664		—		—		—		175,664
Purchase of treasury stock	(80)	—		—	—		—		—		—		(4,437)		(4,437)
Restricted stock unit vesting	297	—		—	—		—		—		—		—		—
Foreign currency translation	—	—		—	—		—		—		(13,098)		—		(13,098)
Net loss	—	—		—	—		—		(545,028)		—		—		(545,028)
Balances at September 30, 2021	405,345	$	40	393,014	$	39	$	5,505,908	$	(3,427,517)	$	50,815	(303,118)		$	1,826,167


	B2C		B2B		Media		Total
Balance as of December 31, 2021	$	360,756	$	207,684	$	47,215	$	615,655
Goodwill resulting from the GNOG Transaction	278,364		—		—		278,364
Balance as of September 30, 2022	$	639,120	$	207,684	$	47,215	$	894,019