ITEM 1. BUSINESS
Unless the context requires
otherwise, each of the terms the “Company,” “Rush Street Interactive,” “RSI,” “we,” “our,”
“us” and similar terms used herein refer collectively to Rush Street Interactive, Inc., a Delaware corporation, and its consolidated
subsidiaries, following the Business Combination, other than certain historical information which refers to the business of Rush Street
Interactive, LP prior to the consummation of the Business Combination.
Overview
RSI
is a leading online gaming and entertainment company that focuses primarily on online casino and online sports betting in the U.S. and
Latin American markets. Our mission is to provide our customers with the most player-friendly online casino and online sports betting
experience in the industry. In furtherance of this mission, we strive to create an online community for our players where we are transparent
and honest, treat our players fairly, show them that we value their time and loyalty, and listen to feedback. We also endeavor to implement
industry leading responsible gaming practices and provide them with a cutting-edge online gaming platform and exciting, personalized offerings
that will enhance their user experience.
We
provide our customers an array of leading gaming offerings such as real-money online casino, online sports betting, and retail sports
betting (i.e., sports betting services provided to bricks-and-mortar casinos), as well as social gaming, which involves free-to-play games
that use virtual credits that can be earned or purchased. We launched our first social gaming website in 2015 and began accepting real-money
bets in the United States in 2016. Currently, we offer a combination of real-money online casino, online sports betting and retail sports
betting in nine U.S. states as outlined in the table below.
U.S. State
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Online Casino
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Online Sports
Betting
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Retail Sports
Betting
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Colorado
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ü
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Illinois
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ü
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ü
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Indiana
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ü
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ü
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Iowa
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ü
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Michigan
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ü
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ü
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ü
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Pennsylvania
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ü
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ü
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ü
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New Jersey
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ü
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ü
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New York
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ü
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Virginia
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ü
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In
2018, we also became the first U.S.-based online gaming operator to launch in Colombia, which was an early adopting Latin American country
to legalize and regulate online casino and sports betting nationally.
Our
real-money online casino and online sports betting offerings are provided under our BetRivers.com and PlaySugarHouse.com brands in the
United States and under our RushBet.co brand in Colombia. We operate and/or support retail sports betting for our bricks-and-mortar casino
partners primarily under their respective brands. Many of our social gaming offerings are marketed under our partners’ brands, although
we also offer social gaming under our own brands in certain markets as well. Our decision about what brand or brands to use is market-specific
and partner-specific, and is based on brand awareness, market research and marketing efficiency.
Our
proprietary online gaming platform is the foundation of our digital business and reflects a suite of technologies that together provide
a leading management, administrative, reporting and regulatory compliance end-to-end solution that powers our operations with respect
to our online offerings. It incorporates multiple sophisticated technologies and provides a central back-office function to manage player
accounts, payments, risk, a wide range of proprietary bonusing and loyalty programs and features, while ensuring that we can deliver a
seamless experience for both players and gaming operators. Our technology platform is flexible and supports both real-money online offerings
and social gaming on a single code base.
In
2014, we acquired the source code that served as the starting point for our online gaming platform, and since then we have continued to
develop, improve and support it with a talented in-house product development team. We began offering online casino in the United States
using this platform in September 2016. Following the lifting of the federal restrictions on sports betting in May 2018 as a result of
the U.S. Supreme Court’s repeal of the Profession and Amateur Sports Protection Act of 1992 (“PASPA”), we began offering
online sports betting using the same proprietary online gaming platform with the same emphasis on player-friendly features.
Experienced
gaming operators Neil Bluhm, Greg Carlin and Richard Schwartz founded Rush Street Interactive, LP (“RSILP”), which is now
an indirect subsidiary of RSI, with the goal of offering real-money online gaming products in legal and regulated markets with a particular
focus on the emerging U.S. markets. Prior to the Business Combination (as defined below), our founders had invested approximately $50
million into RSILP. This capital was primarily used to fund the development of our proprietary online gaming platform and offerings, recruit
and grow an experienced team, and expand into new geographic and product markets.
Corporate History, Background and Business
Combination
We were initially a blank
check company called dMY Technology Group, Inc. (“dMY”), incorporated as a corporation in Delaware on September 27, 2019,
formed for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, reorganization, recapitalization or other
similar business combination with one or more businesses. On December 29, 2020, dMY consummated the transactions contemplated by the business
combination agreement dated as of July 27, 2020, as amended and amended and restated (the “Business Combination Agreement”
and the transactions contemplated thereby, the “Business Combination”), and in connection therewith:
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(i)
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dMY acquired RSILP in an umbrella partnership–C corporation (“Up-C”) structure, in which substantially all the assets of the Company are held by RSILP, and the Company’s only assets are its equity interests in RSILP;
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(ii)
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the holders of equity interests of RSILP (the “Sellers”) retained certain of their Class A common units of RSILP (the “RSILP Units”) and received an equal number of Class V common stock, par value $0.0001 per share, of the Company (the “Class V Voting Stock”);
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(iii)
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the Company issued and sold to subscribers in a private placement an aggregate of 16,043,002 shares of Class A common stock, $0.0001 par value per share (“Class A Common Stock”), at $10.00 per share (the “PIPE”); and
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(iv)
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dMY changed its name to “Rush Street Interactive, Inc.”
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Beginning on the six month
anniversary of the Closing, the Sellers will have the right to exchange the RSILP Units retained by the Sellers (the “Retained RSILP
Units”) for either one share of Class A Common Stock or, upon certain conditions, the cash equivalent of the market value of one
share of Class A Common Stock. For each Retained RSILP Unit so exchanged, the Company will cancel one share of the Class V Voting Stock.
A description of the material
terms of the Business Combination and ancillary agreements entered into in connection therewith is set forth in the Registration Statement
on Form S-1, Registration No. 333-252810, filed with the SEC on February 5, 2021, which is incorporated herein by reference.
Our Business and Operating Models
We
enter new markets by leveraging our proprietary online gaming platform and our ability to provide either a full-suite service model or
a customized solution to fit a specific situation. Our business model is designed to be nimble, innovative and customer-centric. By leveraging
our dynamic proprietary online gaming platform, we aspire to be “first to market” where real-money online gaming has been
newly legalized and where our management determines that it is desirable to enter such market.
Our
principal offerings are our real-money online casino and online sports betting products. These products can be launched under one of our
existing brands or customized to be incorporated into a local or third-party brand. We also provide a variety of retail sports betting
solutions to service land-based casino partners and leverage our social gaming offerings to increase customer engagement and build online
databases in key markets both before and after legalization and regulation.
We
currently generate revenue through two operating models: (i) business-to-consumer (“B2C”) and (ii) business-to-business (“B2B”).
Through our B2C operations, we offer online casino, online sports betting and social gaming directly to the end customer through our websites
or apps. B2C is our primary operating model, contributing more than 99% of our total revenue for the years ended December 31, 2020 and
2019, and we expect that it will continue to be our primary operating model into the future. We believe this is a flexible operating model
that permits us to customize our operating structure based on applicable gaming regulations, market demands and, as applicable, our land-based
partner’s operations. Through our B2B operations, we offer retail sports betting services to land-based businesses, such as bricks-and-mortar
casinos, in exchange for a monthly commission.
Often
in advance of markets legalizing online gaming, we build relationships with local bricks-and-mortar casino operators and other potential
land-based partners who are looking for online gaming and sports betting partners. In most U.S. jurisdictions, the applicable gaming regulations
require online gaming operators that offer real-money offerings to operate under the gaming license of, or partner with, a land-based
operator such as a bricks-and-mortar casino. Consequently, we leverage our relationships with bricks-and-mortar casinos and vendors in
the gaming industry to find high-quality and reliable partners for online gaming collaboration. Upon securing a partner for access to
a specific market (if required or desirable) and before we launch operations in that market, we customize our online gaming platform to
the laws and regulations of the jurisdiction. Then, upon entering a new market, we employ a number of marketing strategies to obtain new
customers as well as leverage our partner’s database when applicable. We continuously refine our offerings and marketing strategies
based on data collected from each market.
To
attract, engage, retain and/or reactivate customers, we offer a loyalty program that rewards players in exciting, fair and transparent
ways. We recognize and reward player loyalty by, among other things, ensuring that there are exciting benefits at each of the player loyalty
levels we currently offer. Each of our online gaming customers is a member of our customer loyalty program. We grant bonus store points
to our customers based upon completed bets. Once earned, such points can be redeemed to unlock bonus incentives and to play our proprietary
bonus games, providing further opportunities to win prizes and bonus dollars. Customers also have the option to “bank” awarded
bonuses in our proprietary “bonus bank”, which they can draw from whenever they wish under our industry-leading 1x wager playthrough
requirement, meaning that they may only place one bet with the bonus dollars before cashing out any winnings. Based on research and player
feedback, we attempt to address player concerns about the general lack of transparency in the industry around awarding, redeeming and
tracking bonuses by enabling players to easily track their loyalty and bonus progressions and giving players control over when and how
to redeem their rewards.
Although
we strive to be a first-mover in most new markets, and we have been a first-mover in many markets, we have also achieved success when
we were not the first to enter a market. For example, we entered the New Jersey online casino market approximately three years after that
market opened and there were already numerous competitors in the market at that time. Less than three years after beginning operations
in New Jersey, we were the #4 online casino brand in New Jersey based on revenue, out of 19 total operators in the market at that time,
according to the Eilers & Krejcik Gaming (“EKG”) United States Online Casino Tracker for April 2019.
We
believe our success in New Jersey is also noteworthy because we compete with many other companies that have affiliated land-based casinos
in the state. Neither us nor RSG, an affiliated land-based casino operator, operate a bricks-and-mortar casino in New Jersey. Thus, we
believe our performance in New Jersey demonstrates that we can be successful in entering competitive markets even without the benefit
of an affiliated bricks-and-mortar casino presence.
Competitive Strengths
As
we continue to expand in existing and new jurisdictions, we believe we are well-positioned to maintain and build upon our accomplishments
by virtue of our competitive strengths:
Proprietary
Online Gaming Platform. Owning a proprietary online gaming platform has allowed us to innovate quickly and introduce
numerous unique, player-friendly features. We believe these features have helped increase conversion rates from registrations to
first-time depositors, improve customer engagement and retention and increase customer spending. Further, we can update our online
gaming platform at a rate that we believe is among the fastest in the industry. As the U.S. online gaming industry develops, our
online gaming platform should help us better cater to the evolving needs of our current and potential customers and partners. In the
long run, we believe our online gaming platform will lead to reduced costs and improved revenue per customer relative to our peers,
many of which license their online platforms from third parties.
Unique
and Diversified Product Offering. We have prioritized the customization of our offerings, bonusing of our customers and
optimization of our platform. For example, we have developed some of our own online casino games, which are higher margin for us than
those licensed from third parties. We have also developed and incorporated numerous proprietary bonusing features that appeal to casino
and sports betting customers alike. Our omni-channel platform provides a vast amount of functionality such as location-based decisioning,
unified conditional bonusing, gamified award scenarios, player dashboards (online and at retail), promotional games, real-time awards
and promotion management, sophisticated reporting and responsible gaming features, among others.
Market
Access and Speed to Market. We currently operate online casino and/or online sports betting in eight states (Colorado,
Illinois, Indiana, Iowa, Michigan, New Jersey, Pennsylvania and Virginia) with an aggregate population of approximately 68.7 million people.
In addition, we have currently secured potential market access to New York, Ohio, Maryland, Missouri and if certain conditions are met,
Texas, in each case subject to certain legislative and/or regulatory developments or approvals, which have an aggregate population of
approximately 73.0 million people. We have a proven ability to quickly enter markets as they are regulated. For instance, in the last
24 months, we have been “first to market” or among the “first to market” where multiple operators were granted
approval to launch at the same time, in Colorado, Illinois, Indiana, Michigan and Pennsylvania for online sports betting and in New York
and Illinois for retail sports betting.
Flexible
Business Model. We believe we are well positioned to serve newly regulated jurisdictions regardless of the form of their
regulations. Our flexible business model enables us to function as a B2C operator or a B2B supplier or joint venturer, depending on market
conditions, applicable laws and regulations, and the needs of our partners. This flexibility should allow us to have a core advantage
in securing market access and help us address the largest potential total addressable market (“TAM”).
Large
TAM with International Opportunity. We believe our TAM is larger than most U.S.-only operators because of our international
real-money online gaming and betting operations in Colombia as well as our flexible business model as described directly above. We believe
this experience will help us enter other regulated Latin American markets and beyond.
Broad
Demographic Appeal of our Brands & Products. We also believe that our brands, offerings and marketing strategies
have demonstrated an appeal to both female and male customers, as evidenced by an approximately 52-48 female/male split in our active
U.S. online casino-only players during calendar year 2020. We believe that while many sports-centric brands appeal more to male customers,
our brands and offerings (especially our slot machine game play experience) appeal strongly to female customers – an important demographic
for high-value offerings such as online slot machine games.
Compelling
Unit Economics. Based on our performance to date, including in New Jersey, currently the most highly competitive U.S. market
in terms of the number of online gaming operators, we believe that we can achieve industry-leading lifetime value to customer acquisition
cost ratios. Despite entering the New Jersey online casino market nearly three years after it launched, we generated revenue in excess
of six times the advertising costs to acquire those same customers in those customers’ first three years after becoming active on
our platform. As shown in the table below, we were able to recoup our acquisition costs on a gross revenue basis within five months of
launching in New Jersey. We believe this rapid return on advertising spending is a result of our expertise in strategically targeting,
acquiring, engaging and retaining the right customers.
Lifetime Value / Customer
Acquisition Cost in New Jersey
Source: RSI management
estimates. Data represents cumulative gross gaming revenue before a deduction of promotional credits divided by customer acquisition costs.
Data represents all player cohorts that signed up since January 2017.
Seasoned
Executive Team. Our executive team has significant global gaming experience, including with online market leaders such
as WMS Industries (now Scientific Games), Playtech and the Kindred Group. Our President Richard Schwartz, CIO Einar Roosileht and COO
Mattias Stetz all had online gaming experience prior to joining RSI, which we believe has been instrumental in helping capture U.S. market
share. Our Chairman Neil Bluhm and our CEO Greg Carlin each have a proven track record of developing world-class land-based casinos, and
Mr. Bluhm has developed numerous successful real estate projects.
Social
Gaming Platform. We offer social gaming on the same proprietary online gaming platform as our real-money offerings, which
allows us to build customer databases in jurisdictions where real-money gaming is not yet regulated or legal. Having both of these products
on the same platform allows us to invest in markets before real-money gaming has launched. We believe our social gaming offering strengthens
brand awareness and engagement from existing players, helps to acquire new players and drives increased visitation to our partners’
bricks-and-mortar properties.
Growth Strategies
As
we continue to invest in our core competitive advantages and improve the user experience for our customers, we believe we will remain
well positioned to expand upon our existing leadership position in the online casino and online sports betting industries. We have established
several key areas of strategic focus that will guide the way we consider our future growth:
Access
new geographies. With our experience in regulated gaming jurisdictions in the United States and Latin America, we are prepared
to enter new jurisdictions as online casino and sports betting are authorized. Whether we enter a new jurisdiction as an online operator
marketing directly to end users or on behalf of our land-based partner (B2C), as a platform provider to a third-party (B2B), or any permutation
of the foregoing, our goal is to be ready to enter jurisdictions that provide for legal online casino and sports betting where we believe
conditions enable us to earn a strong return on our invested capital.
Leverage
existing customer-level economics to increase marketing spending. Since January 2017, we have generated approximately 7.4
times the lifetime revenue per the acquisition cost to acquire those same players in New Jersey. We may see opportunities to leverage
those attractive economics to increase marketing spending in New Jersey and other jurisdictions on a strategic basis and where we project
acquiring incremental players will generate revenue that exceed our internal targets.
Continue
to invest in our offerings and our platform. We have established a set of competencies that we believe position us at the
forefront of the evolving online casino and online sports industry. We will continue iterating on our core user experiences while reinforcing
the data-driven, marketing and technological infrastructure that allows us to continue to scale our offerings. We plan to continue to
invest in our customers and our offerings as we remain driven to keep customers engaged while expanding the capabilities of our platform
that will enable us to rapidly reach new jurisdictions and attract new customers.
Continue
to invest in personnel. In furtherance of accessing new jurisdictions, we have been and plan to continue to grow our operational,
technology and corporate services teams to broaden product development capabilities, innovation and efficiency, reduce reliance on third
parties and scale digital user capabilities.
Acquisitions.
On a targeted basis, we will seek out acquisition targets that enable us to accelerate our technology plans, obtain exclusive content,
expand our customer reach or add efficiencies that potentially bring third-party costs in-house.
Human Capital Resources
We
strongly believe that our people are a key reason for our success. As such, we focus heavily on our people, starting with the recruiting
process to ensure we are hiring the right people who have a desirable skillset while enhancing our corporate culture. Once hired, we strive
to empower our people and encourage creativity, collaboration and entrepreneurship. We provide, among other things, on-the-job training
to support the development and advancement of our employees. Our corporate culture focuses heavily on valuing employees and enabling them
to grow, succeed and take on roles and projects that utilize their strengths. Recognizing our people’s accomplishments, both professionally
and personally, is also crucial to our corporate culture. Furthermore, we believe that developing a diverse, inclusive and safe workplace
for our people will enable our people to be more productive and ultimately will result in our long-term success.
We
have built a team of talented industry professionals, primarily focused on technology and operations, who are supported by a highly experienced
senior management team with significant experience in the online and land-based gaming industries. We believe our corporate culture combined
with our growth and success has created very high rates of employee retention.
As
of March 22, 2021, we had a global workforce of approximately 264 employees and contractors, with approximately 37% of our people working
in technical roles. Approximately 50% of our people are based in the United States with the remaining 50% being based elsewhere in the
world, including Canada, Colombia, Estonia and Mexico.
Our Products and Economic
Model
Our Revenue-Generating
Product Offerings
We offer real-money online
casino, online sports betting and/or retail sports betting in nine U.S. states and Colombia. We also provide social gaming, where players
are given virtual credits to enjoy free-to-play games.
Our
revenue is predominantly generated from our U.S. operations with the remaining revenue being generated from our Colombian operations.
See Note 2 to our audited consolidated financial statements, included elsewhere in this Annual Report. We generate revenue primarily through
the following offerings.
Online
Casino
Online
casino offerings typically include the full suite of games available in bricks-and-mortar casinos, such as table games (i.e., blackjack
and roulette) and slot machines. For these offerings, we function similarly to bricks-and-mortar casinos, generating revenue through hold,
or gross winnings, as players play against the house. Like bricks-and-mortar casinos, there is volatility with online casino, but as the
volume of bets placed increases, the revenue retained from bets placed becomes easier to predict. Our experience has been that online
casino revenue is less volatile than online sports betting revenue.
Our
online casino offering consists of licensed content from leading suppliers, customized third-party games and a small number of proprietary
games that we developed in-house. Third-party content is subject to standard revenue-sharing agreements specific to each supplier, where
the supplier generally receives a percentage of the net gaming revenue generated from the casino games played on our platform. In exchange,
we receive a limited license to offer the games on our platform to players in jurisdictions where use is approved by the regulatory authorities.
We pay much lower fees on revenue generated through our self-developed casino games such as our multi-bet blackjack (with side bets: 21+3,
Lucky Ladies, Lucky Lucky) and our single-deck blackjack, which primarily relate to hosting/remote gaming server fees and certain intellectual
property license fees.
Online
casino revenue is generated based on total player bets less amounts paid to players for winning bets, less incentives awarded to players,
plus or minus the change in the progressive jackpot reserve.
Online
Sports Betting
Online
sports betting involves a user placing a bet on the outcome of a sporting event, or a series of sporting events, with the chance to win
a pre-determined amount, often referred to as fixed odds. Online sports betting revenue is generated by setting odds such that there is
a built-in theoretical margin in each sports bet offered to its customers. While sporting event outcomes may result in revenue volatility,
we believe that we can achieve a long-term betting win margin. In addition to traditional fixed-odds betting, we also offer other sports
betting products including in-game betting and multi-sport parlay betting. We have also incorporated live streaming of certain sporting
events into our online sports betting offering.
Integrated
into our online sports betting platform is a third-party risk and trading platform currently provided by certain subsidiaries of Kambi
Group plc.
Online
sports revenue is generated based on total player bets less amounts paid to players for winning bets, less incentives awarded to players,
plus or minus the change in unsettled sports bets.
Retail
Sports Betting
We
provide retail sports services to land-based casinos in exchange for a monthly commission that is calculated based on the land-based casino’s
retail sportsbook revenue. Services include ongoing management and oversight of the retail sportsbook (i.e., within a bricks-and-mortar
casino), technical support for the casino’s customers, customer support, risk management, advertising and promotion, and support
for third-party sports betting equipment.
In
addition, certain relationships with business partners provide us the ability to operate the retail sportsbook at the land-based partner’s
facility. In this scenario, revenue is generated based on total player bets less amounts paid to players for winning bets, less other
incentives awarded to players.
Social
Gaming
We
provide social gaming where players are given virtual credits to enjoy free-to-play games. Players who exhaust their credits can either
purchase additional virtual credits from the virtual cashier or wait until their virtual credits are replenished for free. Virtual credits
have no independent monetary value and can only be used within our social gaming platform.
Our
social gaming business has three main goals: building online databases in key markets ahead of and post-legalization and regulation; generating
revenues; and increasing engagement and visitation to our bricks-and-mortar casino partner properties. Our social gaming products are
a marketing tool that keeps the applicable brands at the top of our players’ minds and engages with players through another channel
while providing the entertainment value that players seek. We also leverage our social gaming products to cross-sell to our real-money
offerings in jurisdictions where real-money gaming is authorized.
We
recognize deferred revenue when players purchase virtual credits and revenue when those credits are redeemed. We pay a percentage of the
social gaming revenue derived from the sale and redemption of the virtual credits to content suppliers as well as to our land-based partners.
Costs and Expenses
Costs
of Revenue. Costs of revenue consist primarily of (i) revenue share and market access fees, (ii) platform and content fees,
(iii) gaming taxes, (iv) payment processing fees and chargebacks and (v) salaries and benefits of dedicated personnel. These costs are
variable in nature and should correlate with the change in revenue. Revenue share and market access fees consist primarily of amounts
paid to local land-based operators that hold the applicable gaming license, providing us the ability to offer our real-money online offerings
in the respective jurisdictions. Our platform and content fees are primarily driven by costs associated with third-party casino content,
sports betting trading services and certain elements of our platform technology, such as geolocation and know-your-customer). Gaming taxes
primarily relate to state taxes and are determined on a jurisdiction-by-jurisdiction basis. We incur payment processing costs on player
deposits and occasionally chargebacks (i.e., when a payment processor contractually disallows customer deposits in the normal course of
business).
Advertising
and Promotions Costs. Advertising and promotion costs consist primarily of costs associated with marketing the product via
different channels, promotional activities and the related costs incurred to acquire new customers. These costs include salaries and benefits
for dedicated personnel and are expensed as incurred.
Our
ability to effectively market is critical to our success. Using dynamic learnings and analytics, we leverage marketing to acquire, convert,
retain and re-engage customers. We use earned media and paid marketing channels, in combination with compelling offers and unique game
and site features, to attract and engage customers. Further, we continuously optimize our marketing spend using data collected from our
operations. Our marketing spend is based on a return-on-investment model that considers a variety of factors, including the products offered
in the jurisdiction, the performance of different marketing channels, predicted lifetime value, marginal costs and expenses and behavior
of customers across various product offerings.
With
respect to paid marketing, we use a broad array of advertising channels, including television, radio, social media platforms, sponsorships,
affiliates and paid search, and other digital channels. We also use other forms of marketing and outreach, such as our social media channels,
first-party websites, media interviews and other media spots and organic searches. These efforts are primarily concentrated within the
specific jurisdictions where we operate or intend to operate. We believe there is significant benefit to having a flexible approach to
advertising spending as we can quickly redirect our advertising spending based on dynamic testing of which advertising methods and channels
are working and which ones are not.
General
Administration and Other. General administration and other expenses consist primarily of administrative personnel costs, including
salaries, bonuses and benefits, share-based compensation expense, professional fees related to legal, compliance, audit and consulting
services, rent and insurance costs. As part of the certain agreements with key executives, share-based awards in the form of profit interests
were granted. Share-based compensation expense consists of the expenses related to the vesting of these awards in addition to the remeasurement
of liability-classified awards. See Note 10 to our audited consolidated financial statements, included elsewhere in this Annual Report.
Depreciation
and Amortization. Depreciation and amortization expense consists of depreciation on our property and equipment over the useful
lives as well as amortization of market access licenses and gaming jurisdictional licenses over the useful lives. See Notes 2, 5 and 6
to our audited consolidated financial statements, included elsewhere in this Annual Report.
Distribution
We
distribute our offerings through various channels, including websites (traditional and mobile), direct application downloads and global
direct-to-consumer digital platforms such as the Apple App Store, and we expect to offer some or all of our apps in the Google Play store
in the near future.
B2C
Market Access. We have developed proprietary technology, product offerings and partnerships to create a sustainable advantage
in the online casino and sports betting industry. Strategic multi-year arrangements with land-based partners such as bricks-and-mortar
casinos or Native American tribes enable us to make our offerings available to players in certain jurisdictions using a B2C operating
model. Currently, we have the following arrangements in place where legislation or regulations require us to enter the market through
a relationship with a land-based partner or we have otherwise determined that entering into such an arrangement is desirable:
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An agreement with Golden Nugget Atlantic City Casino, which enables us to operate online casino in New Jersey;
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An agreement with Monmouth Racetrack, which enables us to operate online sports betting in New Jersey;
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An agreement with SugarHouse Casino (since renamed Rivers Casino Philadelphia), which enables us to operate online casino and online sports betting throughout Pennsylvania;
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An agreement with Rivers Casino Pittsburgh, which enables us to operate online casino under the Rivers Casino Philadelphia license, and online sports betting throughout Pennsylvania;
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We expect to memorialize in writing our existing agreement with Rivers Casino Des Plaines, which will enable us to continue operating online sports betting in Illinois and online casino if authorized in Illinois (we have been operating online sports betting under the Rivers Casino Des Plaines gaming license under that agreement);
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An agreement with French Lick Resort, which enables us to operate online and retail sports betting in Indiana and online casino if authorized in Indiana;
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An agreement with Wild Rose Casino & Resort, which enables us to operate online sports betting in Iowa and online casino if authorized in Iowa;
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An agreement with J.P. McGill’s Hotel & Casino, which enables us to operate online sports betting in Colorado;
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An agreement with the Little River Casino Resort, a wholly owned and operated enterprise of the Little River Band of Ottawa Indians, which enables us to operate online and sports betting and online casino in Michigan;
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An agreement with Rivers Casino & Resort Schenectady, which enables us to offer online sports betting and online casino if either or both of those activities are authorized in New York;
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An agreement with Rivers Casino Portsmouth, which enables us to operate online sports betting in Virginia and online casino if authorized in Virginia;
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An agreement with Mountaineer Casino, Racetrack & Resort, which enables us to offer online casino in West Virginia;
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An agreement with Penn National Gaming, Inc. (NASDAQ: PENN), which enables us to offer online sports betting and online casino, in each case if two or more skins are authorized in Ohio, Maryland and Missouri, and depending on certain conditions being met, Texas; and
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An agreement with Coushatta Casino Resort, a gaming enterprise owned and operated by the Coushatta Tribe of Louisiana, to offer Coushatta Casino Resort-branded free-to-play social casino services.
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B2B
Distribution. We also have relationships with the following partners through a B2B operating model:
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An agreement with SugarHouse Casino (since renamed Rivers Casino Philadelphia) for us to provide retail sports betting services at Rivers Casino in Philadelphia;
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An agreement with Rivers Casino Pittsburgh for us to provide retail sports betting services at Rivers Casino in Pittsburgh;
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An agreement with Rivers Casino & Resort Schenectady for us to provide retail sports betting services at Rivers Casino & Resort Schenectady in New York;
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An agreement with Rivers Casino Des Plaines for us to provide retail sports betting services at Rivers Casino Des Plaines in Illinois;
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An agreement with the Little River Casino Resort, a wholly owned and operated enterprise of the Little River Band of Ottawa Indians to provide retail sports betting services at their Little River casino in Michigan; and
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An agreement with Rivers Casino Portsmouth to provide retail sports betting services at the yet-to-be-developed Rivers Portsmouth Casino in Virginia.
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Our Development Team
Our
development team is led by our Chief Information Officer, Einar Roosileht, and consists of a set of cross functional product development
teams comprised of talented individuals with expertise in system architecture, client and server-side product engineering, database architecture,
product, engineering and project management, website and native app design and development, security and technical support. Consistent
with our overall corporate strategy, the team constantly aims to innovate and differentiate our online offerings.
Proprietary Online
Gaming Platform
Our
proprietary online gaming platform has been developed and is operated by a seasoned team with global online gaming experience operating
across product categories, with particular expertise in the two largest online/mobile product categories: casino and sports betting. We
believe our online gaming platform and technology stack give us the ability and flexibility to provide a personalized, data-driven player
journey. The ability to customize the playing experience for each player is a key feature of our online gaming platform. We achieve player
personalization by analyzing player history and transactions, and offering customized promotions and real-time, betting-driven bonusing.
As
demonstrated in the picture below, in addition to developing a robust online gaming platform, we have developed and are continuing to
improve proprietary modules for our online casino and sports betting product verticals in order to offer unique and differentiated experience
to our customers. Such modules include both frontend and backend components and flexible management tools, which our operations teams
use to customize experiences for different player segments. Content for both online casino games and sports betting offers primarily comes
from integrated third parties. In addition to developing proprietary technology, as a vertically integrated technology company we operate
our own products and platform, with our customer service and marketing operations teams leveraging powerful existing analytics solutions,
which are a part of our online gaming platform.
We
can develop and implement new features in real-time, which we believe enhances the customer experience and increases customer retention.
By owning our own online gaming platform, we can more easily improve and customize the player experience and incorporate key aspects of
our operational services into our offerings:
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Payments & Risk Management
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Regulatory Online Reporting & Accounting / Online Gaming Compliance
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Website Management / Games Management / Live Tech Ops / Security
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Online Affiliate Management & Tracking
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Retention / CRM / Business Intelligence & Analytics
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In
addition, owning our online gaming platform enables us to prioritize speed to market for new offerings while providing an engaging
and unique user experience. Since 2016, we have leveraged our platform to expand our real-money operations and launch in new
markets. Additionally, we were the first company to launch (or among the first to launch if multiple operators launched on the same
day) online or retail sports betting in several of the markets in which we operate, which we believe has allowed us to acquire
customers at a lower cost than we could have if launching in a more mature market.
Our Industry and Opportunity
We
currently operate within the online gaming and entertainment industry. The global gaming industry includes a wide array of products such
as lotteries, bingo, slot machines, casino games and sports betting, across land-based and online platforms. The industry has various
operators and stakeholders across the private and public sectors, including traditional bricks-and-mortar casinos, state-run lottery operators,
Native American tribes, legacy online gaming operators, racetracks/racinos/video lottery terminals, gaming content providers, gaming regulators,
gaming technology companies and payment processors.
Recently,
online gaming has seen outsized growth and increased penetration. Per EKG, regulated online gaming grew in Europe, the most mature online
gaming market in the world, at an annual rate of 11% from 2018 to 2019, and according to the European Gaming & Betting Association
(the “EGBA”), Europe’s online gambling revenue is expected to increase by 7% from 2019 to 2020, despite cancellations
and postponements of major European sports in 2020. The EGBA also projects a 7% growth rate through 2025 in European online gaming revenue.
We
believe the following trends are potential drivers of growth in this industry:
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New jurisdictions in the United States and internationally authorizing and/or privatizing their online casino and online sports betting industries; and
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Increased consumer adoption of digital and online activities, including casino and sports betting. While many other large U.S. industries (i.e., banks, retail stores, movies, etc.) digitalized over a decade ago, the U.S. gaming industry has just started to do so more recently.
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In
the past decade, there has been significant regulatory momentum with respect to online gaming across the globe. This momentum has been
particularly relevant in developed nations whose citizens generally have disposable income to spend on entertainment and gaming. For example,
the U.K., Denmark, France, Spain, Italy, Ireland, Denmark, Poland, Sweden and Switzerland have legalized and regulated online casino and
online sports betting. In addition, several U.S. states, Mexico, certain jurisdictions in Argentina and Colombia have introduced regulated
sports betting in recent years. Canada has also introduced legislation to allow single-game sports betting where to date, sports betting
has been limited to parlay cards. All these countries are in the “high income” income group according to the World Bank. We
expect this trend to continue into the future, most notably in the United States.
U.S.
Gaming Industry
We
see tremendous opportunity in the U.S. online gaming market. As U.S. jurisdictions become regulated and mature, online gaming penetration
may approach that of other developed nations. For example, the UK Gambling Commission (“UKGC”) reported that approximately
40% of the U.K.’s gross gaming revenue during the period April 2019 to March 2020 (a period that was largely unaffected by the impacts
of the COVID-19 pandemic) came from online gaming. To put that U.K. figure into context, Pennsylvania, which launched online casino and
sports betting in H1 2019, generated a combined $1.71 billion in taxable revenue from land-based casino, online casino and online sports
betting revenue in H2 2019 (a period largely unaffected by the impacts of the COVID-19 pandemic) according to data from the Pennsylvania
Gaming Control Board. Of this amount, only approximately 4.5% came from online casino and online sports betting. During H2 2020, when
the United States was experiencing many of the effects of the COVID-19 pandemic, including stay-at-home orders, shutdowns of bricks-and-mortar
businesses and cancellations of sporting events, Pennsylvania generated a combined $1.62 billion in taxable revenue from land-based casino,
online casino and online sports betting according to Pennsylvania Gaming Control Board. Of this amount, 29.3% came from online casino
and online sports betting. Although the United States has a much more significant land-based casino industry than the U.K., we believe
these statistics show the future opportunity for online gaming in the United States.
U.S.
Online Casino
Currently,
online casino is authorized in fewer states than sports betting. As of the date hereof, online casino is authorized only in six states:
Delaware, Michigan, New Jersey, Pennsylvania, West Virginia and Nevada (although regulators have not authorized online casino outside
of physical casinos in Nevada). We believe there is great potential for revenue growth as new markets open in the United States. For example,
the mature land-based U.S. casino industry is sizable, with estimated combined revenues in 2019 for U.S. land-based commercial and tribal
casinos of approximately $78.2 billion based on data from the National Indian Gaming Commission in Washington D.C. and the American Gaming
Association.
In
the latter half of 2013, New Jersey became the first U.S. state to legally permit online casino. That market got off to a slow
start; however, online casino revenue in New Jersey has risen steadily over the last several years. Notably, online casino revenue
was not negatively impacted when New Jersey began permitting online sports betting in 2018. Online casino revenue from slot machines
and table games in New Jersey grew from $277.3 million in 2018 to $461.8 million in 2019 according to the New Jersey Division of
Gaming Enforcement. Furthermore, land-based casino revenue in New Jersey grew during that same period from $2.51 billion in 2018 to
$2.69 billion in 2019 according to the New Jersey Division of Gaming Enforcement, showing that land-based casino revenue can grow at
the same time that online casino revenue grows. This fact may serve as a catalyst for lawmakers in other states with land-based
casinos to consider authorizing online casino.
In
New Jersey in 2020, online casino revenue continued to increase to $931.6 million while revenues from land-based casinos decreased to
$1.51 billion. We believe this trend in online and land-based casino revenues for New Jersey from 2019 to 2020 is not indicative of the
expected longer-term trend of continued online and land-based casino revenue growth because of the impacts of COVID-19 in 2020, which
likely resulted in decreased revenue for land-based casinos and increased revenue for online casinos because of, among other things, stay-at-home
orders and shutdowns of brick-and-mortar casinos.
We
believe that more states have and will consider authorizing online casino for the following reasons, among others:
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We believe that COVID-19 has resulted in increased expenses and/or reduced tax revenue in many states, increasing the need for new sources of tax revenue.
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In states that have land-based casinos, COVID-19 caused temporary casino closures, which reduced tax revenue.
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We believe that COVID-19 has caused increased general consumer adoption of digital activity, including online gaming.
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Online casino generated more tax revenue compared to online sports betting in New Jersey and Pennsylvania in 2020, meaning authorizing online sports betting alone may not optimize tax revenue.
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Land-based casino revenue grew as online casino revenue grew in New Jersey from 2018 to 2019, demonstrating that land-based casino revenue can grow with online casino revenue.
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We believe that the land-based casino industry, an important stakeholder in many states, generally has shown a wider acceptance of online casino.
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Both
Pennsylvania and New Jersey were experiencing online casino taxable revenue growth prior to COVID-19; however, that growth accelerated
in March 2020 into Q4 2020. The charts below highlight the growth of online slot and table games taxable revenue in New Jersey and Pennsylvania
since Q4 2019:
Pennsylvania Online Slot and Table Taxable
Revenue ($ in millions)
Source: Pennsylvania
Gaming Control Board
New Jersey Online Slot and Table Gross Revenue
($ in millions)
Source: New Jersey Division
of Gaming Enforcement
U.S.
Sports Betting
On
May 14, 2018, the U.S. Supreme Court ruled that PASPA – a nationwide ban of sports betting – was unconstitutional, thus allowing
states (beyond the few states that were grandfathered into PASPA by virtue of authorizing sports betting prior to PASPA) to enact their
own sports betting laws. Since the U.S. Supreme Court’s decision, as of the date hereof, 22 states and the District of Columbia
have legalized sports betting. Of those 23 jurisdictions, 15 states have authorized statewide online sports betting while eight remain
retail-only at casinos or retail locations.
According
to EKG, the United States generated approximately $1.15 billion in online sports betting revenue in 2020, despite the impacts of COVID-19
and the cancellations, postponement, shortening or rescheduling of sporting events and seasons. While the overall industry is still nascent,
growth to date has been strong. For example, December 2020 online sports betting revenue in New Jersey, the first state to regulate sports
betting after PASPA was struck down, and Pennsylvania grew 130% and 292% year-over-year, respectively, according to data from the New
Jersey Division of Gaming Enforcement and the Pennsylvania Gaming Control Board.
U.S. Sports Betting Policy
Landscape
Source: EKG United States
Sports Betting Policy Monitor – Released March 2021
We
believe the U.S. sports betting market still has significant opportunity for growth. Only 35% of the United States currently has access
to online sports betting, per EKG. This fact is significant when one considers that according to the New Jersey Division of Gaming Enforcement,
more than 80% of New Jersey sports betting revenue in February 2020, the last month not significantly impacted by the effects of COVID-19
(such as mandatory stay-in-place and closure orders), came via online betting. Populous states such as California, Florida, New York and
Texas have not yet legalized online sports betting. We believe the sports betting industry will grow significantly over the next several
years as more states authorize sports betting and as current operating markets mature.
Share of Total Monthly Sports Betting Handle
(December 2020)
Source: EKG United States
Sports Betting Market Monitor – Released February 2021
New
Jersey and Pennsylvania, two states that offer online sports betting, accounted for approximately 41% of all U.S. sports betting handle
in December 2020 according to EKG. In states that permit online and retail sports betting, online sports betting handle is generally higher
than retail handle; however, some states have legalized retail sports betting only (e.g., New York and Arkansas) while other states
have legalized restricted forms of online sports betting (e.g., in-person registration required in Nevada and for a period of time
in Iowa, Illinois and Rhode Island). As more states legalize and reduce restrictions around online sports betting, we expect that New
Jersey and Pennsylvania will hold less dominant positions across the United States.
United
States Online Gaming: Estimating the Total Addressable Industry Size
If
every U.S. state was to legalize online casino, based on state level projections from EKG, it is projected that the U.S. market would
generate approximately $20 billion in revenue. Similarly, if every U.S. state was to legalize online sports betting, based on state level
projections from EKG, it is projected that the U.S. market would generate approximately $15 billion in revenue.
Latin
America Gaming Industry
Latin
America is another area of focus for us. Since 2018, we have been operating online gaming in Colombia, a country with a population of
approximately 50 million. We believe this experience will enable us to expand further in Latin America and other countries as more markets
become regulated. Online gaming is also authorized in Mexico and Brazil, which have populations of approximately 128.9 million and 212.6
million, respectively. Both Mexico and Brazil still have relatively low internet penetration, with 70% and 67%, respectively, of the population
having internet access compared to 87% in the United States and 93% in the U.K., so the expansion of internet penetration in these countries
would allow us to grow our revenues from online gaming there to the extent we make our offerings available in those countries.
The
highest populated country in Latin America, Brazil, legalized sports betting in December 2018. While the government has been creating
a regulatory framework since then, Brazil recently moved to “privatize” its impending sports betting market in response to
the COVID-19 pandemic. By including sports betting in its Council of Investment Partnerships Program (IPP), Brazil will allow potential
operators to bid on a limited number of sports betting licenses instead of the previous plan that called for an “unlimited”
number of operators and tax revenue dispensed to the government. We believe given our experience and success in neighboring Colombia,
we will be well-qualified to obtain a sports betting license in Brazil.
Competition
We
operate in the global gaming and entertainment industry. Therefore, we generally view any type of discretionary leisure and entertainment
provider to be a competitor with respect to our customers’ time and share of wallet. Specifically, in the online casino and sports
betting space in the United States (our primary market), our competitors come from two main groups – (i) established online-first
companies and (ii) bricks-and-mortar casino and similar gaming establishments. Established online-first companies in the U.S. market include
companies such as Flutter Entertainment / The Stars Group (through their FanDuel and FoxBet brands), DraftKings, 888, Roar Digital (through
its BetMGM brand and partnership with GVC), Bet365, Betfred and PointsBet, among others. Additionally, we expect competition from U.S.
casinos such as Penn National Gaming through its Barstool brand, Golden Nugget Online Gaming, Hard Rock through its Hard Rock Digital
brand, Caesars Entertainment through its partnership with William Hill, and Churchill Downs Incorporated. In addition, theScore, Circa
Sports and Smarkets have recently entered the U.S. market.
We
compete on a number of factors across our B2C offerings. These include, without limitation, our front-end online gaming platform, our
back-end infrastructure, our ability to retain and monetize existing customers, re-engage prior customers and attract new customers, and
our regulatory access and compliance experience.
In
the B2B space, primarily in the retail sportsbook market, our competitors for include, without limitation, SBTech, US Bookmaking, International
Gaming Technology (IGT), Kambi, Playtech and Scientific Games. We compete primarily on the quality and breadth of our technology solutions
and support services.
Intellectual Property
Our
business relies significantly on the creation, authorship, development, use and protection of intellectual property. This intellectual
property consists of, for example, software code, proprietary technology, trademarks, domain names, copyrights, patents and trade secrets
that we use to develop and provide our offerings and related services, as well as online betting and gaming content (both proprietary
and licensed) and proprietary data acquired from our customers’ use of our offerings and related services.
We
own the copyrights in the software code we author. From time to time, we may seek patent protection covering inventions we conceive and
pursue the registration of our domain names, trademarks and service marks in the United States and in certain foreign jurisdictions.
We
rely on common law rights or contractual restrictions to protect certain of our intellectual property rights, and we control access to
our software source code and other trade secrets by entering into confidentiality and intellectual property assignment agreements with
our employees and contractors and confidentiality agreements with third parties that have access to our software source code or trade
secrets. From time to time, we may assert our rights in our intellectual property as appropriate or desirable against third parties who
may be infringing such rights.
Some
of the intellectual property we use is owned by third parties, and we have entered into licenses and other agreements with applicable
third parties to obtain rights to use such intellectual property. Although we believe we have sufficient rights under such agreements
for the intended operation of our business, such agreements often restrict our use of the third parties’ intellectual property and
limit such use to specific time periods.
Pursuant
to the Business Combination Agreement, RSG and its affiliates assigned to us several of the trademarks and domain names that we use in
connection with our business, and we granted to RSG and its affiliates a perpetual, royalty-free license to use certain of these trademarks
and domain names in certain fields of use. This license may be either exclusive or non-exclusive based on the field of use and the particular
trademark or domain name. This license precludes our use of certain trademarks and domain names in the exclusive fields of use.
Third
parties in the sports betting, online gaming and casino, technology and other industries may own patents, copyrights and trademarks and
may frequently threaten litigation or file suit against us or request us to enter into license agreements, in each case based on allegations
of infringement or other violations of intellectual property rights. Occasionally we have received, and we expect to receive in the future,
third-party allegations or cease-and-desist letters, including from our competitors and non-practicing entities, that we have infringed
such parties’ intellectual property rights, such as their trademarks, copyrights, and patents. Such allegations may increase as
our business grows.
Government Regulation
We
are subject to various U.S. and foreign laws and regulations that affect our ability to operate in the gaming and entertainment industry,
in particular in the online gaming industry. These industries are generally subject to extensive and evolving regulations that could change
based on political and social norms and that could be interpreted or enforced in ways that could negatively impact our business.
The
gaming industry (inclusive of our online casino and sports betting offerings) is highly regulated, and we must maintain licenses and pay
gaming taxes or a percentage of revenue in each jurisdiction in which we operate in order to continue our operations. Our business is
subject to extensive regulation under the laws, rules and regulations of the jurisdictions in which we operate. These laws, rules and
regulations generally concern the responsibility, financial stability, integrity, honesty and character of the owners, managers and persons
with material financial interests in the gaming operations along with the integrity and security of the online casino and sports betting
offerings. Violations of laws or regulations in one jurisdiction could result in disciplinary action in that and other jurisdictions.
Gaming
laws are generally based upon declarations of public policy designed to protect customers and the viability and integrity of the gaming
industry. Gaming laws also may be designed to protect and maximize state and local tax revenues, as well as to enhance economic development
and tourism. To accomplish these public policy goals, gaming laws establish stringent procedures to ensure that participants in the gaming
industry meet certain standards of character and responsibility. Among other things, gaming laws require gaming industry participants
to:
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ensure that unsuitable individuals and organizations have no role in gaming operations;
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establish procedures designed to prevent cheating and fraudulent practices;
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establish and maintain anti-money laundering practices and procedures;
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establish and maintain responsible accounting practices and procedures;
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maintain effective controls over their financial practices, including establishing minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues;
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maintain systems for reliable record keeping;
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file periodic reports with gaming regulators;
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establish programs to promote responsible gaming; and
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enforce minimum age and as applicable, location, requirements.
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Typically,
a state regulatory environment is established by statute and underlying regulations and is administered by one or more regulatory agencies
(typically a gaming commission or state lottery) who regulate the affairs of owners, managers and persons with financial interests in
gaming operations. Among other things, gaming authorities in the various jurisdictions in which we conduct our business:
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adopt rules and regulations under the implementing statutes;
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interpret and enforce gaming laws and regulations;
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impose fines and penalties for violations;
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review the character and fitness of participants in gaming operations and make determinations regarding their suitability or qualification for licensure;
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grant licenses for participation in gaming operations;
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collect and review reports and information submitted by participants in gaming operations;
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review and approve certain transactions, which may include acquisitions or change-of-control transactions of gaming industry participants and securities offerings and debt transactions engaged in by such participants; and
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establish and collect fees and taxes in jurisdictions where applicable.
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While
we believe that we comply in all material respects with all applicable sports betting and online casino laws, licenses and regulatory
requirements, we cannot provide assurance that our activities or the activities of our customers, partners or suppliers will not become
the subject of any regulatory or law enforcement investigation, proceeding or other governmental action or that any such proceeding or
action, as the case may be, would not have a material adverse impact on us or our business, financial condition or results of operations.
Licensing and Suitability
Determinations
In
order to operate in certain jurisdictions, we must obtain either a temporary or permanent license or determination of suitability from
the responsible authorities. We seek to ensure that we obtain all necessary licenses to develop and put forth our offerings in the jurisdictions
in which we operate and where our customers are located.
Gaming
laws generally require us, and each of our direct and indirect subsidiaries engaged in gaming operations, certain of our directors, officers
and employees, and in some cases, certain of our stockholders holding 5% or more of our outstanding equity, to obtain licenses from gaming
authorities. Licenses typically require a determination that the applicant qualifies or is suitable to hold the license. Where not mandated
by statute, rule or regulation, gaming authorities typically have broad discretion in determining who must apply for a license or finding
of suitability and whether an applicant qualifies for licensing or should be deemed suitable to conduct operations within a given jurisdiction.
When determining to grant a license to an applicant, gaming authorities generally consider: (i) the financial stability, good character,
honesty, integrity and responsibility of the applicant (including verification of the applicant’s sources of funding); (ii) the
quality and security of the applicant’s online real-money gaming platform, hardware and related software, including the platform’s
ability to operate in compliance with local regulation, as applicable; (iii) the applicant’s history; (iv) the applicant’s
ability to operate its gaming business in a socially responsible manner; and (v) in certain circumstances, the effect on competition.
Gaming
authorities may, subject to certain administrative procedural requirements, (i) deny an application, or limit, condition, revoke or suspend
any license issued by them; (ii) impose fines, either on a mandatory basis or as a consensual settlement of a regulatory action; (iii)
demand that named individuals or stockholders be disassociated from a gaming business; and (iv) in serious cases, liaise with local prosecutors
to pursue legal action, which may result in civil or criminal penalties.
Events
that may trigger revocation of a gaming license or another form of sanction vary by jurisdiction. However, typical events include, among
others: (i) conviction in any jurisdiction of certain persons with an interest in, or key personnel of, the licensee of an offense that
is punishable by imprisonment or may otherwise cast doubt on such person’s integrity; (ii) failure without reasonable cause to comply
with any material term or condition of a gaming license; (iii) declaration of, or otherwise engaging in, certain bankruptcy, insolvency,
winding-up or discontinuance activities, or an order or application with respect to the same; (iv) obtaining a gaming license by a materially
false or misleading representation or in some other improper way; (v) violation of applicable anti-money laundering or terrorist financing
laws or regulations; (vi) failure to meet commitments to customers, including social responsibility and responsible gaming commitments;
(vii) failure to pay in a timely manner all gaming or betting taxes or fees due; or (viii) determination by the gaming authority that
there is another material and sufficient reason to revoke or impose another form of sanction upon the licensee.
As
noted above, in addition to us and our direct and indirect subsidiaries engaged in gaming operations, gaming authorities generally
also have the right to investigate individuals or entities having a material relationship to, or material involvement with, us or
any of our subsidiaries, to determine whether such individual or entity is suitable as a business associate. Specifically, as part
of our obtaining sports betting and online casino licenses, certain of our officers, directors, and employees and in some cases,
certain of our stockholders (typically, beneficial owners of 5% or more of a company’s outstanding equity, with most
jurisdictions providing that “institutional investors” (as defined by a particular jurisdiction) can seek a waiver of
these requirements) must file applications with the gaming authorities and may be required to be licensed or to qualify or be found
suitable in many jurisdictions. Qualification and suitability determinations generally require the submission of extensive and
detailed personal and financial disclosures followed by a thorough investigation. The applicant must pay all the costs of the
investigation. Changes with respect to the individuals who occupy licensed positions must be reported to gaming authorities and in
addition to the authority to deny an application for licensure, qualification or a finding of suitability, gaming authorities have
jurisdiction to disapprove a change in a corporate position. If any director, officer, employee or significant stockholder is found
unsuitable (including due to the failure to submit required documentation) by a gaming authority, we may deem it necessary, or be
required, to sever our relationship with such person. Furthermore, our charter provides that any equity interests of RSI owned or
controlled by an unsuitable person or its affiliates will be subject to mandatory sale and transfer to either RSI or one or more
third party transferees and in such number and class(es)/series of equity interests as determined by the charter in good faith
(following consultation with reputable outside and independent gaming regulatory counsel) pursuant to a resolution adopted by a
majority of our Board of Directors (the “Board”).
Generally,
any person who fails or refuses to apply for a finding of suitability or a license within the prescribed period after being advised that
it is required by gaming authorities may be denied a license or found unsuitable, as applicable. Furthermore, we may be subject to disciplinary
action or our licenses may be in peril if, after we receive notice that a person is unsuitable to be a stockholder or to have any other
relationship with us or any of our subsidiaries, we: (i) pay that person any dividend or interest upon our voting securities; (ii) allow
that person to exercise, directly or indirectly, any voting right conferred through securities held by that person; (iii) pay remuneration
in any form to that person for services rendered or otherwise; or (iv) fail to pursue all lawful efforts to require such unsuitable person
to relinquish his voting securities.
Product-Specific Licensing
Online
Casino
We
currently offer online casino in Michigan, New Jersey and Pennsylvania, pursuant to licenses granted by the Michigan Gaming Control Board,
New Jersey Division of Gaming Enforcement and the Pennsylvania Gaming Control Board. In addition, we are currently pursuing a license
in West Virginia to offer online casino there.
Generally,
online gambling in the United States is only lawful when specifically permitted under applicable state law. At the federal level, several
laws provide federal law enforcement with the authority to enforce and prosecute gambling operations conducted in violation of underlying
state gambling laws. These enforcement laws include the Unlawful Internet Gambling Enforcement Act (“UIGEA”), the Illegal
Gambling Business Act and the Travel Act. No violation of UIGEA, the Illegal Gambling Business Act or the Travel Act can be found absent
a violation of an underlying state law or other federal law. In addition, the Wire Act of 1961 (the “Wire Act”) provides that
anyone engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate
or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for
the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for
information assisting in the placing of bets or wagers, will be fined or imprisoned, or both. However, the Wire Act notes that it shall
not be construed to prevent the transmission in interstate or foreign commerce of information for use in news reporting of sporting events
or contests, or for the transmission of information assisting in the placing of bets or wagers on a sporting event or contest from a state
or foreign country where betting on that sporting event or contest is legal into a state or foreign country in which such betting is legal.
There is ongoing legal action as to whether the Wire Act applies beyond sports betting. A federal court of first instance has ruled that
it does not.
Sports
Betting
North
America
In
North America we currently operate our online sports betting offering via the PlaySugarHouse app in New Jersey and Pennsylvania and the
BetRivers app in Colorado, Illinois, Indiana, Iowa, Michigan, Pennsylvania and Virginia pursuant to our licenses granted by the gaming
commission of such states, specifically, the Colorado Division of Gaming, the Illinois Gaming Board, the Indiana Gaming Commission, the
Iowa Racing and Gaming Commission, the Michigan Gaming Control Board, the New Jersey Division of Gaming Enforcement, the Pennsylvania
Gaming Control Board and the Virginia Lottery Board. We also operate retail sportsbooks in Illinois, Indiana, Michigan (see Native
American Gaming Regulation), New York and Pennsylvania pursuant to applicable state and tribal licensing regimes.
On
May 14, 2018, the U.S. Supreme Court issued an opinion determining that PASPA was unconstitutional. PASPA prohibited a state from “authorizing
by law” any form of sports betting. In striking down PASPA, the U.S. Supreme Court opened the potential for state-by-state authorization
of sports betting. Numerous states and territories already have laws authorizing and regulating some form of sports betting online or
in bricks-and-mortar establishments. Sports betting in the United States is subject to additional laws, rules and regulations at the state
level. See “Risk Factors — Risk Related to Government Regulation — Our business is subject to numerous U.S. and foreign
laws, many of which are unsettled and still developing. Any change in regulations or their interpretation, or the regulatory climate applicable
to our business and offerings, or changes in tax rules and regulations or interpretation thereof related to our business and offerings,
could adversely impact our ability to operate our business, which could have a material adverse effect on our business, financial condition,
results of operations and prospects.”
Native
American Gaming Regulation
Gaming
on Native American lands is governed by federal law, tribal-state compacts and tribal gaming regulations. The Indian Gaming Regulatory
Act of 1988 (the “IGRA”) provides the framework for federal and state control over all gaming on Native American lands and
is administered by the National Indian Gaming Commission and the Secretary of the U.S. Department of the Interior. The IGRA requires that
a tribe and the state in which the tribe is located enter into a written agreement, a tribal-state compact, which governs the terms of
the gaming activities. Tribal-state compacts vary from state-to-state and in many cases require vendors to meet ongoing registration and
licensing requirements. In addition, tribal gaming commissions have been established by many Native American tribes to regulate gaming-related
activity on tribal lands. Through our subsidiaries, we provide play-for-fun sports betting and online casino services to Native American
tribes who have negotiated compacts with their respective states and have received federal approval. Currently, we are authorized as a
vendor to provide online casino and online and retail sports betting services to the Little River Casino Resort, a wholly owned and operated
enterprise of the Little River Band of Ottawa Indians.
South
America
In
Colombia, we operate our online casino and sports betting offering via a web-based solution. We also operate eight retail shops where
customers can use provided terminals to place bets and make deposits and withdrawals. We operate pursuant to a concession contract
with the Colombian gaming regulatory agency, Coljuegos Empresa Industrial Comercial Del Estado Administradora Del Monopolio Rentistico
De Los Juegos De Suerte y Azar Linea Gratuita.
Data Protection and
Privacy
In
addition to our licensing regime for our offerings, we also take significant measures to protect our customers’ privacy and data.
We
handle, collect, store, receive, transmit and otherwise process certain personal information of our users and employees, thus we are also
subject to federal, state and foreign laws related to the privacy and protection of such data. Regulations in jurisdictions in which we
operate, such as the Virginia Consumer Data Protection Act, and regulations in other jurisdictions where we do not operate but that could
otherwise impact our operations, such as the California Consumer Privacy Act, the California Privacy Rights Act and the General Data Protection
Regulation of the European Union, are either new or are relatively untested laws (some of which may not yet be effective) that could affect
our business, and the potential impact is unknown.
Compliance
We
have developed and implemented an internal compliance program designed to ensure that we comply with legal and regulatory requirements
imposed on us in connection with our online casino and sports betting activities. Our internal compliance program focuses, among other
things, on reducing and managing problematic gaming and providing tools to assist users in making educated choices related to gaming activities.
Additionally,
we use various methods and tools across our operations such as geolocation blocking, which restricts access based on a user’s geographical
location determined through a series of data points such as mobile devices and Wi-Fi networks; age verification to ensure our users are
old enough to participate; routine monitoring of user activity; and risk-based user due diligence to ensure player funds are legitimately
derived. We have a zero-tolerance approach to money laundering, terrorist financing, fraud and collusion. While we are firmly committed
to full compliance with all applicable laws and have developed appropriate policies and procedures to comply with the requirements of
the evolving regulatory regimes, we cannot provide assurance that our compliance program will prevent all violations of applicable laws
or regulations, or that a violation by us or our personnel will not result in a monetary fine or suspension or revocation of one or more
of our licenses.
We
have built our online platform to meet the needs of differing regulatory regimes, including configurable regulatory and responsible gaming
controls such as responsible gaming tests, operator alerts on customer behavior, deposit limits, betting limits, loss limits, timeout
facilities, session limits, reality checks, balance thresholds and intended gaming amounts. These features are intended to provide our
customers full control of their gaming to allow them to play responsibly.
Responsible and Safer
Gaming
We
view the safety and welfare of our customers as critical to our business and have made corresponding investments in our processes
and systems to help ensure such safety and welfare. We are committed to industry-leading responsible gaming practices and seek to
provide our customers with the resources and services they need to play responsibly. These practices, resources and services include
deposit limits, voluntary restrictions on access and use of certain offerings, temporary self-exclusion and cooling-off periods,
voluntary permanent exclusion from our offerings and applications and data science technology, which helps us flag any suspicious or
abnormal betting activity. We also participate in national self-exclusion registers where they are in operation. We prominently
promote our responsible gaming tools, resources and initiatives on our website and mobile applications. We also maintain a
self-excluded customer list, which prohibits self-identified customers from placing bets or participating in real-money gaming and
have embedded the software to limit or restrict the amount individual customers spend. We also train our frontline personnel to
identify signs of problematic gaming, ensuring that we are not only utilizing data and technology but also our human resources.
In
May 2019, we joined the National Council on Problem Gambling (“NCPG”) as a Platinum Member. The NCPG is the leading national
organization for people and their families who are affected by problem gambling and gambling addiction. Our NCPG membership supports wide-ranging
problem gambling prevention, treatment, education and research programs, as well as innovative responsible gambling policies provided
by the NCPG. Our membership helps build on NCPG efforts, including the Safer Sports Betting Initiative and Internet Responsible Gambling
Standards, which assist operators like us by providing best practice responsible gambling policies and procedures for all online gambling
activities, including sports betting. We are also members of the Sports Wagering Integrity Monitoring Association and the American Gaming
Association.
Available Information
Our
Internet address is www.RushStreetInteractive.com. Our website and the information contained therein or linked thereto are not part of
this Annual Report. We make available free of charge through our Internet website our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, proxy statements, registration statements and amendments to those reports filed or furnished pursuant
to the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish them to the SEC. The
SEC maintains a website that contains reports, proxy statements and other information regarding issuers that file electronically with
the SEC. These materials may be obtained electronically by accessing the SEC’s website at www.sec.gov.
ITEM 1A. RISK FACTORS
Our business is subject
to numerous risks and uncertainties that you should be aware of in evaluating our business. If any such risks and uncertainties actually
occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks described
below are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to
be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations. The risk factors
described below should be read together with the other information set forth in this Annual Report, including our consolidated financial
statements and the related notes, as well as in other documents that we file with the SEC.
Summary of the Material Risks Associated with
Our Business
These risks include, but are
not limited to, the following:
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Competition in the retail and online sports betting and online gaming industry is intense and, as a result, we may fail to attract and retain customers, which may negatively impact our operations and growth prospects.
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Sports leagues shortening, delaying or cancelling their events or seasons due to COVID-19 could adversely affect our business, financial condition, results of operations and prospects.
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Clear errors in the posting of sports betting odds or event information have occurred occasionally, resulting in large liabilities. To date, it has been general industry practice to void bets associated with such clear errors or to correct the odds, but it cannot be assured that in every case of such clear error regulators will continue the practice of approving the voiding of such errors.
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Our projections, including for revenues, market share, expenses and profitability, are subject to significant risks, assumptions, estimates and uncertainties and may therefore differ materially from our expectations.
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The success, including win or hold rates, of existing or future online offerings depends on a variety of factors and is not completely controlled by us.
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We rely on strategic relationships with land-based partners such as casinos to be able to provide our offerings in certain jurisdictions. If we cannot establish and manage relationships with these partners, our business, financial condition, results of operations and prospects could be adversely affected.
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Our current and projected performance relies heavily upon continued compatibility and interoperability between our app, platform and the major mobile operating systems, distribution of our offerings on third-party platforms and high-bandwidth data capabilities. Disruptions in the availability of these may negatively impact our business, financial conditions, results of operations and prospects.
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Due to the nature of our business, we are subject to taxation in numerous jurisdictions and changes in, or new interpretation of, tax laws, tax rulings or their application by tax authorities could result in additional tax liabilities and could materially affect our business, financial condition, results of operations and prospects.
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To date, COVID-19 has significantly impacted our business and the impact of any eventual recovery from the ongoing COVID-19 pandemic on our business, operating results and growth rates is currently unknown or uncertain.
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Our business is subject to numerous U.S. and foreign laws, many of which are unsettled and still developing. Any change in regulations or their interpretation, or the regulatory climate applicable to our business and offerings, or changes in tax rules and regulations or interpretation thereof related to our business and offerings, could adversely impact our ability to operate our business, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
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Our growth prospects depend on the legal status of real-money gaming in various jurisdictions, and legalization may not occur in as many states as we expect or may occur at a slower pace than we anticipate or may be accompanied by legislative or regulatory restrictions or taxes that make it impracticable or less attractive to operate, which could adversely affect our future results of operations and make it more difficult to meet our expectations for financial performance.
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Failure to comply with regulatory requirements or to successfully obtain a license or permit applied for could adversely impact our ability to comply with licensing and regulatory requirements or to obtain or maintain licenses in other jurisdictions, or could cause financial institutions, online platforms and distributors to stop providing services to us.
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We rely on information technology and other systems and platforms, and failures, errors, defects or disruptions therein could diminish our brand and reputation, subject us to liability, disrupt our business, affect our ability to scale our technical infrastructure and adversely affect our operating results and growth prospects. Our offerings, online gaming platform and other software applications and systems, and certain third-party platforms that we use could contain undetected errors.
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Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost, corrupted or stolen. Any such access, disclosure, other loss, corruption or theft of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disruption of our operations and the services we provide to customers, damage to our reputation, and a loss of confidence in our products and services, each of which could adversely affect our business, financial condition, results of operations and prospects.
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We will rely on licenses and service agreements to use the intellectual property rights of third parties that are incorporated into or used in our products and services. Failure to renew or expand existing licenses or service agreements may require us to modify, limit or discontinue certain product or services, which could materially affect our business, financial condition, results of operations and prospects.
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We are a “controlled” company within the meaning of the NYSE rules and, as a result, we qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections as those afforded to stockholders of companies that are subject to such governance requirements.
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Pursuant to the Tax Receivable Agreement, dated as of December 29, 2020, by and among the Special Limited Partner, RSILP, the Sellers and the Sellers’ Representative (the “Tax Receivable Agreement” or “TRA”), the Special Limited Partner is required to pay to the Sellers and/or the exchanging holders of RSILP Units, as applicable, 85% of the net income tax savings that we and our consolidated subsidiaries (including the Special Limited Partner) realize as a result of increases in tax basis in RSILP’s assets related to the transactions contemplated under the Business Combination Agreement and the future exchange of the Retained RSILP Units (for shares of Class A Common Stock (or cash) pursuant to the RSILP A&R LPA and tax benefits related to entering into the Tax Receivable Agreement, including tax benefits attributable to payments under the Tax Receivable Agreement, and those payments may be substantial.
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The summary risk factors described
above should be read together with the text of the full risk factors below and in the other information set forth in this Annual Report,
including our consolidated financial statements and the related notes, as well as in other documents that we file with the SEC. If any
such risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially
and adversely affected. The risks summarized above or described in full below are not the only risks that we face. Additional risks and
uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business,
prospects, financial condition and results of operations.
Risks Related to Our Business
Competition in the retail and online sports
betting and online gaming industry is intense and, as a result, we may fail to attract and retain customers, which may negatively impact
our operations and growth prospects.
The industries in which we
operate are characterized by intense competition. We compete against other providers of retail or online sports betting and online or
bricks-and-mortar casino, as well as against providers of online and mobile entertainment and leisure products more generally. Other companies
that provide these products and services are often established and well-financed, and other well-capitalized companies may introduce competitive
products or services. Our competitors may spend more money and time on developing and testing products and services, undertake more extensive
or far-reaching marketing campaigns, adopt more aggressive pricing or promotions or otherwise develop more commercially successful products
or services than ours, which could negatively impact our business. Our competitors may also develop products, features or services that
are similar to ours or that achieve greater market acceptance. New competitors, whether licensed or not, may enter the retail or online
sports betting or gaming industries. If we are unable to maintain or improve our market share, or if our offerings do not continue to
be popular, our business, financial condition, results of operations and prospects could be adversely affected.
Competitive pressures may
also adversely affect our margins. For example, as competition increases, we may need to lower our margins in order to attract customers.
Further, as we expand to become a more national brand, we may need to increase our marketing spending, as we have recently been doing,
to compete more effectively.
We operate in the global gaming
and entertainment industry with our online casino, online sports betting, retail sports betting and social gaming offerings, as well as
our B2B offerings through our proprietary online gaming platform and other services. Our customers face a vast array of entertainment
choices. Other forms of entertainment, such as television, movies and digital streaming services, social media, sporting events and in-person
casinos, are more well-established and our customers may view them as offering greater variety, affordability, interactivity and enjoyment.
We compete with these other forms of entertainment for our customers’ discretionary time and income. If we are unable to sustain
sufficient interest in our online and retail product and service offerings in comparison to other forms of entertainment, including new
forms of entertainment, our business, financial condition, results of operations and prospects could be adversely affected.
In addition, our ability to
growth our revenue in the future will depend, in large part, upon our ability to attract new customers to our offerings and retain and
engage existing customers, as well as continued user adoption of online casino and retail and online sports betting more generally. Growth
in the online casino, sports betting and gaming industries and the level of demand for and market acceptance of our offerings will be
subject to a high degree of uncertainty. We cannot provide assurance that customer adoption of our offerings will continue at their current
levels or increase in the future, that the industry will achieve more widespread acceptance or that we will be able to retain our customers
if we are unable to keep pace with technological innovation and customer experiences.
Sports leagues shortening, delaying or cancelling
their events or seasons due to COVID-19 could adversely affect our business, financial condition, results of operations and prospects.
The outbreak of COVID-19 has
resulted in, among other things, suspension, shortening, delay and/or cancellation of sports events and seasons. If the suspension, shortening,
delay or cancellation of sports events and/or seasons continues, we may be unable to accept bets on such sports events or sustain sufficient
interest in our retail and online sports betting offerings. Further, shortened seasons for sports leagues may result in a smaller amount
of money bet on sports events throughout the course of each sport’s season. As a result, our business, financial condition, results
of operations and prospects could be adversely affected.
Clear errors in the posting of sports betting
odds or event information have occurred occasionally, resulting in large liabilities. To date, it has been general industry practice to
void bets associated with such clear errors or to correct the odds, but it cannot be assured that in every case of such clear error regulators
will continue the practice of approving the voiding of such errors.
Our sports betting offerings
allow our customers to bet across thousands of sports events. The odds for such events are set through a combination of algorithmic and
manual odds-making, with bet acceptance also being a combination of automatic and manual acceptance. At times, the odds offered for or
the information about an event on our website or app are incorrect. For example, such errors have consisted of inverted lines between
teams, start times of games that, due to time zone differences, have already commenced or odds that are significantly different from the
true odds of the outcome in a way that reasonable persons would agree is an error. Such errors have, in certain instances, resulted in
large liabilities. When such errors occur, it is currently commonly accepted in nearly all jurisdictions for operators to void bets associated
with such clear errors. Further, in mature jurisdictions, bets based upon clear error can be voided without prior regulatory approval.
However, there can be no guarantee that this voiding of bets practice will continue. If regulators were to not allow voiding of bets associated
with clear errors, we could be subject to covering significant liabilities associated with such errors.
Our projections, including for revenues,
market share, expenses and profitability, are subject to significant risks, assumptions, estimates and uncertainties and may therefore
differ materially from our expectations.
We operate in rapidly
changing and competitive industries, and our projections are subject to risks and assumptions made by management with respect to our
industries. Operating results are difficult to forecast because they generally depend on our assessment of the timing of adoption of
future legislation and regulations by different states and countries, which are uncertain. Furthermore, if we invest in new product
development or distribution channels that do not achieve significant commercial success, whether because of competition or
otherwise, we may not recover the often substantial up-front costs of developing and marketing those products and distribution
channels, or recover the opportunity cost of diverting management and financial resources away from other products or distribution
channels.
Additionally, as described
below under “— Economic downturns and political and market conditions beyond our control, including reduced consumer discretionary
spending, could adversely affect our business, financial condition, results of operations and prospects,” our business may be
affected by reduced consumer spending from time to time as a result of factors that may be difficult to predict. This may result in decreased
revenue, and we may be unable to adopt measures in a timely manner to mitigate any unexpected shortfall in income. This inability could
cause our operating results in a given quarter to be higher or lower than expected. If actual results differ from our estimates, analysts
may negatively react, and our stock price could be materially impacted.
Our operating results may vary, which may
make future results difficult to predict with certainty.
Our results of operations
can fluctuate due to seasonal trends and other factors such as level of customer engagement, online casino and sports betting results
and other factors that are outside of our control or that we cannot reasonably predict. Our quarterly financial performance depends on,
among other things, our ability to attract and retain customers. Customer engagement in our online casino and sports betting offerings
may vary due to numerous factors, including customers satisfaction with our platform, the number and timing of sporting events, the length
of professional sports seasons, our offerings and those of our competitors, our marketing efforts, climate and weather conditions, public
sentiment or an economic downturn. As customer engagement varies, so may our quarterly financial performance.
Our quarterly financial results
may also be impacted by the number and amount of betting losses and jackpot payouts we experience. Although our losses are limited per
stake to a maximum payout in our online casino offering, when looking at bets across a period of time, these losses can be significant.
As part of our online casino offering, we offer progressive jackpot games. Each time a customer plays a progressive jackpot game, we contribute
a portion of the amount bet to the jackpot for that game or group of games. When a progressive jackpot is won, the jackpot is paid out
and is reset to a predetermined base amount. As winning the jackpot is determined by a random mechanism, we cannot foresee when a jackpot
will be won and we do not insure against jackpot payouts. Paying the progressive jackpot decreases our cash position and depending upon
the size of the jackpot it may have a significant negative affect on our cash flow and financial condition.
Our online and retail sports
betting operations experience seasonality based on the relative popularity of certain sporting events. Although sporting events occur
throughout the year, our online sports betting customers are most active during the American football season as well as during the NBA
and NCAA basketball seasons. In addition, the suspension, postponement or cancellation of major sports seasons and sporting events, due
to COVID-19, may adversely impact our quarterly results.
The success, including win or hold rates,
of existing or future online offerings depends on a variety of factors and is not completely controlled by us.
The online casino and retail
and online sports betting businesses are characterized by an element of chance. Accordingly, we employ theoretical win rates to estimate
what a certain type of online casino or retail or online sports bet, on average, will win or lose in the long run. Revenue is impacted
by variations in the hold percentage (the ratio of winnings to total amount bet) of the online casino and retail and online sports betting
we offer to our customers. We use the hold percentage as an indicator of an online casino game or retail or online sports bet’s
performance against its expected outcome. Although each online casino or retail or online sports bet generally performs within a defined
statistical range of outcomes in the long run, actual outcomes may vary for any given period, particularly in the short term. In the short
term, for online casino and retail and online sports betting, the element of chance may affect win rates (hold percentages); these win
rates, particularly for retail and online sports betting, may also be affected in the short term by factors largely beyond our control,
such as unanticipated event outcomes, a customer’s skill, experience and behavior, the mix of games played or bets placed, customer
financial resources, the volume of bets placed and the amount of time spent gambling. For online casino games, it is possible a random
number generator outcome or game will malfunction and award errant prizes. For retail and online sports betting, it is possible that erroneously
odds are posted or incorrect odds that are highly favorable to bettors are paid out, and bettors place bets before the odds are corrected.
Additionally, odds compilers and risk managers are capable of human error, so even if our betting offerings are subject to a capped payout,
significant volatility can occur. As a result of the variability in these factors, the actual win rates on our online casino games and
retail and online sports bets may differ from the theoretical win rates we have estimated and could result in the winnings of our online
casino or sports betting customers exceeding those anticipated. The variability of win rates (hold rates) also has the potential to adversely
affect our business, financial condition, results of operations, prospects and cash flows.
Our success also depends
in part on our ability to anticipate and satisfy customer preferences in a timely manner. As we operate in a dynamic environment
characterized by rapidly changing industry and legal standards, our offerings are subject to changing customer preferences that
cannot be predicted with certainty. We need to continually introduce new offerings and identify future offerings that complement our
existing platform and offerings, respond to our customers’ needs and improve and enhance our existing platform and offerings
to maintain or increase our customer engagement and growth of our business. We may be unable to compete effectively unless our
product selection keeps up with trends in the digital sports entertainment and gaming industries in which we compete, or trends in
new gaming products.
If we fail to detect fraud or theft, including
by our customers and employees, our reputation may suffer, which could harm our brand and reputation and negatively impact our business,
financial condition, results of operations and prospects, and can subject us to investigations and litigation.
We have in the past incurred,
and may in the future incur, losses from various types of financial fraud, including use of stolen or fraudulent credit card data, customer
claims of unauthorized payments and attempted payments by customers with insufficient funds. Bad actors use increasingly sophisticated
methods to engage in illegal activities involving personal information, such as unauthorized use of another person’s identity, account
information or payment information and unauthorized acquisition or use of credit or debit card details, bank account information and mobile
phone numbers and accounts. Under current credit card practices, we may be liable for use of funds on our platform with fraudulent credit
card data, even if the associated financial institution approved the credit card transaction.
Fraud or other forms of cheating
by our customers may involve various tactics, including collusion with our employees and exploiting loopholes in our promotions. Successful
exploitation of our systems could have negative effects on our offerings and customer experience and could harm our reputation. Additionally,
we may inadvertently send overly generous promotions that customers or regulators force us to honor. Failure to discover such fraud or
cheating in a timely manner could harm our operations. In addition, negative publicity related to such fraud or cheating could adversely
affect our reputation, potentially causing a material adverse effect on our business, financial condition, results of operations and prospects.
If any such issues were to occur with our existing platform or offerings, substantial engineering, marketing and management resources
may be diverted from other projects to correct these issues, which may delay other projects and the achievement of our strategic objectives.
In addition, any misappropriation
of, or access to, customers’ or other proprietary information or other breach of our information security could result in legal
claims or proceedings, including regulatory investigations and actions, or liability for failure to comply with privacy and information
security laws, including for failure to protect personal information or for misusing personal information, which could disrupt our operations,
force us to modify our business practices, damage our reputation and expose us to claims from our customers, regulators, employees and
other persons, any of which could have an adverse effect on our business, financial condition, results of operations and prospects.
Despite measures we have taken
to detect and reduce the occurrence of fraudulent or other malicious activity on our platform, we cannot guarantee that any of our measures
will be effective or will scale efficiently with our business. Our failure to adequately detect or prevent fraudulent transactions could
harm our reputation or brand, result in litigation or regulatory action and lead to expenses that could adversely affect our business,
financial condition, results of operations and prospects.
We rely on strategic
relationships with land-based partners such as casinos to be able to provide our offerings in certain jurisdictions. If we cannot establish
and manage relationships with these partners, our business, financial condition, results of operations and prospects could be adversely
affected.
Under some states’
betting and gaming laws, online casino, online sports betting and retail sports betting is limited to a finite number of retail (i.e.,
land-based) operators, such as casinos, tribes or tracks, who own one or more “skins” under that state’s law. A “skin”
is a legally authorized license from a state to offer online sports betting or online casino. The “skin” provides a market
access opportunity for retail and online betting and gaming operators to operate in the jurisdiction pending licensure and other required
approvals by the state’s regulator. The entities that control those “skins’ and the numbers of “skins”
available are typically determined by a state’s betting and gaming laws. In most jurisdictions where we offer online casino and
sports betting, we currently rely on a casino, tribe or track to get a “skin.” These “skins” are what allows
us to gain access to jurisdictions where sports betting and online casino operators are required to have a relationship with a land-based
gaming business. If we cannot establish, renew or manage our relationships with our land-based gaming partners, our relationships could
terminate, and we would not be allowed to operate in those jurisdictions until we enter into new ones. As a result, our business, financial
condition, results of operations and prospects could be adversely affected. Further, in certain states in which we operate where we are
required to have a relationship with a land-based gaming business, customers who want to participate in online sports betting or online
casino must sign-up for an online account at our retail location within the facilities of our land-based gaming business partners. Certain
of these facilities were closed by government order for a time in response to the COVID-19 pandemic. Although certain of these facilities
have re-opened, if they were to close again or have limited hours due to the ongoing COVID-19 pandemic, our ability to register new customers
from these states could be negatively impacted. On the other hand, the re-opening of these facilities could slow the growth of our online
offerings as consumers will have the ability to spend time and money at land-based facilities instead of with our online offerings.
Our current and projected
performance relies heavily upon continued compatibility and interoperability between our app, platform and the major mobile operating
systems, distribution of our offerings on third-party platforms and high-bandwidth data capabilities. Disruptions in the availability
of these may negatively impact our business, financial conditions, results of operations and prospects.
Our customers primarily access
our online sports betting and online casino offerings through our app on their mobile devices, and we believe that this will continue
going forward. To enable our customers to use our offerings through our app on their mobile devices, our app must be compatible with the
major mobile operating systems such as iOS and Android. We rely heavily on third-party platforms to distribute our app and offerings,
interoperability of our platform with popular mobile operating systems, technologies, networks and standards and continued high-bandwidth
data capabilities. Third parties with whom we do not have any formal relationships control the design of mobile devices and operating
systems. These parties frequently introduce new devices, and from time to time they may introduce new operating systems or modify existing
ones. Network carriers may also impact the ability to download apps or access specified content on mobile devices. Further, we rely upon
third-party platforms for distribution of our app and offerings. Our online sports betting and online casino offerings are primarily distributed
through traditional websites, the Apple App Store, and we expect to offer some or all of our apps in the Google Play store in the near
future. In light of this, the promotion, distribution and operation of our app are subject to the applicable distribution platform terms
and policies for application developers, which are very broad and subject to frequent changes and interpretation and may not be uniformly
enforced across all applications and with all publishers.
Moreover, we are, and will
continue to be, dependent on the interoperability of our platform with popular mobile operating systems, such as Android and iOS, technologies,
networks and standards that we do not control. Any changes, bugs, technical or regulatory issues in such systems, our relationships with
mobile manufacturers and carriers, or in their terms of service or policies that negatively affect our offerings’ functionality,
reduce or eliminate our ability to distribute our offerings, provide preferential treatment to competitive products, limit our ability
to deliver our offerings, or impose fees or other charges related to delivering our offerings, could adversely affect the use and monetization
of our offerings on mobile devices.
Our offerings require high-bandwidth
data capabilities for placement of time-sensitive bets and streaming of content. If high-bandwidth capabilities do not continue to grow
or grow more slowly than anticipated, particularly for mobile devices, our customer growth, retention and engagement may be negatively
impacted. To deliver high-quality content over cellular networks, our offerings must work well with a range of mobile technologies, systems,
networks, regulations and standards that we do not control. In particular, any future changes to the iOS or Android operating systems
(which likely will occur) may impact the accessibility, speed, functionality and other performance aspects of our platform. In addition,
the adoption of any laws or regulations that adversely affect the growth, popularity or use of the Internet, including laws governing
Internet neutrality, could decrease the demand for our offerings and increase our cost of doing business. Specifically, any laws that
would allow mobile providers in the United States to impede access to content or otherwise discriminate against content providers like
us over their data networks, could have a material adverse effect on our business, financial condition, results of operations and prospects.
Furthermore, if it becomes
more difficult for our customers to access and use our offerings on their mobile devices, if they choose not to access or use our offerings
on their mobile devices, or if they choose to use mobile products that do not offer access to our offerings, our customer growth, retention
and engagement could be materially harmed. Additionally, if any of the third-party platforms used to distribute our offerings were to
limit or disallow advertising on their platforms for whatever reason or technologies are developed that block the display of our ads,
our ability to generate revenue could be negatively impacted. These changes could materially impact our business activities and practices,
and if we or our advertising partners are unable to timely and effectively adjust to those changes, there could be an adverse effect on
our business, financial condition, results of operations and prospects.
Our growth prospects may suffer if we are
unable to develop successful offerings or if we fail to pursue additional offerings. In addition, if we fail to make the right investment
decisions in our offerings and technology platform, we may not attract and retain customers and our revenue and results of operations
may decline.
We were founded in 2012 and
have primarily focused our efforts since then on growing our current offerings. We have rapidly expanded, and we anticipate expanding
further as new markets open up, our offerings mature and we pursue our growth strategies. The industries in which we operate are characterized
by rapid technological change, evolving industry, regulatory and legal standards, frequent new offering introductions and changes in customer
demands and expectations. To keep pace with the technological developments, achieve product acceptance and remain relevant to customers,
we will need to continue developing new and upgraded functionality of our offerings and adapt to new business environments and competing
technologies and products developed by our competitors. The process of developing new technology is complex, costly and uncertain. To
the extent we are unable to adapt to new technologies and/or standards, experience delays in implementing adaptive measures or fail to
accurately predict emerging technological trends and the changing needs or preferences of customers, we may lose customers.
The requirements of being a public company
may strain our resources and divert management’s attention, and the increases in legal, accounting and compliance expenses that
result from the Business Combination may be greater than we had anticipated.
As a public company (and
particularly after we are no longer an “emerging growth company”), we will incur significant legal, accounting and other
expenses that we did not incur as a private company. We are subject to the reporting requirements of the Securities Exchange Act of
1934 (the “Exchange Act”) and must comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank
Wall Street Reform and Consumer Protection Act, as well as the rules and regulations subsequently implemented by the SEC and the
listing standards of the New York Stock Exchange (the “NYSE”), including changes in corporate governance practices and
establishing and maintaining effective disclosure and financial controls. Compliance with these rules and regulations can be complex
and burdensome. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover,
these rules and regulations increase our historical legal and financial compliance costs and make some activities more
time-consuming and costly. For example, the Business Combination and becoming a public company has made it more difficult and
expensive for us to obtain director and officer liability insurance, and could also make it more difficult for us to attract and
retain qualified board members as compared to when we were a private company. In particular, we expect to incur significant expenses
and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act,
which will increase when we are no longer an “emerging growth company.” We have hired, and may need to continue to hire,
additional accounting and financial staff, and engage outside consultants, all with appropriate public company experience and
technical accounting knowledge, and maintain an internal audit function, which will increase our operating expenses. Moreover, we
could incur additional compensation costs if we decide to pay cash compensation closer to that of other public companies, which
would increase our general and administrative expenses and could materially and adversely affect our profitability. We continue to
evaluate these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of
such costs.
Our failure to maintain adequate financial,
information technology and management processes and controls has resulted in and could result in material weaknesses that could lead to
errors in our financial reporting, which in turn could adversely affect our business.
As an emerging growth company,
we are currently exempt from certain of the SEC’s internal control reporting requirements. However, we will lose our emerging growth
company status and become subject to additional internal control over financial reporting management and auditor attestation requirements
in the year in which we are deemed to be a large accelerated filer, which occurs once we are subject to Exchange Act reporting requirements
for 12 months, have filed at least one SEC annual report and the market value of our common equity held by non-affiliates exceeds $700
million as of the end of the prior fiscal year’s second fiscal quarter. We may be unable to complete our evaluation, testing and
any required remediation in a timely fashion.
In connection with the audit
of RSILP’s consolidated financial statements as of and for the fiscal year ended December 31, 2019 and 2018, we and our independent
registered public accounting firm identified one “material weakness” in RSILP’s internal control over financial reporting
and other control deficiencies. As defined in standards established by the U.S. Public Company Accounting Oversight Board (“PCAOB”),
a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will
not be prevented or detected and corrected on a timely basis. The material weakness identified related to RSILP’s difficulty preparing
its consolidated financial statements on an accurate and timely basis, and how RSILP’s lack of accounting personnel mitigates the
ability to have proper review controls over estimates and contractual transactions and detailed monthly reviews. Following the identification
of the material weakness and other control deficiencies, we implemented measures to remedy the same. However, implementing these measures
may not fully address the material weakness and deficiencies in our internal control over financial reporting.
As
described elsewhere in this Annual Report, we identified a material weakness in our internal control over financial reporting related
to the accounting for a significant and unusual transaction related to the Warrants we issued in connection with our initial public offering
in February 2020 and the closing of the Business Combination in December 2020. As a result of this material weakness, our management
concluded that our disclosure controls and procedures were not effective as of December 31, 2020. This material weakness
resulted in a material misstatement of our warrant liabilities, change in fair value of warrant liabilities, additional paid-in capital,
accumulated deficit, non-controlling interests and related financial disclosures for the Affected Period.
To respond to this material
weakness, we have devoted, and plan to continue to devote, significant effort and resources to the remediation and improvement of our
disclosure controls and procedures. While we have processes to identify and appropriately apply applicable accounting requirements, we
plan to enhance these processes to better evaluate our research and understanding of the nuances of the complex accounting standards that
apply to our consolidated financial statements. Our plans at this time include providing enhanced access to accounting literature, research
materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex
accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these
initiatives will ultimately have the intended effects. For a discussion of management’s consideration of the material weakness identified
related to our accounting for a significant and unusual transaction related to the warrants we issued in connection with our February
2020 initial public offering and the closing of the Business Combination in December 2020, see “Note 3—Restatement of Consolidated
Financial Statements” to the accompanying consolidated financial statements, as well as Part II, Item 9A: Controls and Procedures
included in this Annual Report.
We can give no assurance that
the measures we have taken and plan to take in the future will remediate the material weakness identified or that any additional material
weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate disclosure
controls and procedures or internal control over financial reporting or circumvention of these controls. In addition, even if we are successful
in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities
or errors or to facilitate the fair presentation of our consolidated financial statements.
In addition, our current
controls and any new controls that we develop may become inadequate because of design-related issues and changes in our business,
including increased complexity resulting from any revenue sharing arrangements and expansion into new markets, in particular
internationally. Any failure to implement and maintain effective internal controls over financial reporting could adversely affect
the results of assessments by our independent registered public accounting firm and their attestation reports. If we are unable to
certify the effectiveness of our internal controls or remedy the identified material weakness, or if our internal controls have any
additional material weaknesses, we may not detect errors timely, our consolidated financial statements could be misstated, and we
could be subject to regulatory scrutiny and a loss of confidence by stakeholders, which could harm our business and adversely affect
the market price of our securities.
Our Warrants are being accounted for
as derivative warrant liabilities and are being recorded at fair value upon issuance with changes in fair value each period reported
in earnings, which may have an adverse effect on the market price of our Class A Common Stock.
Under U.S. GAAP, we are required to evaluate the
Warrants to determine whether they should be accounted for as a warrant liability or as equity. We have concluded that the Warrants contain
provisions requiring liability classification. Therefore, as described in our financial statements included in Part II, Item 8, of this
Form 10-K/A, we are accounting for the Warrants as warrant liabilities and are recording that liability at fair value upon issuance. We
will record any subsequent changes in fair value as of the end of each period for which earnings are reported. The impact of changes in
fair value on earnings may have an adverse effect on the market price of our Class A Common Stock and may cause fluctuations in our results
of operations based on factors that are outside of our control.
Recruitment and retention of our employees,
including certain key employees, is vital to growing our business and meeting our business plans. The loss of any of our executives or
other key employees could harm our business.
We depend on a limited number
of key personnel to manage and operate our business, including our Chairman of the Board, CEO and President. The leadership of our current
executive officers has been a critical element of our success and the departure, death or disability of any one of our executive officers
or other extended or permanent loss of any of their services, or any negative market or industry perception with respect to any of them
or their loss, could have a material adverse effect on our business. We cannot provide assurance that we will be able to attract or retain
such highly qualified personnel in the future. In addition, the loss of employees or the inability to hire necessary skilled employees
could result in significant disruptions to our business, and the integration of replacement personnel could be time-consuming, expensive
and cause additional disruptions to our business. Additionally, our CEO is also employed by RSG, and his time and attention may be diverted
from our business, which may have an impact on our business. If we do not succeed in attracting, hiring, and integrating qualified personnel,
or retaining and motivating existing personnel, we may be unable to grow effectively and our business, financial condition, results of
operations and prospects could be adversely affected.
Due to the nature of our business, we are
subject to taxation in numerous jurisdictions and changes in, or new interpretation of, tax laws, tax rulings or their application by
tax authorities could result in additional tax liabilities and could materially affect our business, financial condition, results of operations
and prospects.
Our tax obligations are varied
and include U.S. federal, state, and local and international taxes due to the nature of our business. The tax laws that apply to our business
are subject to interpretation, and significant judgment is required in determining our worldwide provision for income taxes. In the course
of our business, there will be many transactions and calculations where the ultimate tax determination is uncertain. For example, compliance
with the 2017 United States Tax Cuts and Jobs Act (“TCJA”) may require us to collect information not regularly produced within
our Company, use estimates in our consolidated financial statements and exercise significant judgment in accounting for our provisions.
As regulations and guidance evolve with respect to the TCJA, and as we gather more information and perform more analysis, our results
may differ from previous estimates and may materially affect our consolidated financial statements.
The gaming industry represents
a significant source of tax revenue to the jurisdictions in which we operate. Gaming companies and B2B providers in the gaming industry
(directly and/or indirectly by way of their commercial relationships with operators) are currently subject to significant taxes and fees
in addition to normal corporate income taxes, and such taxes and fees are subject to increase at any time. From time to time, various
legislators and other government officials have proposed and adopted changes in tax laws, or in the administration, interpretation or
enforcement of such laws, affecting the gaming industry. In addition, any worsening of economic conditions and the large number of jurisdictions
with significant current or projected budget deficits, many of which have been made worse due to COVID-19, could intensify government
efforts to raise revenues through increases in gaming and/or other taxes. It is not possible to determine with certainty the likelihood
of changes in tax laws or in the administration, interpretation or enforcement of such laws. Any material increase, or the adoption of
additional taxes or fees, could have a material adverse effect on our business, financial condition, results of operations and prospects.
Additionally, tax authorities
may impose indirect taxes on Internet-related commercial activity based on existing statutes and regulations which, in some cases, were
established prior to the advent of the Internet. Tax authorities may interpret laws originally enacted for mature industries and apply
it to newer industries, such as ours. Such laws may be applied inconsistently from jurisdiction to jurisdiction. Our in-jurisdiction activities
may vary from period to period, which could result in differences in nexus from period to period.
We are subject to periodic
review and audit by domestic and foreign tax authorities. Tax authorities may disagree with certain positions we have taken or will take,
and any adverse outcome of such a review or audit could have a negative effect on our business, financial condition, results of operations
and prospects. Although we believe our tax provisions, positions and estimates are reasonable and appropriate, tax authorities may disagree
with certain positions we have taken. In addition, economic and political pressures to increase tax revenue in various jurisdictions may
make resolving tax disputes favorably more difficult.
Increases in our income tax rates, changes
in income tax laws or disagreements with tax authorities can adversely affect our business, financial condition or results of operations.
Increases in our income tax
rates or other changes in income tax laws in the United States or any particular jurisdiction in which we operate could reduce our after-tax
income from such jurisdiction and adversely affect our business, financial condition or results of operations. Existing U.S. tax laws
have been and could in the future be subject to significant change. For example, in December 2017, the TCJA was signed into law in the
United States, which provided for significant changes to then-existing tax laws and additional guidance issued by the IRS pursuant to
the TCJA may continue to impact us in future periods. Additional changes in the U.S. tax regime, including changes in how existing tax
laws are interpreted or enforced, can adversely affect our business, financial condition or results of operations.
We will also be subject to
regular reviews, examinations and audits by the IRS and other taxing authorities with respect to income and non-income-based taxes. Economic
and political pressures to increase tax revenues in jurisdictions in which we operate, or the adoption of new or reformed tax legislation
or regulation, may make resolving tax disputes more difficult and the final resolution of tax audits and any related litigation can differ
from our historical provisions and accruals, resulting in an adverse impact on our business, financial condition or results of operations.
We have international business operations,
which subjects us to additional costs and risks that could adversely affect our operating results.
A portion of our operations
are located in Colombia, and we may in the future pursue opportunities in other non-U.S. jurisdictions. Compliance with international,
Colombian and U.S. laws and regulations that apply to our international operations increases our cost of doing business. As a result of
our international operations, we are subject to a variety of risks and challenges in managing an organization operating in various countries,
including those related to:
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challenges caused by distance as well as language, cultural and time zone differences;
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general economic conditions in Colombia (and any other jurisdictions where we may pursue non-U.S. opportunities);
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political unrest, terrorism and the potential for other hostilities;
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public health risks, particularly in areas in which we have significant operations;
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longer payment cycles and difficulties in collecting accounts receivable;
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overlapping or changes in tax regimes;
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difficulties in transferring funds from certain countries and managing foreign exchange rate fluctuations and risks;
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laws such as the U.S. Foreign Corrupt Practices Act, and local laws which also prohibit corrupt payments to governmental officials;
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local laws which prohibit money-laundering and financing of terrorist and other unlawful financial activities; and
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reduced protection for intellectual property rights in some countries.
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If we are unable to expand
or adequately staff and manage our existing development operations located outside of the United States, we may not realize, in whole
or in part, the anticipated benefits from these initiatives (including lower development expenses), which in turn could materially adversely
affect our business, financial condition, results of operations and prospects.
To date, COVID-19 has significantly impacted
our business and the impact of any eventual recovery from the ongoing COVID-19 pandemic on our business, operating results and growth
rates is currently unknown or uncertain.
To date, COVID-19 has
significantly impacted our business. It has directly impacted our business, beyond disruptions in normal business operations,
primarily through changes in consumer habits as a result of people being required to stay home and limit traveling or otherwise
voluntarily doing such. During the period of these stay-at-home orders, our user activity significantly increased and has continued
to remain strong as many of these orders were lifted. COVID-19 has also impacted sports betting due to the rescheduling,
reconfiguring, suspension, postponement and cancellation of major sports seasons and sporting events. The timing and duration of
many major sports seasons and other sporting events is still either unknown or uncertain. However, bricks-and-mortar casino closures
and certain ongoing limitations on visitations due to COVID-19 have provided additional opportunities for us to market online gaming
to traditional bricks-and-mortar casino patrons. If and when the United States and the rest of the world begins to recover from the
ongoing COVID-19 pandemic and bricks-and-mortar casino and other traditional forms of leisure and entertainment such as movie
theaters and sporting events start to reopen, it is currently unknown or uncertain how such a recovery would impact our business,
operating results and growth rates.
We are dependent on RSG and certain of its
affiliates to provide us with certain services, which may not be sufficient to meet our needs, and we may have difficulty finding replacement
services or be required to pay increased costs to replace these services to the extent that our services agreement with RSG terminates
or expires.
Historically, RSG has provided,
and continues to provide, under a services agreement between us and RSG, certain corporate and shared services related to functions such
as executive oversight, risk management, information technology, accounting, audit, legal, investor relations, human resources, tax, treasury,
procurement and other services. We reimburse RSG for all third-party costs it incurs in providing services to us at cost (with no mark-up)
and reimburse RSG for an allocable portion of payroll, benefits and overhead (calculated at 150% of an employee’s salary, bonus
and benefits cost) with respect to RSG employees who perform or otherwise assist with providing services to us. While RSG provides these
services to us, we will be dependent on them for services that are critical to our operation as a publicly traded company, and our operational
flexibility to modify or implement changes with respect to such services and the amounts we pay for them will be limited. If the services
agreement with RSG terminates or expires, we may be unable to replace these services or enter into appropriate third-party agreements
on terms, including cost and quality, comparable to those that we receive under the services agreement. Although we may in the future
replace some or all of the services that RSG currently provides, we may encounter difficulties replacing certain services or be unable
to negotiate pricing or other terms as favorable as those we currently have in effect.
Negative publicity of us or an adverse shift
in public opinion regarding sports betting or online casino may adversely impact our business and customer retention.
A negative change in the public’s
opinion of sports betting or online casino, or how politicians and other governmental authorities view sports betting or online casino
could result in future legislation or new regulations restricting or prohibiting certain (or all) sports betting or online casino activities
in certain jurisdictions, the result of which may negatively impact our business, financial condition, results of operations and prospects.
Further, negative publicity about us or our offerings, platform or customer experience or the sports betting and online casino industry
generally could lead to new restrictions and limitations on us or sports betting and online casino generally, which may negatively impact
our business, financial condition, results of operations and prospects.
Risks Related to Government Regulation
Our business is subject to numerous U.S.
and foreign laws, many of which are unsettled and still developing. Any change in regulations or their interpretation, or the regulatory
climate applicable to our business and offerings, or changes in tax rules and regulations or interpretation thereof related to our business
and offerings, could adversely impact our ability to operate our business, which could have a material adverse effect on our business,
financial condition, results of operations and prospects.
We are subject to laws and
regulations relating to real-money online casino and retail and online sports betting in the jurisdictions in which we conduct our business
or in some circumstances, where we offer our offerings. We are also subject to the general laws and regulations that apply to all e-commerce
businesses, such as those related to privacy and personal information, tax and consumer protection. These laws and regulations vary from
one jurisdiction to another and future legislative and regulatory action, court decisions or other governmental action, which may be affected
by, among other things, political pressures, attitudes and climates, as well as personal biases, may have a material impact on our operations
and financial results. In particular, some jurisdictions have introduced regulations attempting to restrict or prohibit online gaming,
while others have taken the position that online gaming should be licensed and regulated and have adopted or are considering legislation
and regulations to enable that to happen. Additionally, some jurisdictions in which we may operate could presently be unregulated or partially
regulated and therefore more susceptible to the enactment or change of laws and regulations.
We offer our real-money offerings
in nine states that have adopted legislation and regulations permitting online casino, online sports betting or retail sports betting.
In those states that currently require a license or registration, we have obtained the appropriate license or registration or have obtained
a provisional license. We also operate under one foreign license in Colombia.
In May 2018, the U.S.
Supreme Court struck down as unconstitutional PASPA. This decision effectively lifted federal restrictions on sports betting, thus
allowing states to determine by themselves the legality of sports betting. Since the repeal of PASPA, numerous states (plus
Washington D.C.) have legalized online sports betting. To the extent new real-money online casino or retail or sports betting
jurisdictions are established or expanded, we cannot guarantee that we will be successful in penetrating such new jurisdictions or
expanding our business or customer base in line with the growth of existing jurisdictions. If we are unable to effectively develop
and operate directly or indirectly within these new jurisdictions or if our competitors are able to successfully penetrate
geographic jurisdictions that we cannot access or where we face other restrictions, there could be a material adverse effect on our
business, financial condition, results of operations and prospects. Our failure to obtain or maintain the necessary regulatory
approvals in jurisdictions, whether individually or collectively, would have a material adverse effect on our business. See
“Business — Government Regulation.” To expand into new jurisdictions, we may need to be licensed and obtain
approvals of our offerings. This is a time- consuming process that can be extremely costly. Any delays in obtaining or difficulty in
maintaining regulatory approvals needed for expansion within existing jurisdictions or into new jurisdictions can negatively affect
our opportunities for growth, including the growth of our customer base, or delay our ability to recognize revenue from our
offerings in any such jurisdictions.
Future legislative and regulatory
action, and court decisions or other governmental action, may have a material impact on our operations and financial results. Governmental
authorities could view us as having violated local laws, despite our efforts to obtain all applicable licenses or approvals. Further,
there is risk that governmental authorities or courts could determine that our free-play, social casino offerings constitute unauthorized
gambling or that legislation is enacted in jurisdictions in which we operate free-play, social casino offerings that makes our free-play,
social casino offerings unauthorized gambling, which could negatively impact our operations and business results and expose us and certain
of our third-party providers, including the app stores that distribute our apps, to potential litigation. There is also a risk that civil
and criminal proceedings, including class actions brought by or on behalf of prosecutors, public entities, incumbent monopoly providers
or private individuals, could be initiated against us, Internet service providers, credit card and other payment processors, financial
institutions, advertisers and others involved in the online casino and gaming industries. Such potential proceedings could involve substantial
litigation expense, penalties, fines, seizure of assets, injunctions or other restrictions being imposed upon us, our licensees or other
business partners, while diverting the attention of key executives. Such proceedings could have a material adverse effect on our business,
financial condition, results of operations and prospects, as well as impact our reputation.
There can be no assurance
that legally enforceable legislation will not be proposed and passed in jurisdictions relevant or potentially relevant to our business
to prohibit, legislate or regulate various aspects of the online casino and retail and online gaming industries (or that existing laws
in those jurisdictions will not be interpreted or enforced negatively). Compliance with any such legislation may have a material adverse
effect on our business, financial condition, results of operations and prospects, either as a result us determining that a jurisdiction
should be blocked, or because a local license or approval may be costly for us or our business partners to obtain and/or such licenses
or approvals may contain other commercially undesirable conditions.
In the United States, the
UIGEA prohibits among other things, the acceptance by a business of a wager by means of the Internet where such wager is prohibited by
any federal or state law where initiated, received or otherwise made. Under UIGEA severe criminal and civil sanctions may be imposed on
the owners and operators of such systems and on financial institutions that process wagering transactions. The law contains a safe harbor
for wagers placed within a single state (disregarding intermediate routing of the transmission) where the method of placing the wager
and receiving the wager is authorized by that state’s law, provided the underlying regulations establish appropriate age and location
verification.
The U.S. Illegal Gambling
Business Act (“IGBA”) makes it a crime to conduct, finance, manage, supervise, direct or own all or part of an “illegal
gambling business” and the U.S. Travel Act makes it a crime to use the mail or any facility in interstate commerce with the intent
to “distribute the proceeds of any unlawful activity,” or “otherwise promote, manage, establish, carry on, or facilitate
the promotion, management, establishment, or carrying on, of any unlawful activity.” For there to be a violation of either the IGBA
or the Travel Act there must be a violation of underlying state law.
Until 2011, it was uncertainty
as to whether the Wire Act prohibited states from conducting intrastate lottery transactions via the Internet if such transactions crossed
state lines. In late 2011, the Office of Legal Counsel (the “OLC”) of the Department of Justice (“DOJ”) issued
an opinion that concluded that the prohibitions of the Wire Act were limited to sports gambling and thus did not apply to state lotteries
at all (the “2011 DOJ opinion”). Following the issuance of the 2011 DOJ opinion, within the past several years, state-authorized
Internet casino gaming has been launched in Delaware, Michigan, New Jersey and Pennsylvania and state-authorized online poker has launched
in Nevada. In 2018, at the request of the Criminal Division, the OLC reconsidered the 2011 DOJ opinion’s conclusion that the Wire
Act was limited to sports gambling. On January 14, 2019, the OLC published a legal opinion dated November 2, 2018 (the “2018 DOJ
opinion”), which concluded that the 2011 DOJ opinion had incorrectly interpreted the Wire Act. In the 2018 DOJ opinion, the OLC
concluded that the restrictions on the transmission in interstate or foreign commerce of bets and wagers in the Wire Act were not limited
to sports gambling but instead applied to all bets and wagers. The OLC also found that the enactment of the UIGEA described above did
not modify the scope of the Wire Act. The OLC acknowledged that its conclusion in the 2018 DOJ opinion, which was contrary to the 2011
DOJ opinion, will make it more likely that the executive branch’s view of the law will be tested in the courts. At this time, we
are unable to determine whether the 2018 DOJ opinion will be upheld by the courts, or what impact it will have on us or our customers.
Our growth prospects depend on the legal
status of real-money gaming in various jurisdictions, and legalization may not occur in as many states as we expect or may occur at a
slower pace than we anticipate or may be accompanied by legislative or regulatory restrictions or taxes that make it impracticable or
less attractive to operate, which could adversely affect our future results of operations and make it more difficult to meet our expectations
for financial performance.
Numerous states have
legalized, or are currently considering legalizing, real-money gaming, and our growth, business, financial condition, results of
operations and prospects significantly depend upon the legalization of real-money gaming expanding to new jurisdictions. Our
business plan is partly based on real-money gaming becoming legal for a specific percent of the population on a yearly basis;
however, this legalization may not occur as we have anticipated. Additionally, if a large number of additional states or the federal
government enact real-money gaming legislation and we are unable to obtain or are otherwise delayed in obtaining the necessary
licenses to operate online sports betting or online gaming websites in U.S. jurisdictions where such games are legalized, our future
growth in online sports betting and online gaming could be materially impaired.
As we enter new jurisdictions,
states or the federal government may legalize real-money gaming in a manner unfavorable to us. As a result, we may encounter legal, regulatory
and political challenges that are difficult or impossible to foresee and which could result in an unforeseen adverse impact on projected
revenues or costs associated with the new opportunity. For example, certain states require us to have a relationship with a bricks-and-mortar,
licensed casino for online sportsbook or online gaming access, which tends to increase our costs of revenue. States that have established
state-run monopolies may limit opportunities for private sector participants like us. States also impose substantial taxes on online sports
betting and online gaming revenue, in addition to sales taxes in certain jurisdictions and a federal excise tax of 25 basis points on
the amount of each wager. As most state product taxes apply to various measures of modified gross profit, tax rates, whether federal-
or state-based, that are higher than we expect will make it more costly and less desirable for us to launch in a given jurisdiction, while
tax increases in any of our existing jurisdictions may adversely impact our profitability.
Therefore, even in cases where
a jurisdiction purports to license and regulate online sports betting and online casino, the licensing and regulatory regimes can vary
considerably in their business-friendliness and at times may be intended to provide incumbent operators with advantages over new licensees.
Thus, some “liberalized” regulatory regimes are considerably more commercially attractive than others.
Failure to comply with regulatory requirements
or to successfully obtain a license or permit applied for could adversely impact our ability to comply with licensing and regulatory requirements
or to obtain or maintain licenses in other jurisdictions, or could cause financial institutions, online platforms and distributors to
stop providing services to us.
Compliance with the various
regulations applicable to real-money gaming is costly and time-consuming. Regulatory authorities at the foreign, U.S. federal, state and
local levels have broad powers with respect to regulating and licensing of real-money gaming operations and may revoke, suspend, condition
or limit our real-money gaming licenses, impose substantial fines on us and take other actions, any one of which could have a material
adverse effect on our business, financial condition, results of operations and prospects. These laws and regulations are dynamic and subject
to potentially differing interpretations, and various legislative and regulatory bodies may expand current laws or regulations or enact
new laws and regulations regarding these matters. We strive to comply with all applicable laws and regulations relating to our business.
It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction
to another and may conflict with other rules. Non-compliance with any such law or regulations could expose us to claims, proceedings,
litigation and investigations by private parties and regulatory authorities, as well as substantial fines and negative publicity, each
of which may materially and adversely affect our business, financial condition, results of operations and prospects.
Any real-money gaming license
could be revoked, suspended or conditioned at any time. The loss of a license in one jurisdiction could trigger the loss of a license
or affect our eligibility for such a license in another jurisdiction, and any of such losses, or potential for such loss, could cause
us to cease offering some or all of our offerings in the impacted jurisdictions. We may be unable to obtain or maintain all necessary
registrations, licenses, permits or approvals, and could incur fines or experience delays related to the licensing process, which could
adversely affect our operations. Our delay or failure to obtain or maintain licenses in any jurisdiction may prevent us from distributing
our offerings, increasing our customer base and/or generating revenues. We provide assurance that we will be able to obtain and maintain
the licenses and related approvals necessary to conduct our gaming operations. Any failure to maintain or renew our existing licenses,
registrations, permits or approvals could have a material adverse effect on our business, financial condition, results of operations and
prospects.
Additionally, a gaming regulatory
body may refuse to issue or renew a gaming license or restrict or condition the same, based on our past or present activities or our current
or former directors, officers, employees, stockholders or third parties with whom we have relationships, which could adversely affect
our business, financial condition, results of operations and prospects. If additional gaming regulations are adopted in a jurisdiction
in which we operate, such regulations could impose restrictions or costs that could have a significant adverse effect on us. From time
to time, various proposals are introduced in the legislatures of some of the jurisdictions in which we have existing or planned operations
that, if enacted, could adversely affect our directors, officers, key employees, or other aspects of the company’s operations. To
date, we believe we have obtained all governmental licenses, findings of suitability, registrations, permits and approvals necessary for
our operations. However, we can give no assurance that any additional licenses, permits and approvals that may be required will be given
or that existing ones will be renewed or will not be revoked. Renewal is subject to, among other things, continued satisfaction of suitability
requirements of our directors, officers, key employees and stockholders. Any failure to renew or maintain our licenses or to receive new
licenses when necessary would have a material adverse effect on our business, financial condition, results of operations and prospects.
We follow the industry practice of restricting
and managing betting limits at the individual customer level based on individual customer profiles and risk level to the enterprise; however,
there is no guarantee that states will allow operators such as us to limit on the individual customer level.
Similar to a credit card company
managing individual risk on the customer level through credit limits, it is customary for retail and online sports betting operators to
manage customer betting limits at the individual level to manage enterprise risk levels. We believe this practice is beneficial overall,
because if it were not possible, the betting options would be restricted globally and limits available to customers would be much lower
to insulate overall risk due to the existence of a very small segment of highly sophisticated syndicates and algorithmic bettors, or bettors
looking to take advantage of site errors and omissions. We believe virtually all operators balance taking reasonable action from all customers
against the risk of individual customers significantly harming the business viability. We cannot assure you that all state legislation
and regulators will always allow operators to execute limits at the individual customer level, or at their sole discretion.
In some jurisdictions, our key executives,
certain employees or other individuals related to the business will be subject to licensing or compliance requirements. Failure by such
individuals to obtain the necessary licenses or comply with individual regulatory obligations could cause the business to be non-compliant
with its obligations or imperil its ability to obtain or maintain licenses necessary for the conduct of the business.
As part of obtaining real-money
gaming licenses, the responsible gaming authority will generally determine suitability of certain directors, officers and employees and,
in some instances, significant stockholders. The criteria used by gaming authorities to make determinations as to who requires a finding
of suitability or the suitability of an applicant to conduct gaming operations varies among jurisdictions, but generally requires extensive
and detailed application disclosures followed by a thorough investigation. Gaming authorities typically have broad discretion in determining
whether an applicant should be found suitable to conduct operations within a given jurisdiction. If any gaming authority with jurisdiction
over our business were to find an applicable officer, director, employee or significant stockholder of ours unsuitable for licensing or
unsuitable to continue having a relationship with us, we would be required to sever our relationship with that person. Furthermore, such
gaming authorities may require us to terminate the employment of any person who refuses to file required applications. Either result could
have a material adverse effect on our business, financial condition, results of operations and prospects.
Our Charter includes provisions that may
require stockholders to sell their securities if the stockholder is deemed to be “unsuitable” for purposes of certain gaming
regulations.
Our second amended and restated
certificate of incorporation (the “Charter”) provides that any equity interests of the Company owned or controlled by an unsuitable
person or its affiliates will be subject to mandatory sale and transfer to either us or one or more third party transferees and in such
number and class(es)/series of equity interests as determined by the Board in good faith (following consultation with reputable outside
and independent gaming regulatory counsel) pursuant to a resolution adopted by a majority of the directors of the Board.
Our gaming activities are
regulated by gaming authorities in each jurisdiction in which we operate. To operate in any given gaming jurisdiction, we and our directors,
officers, certain other key employees and, in certain cases, our significant stockholders, must be found suitable by the relevant gaming
authority. Gaming authorities typically have broad discretion in determining whether an applicant is suitable to conduct or be associated
with gaming activities within a given jurisdiction. Though criteria for suitability varies by jurisdiction, such criteria generally include
(among other things) an evaluation of the applicant’s reputation for good character, criminal and financial history and character
of those with whom the applicant associates. Our association with individuals or entities that are or are likely to be deemed unsuitable
in any particular jurisdiction would present risk to our ability to obtain or maintain the gaming license we need to operate in such jurisdiction.
Suspension or revocation of
any existing license or rejection of any application for a new license made by us is likely to have a material negative affect on our
business, operations and prospects. As such, to avoid potential material adverse effect on our business, operations and prospects, if
a director, officer, key employee or stockholder is found or deemed unsuitable (including if such individual refuses to file required
applications) or if our association with such individual would risk our license status (as determined by the Board following consultation
with reputable outside and independent gaming regulatory counsel), we would need to sever our relationship with such individual, including
by requiring a sale of the equity interests such individual holds in us to us or other third party.
Risks Related to Intellectual Property and
Data Security
We license certain trademarks and domain
names to RSG and its affiliates, and RSG’s and its affiliates’ use of such trademarks and domain names may harm our business.
We entered into a license
agreement (the “License Agreement”) with RSG, pursuant to which we granted to RSG and its affiliates a perpetual, royalty-free,
license to use, in certain fields of use, certain trademarks and domain names that RSG and certain of its affiliates assigned to us in
connection with the Business Combination. This license may be either exclusive or non-exclusive based on the field of use and the particular
trademark or domain name. This license precludes our use of certain trademarks and domain names in the exclusive fields of use. Certain
trademarks and domain names that we licensed to RSG may include the words “Rush Street,” and RSG’s use of such trademarks
and domain names may disrupt our reputation in the marketplace, damage any goodwill we may have generated, and otherwise harm our business,
financial condition, results of operations and prospects.
We rely on information technology and other
systems and platforms, and failures, errors, defects or disruptions therein could diminish our brand and reputation, subject us to liability,
disrupt our business, affect our ability to scale our technical infrastructure and adversely affect our operating results and growth prospects.
Our offerings, online gaming platform and other software applications and systems, and certain third-party platforms that we use could
contain undetected errors.
Our technology infrastructure
is critical to the performance of our platform and offerings and to customer satisfaction. We devote significant resources to network
and data security to protect our systems and data. However, our systems may not be adequately designed with the necessary reliability
and redundancy to avoid performance delays or outages that could harm our business. We cannot assure you that absolute security will be
provided by the measures we take to: prevent or hinder cyber-attacks and protect our systems, data and customer information; prevent outages,
data or information loss, and fraud; and prevent or detect security breaches. Such measures include a disaster recovery strategy for server
and equipment failure, back-office systems and the use of third parties for certain cybersecurity services. We have experienced, and we
may in the future experience, disruptions, outages and other performance problems on our platform or offerings due to a variety of factors,
including human or software errors, infrastructure changes and capacity constraints. To date, such disruptions, individually and in the
aggregate, have not had a material impact us; however, future disruptions from unauthorized access to, fraudulent manipulation of, or
tampering with our systems and technological infrastructure, or those of third parties, could result in a wide range of negative outcomes,
each of which could materially adversely affect our business, financial condition, results of operations and prospects.
Additionally, our offerings
may contain errors, bugs, flaws or corrupted data, and these defects may become apparent only after their launch and could result in a
vulnerability that could compromise our systems’ security. If a particular offering is unavailable when customers attempt to access
it or navigation through our platform is slower than expected, customers may be unable to use our offerings as desired and may be less
likely to return to our platform as often, if at all. Further, programming errors, defects and data corruption could disrupt our operations,
adversely affect our customers’ experience, harm our reputation, cause our customers to stop using our platform or offerings, divert
our resources or delay market acceptance of our offerings, any of which could result in legal liability to us or harm our business, financial
condition, results of operations and prospects. Insufficient business continuity management could diminish our brand and reputation, subject
us to liability, disrupt our business and adversely affect our operating results and growth prospects, and failure of planned availability
and continuity solutions and disaster recovery when activated in response to an incident could result in system interruptions and degradation
of service.
If our customer base and engagement
continue to grow, and the amount and types of offerings continue to grow and evolve, we will need an increasing amount of technical infrastructure,
including network capacity and computing power, to continue to satisfy our customers’ needs. Such infrastructure expansion may be
complex, and unanticipated delays in completing these projects or availability of components may lead to increased project costs, operational
inefficiencies or interruptions in the delivery or degradation of the quality of our offerings. In addition, there may be issues related
to this infrastructure that are not identified during the testing phases of design and implementation, which may become evident only after
we have started to fully use the underlying equipment or software, that could further degrade the customer experience or increase our
costs. As such, we could fail to continue to effectively scale and grow our technical infrastructure to accommodate increased demands.
In addition, a lack of resources (e.g., hardware, software, personnel and service providers) could result in an inability to scale our
services to meet business needs, system interruptions, degradation of service or operational mistakes. Our business also may be subject
to interruptions, delays or failures resulting from adverse weather conditions, other natural disasters, power loss, terrorism, cyber-attacks,
public health emergencies (such as COVID-19) or other catastrophic events.
We believe that if our customers
have negative experiences with our offerings or if our brand or reputation is negatively affected, customers may be less inclined to use
our offerings or recommend them to other potential customers. Thus, a failure or significant interruption in our platform could harm our
reputation, our business, financial condition, results of operations and prospects.
Despite our security measures, our information
technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions.
Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost, corrupted
or stolen. Any such access, disclosure, other loss, corruption or theft of information could result in legal claims or proceedings, liability
under laws that protect the privacy of personal information, and regulatory penalties, disruption of our operations and the services we
provide to customers, damage to our reputation, and a loss of confidence in our products and services, each of which could adversely affect
our business, financial condition, results of operations and prospects.
The maintenance and
transmission of customer information in a secure manner is a critical element of our operations. Our information technology and
other systems that maintain and transmit customer information, or the systems of third-party service providers and business
partners, may be compromised by malicious third-party penetration of our network security, or the network security of a third-party
service provider or business partner, or impacted by intentional or unintentional actions or inactions by our employees or
third-party service providers or business partners. As a result, our customers’ information may be lost, disclosed, corrupted,
accessed or taken without such customers’ consent. Given the data intensive nature of our business, we have experienced
attempts to breach our systems and other similar incidents in the past. For example, we have been and will likely continue to be
subject to attempts to gain unauthorized access to player accounts through our information systems or those we develop for our
customers, including phishing attacks by malicious actors who may try to deploy viruses, worms or other malicious programs. To date,
these attacks have not had a material impact on our operations or financial results, but we cannot assure you that they will not
have a material impact in the future, including by overloading our systems and network and preventing our offerings from being
accessed by legitimate customers.
We rely on encryption and
authentication technology licensed from third parties in an effort to securely transmit confidential and sensitive information. Advances
in computer capabilities, new technological discoveries or other developments may result in the whole or partial failure of this technology
to protect transaction data or other confidential and sensitive information from being breached or compromised. In addition, websites
are often attacked through compromised credentials, including those obtained through phishing and credential stuffing. Our security measures,
and those of our third-party providers, may not detect or prevent all attempts to breach our systems, denial-of-service attacks, viruses,
malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may
jeopardize the security of information stored in or transmitted by our websites, apps, networks and systems or that we or such third parties
otherwise maintain, including payment card systems, which may subject us to fines or higher transaction fees, or limit or terminate our
access to certain payment methods. We and such third parties may not anticipate or prevent all types of attacks until after they have
already been launched. Further, techniques used to obtain unauthorized access to, or sabotage, systems change frequently and may not be
known until launched against us or our third-party service providers.
In addition, security breaches
can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by third parties.
These risks may increase over time as the complexity and number of technical systems and applications we use increases. Breaches of our
security measures or those of our third-party providers, or cybersecurity incidents could result in: unauthorized access to our sites,
apps, networks and systems; unauthorized access to and misappropriation of customer data, including personally identifiable information,
or our or third parties’ other confidential or proprietary information; viruses, worms, spyware or other malware being served from
our sites, apps, networks or systems; deletion or modification of content or the display of unauthorized content on our sites; interruption,
disruption or malfunction of operations; costs relating to breach remediation, deployment of additional personnel and protection technologies,
response to governmental investigations and media inquiries and coverage; engagement of third-party experts and consultants; or litigation,
regulatory action and other potential liabilities. In the past, the online gaming industry has experienced social engineering, phishing,
malware and similar attacks and threats of denial-of-service attacks, none of which to date have been material to our business; however,
such attacks could in the future have a material adverse effect on our operations. If any of these security breaches should occur and
be material, our reputation and brand could be damaged, our business may suffer, we could be required to expend significant capital and
other resources to alleviate problems caused by such breaches, and we could be exposed to a risk of loss, litigation or regulatory action
and possible liability. We cannot guarantee that recovery protocols and backup systems will be sufficient to prevent data loss. Actual
or anticipated attacks may cause us to incur increased costs, including costs to deploy additional personnel and protection technologies,
train employees and engage third-party experts and consultants.
In addition, a party who can
illicitly obtain a customer’s password could access that customer’s transaction data or personal information, resulting in
the perception that our systems are insecure. Any compromise or breach of our security measures, or those of our third-party providers,
could violate applicable privacy, data protection, data security, network and information systems security and other laws and cause significant
legal and financial exposure, adverse publicity and a loss of confidence in our security measures, which could have a material adverse
effect on our business, financial condition, results of operations and prospects. We continue to devote significant resources to protect
against security breaches, and we may need to in the future to address problems caused by breaches, including notifying affected customers
and responding to any resulting litigation, which in turn, diverts resources from the growth and expansion of our business.
Failure to protect or enforce our intellectual
property rights or the costs involved in such enforcement could harm our business, financial condition, results of operations and prospects.
We rely on trademark, copyright,
patent, trade secret and domain name-protection laws to protect our rights in intellectual property. In the United States and in certain
foreign jurisdictions, we have filed applications to protect aspects of our intellectual property. We currently hold several patent applications
in multiple jurisdictions, and in the future we may acquire additional patents, which could require significant cash expenditures. However,
third parties may knowingly or unknowingly infringe our rights in intellectual property, third parties may challenge our intellectual
property rights, and pending and future trademark, copyright and patent applications may not be approved. In any of these cases, we may
be required to expend significant time and expense to prevent infringement of or to enforce our rights. Notwithstanding our intellectual
property rights, there can be no assurance that others will not offer products or services that are substantially similar to ours and
compete with our business.
Circumstances outside
our control could pose a threat to our intellectual property rights. For example, effective intellectual property protection may not
be available in the United States or other countries in which we operate or intend to operate our business. Also, the efforts we
have taken to protect our intellectual property rights may not be sufficient or effective, and any significant impairment of our
intellectual property rights could harm our business or our ability to compete. If we are unable to protect our proprietary
offerings and features, competitors may reverse engineer and/or copy them. Additionally, protecting our intellectual property rights
is costly and time-consuming. Any unauthorized use of our intellectual property or disclosure of our confidential information or
trade secrets could make it more expensive to do business, thereby harming our operating results. Furthermore, if we are unable to
protect our intellectual property rights or prevent unauthorized use or appropriation by third parties, the value of our brands,
intellectual property and other intangible assets may be diminished, and competitors may be able to more effectively mimic our
offerings and services. Any of these events could seriously harm our business, financial condition, results of operations and
prospects.
We will rely on licenses and service agreements
to use the intellectual property rights of third parties that are incorporated into or used in our products and services. Failure to renew
or expand existing licenses or service agreements may require us to modify, limit or discontinue certain product or services, which could
materially affect our business, financial condition, results of operations and prospects.
We rely on products, technologies
and intellectual property that we license or that are made available to us through service agreements from third parties, for use in our
platform and/or offerings. Substantially all our offerings, products and services use intellectual property licensed or made available
to us through service agreements from third parties. The future success of our business may depend, in part, on our ability to obtain,
retain and/or expand licenses or service agreements for certain technologies. We cannot assure you that these third-party licenses and
services agreements, or support for the technologies licensed or provided to us thereunder, will continue to be available to us on commercially
reasonable terms, if at all. If we cannot renew and/or expand existing licenses or services agreements, we may have to discontinue or
limit our use of the offering, product and/or service that include or incorporate the licensed or provided technology.
Some of our license agreements
contain minimum guaranteed royalty payments to the third party. If we are unable to generate sufficient revenue to offset the minimum
guaranteed royalty payments, it could have a negative effect on our business, financial condition, results of operations, prospects and
cash flows. Our license agreements generally allow for assignment in the event of a strategic transaction but contain some limited termination
rights post-assignment. Certain of our license agreements grant the licensor rights to audit our use of their intellectual property. Disputes
with licensors over uses or terms could result in the payment of additional royalties or penalties by us, cancellation or non-renewal
of the underlying license or litigation.
The regulatory review process
and licensing requirements also may preclude us from using technologies owned or developed by third parties if those parties are unwilling
to subject themselves to regulatory review or do not meet regulatory requirements. Some gaming authorities require gaming manufacturers
to obtain approval before engaging in certain transactions, such as acquisitions, mergers, reorganizations, financings, stock offerings
and share repurchases. Obtaining such approvals can be costly and time consuming, and we cannot assure you that such approvals will be
granted or that the approval process will not result in delays or disruptions to our strategic objectives.
Risks Related to our Third-Party Vendor Relationships
We rely on third-party cloud infrastructure
and hosting providers and server rooms hosted by certain of our land-based casino partners. Disruption or interference with this infrastructure
or server rooms could adversely affect our business, financial condition, results of operations and prospects.
We host our online gaming
platform and our sports betting and online casino offerings using third party public and on-premise private cloud infrastructure and hosting
services and on-premise server rooms hosted by certain of our land-based casino partners. We do not have full control over the operations
of the infrastructure of the third-party service providers that we use or anticipate using (i.e., Amazon Web Services and Google Cloud)
or the facilities (including the server rooms) of our casino partners. Such infrastructure and facilities are vulnerable to damage or
interruption from natural disasters, cybersecurity attacks, terrorist attacks, power outages, and similar events or acts of misconduct.
We have experienced and expect in the future to experience, interruptions, delays and outages in service and availability from these providers
on account of, among other things, infrastructure changes, human or software errors, website hosting disruptions and capacity constraints.
Any such interruptions, delays or outages result in sustained or repeated system failures with respect to our platform could reduce the
attractiveness of our offerings. Any capacity constraints may also impact our ability to maintain performance of our offerings. Should
our agreements with any third-party cloud service provider terminate or we add new cloud infrastructure service providers, we may experience
additional costs and platform performance downtime in adding or transitioning to new or additional service providers. These impacts (and
any associated negative publicity regarding them) may harm our brand or reduce customers using our platform, which may negatively impact
our business, financial condition, results of operations and prospects.
We rely on third-party providers to validate
the identity and location of our customers, and if such providers fail to perform adequately or provide accurate information or we do
not maintain business relationships with them, our business, financial condition, results of operations and prospects could be adversely
affected.
There is no guarantee
that the third-party geolocation and identity verification systems that we rely on perform adequately or will be effective. We rely
on our geolocation and identity verification systems to ensure that we comply with certain laws and regulations, and any service
disruption to those systems would prohibit us from operating our platform and would adversely affect our business. Additionally,
incorrect or misleading geolocation and identity verification data with respect to current or potential customers received from
third-party service providers may result in us inadvertently allowing access to our offerings to individuals who should not be
permitted to access them, or otherwise inadvertently deny access to individuals who should be able to access them, in each case
based on inaccurate identity or geographic location determinations. Our third-party geolocation services provider relies on its
ability to obtain information necessary to determine geolocation from mobile devices, operating systems and other sources. Changes,
disruptions or temporary or permanent failure to access such sources by our third-party services providers may result in their
inability to accurately determine the location of our customers. Moreover, our inability to maintain our existing contracts with
third-party services providers, or to replace them with equivalent third parties, may result in our inability to access geolocation
and identity verification data necessary for our day-to-day operations. If any of these risks materialize, we may be subject to
disciplinary action, fines and lawsuits, and our business, financial condition, results of operations and prospects could be
adversely affected.
Our platform contains third-party open-source
software components, and failure to comply with the terms of the underlying open-source software licenses could restrict our ability to
provide our offerings.
Our platform contains software
components licensed to us by third-party authors under “open source” licenses (“Open-Source Software”). Using
and distributing Open-Source Software may entail greater risks than using third-party commercial software, as licensors of Open-Source
Software generally do not provide support, warranties, indemnification or other contractual protections regarding infringement claims
or the quality of the licensed code. In addition, the public availability of Open-Source Software may make it easier for others to compromise
our platform or offerings.
Some Open-Source Software
licenses contain requirements that we make available source code for modifications or derivative works we create, or grant other licenses
to our intellectual property, if we use such Open-Source Software in certain ways. If we combine our proprietary software with Open-Source
Software in a certain manner, we could, under certain licenses for Open-Source Software, be required to release the source code of our
proprietary software to the public. This would allow our competitors to create similar offerings with lower development effort and time
and ultimately could result in a loss of our competitive advantages. Alternatively, to avoid the public release of the affected portions
of our source code, we could be required to expend substantial time and resources to re-engineer some or all of our proprietary software.
Although we review our use
of Open-Source Software to avoid subjecting our platform and offerings to conditions we do not intend, the terms of many licenses for
Open-Source Software have not been interpreted by U.S. or foreign courts, and there is a risk that these licenses could be construed in
a way that could impose unanticipated conditions or restrictions on our ability to provide or distribute our platform or offerings. From
time to time, there have been claims challenging the ownership of Open-Source Software against companies that incorporate Open-Source
Software into their solutions. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be Open-Source
Software. Moreover, we cannot assure you that our processes for controlling Open-Source Software use in our platform and offerings will
be effective. If we are held to have breached or failed to fully comply with all the terms of an Open Source Software license, we could
face infringement or other liability, or be required to seek costly licenses from third parties to continue providing our platform and
offerings on terms that are not economically feasible, to re-engineer our platform, to discontinue or delay the provision of our offerings
if re-engineering could not be accomplished on a timely basis or to make generally available, in source code form, our proprietary software,
any of which could adversely affect our business, financial condition, results of operations and prospects.
We rely on third-party payment processors
to process customer deposits and withdrawals made on our platform, and if we cannot manage our relationships with such third parties and
other payment-related risks, our business, financial condition, results of operations and prospects could be adversely affected.
We rely on third-party payment
processors to process payments made by our customers on our platform. If a third-party payment processor terminates its relationship with
us or refuses to renew its agreement with us on commercially reasonable terms, we may need to find an alternate payment processor, and
may be unable to secure similar terms or replace such payment processor in an acceptable time frame. Further, the software and services
provided by our third-party payment processors may not meet our expectations, contain errors or vulnerabilities, be compromised or experience
outages. Any of these could cause us to lose our ability to accept online payments or other payment transactions or make timely payments
to customers, any of which could make our platform less trustworthy and convenient and adversely affect our ability to attract and retain
our customers.
Nearly all our payments are
made by credit card, debit card or through other third-party payment services, which subjects us to certain regulations and to the risk
of fraud. We may in the future offer new payment options to customers that may be subject to additional regulations and risks. We are
also subject to a number of other laws and regulations relating to the payments we accept from our customers, including with respect to
money laundering, money transfers, privacy and information security. If we fail to comply with applicable rules and regulations, we may
be subject to civil or criminal penalties, fines and/or higher transaction fees and may lose our ability to accept online payments or
other payment card transactions, which could make our offerings less convenient and attractive to our customers. If any of these events
were to occur, our business, financial condition, results of operations and prospects could be adversely affected.
For example, if we are
deemed to be a money transmitter as defined by applicable regulation, we could be subject to certain laws, rules and regulations
enforced by multiple authorities and governing bodies in the United States and numerous state and local agencies who may define
money transmitter differently. Certain states may have a more expansive view of who qualifies as a money transmitter. Additionally,
outside of the United States, we could be subject to additional laws, rules and regulations related to the provision of payments and
financial services, and if we expand into new jurisdictions, the foreign regulations and regulators governing our business that we
are subject to will expand as well. If we are found to be a money transmitter under any applicable regulation and we are not
complying with such regulations, we may be subject to fines or other penalties in one or more jurisdictions levied by federal, state
or local regulators, including state Attorneys General, as well as those levied by foreign regulators. In addition to fines,
penalties for failing to comply with applicable rules and regulations could include criminal and civil proceedings, forfeiture of
significant assets or other enforcement actions. We could also be required to make changes to our business practices or compliance
programs as a result of regulatory scrutiny.
Additionally, certain of our
payment processors require us to comply with payment card network operating rules, which are set and interpreted by the payment card networks.
The payment card networks could adopt new operating rules or interpret or reinterpret existing rules in ways that might prohibit us from
providing certain offerings to some customers, be costly to implement or difficult to follow. We have agreed to reimburse our payment
processors for fines they are assessed by payment card networks if we or the customers on our platform violate these rules. Any of the
foregoing risks could adversely affect our business, financial condition, results of operations and prospects.
We rely on third-party service and content
providers (including third-party sports betting risk management and trading providers, sports data providers and online slot providers)
and if such third parties do not perform adequately or terminate their relationships with us, our costs may increase and our business,
financial condition, results of operations and prospects could be adversely affected.
Our success depends in part
on our relationships with third-party service providers. For example, we receive sports betting odds data, sports betting risk management
services and sports betting trading services from a third party, and in some jurisdictions we are required to obtain official league data.
We also rely on third parties for content delivery (such as online slots), load balancing and certain cybersecurity protection such as
against distributed denial-of-service attacks. If those providers do not perform adequately, our customers may experience issues or interruptions
with their experiences, and gaming regulators may hold us responsible for the errors of these third-party providers. Further, if any of
our third-party service or data providers terminates its relationship with us or refuses to renew its agreement with us on commercially
reasonable terms, we would need to find an alternate provider, and as consolidation in the industries in which we operate continues to
occur, if a competitor acquires any of our third-party providers, we may need to find an alternate provider, and in each case we may be
unable to secure similar terms or replace such providers in an acceptable timeframe. We also rely on other software and services supplied
by third parties, such as communications and internal software, and our business may be adversely affected to the extent such software
and services do not meet our expectations, contain errors or vulnerabilities, are compromised or experience outages. Any of these could
increase our costs and adversely affect our business, financial condition, results of operations and prospects. Further, any negative
publicity related to any of our third-party providers, including any publicity related to regulatory concerns or allegations of bad or
unethical actions, could adversely affect our reputation and brand, result in us severing our relationship with such third-party service
provider and could potentially lead to increased regulatory or litigation exposure.
We incorporate technology
from third-party vendors into our platform. We cannot be certain that these vendors are not infringing the intellectual property rights
of others or that they have sufficient rights to such technology in all jurisdictions in which we may operate. Some of our material third-party
license and services agreements allow the vendor to terminate for convenience. If we are unable to obtain or maintain rights to any of
this technology because of intellectual property infringement claims brought by third parties against our vendors or against us, if our
vendors terminate any license or services agreements, or if we are unable to continue to obtain the technology or enter into new agreements
on commercially reasonable terms, our ability to develop our platform or offerings containing that technology could be severely limited
and our business could be harmed. Additionally, if we are unable to obtain necessary technology from third parties, we may be forced to
acquire or develop alternate technology, which may require significant time, effort and skillsets that we currently do not have, and may
be of lower quality or performance standards. This would limit and delay our ability to provide new or competitive offerings and increase
our costs. If alternate technology cannot be obtained or developed, we may be unable to offer certain functionality as part of our offerings,
which could adversely affect our business, financial condition, results of operations and prospects.
If Internet and other technology-based service
providers experience service interruptions, our ability to conduct our business may be impaired and our business, financial condition,
results of operations and prospects could be adversely affected.
A substantial portion of
our network infrastructure is provided by third parties, including Internet service providers and other technology-based service
providers. We use technology-based service providers such as CloudFlare to mitigate any distributed denial-of-service attacks.
However, if Internet service providers experience service interruptions, including because of cyber-attacks, or due to an event
causing an unusually high volume of Internet use (such as a pandemic or public health emergency like COVID-19), communications over
the Internet may be interrupted and impair our ability to conduct our business. Internet service providers and other
technology-based service providers may in the future roll out upgraded or new mobile or other telecommunications services, such as
5G or 6G services, which may not be successful and thus may impact our customer’s ability to access our platform or offerings
in a timely fashion or at all. In addition, our ability to process e-commerce transactions depends on bank processing and credit
card systems. To prepare for system problems, we continuously seek to strengthen and enhance our current facilities and system
infrastructure and support capabilities. Nevertheless, there can be no assurance that the Internet infrastructure or our own network
systems will continue to be able to meet the demand placed on us by the continued growth of the Internet, the overall online gaming
industry and our customers. Any difficulties these providers face, including the potential of certain network traffic receiving
priority over other traffic (i.e., lack of net neutrality), may adversely affect our business, and we exercise little
control over these providers, which increases our vulnerability to problems with the services they provide. Any system failure as a
result of reliance on third parties, such as network, software or hardware failure, including as a result of cyber-attacks, which
causes a loss of our customers’ property or personal information or a delay or interruption in our online services and
products and e-commerce services, including our ability to handle existing or increased traffic, could result in a loss of
anticipated revenue, interruptions to our platform and offerings, cause us to incur significant legal, remediation and notification
costs, degrade the customer experience and cause our customers to lose confidence in our offerings, any of which could have a
material adverse effect on our business, financial condition, results of operations and prospects.
Our growth will depend, in part, on the
success of our strategic relationships with third parties. Overreliance on certain third parties, or our inability to extend existing
relationships or agree to new relationships may cause unanticipated costs for us and impact our financial performance in the future.
We rely, and expect to continue
to rely, on relationships with casinos, tribes and other third parties to attract customers to our platform. These relationships along
with providers of online services, search engines, social media, directories and other websites and ecommerce businesses direct individuals
to our online platform. While we believe there are other third parties that could drive individuals to our platform, adding or transitioning
to them may disrupt our business and increase our costs. If any of our existing relationships or our future relationships fail to provide
services to us in accordance with the terms of our applicable arrangement, or at all, and we are unable to find suitable alternatives,
this could impact our ability to cost-effectively attract customers and harm our business, financial condition, results of operations
and prospects.
Risks Related to Our Arrangements with Affiliates
We are a “controlled” company
within the meaning of the NYSE rules and, as a result, we qualify for, and intend to rely on, exemptions from certain corporate governance
requirements. You will not have the same protections as those afforded to stockholders of companies that are subject to such governance
requirements.
Neil G. Bluhm and Gregory
A. Carlin and their respective trusts and entities controlled by them (collectively, the “Controlling Holders”) control a
majority of the voting power of our outstanding common stock. As a result, we are a “controlled company” within the meaning
of the NYSE’s corporate governance standards. Under these rules, a company of which more than 50% of the voting power for the election
of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with
certain corporate governance requirements, including:
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having a majority of our Board consist of independent directors;
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having a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;
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having a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
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conducting an annual performance evaluation of the nominating and corporate governance and compensation committees.
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We currently do, and intend
to continue to, use these exemptions. As a result, we may not have a majority of independent directors on our Board, our compensation
and our nominating and corporate governance committees may not consist entirely of independent directors and our compensation and our
nominating and corporate governance committees may not be subject to annual performance evaluations. Accordingly, you will not have the
same protections afforded to stockholders of companies that are subject to all the NYSE corporate governance requirements. Furthermore,
the Controlling Holders have entered into a voting agreement where they agree to vote together on certain matters presented to the Company’s
stockholders as long as the voting agreement is in effect, which may have the effect of extending the period in which we are a “controlled
company” and our utilizing the exemptions discussed above.
The Controlling Holders control us, and
their interests may conflict with ours or yours in the future.
The Controlling Holders
own more than 50% of our common stock and have entered into a voting agreement where they agree to vote together on certain matters
presented to our stockholders. This means that, based on their combined voting power, the Controlling Holders together will control
the vote of all or nearly all matters submitted to a vote of our stockholders, which will enable them to control the election of the
members of the Board and all or nearly all other corporate decisions. Even when the Controlling Holders cease to own shares of our
stock representing a majority of the total voting power, as long as the Controlling Holders continue to own a significant percentage
of our stock, the Controlling Holders will still be able to significantly influence the composition of our Board and the approval of
actions requiring stockholder approval. Accordingly, for such period of time, the Controlling Holders will have significant
influence with respect to our management, business plans and policies, including the appointment and removal of our officers,
decisions on whether to raise future capital and amending our charter and bylaws, which govern the rights attached to our common
stock. In particular, as long as the Controlling Holders continue to own a significant percentage of our stock, the Controlling
Holders will be able to cause or prevent a change of control of the Company or a change in the composition of our Board and could
preclude any unsolicited acquisition of the Company. The concentration of ownership could deprive you of an opportunity to receive a
premium for your securities as part of a sale of the Company and ultimately might affect the market price of our securities.
In addition, the Company entered
into an Investor Rights Agreement (the “Investor Rights Agreement”), pursuant to which, as long as the Company is a “controlled
company” under applicable NYSE rules, the Rush Street Interactive GP, LLC, in its capacity as the Sellers’ Representative
under the Business Combination Agreement (in such capacity, the “Sellers’ Representative”) (as representative of the
Controlling Holders and the other original equity-holders in RSILP) and dMY Sponsor, LLC (the “Sponsor”) will have the right
to nominate up to nine (or the maximum number that may be nominated by the Sellers’ Representative without violating the NYSE’s
controlled company requirements) and two directors, respectively, to the Board, subject to certain independence and holdings requirements.
In the event the Company is no longer a “controlled company” under the applicable NYSE rules, the Sponsor will have the right
to nominate two directors and the Sellers’ Representative will have the right to nominate a number of directors equal to the greater
of the number of directors permitted by NYSE or a number equal to the total number of directors multiplied by the percentage of the Company’s
issued and outstanding voting securities held by the Sellers and their permitted transferees at such time, in each case subject to certain
independence and holdings requirements.
The Controlling Holders and
their affiliates engage in a broad spectrum of activities, including investing in the gaming and casino industries generally. In the ordinary
course of their business activities, the Controlling Holders and their affiliates may engage in activities such as investing in or advising
businesses that directly or indirectly compete with certain portions of our business or are our suppliers or customers. Our Charter provides
that none of the Controlling Holders, their affiliates or affiliated entities or any director who is not employed by us or its affiliates
or affiliated entities will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar
business activities or lines of business in which we operate. The Controlling Holders also may pursue acquisition opportunities that may
be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, the Controlling
Holders may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their
investment, even though such transactions might involve risks to you.
We have arrangements with our affiliates
that impact our operations.
We have engaged, and may in
the future engage, in transactions with affiliates and other related parties, including, for example, entering into agreements with the
“Rivers” branded casinos located in Pennsylvania, Illinois, New York and the anticipated “Rivers” branded casino
in Portsmouth, Virginia, to operate retail and online sports betting and/or online casino on behalf of such casinos as and when retail
and online sports betting and online casino are legalized in each respective jurisdiction. We have also entered into a services agreement
with RSG, under which RSG provided certain corporate and shared services related to functions such as executive oversight, risk management,
information technology, accounting, audit, legal, investor relations, human resources, tax, treasury, procurement and other services,
and currently continues to provide some of these services. We reimburse RSG for all third-party costs it incurs in providing services
to us at cost (with no mark-up) and reimburse RSG for an allocable portion of payroll, benefits and overhead with respect to RSG employees
who perform or otherwise assist with providing services to us. While an effort has been made and will continue to be made to obtain services
from affiliated persons and other related parties at rates and on terms at least as favorable as would be charged by others, if that were
not to be achieved in the future that could have a negative impact on our operations. Both Mr. Bluhm, our chairman of the Board and a
significant stockholder, and Mr. Carlin, our CEO, director and a significant stockholder, have an indirect ownership interest in certain
of our related parties, including RSG and the “Rivers” branded casinos. Mr. Carlin is also CEO of RSG. See “Certain
Relationships and Related Party Transactions, and Director Independence”. Our Controlling Holders may economically benefit from
our arrangements with related parties. If we engage in related party transactions on unfavorable terms, our operating results will be
negatively impacted.
Risks Related to our Liquidity and Capital
Resources
We may require additional capital to support
our growth plans, and such capital may not be available on terms acceptable to us, if at all. This could hamper our growth and adversely
affect our business.
We have and intend to
continue to make significant investments to support our business growth and may require additional funds to respond to business
challenges, including the need to develop new offerings and features or enhance our existing platform, improve our operating
infrastructure or acquire complementary businesses, personnel and technologies. Accordingly, we may need to engage in equity or debt
financings to secure additional funds. Our ability to obtain additional capital, if and when required, will depend on our business
plans, investor demand, our operating performance, capital markets conditions and other factors. If we raise additional funds by
issuing equity, equity-linked or debt securities, such as preferred stock as authorized by our Charter, those securities may have
rights, preferences or privileges senior to the rights of our currently issued and outstanding equity or debt, and our existing
stockholders may experience dilution. If we are unable to obtain additional capital when required, or on satisfactory terms, our
ability to continue to support our business growth or to respond to business opportunities, challenges or unforeseen circumstances
could be adversely affected, and our business, financial condition, results of operations and prospects may be harmed.
We may invest in or acquire other businesses,
and our business may suffer if we are unable to successfully integrate acquired businesses or otherwise manage the growth associated with
multiple acquisitions.
As part of our business
strategy, we may make acquisitions as opportunities arise to add new or complementary businesses, products, brands or technologies. In
some cases, the costs of such acquisitions may be substantial, including as a result of professional fees and due diligence efforts. There
is no assurance that the time and resources expended on pursuing a particular acquisition will result in a completed transaction, or that
any completed transaction will ultimately be successful. In addition, we may be unable to identify suitable acquisition or strategic investment
opportunities or may be unable to obtain any required financing or regulatory approvals, and therefore may be unable to complete such
acquisitions or strategic investments on favorable terms, if at all. We may decide to pursue acquisitions with which our investors may
not agree, and we cannot assure investors that any acquisition or investment will be successful or otherwise provide a favorable return
on investment. In addition, acquisitions and the integration thereof require significant time and resources and place significant demands
on our management, as well as on our operational and financial infrastructure. In addition, if we fail to successfully close transactions
or integrate the products, personnel and technologies associated with these acquisitions into our business, our business could be seriously
harmed. Acquisitions may expose us to operational challenges and risks, including:
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the ability to profitably manage acquired businesses or successfully integrate the acquired businesses’ operations, personnel, financial reporting, accounting and internal controls, technologies and products into our business;
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increased indebtedness and the expense of integrating acquired businesses, including significant administrative, operational, economic, geographic or cultural challenges in managing and integrating the expanded or combined operations;
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entry into jurisdictions or acquisition of products or technologies with which we have limited or no prior experience, and the potential of increased competition with new or existing competitors as a result of such acquisitions;
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diversion of management’s attention and the over-extension of our operating infrastructure and our management systems, information technology systems, and internal controls and procedures, which may be inadequate to support growth;
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the ability to fund our capital needs and any cash flow shortages that may occur if anticipated revenue is not realized or is delayed, whether by general economic or market conditions, or unforeseen internal difficulties; and
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the ability to retain or hire qualified personnel required for expanded operations.
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Our acquisition strategy
may not succeed if we are unable to remain attractive to target companies or expeditiously close transactions. Issuing shares of Class
A Common Stock to fund an acquisition would cause economic dilution to existing stockholders. If we develop a reputation for being a difficult
acquirer or having an unfavorable work environment, or target companies view our Class A Common Stock unfavorably, we may be unable to
consummate key acquisition transactions essential to our corporate strategy and our business, financial condition, results of operations
and prospects may be seriously harmed.
Risks Related to our Securities, Corporate
Structure, Governing Documents and Tax Receivable Agreement
Upon exercise of any of the warrants the
number of shares eligible for resale in the public market would increase.
As of December 31, 2020, we
had 11,500,000 outstanding warrants to purchase 11,500,000 shares of Class A Common Stock at an exercise price of $11.50 per share, which
warrants became exercisable on February 20, 2021. On February 22, 2021, we announced the Redemption (as defined below), which resulted
in all of these outstanding warrants being exercised or redeemed at a price of $0.01 per warrant. In addition, there are 6,600,000 Private
Placement Warrants and 75,000 Working Capital Warrants (each as defined below) outstanding that are exercisable for 6,600,000 and 75,000
shares of Class A Common Stock, respectively, at an exercise price of $11.50 per share, which warrants also became exercisable on February
20, 2021. The Private Placement Warrants and Working Capital Warrants are not subject to the Redemption. To the extent that any shares
of Class A Common Stock are issued upon exercise of any of the warrants to purchase shares of Class A Common Stock, there will be an increase
in the number of shares of Class A Common Stock eligible for resale in the public market. Sales of a substantial number of such shares
in the public market could adversely affect the market price of Class A Common Stock.
If we raise capital in the future by issuing
shares of common or preferred stock or other equity or equity-linked securities, convertible debt or other hybrid equity securities, then-existing
stockholders may experience dilution, such new securities may have rights senior to those of our common stock, and the market price of
our securities may be adversely affected.
If we raise capital in the
future then existing stockholders may experience dilution. The Charter provides that preferred stock may be issued from time to time in
one or more series. The Board is authorized to fix the voting rights, if any, designations, powers, preferences, the relative, participating,
optional or other special rights and any qualifications, limitations and restrictions thereof, applicable to the shares of each series.
The Board may, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting
power and other rights of the holders of the shares of common stock and could have anti-takeover effects. The ability of the Board to
issue preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control of us
or the removal of existing management. The issuance of any such securities may have the impact of adversely affecting the market price
of our securities.
Our principal asset is our interests in
RSILP (held through our wholly owned subsidiaries), and accordingly we depend on distributions from RSILP to pay taxes and expenses.
We are a holding company and
have no material assets other than our indirect ownership of RSILP. We are not expected to have independent means of generating revenue
or cash flow, and our ability to pay taxes, operating expenses and dividends in the future, if any, will depend on RSILP’s financial
results and cash flows. There can be no assurance that RSILP will generate sufficient cash flow to distribute funds to us or that applicable
state law and contractual restrictions, including negative covenants under any debt instruments will permit such distributions. If RSILP
does not distribute sufficient funds to us to pay our taxes or other liabilities, we may default on contractual obligations or have to
borrow additional funds. In the event that we are required to borrow additional funds it could adversely affect our liquidity and subject
us to additional restrictions imposed by lenders.
RSILP is treated as a partnership
for U.S. federal income tax purposes and, as such, generally will not be subject to any entity-level U.S. federal income tax. Instead,
taxable income will be allocated, for U.S. federal income tax purposes, to the holders of RSILP Units, including the RSI ASLP, Inc. (the
“Special Limited Partner”), which is a member of our consolidated group for U.S. federal income tax purposes. Accordingly,
we will be required to pay U.S. federal income taxes on the Special Limited Partner’s allocable share of RSILP’s net taxable
income. Under the terms of the Second Amended and Restated Limited Partnership Agreement of RSILP, dated as of December 29, 2020 (the
“RSILP A&R LPA”), RSILP must make tax distributions to holders of RSILP Units (including the Special Limited Partner)
calculated at certain assumed rates. In addition to tax expenses, we and the Special Limited Partner will also incur expenses related
to their operations, including the Special Limited Partner’s payment obligations under the Tax Receivable Agreement, which could
be significant and some of which will be reimbursed by RSILP (excluding payment obligations under the Tax Receivable Agreement). The Special
Limited Partner intends to cause RSILP to make ordinary distributions and tax distributions to the holders of RSILP Units on a pro rata
basis in amounts sufficient to cover all applicable taxes, relevant operating expenses, payments under the Tax Receivable Agreement and
dividends, if any, declared by us. However, as discussed below, RSILP’s ability to make such distributions may be subject to various
limitations and restrictions, including, but not limited to, retention of amounts necessary to satisfy the obligations of RSILP and its
subsidiaries and restrictions on distributions that would violate any applicable restrictions contained in RSILP’s debt agreements
(if any), or any applicable law, or that would have the effect of rendering RSILP insolvent. To the extent the Special Limited Partner
is unable to make payments under the Tax Receivable Agreement for any reason, such payments will be deferred and will accrue interest
until paid, provided, however, that nonpayment for a specified period and/or under certain circumstances may constitute a material breach
of a material obligation under the Tax Receivable Agreement and therefore accelerate payments under the Tax Receivable Agreement, which
could be substantial.
Additionally, although RSILP
generally will not be subject to any entity-level U.S. federal income tax, it may be liable under recent federal tax legislation for adjustments
to its tax return, absent an election to the contrary. In the event RSILP’s calculations of taxable income are incorrect, RSILP
and/or its members, including the Special Limited Partner, in later years may be subject to material liabilities pursuant to this federal
legislation and its related guidance.
We anticipate that the distributions
the Special Limited Partner will receive from RSILP may, in certain periods, exceed our and the Special Limited Partner’s actual
liabilities and the Special Limited Partner’s obligations to make payments under the Tax Receivable Agreement. The Board, in its
sole discretion, will make any determination from time to time with respect to the use of any such excess cash so accumulated, which may
include, among other uses, to pay dividends on our Class A Common Stock. We will have no obligation to distribute such cash (or other
available cash other than any declared dividend) to our stockholders. If necessary, we may undertake ameliorative actions, which may include
pro rata or non-pro rata reclassifications, combinations, subdivisions or adjustments of outstanding RSILP Units, to maintain one-for-one
parity between RSILP Units held by the Special Limited Partner and shares of Class A Common Stock.
Dividends on our Class A
Common Stock, if any, will be paid at the discretion of the Board, which will consider, among other things, our available cash,
available borrowings and other funds legally available therefor, taking into account the retention of any amounts necessary to
satisfy our obligations that RSILP will not reimburse, including taxes and amounts payable under the Tax Receivable Agreement and
any restrictions in then-applicable financing agreements. Financing arrangements may include restrictive covenants restricting our
ability to pay dividends or make other distributions to our stockholders. In addition, RSILP is generally prohibited under Delaware
law from making distributions to members to the extent that, at the time of the distribution, after giving effect to the
distribution, RSILP’s liabilities (with certain exceptions) exceed the fair value of its assets. RSILP’s subsidiaries
are generally subject to similar legal limitations on their ability to make distributions to RSILP. If RSILP does not have
sufficient funds to make distributions, our ability to declare and pay cash dividends may also be restricted or impaired.
Pursuant to the Tax
Receivable Agreement, the Special Limited Partner is required to pay to the Sellers and/or the exchanging holders of RSILP Units, as applicable,
85% of the net income tax savings that we and our consolidated subsidiaries (including the Special Limited Partner) realize as a result
of increases in tax basis in RSILP’s assets related to the transactions contemplated under the Business Combination Agreement and
the future exchange of the Retained RSILP Units for shares of Class A Common Stock (or cash) pursuant to the RSILP A&R LPA and tax
benefits related to entering into the Tax Receivable Agreement, including tax benefits attributable to payments under the Tax Receivable
Agreement, and those payments may be substantial.
On December 29, 2020, the
Sellers sold an aggregate of 12,500,000 RSILP Units for $125,000,000 and may in the future exchange their RSILP Units, together with the
cancelation of an equal number of shares of Class V Voting Stock, for shares of Class A Common Stock (or cash) pursuant to the RSILP A&R
LPA, subject to certain conditions and transfer restrictions as set forth therein and in the Investor Rights Agreement. These sales and
exchanges are expected to result in increases in the Special Limited Partner’s allocable share of the tax basis of RSILP’s
tangible and intangible assets. These increases in tax basis may increase (for income tax purposes) depreciation and amortization deductions
and therefore reduce the amount of income or franchise tax that we and the Special Limited Partner would otherwise be required to pay
in the future had such sales and exchanges never occurred.
In connection with the Business
Combination, the Special Limited Partner entered into the Tax Receivable Agreement, which generally provides for the payment by it of
85% of certain net tax benefits, if any, that we and our consolidated subsidiaries (including the Special Limited Partner) realize (or
in certain cases is deemed to realize) as a result of these increases in tax basis and tax benefits related to the transactions contemplated
under the Business Combination Agreement and the exchange of Retained RSILP Units for Class A Common Stock (or cash) pursuant to the RSILP
A&R LPA and tax benefits related to entering into the Tax Receivable Agreement, including tax benefits attributable to payments under
the Tax Receivable Agreement. These payments are the obligation of the Special Limited Partner and not of RSILP. The actual increase in
the Special Limited Partner’s allocable share of RSILP’s tax basis in its assets, as well as the amount and timing of any
payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of exchanges, the market
price of our Class A Common Stock at the time of the exchange and the amount and timing of the recognition of our and our consolidated
subsidiaries’ (including the Special Limited Partner’s) income. While many of the factors that will determine the amount of
payments that the Special Limited Partner will make under the Tax Receivable Agreement are outside of our control, we expect that the
payments the Special Limited Partner will make under the Tax Receivable Agreement will be substantial and could have a material adverse
effect on our financial condition.
Any payments made by the Special
Limited Partner under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been
available to us. To the extent that the Special Limited Partner is unable to make timely payments under the Tax Receivable Agreement for
any reason, the unpaid amounts will be deferred and will accrue interest until paid; however, nonpayment for a specified period and/or
under certain circumstances may constitute a material breach of a material obligation under the Tax Receivable Agreement and therefore
accelerate payments due under the Tax Receivable Agreement, as further described below. Furthermore, the Special Limited Partner’s
future obligation to make payments under the Tax Receivable Agreement could make it a less attractive target for an acquisition, particularly
in the case of an acquirer that cannot use some or all of the tax benefits that may be deemed realized under the Tax Receivable Agreement.
In certain cases, payments under the Tax
Receivable Agreement may exceed the actual tax benefits we and our consolidated subsidiaries (including the Special Limited Partner) realize
or be accelerated.
Payments under the Tax Receivable
Agreement will be based on the tax reporting positions that we and our consolidated subsidiaries (including the Special Limited Partner)
determine, and the Internal Revenue Service (“IRS”) or another taxing authority may challenge all or part of the tax basis
increases, as well as other tax positions that we and our consolidated subsidiaries (including the Special Limited Partner) take, and
a court may sustain such a challenge. If any tax benefits initially claimed by us or our consolidated subsidiaries (including the Special
Limited Partner) are disallowed, the Sellers and the exchanging holders will not be required to reimburse the Special Limited Partner
for any excess payments that may previously have been made under the Tax Receivable Agreement, for example, due to adjustments resulting
from examinations by taxing authorities. Rather, excess payments made to such holders will be applied against and reduce any future cash
payments otherwise required to be made by the Special Limited Partner, if any, after the determination of such excess. However, a challenge
to any tax benefits initially claimed by us and our consolidated subsidiaries (including the Special Limited Partner) may not arise for
a number of years following the initial time of such payment and, even if challenged earlier, such excess cash payment may be greater
than the amount of future cash payments that we and our consolidated subsidiaries (including the Special Limited Partner) might otherwise
be required to make under the terms of the Tax Receivable Agreement and, as a result, there might not be future cash payments against
which such excess can be applied. As a result, in certain circumstances the Special Limited Partner could make payments under the Tax
Receivable Agreement in excess of our and our consolidated subsidiaries’ (including the Special Limited Partner’s) actual
income or franchise tax savings, which could materially impair our and our consolidated subsidiaries’ (including the Special Limited
Partner’s) financial condition.
Moreover, the Tax Receivable
Agreement provides that, in the event that (i) the Special Limited Partner exercises its early termination rights thereunder, (ii) certain
changes of control of us, the Special Limited Partner or RSILP occur (as described in the RSILP A&R LPA), (iii) the Special Limited
Partner in certain circumstances, fails to make a payment required under the Tax Receivable Agreement by its final payment date, which
non-payment continues for 30 days following such final payment date or (iv) we or the Special Limited Partner materially breach any of
our material obligations under the Tax Receivable Agreement other than as described in the foregoing clause (iii), which breach continues
without cure for 30 days following receipt by us and/or the Special Limited Partner of written notice thereof and written notice of acceleration
is received by us and/or the Special Limited Partner thereafter (except that in the case that the Tax Receivable Agreement is rejected
in a case commenced under bankruptcy laws, no written notice of acceleration is required), in the case of clauses (iii) and (iv), unless
certain liquidity exceptions apply, the Special Limited Partner’s obligations under the Tax Receivable Agreement will accelerate
and the Special Limited Partner will be required to make a lump-sum cash payment to the Sellers and/or other applicable parties to the
Tax Receivable Agreement equal to the present value of all forecasted future payments that would have otherwise been made under the Tax
Receivable Agreement, which lump-sum payment would be based on certain assumptions, including those relating to our and our consolidated
subsidiaries’ (including the Special Limited Partner’) future taxable income. The lump-sum payment could be substantial and
could exceed the actual tax benefits that we and our consolidated subsidiaries (including the Special Limited Partner) realize subsequent
to such payment because such payment would be calculated assuming, among other things, that we and our consolidated subsidiaries (including
the Special Limited Partner) would have certain assumed tax benefits available to us and that we and our consolidated subsidiaries (including
the Special Limited Partner) would be able to use the assumed and potential tax benefits in future years.
There may be a material negative
effect on our liquidity if the payments under the Tax Receivable Agreement exceed the actual income or franchise tax savings that we and
our consolidated subsidiaries (including the Special Limited Partner) realize. Furthermore, the Special Limited Partner’s obligations
to make payments under the Tax Receivable Agreement could also have the effect of delaying, deferring or preventing certain mergers, asset
sales, other forms of business combinations or other changes of control.
If the benefits of the Business Combination
do not meet the expectations of investors or securities analysts, the market price of our securities may decline.
Fluctuations in the price
of our securities could contribute to the loss of all or part of your investment. Prior to the Business Combination, there was no public
market for RSILP’s securities and trading in shares of our Class A Common Stock and warrants was not very active. Accordingly, the
valuation ascribed to the Company in our recent Business Combination may not be indicative of the price that will ultimately prevail in
the trading market and, even if an active market for our securities develops and continues, the trading price of our securities could
be volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors
listed below could have a material adverse effect on your investment in our securities and our securities may trade at prices significantly
below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further
decline.
Factors affecting the trading
price of our securities may include:
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actual or anticipated fluctuations in our quarterly financial results or quarterly financial results of companies perceived to be similar to us;
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changes in the market’s expectations about our operating results;
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success of competitors;
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our operating results failing to meet the expectation of securities analysts or investors in a particular period;
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changes in financial estimates and recommendations by securities analysts concerning us or the industries in which we operate in general;
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operating and stock price performance of other companies that investors deem comparable to us;
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our ability to market new and enhanced products on a timely basis;
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changes in laws and regulations affecting our business;
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commencement of, or involvement in, litigation involving us;
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changes in our capital structure, such as future issuances of securities or the incurrence of debt;
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the volume of shares of our Class A Common Stock or warrants available for public sale;
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any major change in our Board or management;
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sales of substantial amounts of Class A Common Stock or warrants by our directors, executive officers or significant stockholders or the perception that such sales could occur; and
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general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.
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Broad market and industry
factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general,
and the NYSE, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance
of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable.
A loss of investor confidence in the market for the stocks of other companies that investors perceive to be similar to us could depress
the price of our securities regardless of our business, prospects, financial conditions or results of operations. A decline in the market
price of our securities also could adversely affect its ability to issue additional securities and its ability to obtain additional financing
in the future.
A significant portion of our total outstanding
securities are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price
of our securities to drop significantly, even if our business is doing well.
Sales of a substantial number
of shares of our Class A Common Stock or our warrants in the public market could occur at any time. These sales, or the perception in
the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our securities. As of
the date hereof, the Controlling Holders own approximately 66.0% of the outstanding shares of our common stock (primarily comprised of
Class V Voting Stock, but they have the ability to convert their RSILP Units for shares of Class A Common Stock on a one-for-one basis,
with the corresponding number of shares of Class V Voting Stock being surrendered and cancelled) and the Sponsor, together with the former
executives of dMY, beneficially own approximately 3.2% of the outstanding shares of our common stock (after giving effect to the exercise
of any warrants held by Sponsor and the former executives that could become exercisable within 60 days of the date hereof). While the
Controlling Holders, Sponsor and the former executives have agreed to be subject to certain restrictions regarding the transfer of the
Class A Common Stock, these shares may be sold after the expiration of the applicable lock-up restrictions. We have filed a registration
statement, and may in the future file one or more additional registration statements, to provide for the resale of such securities from
time to time. As restrictions on resale end and the registration statements are available for use, the market price of the securities
could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
There can be no assurance that we will be
able to comply with the NYSE’s continued listing standards.
Our continued eligibility
for listing on the NYSE depends on a number of factors. If the NYSE delists our Class A Common Stock and/or warrants from trading on its
exchange for failure to meet the listing standards, we and our stockholders could face significant material adverse consequences including:
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a limited availability of market quotations for our securities;
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a determination that our Class A Common Stock is a “penny stock,” which will require brokers trading in our Class A Common Stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our Class A Common Stock;
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a limited amount of analyst coverage; and
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a decreased ability to issue additional securities or obtain additional financing in the future.
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Our Charter’s exclusive forum provision
may have the effect of discouraging lawsuits against our directors and officers.
Our Charter requires, unless
we consent in writing to the selection of an alternative forum, that (i) any derivative action or proceeding brought on our behalf, (ii)
any action asserting a claim of breach of a fiduciary duty owed by any director, officer, other employee or RSI stockholder to us or to
our stockholders, (iii) any action asserting a claim against us, our directors, officers, other employees or RSI stockholders arising
pursuant to any provision of the Delaware General Corporation Law, our Charter or our bylaws, or (iv) any action asserting a claim against
us, our directors, officers, other employees or RSI stockholders governed by the internal affairs doctrine under Delaware law shall be
brought, to the fullest extent permitted by law, solely and exclusively in the Delaware Court of Chancery; provided, however, that,
in the event that the Delaware Court of Chancery lacks subject matter jurisdiction over any such actions, our Charter provides that the
sole and exclusive forum shall be another state or federal court located within Delaware, in each such case, unless the Court of Chancery
(or such other state or federal court located within Delaware, as applicable) has dismissed a prior action by the same plaintiff asserting
the same claims because such court lacked personal jurisdiction over an indispensable party named as a defendant.
In addition, our Charter requires,
unless we consent in writing to the selection of an alternative forum, that the U.S. federal district courts shall, to the fullest extent
permitted by law, be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities
Act of 1933, as amended. This provision in our Charter does not address or apply to claims arising under the Exchange Act; however, Section
27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange
Act or the rules and regulations thereunder.
Although we believe this provision
benefits us by providing increased consistency in the application of law in the types of lawsuits to which it applies, a court may determine
that this provision is unenforceable, and to the extent it is enforceable, the provision may have the effect of discouraging lawsuits
against our directors and officers.
Provisions in our Charter may inhibit a
takeover of the Company, which could limit the price investors might be willing to pay in the future for securities and could entrench
management.
Our Charter contains provisions
that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include
a staggered Board, the controlling provisions of the Investor Rights Agreement, a supermajority vote required to amend certain provisions
of our Charter and the ability of the Board to designate the terms of, and issue new series of, preferred stock, which may make more difficult
the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices
for our securities.
General Risk Factors
Economic downturns and political and market
conditions beyond our control, including reduced consumer discretionary spending, could adversely affect our business, financial condition,
results of operations and prospects.
Our financial performance
is subject to global and U.S. economic conditions and their impact on consumer spending. Economic recessions have had, and may continue
to have, far reaching adverse consequences across many industries, including the global entertainment and gaming industries, which may
adversely affect our business, financial condition, results of operations and prospects. We are currently experiencing a global recession
as a result of the COVID-19 pandemic, and if recovery is slow or stalls, or we experience another downturn because of another wave of
the COVID-19 pandemic, we may experience a material adverse effect on our business, financial condition, results of operations or prospects.
The ultimate severity of the COVID-19 outbreak is currently uncertain and therefore we cannot predict the full impact it may have on our
customers and our operations; however, the effect on our business, financial condition, results of operations and prospects could be material
and adverse.
Consumer discretionary spending
and consumer preferences are driven by socioeconomic factors beyond our control, and our business is sensitive to reductions from time
to time in consumer discretionary spending. Demand for entertainment and leisure activities, including gaming, can be affected by changes
in the economy and consumer tastes, both of which are difficult to predict and beyond our control. Unfavorable changes in general economic
conditions, including recessions, economic slowdowns, sustained high levels of unemployment, and rising prices or the perception of weak
or weakening economic conditions, may reduce our customers’ disposable income or result in fewer individuals engaging in entertainment
and leisure activities, such as online casino and retail or online sports betting. As a result, we cannot ensure that demand for our offerings
will remain constant. Adverse developments affecting economies throughout the world, including a general tightening of availability of
credit, decreased liquidity in certain financial markets, increased interest rates, foreign exchange fluctuations, increased energy costs,
acts of war or terrorism, transportation disruptions, natural disasters, declining consumer confidence, sustained high levels of unemployment
or significant declines in stock markets, as well as concerns regarding pandemics, epidemics and the spread of contagious diseases such
as COVID-19, could lead to a further reduction in discretionary spending on leisure activities, such as online casino and retail or online
sports betting.
We may be subject to litigation in the operation
of our business. An adverse outcome in one or more proceedings could adversely affect our business.
As a growing company with
expanding operations, we may in the future increasingly face the risk of claims, lawsuits and other proceedings involving intellectual
property, privacy, consumer protection, accessibility claims, securities, tax, labor and employment, regulatory and compliance, competition
and antitrust, commercial disputes, services and other matters. Litigation to defend us against claims by third parties, or to enforce
any rights that we may have against third parties, may be necessary, which could result in substantial costs and diversion of our resources,
causing a material adverse effect on our business, financial condition, results of operations and prospects.
Any litigation to which
we are a party may result in an onerous or unfavorable judgment that may not be reversed on appeal (if any), or in payments of
substantial damages or fines, posting of bonds requiring significant collateral, letters of credit or similar instruments, or we may
decide to settle lawsuits on unfavorable terms. These proceedings could also result in criminal sanctions, reputational harm,
consent decrees or orders preventing us from offering certain products or requiring a change in our business practices in costly
ways or requiring development of non-infringing or otherwise altered products or technologies. Litigation and other claims and
regulatory proceedings against us could result in unexpected disciplinary actions, expenses and liabilities, which could have a
material adverse effect on our business, financial condition, results of operations and prospects.
We could be subject to future governmental
investigations and inquiries, legal proceedings and enforcement actions. Any such investigation, inquiry, proceeding or action, could
adversely affect our business.
From time to time, we receive
formal and informal inquiries from government authorities and regulators, including gaming regulators, regarding compliance with laws
and other matters, and we may receive such inquiries in the future, particularly as we grow and expand. Violation of existing or future
regulations, regulatory orders or consent decrees could subject us to substantial monetary fines and other penalties that could adversely
affect our business, financial condition, results of operations and prospects. Further, it is possible that future orders issued by, or
inquiries or enforcement actions initiated by, government or regulatory authorities could cause us to incur substantial costs, expose
us to unanticipated liability or penalties, or require us to change our business practices in a manner materially adverse to our business,
financial condition, results of operations and prospects.
Our insurance may not provide adequate levels
of coverage against claims.
We intend to maintain insurance
that we believe is customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured
against or that we believe are not economically reasonable to insure. Moreover, any loss incurred could exceed policy limits or be below
our applicable deductible, and policy payments made to us may not be made on a timely basis. Such losses could adversely affect our business,
financial condition, results of operations and prospects.
Our growth prospects and market potential
will depend on our ability to obtain licenses to operate in a number of jurisdictions and if we fail to obtain such licenses our business,
financial condition, results of operations and prospects could be impaired.
Our ability to grow our business
will depend on in part on our ability to obtain and maintain licenses to offer our offerings in a large number of jurisdictions or in
heavily populated jurisdictions. If we fail to obtain and maintain licenses in large jurisdictions or in a greater number of mid-market
jurisdictions, this may prevent us from expanding the footprint of our offerings, increasing our customer base and/or generating revenues.
We cannot be certain that we will be able to obtain and maintain licenses and related approvals necessary to conduct our online casino
and retail and online sports betting operations. Any failure to obtain and maintain licenses, registrations, permits or approvals could
have a material adverse effect on our business, financial condition, results of operations and prospects.
We may have difficulty accessing the service
of banks, credit card issuers and payment processing providers, which may make it difficult to provide our offerings.
Although financial institutions
and payment processors are permitted to provide services to us and others in our industry, banks, credit card issuers and payment processing
providers may be hesitant to offer banking and payment processing services to real-money gaming businesses. Consequently, the businesses
involved in our industry, including ourselves, may encounter difficulties in establishing and maintaining banking and payment processing
relationships with a full scope of services and generating market rate interest. If we were unable to maintain our bank accounts or our
customers were unable to use their credit cards, bank accounts or e-wallets to make deposits and withdrawals from our platform, it would
make it difficult for us to operate our business, increase our operating costs, and pose additional operational, logistical and security
challenges, which could result in an inability to implement our business plan.