Diamond Eagle Acquisition Corp – the special purpose acquisition company formed as part of DraftKings and SBTech’s merger – has filed a registration document revealing DraftKings made a loss of $114.1m in the first nine months of 2019.
The document also confirms that DraftKings will – eventually – migrate from its current sportsbook technology partner Kambi to SBTech’s solution.
In the prospectus, filed with the United States Securities and Exchange Commission (SEC), the acquisition company revealed that DraftKings’ revenue for the nine-month period came to $192.0m, a 44.3% year-on-year increase.
DraftKings’ direct costs of revenue, however, were up to $64.7m, a 143.5% increase. The business said that product taxes, platform costs, and payment processing fees and chargebacks contributed $13.1 million, $12.4 million and $6.4 million, respectively, to the $38.2m increase in costs of revenue from 2018.
DraftKings’ sales and marketing budget also rose by 16.6% to $127.9m, because of increased advertising and marketing spend. Product and technology costs rose 73.1% to $39.6m and general and administrative costs increased 50.2% to $78.2m.
These higher costs resulted in DraftKings reporting an operating loss of $115.4m, up 52.6% year-on-year. After $1.4m in interest income and $35,000 in tax income, DraftKings’ overall net loss was $114.1m.
As of 30 September, DraftKings had $36.0m in cash assets. The operator had total assets of $259.8m, but $1371.2m of this was in cash reserved for players, and a further $21.8m was in receivables reserved for players.
SBTech, meanwhile, reported revenue of $76.8m, down 6.7% year-on-year. The supplier’s cost of revenue also declined, by 18.6% to $40.2m, resulting in a gross profit of $36.5m.
SBTech’s sales and marketing costs rose 11.9% to $4.9m and research and development expenses rose 27.9% to $15.3m. Its general and administrative expenses, meanwhile, declined by 6.3% to $8.5m, leaving operating income of $7.9m, up 7.5%.
After a $210,000 net financial loss, SBTech’s pre-tax profit was $7.7m, while its profit after tax was $7.3m, up 15.1% year-on-year.
The combined pro-forma revenue of DraftKings, SBTech and Diamond Eagle acquisition corp would have been $268.8m for the nine-month period. The combined company would have made a loss of $116.7m over the same period.
The acquisition company also acknowledged that DraftKings would transition all of its sportsbook operations from current technology supplier Kambi to SBTech, but did not provide a timeline for when this process would start or be completed. It did, however suggest that it would continue to use its technology until December 2020 at the earliest.
“DraftKings currently depends on Kambi and their platform to operate its sportsbook product offering; however, following the completion of the business combination, we intend to transition the sportsbook platform to that of SBTech’s over time,” it said. “Any transition of the sportsbook platform currently provided by Kambi to that of SBTech’s will be difficult to implement and could cause us to incur significant time and expense.
“We have committed to pay Kambi a percentage of contractual net gaming revenue that tiers depending on volume over the next four years with the ability to terminate early after December 2020.
“Given this, any significant disruption of, or interference with, our use of Kambi would negatively impact our operations and our business could be seriously harmed,” the registration said. “If our users are not able to access Sportsbook or encounter difficulties in doing so, we may lose users, and our business, financial condition and results of operations could be adversely affected.”
The statement also includes further details about the DraftKings-SBTech merger. DraftKings will receive $2.06bn worth of shares as part of the deal. SBTech will receive €180m ($200.1m) in cash and €410m worth of shares.
The board of the combined company will be made up of eight members appointed by DraftKings, two by SBTech co-founder Shalom Meckenzie and one by Diamond Eagle.