DraftKings Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report; the filing does not provide a clear standalone Q4 income statement. Results include Golden Nugget Online Gaming (GNOG) only from its May 5, 2022 acquisition date, limiting comparability with 2021.
Business and financial performance
DraftKings operates online sports betting, iGaming, daily fantasy sports (DFS), retail sportsbooks, media and gaming software businesses. Online gaming generated $2.107 billion, or about 94% of FY 2022 revenue. The all-stock GNOG acquisition broadened the company’s iGaming offering and customer reach.
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $2.240 billion | $1.296 billion |
| Net loss | $1.378 billion | $1.523 billion |
| Adjusted EBITDA (non-GAAP) | $(722) million | $(676) million |
| Operating loss | $1.512 billion | $1.562 billion |
| Net cash used in operating activities | $626 million | $420 million |
Revenue grew 72.9%, primarily from Sportsbook and iGaming customer growth, launches in new jurisdictions and lower promotional intensity. Average monthly unique payers rose 28.3% and average revenue per payer rose 43.3%. Management attributed the latter partly to better Sportsbook hold, reduced promotions and favorable sports outcomes.
Cost of revenue rose 86.9% to $1.484 billion, faster than revenue; it increased to 66.2% of revenue from 61.2%, reducing the gross margin to approximately 33.8% from 38.8%. Sales and marketing rose 20.8% to $1.186 billion, including higher customer-acquisition advertising. Product and technology expense rose 25.5% to $318 million. General and administrative expense declined 7.8% to $764 million, mainly because stock-based compensation fell.
Cash, debt and liquidity
- Year-end cash and cash equivalents were $1.309 billion, excluding $470 million reserved for users. Cash, cash equivalents and restricted cash totaled $1.779 billion.
- Operating cash outflow increased to $626 million; investing cash outflow was $209 million. Total cash and restricted cash declined by $851 million during the year.
- Convertible senior notes had $1.251 billion carrying value, net of issuance costs, and mature in March 2028. The notes are zero-coupon; the company reported no principal outstanding on its revolving credit facility.
- A revolving line of credit provides up to $125 million through December 2024; reported available net borrowing capacity was $122.7 million at year-end.
- Non-cancelable vendor and other purchase obligations totaled $1.706 billion, including $448 million due within 12 months. Lease obligations totaled $97.7 million, including $8.7 million due within 12 months.
Changes, outlook and risks
Net loss narrowed year over year, but Adjusted EBITDA loss widened to $722 million from $676 million and operating cash use increased. FY 2022 included a $67.9 million income tax benefit, primarily reflecting a non-recurring partial release of the U.S. valuation allowance related to the GNOG purchase-price allocation. The company recorded $578.8 million of stock-based compensation. GNOG was acquired for approximately $603.5 million in consideration; the purchase-price allocation remained preliminary, with $315 million assigned to finite-lived intangible assets and $271 million to goodwill.
Management gave no specific numerical revenue or earnings guidance in the filing. It expects to pursue growth through product investment, new-market launches, customer retention and improved jurisdiction-level economics, and says profitability depends on contribution profit growing enough to cover fixed costs. It expects profitability to benefit over time from mature markets, more efficient acquisition and retention, improved monetization and scale, but continued operating losses and negative operating cash flow were expected over the next 12 months. Management said available cash was sufficient for at least 12 months after February 17, 2023.
- Key risks include intense competition and costly customer acquisition; sports-result and hold-rate volatility; seasonality; and dependence on continued legalization, licenses, market-access partners and tax regimes.
- Operational exposures include cybersecurity and fraud, including potential credential-stuffing attacks reported beginning in November 2022, reliance on AWS and other vendors, and privacy and data-protection compliance.
- The company disclosed multiple patent and other lawsuits, GNOG transaction-related shareholder claims, an ongoing SEC inquiry, and an IRS audit concerning fantasy-sports excise taxes and information reporting and withholding. Management could not estimate possible losses for several proceedings.
- In February 2023, the CEO and two other senior executives agreed to reduce their base salaries to $1 for FY 2023. The filing also notes dual-class voting control: the CEO held approximately 90% of voting power.
The financial statements received an unqualified audit opinion. Management and the auditor reported effective internal control over financial reporting, but the assessment excluded GNOG, acquired in May 2022.
Important facts for investors to verify
- Whether revenue growth and payer monetization persist without favorable sports outcomes or further reductions in promotions, and whether rising cost of revenue can be contained.
- Cash-burn trends, liquidity needs, vendor commitments, and the terms and potential dilution or cash effects of the 2028 convertible notes.
- GNOG integration, realized synergies and final purchase accounting, including the assumptions supporting acquired intangible-asset values.
- Developments in the SEC inquiry, IRS audit, patent cases, GNOG-related litigation and other contingencies, for which several potential loss estimates were unavailable.
- Progress toward management’s stated path to Adjusted EBITDA profitability and the regulatory, market-access and tax assumptions underlying that path.