DraftKings Bets On Go-Public Deal Despite COVID-19 Woes

By Elise Hansen
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Law360 (April 23, 2020, 7:16 PM EDT) -- Fantasy sports company DraftKings closed its merger deal with a blank check company and will begin trading publicly on Friday despite the financial hit caused by coronavirus-related sports cancellations, the company said Thursday.

DraftKings Inc. announced late Thursday on Twitter that its merger with blank check company Diamond Eagle Acquisition Corp. had closed, shortly after Diamond Eagle shareholders voted to approve the transaction.

Also on Thursday, DEAC NV Merger Corp., which is the Diamond Eagle subsidiary set up for the merger, filed an amended prospectus that details DraftKings' financial outlook in light of COVID-19. Widespread cancellation or postponement of sporting events, including the NCAA's March Madness tournament, has had a significant impact on DraftKings' business, the filing said.

"Typically during the March and April time periods, we would have significant user interest and activity in our [Daily Fantasy Sports] and Sportsbook product offerings for sporting events such as the NCAA college basketball tournament, the Masters golf tournament, as well as late-season games and early playoff series of the National Basketball Association and the National Hockey League," the filing said. "These changes have reduced customers' use of, and spending on, our product offerings, and have caused us to issue refunds for canceled events."

Retail casinos where DraftKings has a Sportsbook have also closed — a further hit to the company's income, the filing said.

"These changes have significantly impacted our business, and may materially impact our financial condition and results of operations depending on the length of time that these disruptions exist and whether the sports seasons and sporting events will ultimately be suspended, postponed or canceled," the filing said.

And while the impacts of COVID-19 could be temporary, a longer-term economic downturn could also hurt the company as customers rein in nonessential spending, DEAC noted.

DraftKings hasn't made money since its inception in 2011 and will face the additional profitability hurdles as a result of going public, the filing said.

The go-public plan was originally announced in December. DraftKings unveiled a three-way merger deal with Diamond Eagle and SBTech Ltd., which develops software for sports betting and casino gaming platforms. The resulting, combined company will keep the DraftKings name.

At the time, DraftKings said the combined company would likely have an equity market value of about $3.3 billion.

The new DraftKings' Class A common stock and warrants will trade on the Nasdaq Global Market under the symbols "DKNG" and "DKNGW," respectively, Thursday's filing said.

Diamond Eagle said it is helping finance the deal with a private placement. The company is selling more than 30.4 million shares of its common stock for $10 apiece and 3 million warrants, both of which will convert to DraftKings stock and warrants, according to Thursday's filing.

DraftKings also plans to issue about 11 million shares of common stock to holders of its convertible promissory notes, the filing said.

Representatives for Diamond Eagle and DraftKings did not immediately respond to requests for comment on Thursday.

Diamond Eagle is represented by Winston & Strawn LLP, Greenberg Traurig LLP and Paul Hastings LLP.

The Winston Strawn team includes Joel L. Rubinstein, Jonathan P. Rochwarger, Elliott M. Smith and Jason D. Osborn.

The Paul Hastings team acted as gaming regulatory counsel and includes Behnam Dayanim and Holly Flynn.

DraftKings is represented by Scott D. Miller of Sullivan & Cromwell LLP.

--Additional reporting by Mike Curley. Editing by Janice Carter Brown.

Update: this story has been updated to reflect the latest developments on the deal and with additional counsel information.

For a reprint of this article, please contact reprints@law360.com.

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