Form S-1 dMY Technology Group,

December 16, 2020 4:57 PM
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As filed with the Securities and Exchange Commission on December 16, 2020

Registration No. 333-

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

 

 

dMY TECHNOLOGY GROUP, INC.*

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   7999   84-3626708
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
 

(I.R.S. Employer

Identification No.)

1180 North Town Center Drive, Suite 100

Las Vegas, Nevada 89144

(281) 515-2517

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Niccolo de Masi

1180 North Town Center Drive, Suite 100

Las Vegas, Nevada 89144

(281) 515-2517

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

 

Joel L. Rubinstein   Maggie Flores   Greg Carlin
Jonathan P. Rochwarger   Kirkland & Ellis LLP   Chief Executive Officer
Maia R. Gez   300 North LaSalle   Rush Street Interactive, LP
White & Case LLP   Chicago, Illinois 60654   900 N. Michigan Avenue, Suite 1600
1221 Avenue of the Americas   Tel: (312) 862-2000   Chicago, Illinois 60611
New York, New York 10020-1095     Tel: (312) 915-2882
Tel: (212) 819-8200    

Approximate date of commencement of proposed sale to the public: From time to time after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:   ☒

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

CALCULATION OF REGISTRATION FEE

 

 

Title of Securities to be Registered(1)   Amount to be
Registered(2)
 

Proposed Maximum

Offering

Price per Share(3)

  Proposed Maximum
Aggregate
Offering Price
 

Amount of

Registration Fee

Class A common stock, par value $0.0001 per share

  16,043,002   $18.18   $291,661,776.36   $31,820.30

 

 

(1)

These securities are being registered solely in connection with the resale of shares of Class A common stock by the selling stockholders named in this registration statement. The selling stockholders have committed to purchase up to 16,043,002 shares of Class A common stock, par value $0.0001 per share, of dMY Technology Group, Inc. immediately prior to the closing of its business combination with Rush Street Interactive, LP.

(2)

Pursuant to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”), the securities being registered hereunder include such indeterminate number of additional securities as may be issuable to prevent dilution resulting from any stock dividend, stock split, recapitalization or other similar transaction.

(3)

Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act, based on the average of the high and low prices of the registrant’s Class A common stock reported on December 15, 2020, which was $18.18 per share.

 

*

All securities being registered for resale hereunder will be issued by dMY Technology Group, Inc. (“dMY”) to the selling stockholders in connection with the business combination with Rush Street Interactive, LP. Upon the closing of the business combination, dMY will change its name to Rush Street Interactive, Inc.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. The Selling Stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED DECEMBER 16, 2020

PRELIMINARY PROSPECTUS

dMY Technology Group, Inc.

16,043,002 Shares of Class A Common Stock

 

 

This prospectus relates to the resale from time to time by the selling stockholders named in this prospectus or their permitted transferees (collectively, the “Selling Stockholders”) of the PIPE Shares, consisting of up to 16,043,002 shares of Class A common stock, par value $0.0001 per share (“Class A Common Stock”), of dMY Technology Group, Inc., a Delaware corporation (“dMY” “we,” “us” and “our”), which are expected to be issued in a private placement pursuant to the terms of the Subscription Agreements (as defined below) in connection with the Business Combination. If the Business Combination is not consummated, the shares of Class A Common Stock registered pursuant to this prospectus will not be issued.

On July 27, 2020, dMY entered into a business combination agreement with Rush Street Interactive, LP, a Delaware limited partnership (“RSI”), the sellers set forth on the signature pages thereto (collectively, the “Sellers” and each, a “Seller”), dMY Sponsor, LLC, a Delaware limited liability company, and Rush Street Interactive GP, LLC, a Delaware limited liability company, in its capacity as the Sellers’ Representative. The parties amended and restated the business combination agreement on October 9, 2020 and further amended the business combination agreement on December 4, 2020 (as so amended and restated and further amended, the “Business Combination Agreement”). Following the consummation of the transactions contemplated by the Business Combination Agreement (the “Closing”), dMY will be organized in an umbrella partnership–C corporation (“Up-C”) structure, in which substantially all of the assets of the combined company will be held by RSI, and dMY’s only assets will be its equity interests in RSI (which will be held indirectly through wholly-owned subsidiaries of the post-Business Combination company). It is anticipated that dMY will change its name at Closing to “Rush Street Interactive, Inc.”

In connection with the execution of the Business Combination Agreement, dMY and RSI entered into subscription agreements, each dated as of July 27, 2020 (the “Subscription Agreements”), with the Selling Stockholders, pursuant to which dMY agreed to issue and sell to the Selling Stockholders, in a private placement to close immediately prior to the Closing, an aggregate of up to 16,043,002 shares of Class A Common Stock at a purchase price of $10.00 per share, for an aggregate purchase price of $160,430,020 (the “PIPE”).

The Selling Stockholders may offer, sell or distribute all or a portion of the PIPE Shares registered hereby publicly or through private transactions at prevailing market prices or at negotiated prices. We will pay certain offering fees and expenses and fees in connection with the registration of the Class A Common Stock and will not receive proceeds from the sale of the shares of Class A Common Stock by the Selling Stockholders. Our Class A Common Stock is currently listed on the New York Stock Exchange (the “NYSE”) and trades under the symbol “DMYT.” Upon the consummation of the acquisitions and transactions contemplated by the Business Combination Agreement, the post-Business Combination company’s Class A Common Stock is expected trade on the NYSE under the symbol “RSI”.

 

 

We are an “emerging growth company” under applicable federal securities laws and will be subject to reduced public company reporting requirements.

INVESTING IN OUR SECURITIES INVOLVES RISKS THAT ARE DESCRIBED IN THE “RISK FACTORS ” SECTION BEGINNING ON PAGE 15 OF THIS PROSPECTUS.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this prospectus or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

The date of this prospectus is                 , 2020.


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EXPLANATORY NOTE

This registration statement registers the resale of up to 16,043,002 shares of Class A common stock (the “PIPE Shares”), par value $0.0001 per share (the “Class A Common Stock”), of dMY Technology Group, Inc., a Delaware corporation (“dMY,” “we,” “us” or “our”), by the selling stockholders named in this prospectus (or their permitted transferees) (the “Selling Stockholders”), who are expected to be issued the PIPE Shares in a private placement immediately prior to the closing of dMY’s proposed business combination (the “Business Combination”) with Rush Street Interactive, LP (“RSI”). The PIPE Shares will not be issued and outstanding at the time of the special meeting of dMY’s stockholders relating to the business combination and will not be issued until immediately prior to the closing of the Business Combination. In the event the business combination is not approved by dMY stockholders or the other conditions precedent to the consummation of the business combination are not met or waived, then the PIPE Shares will not be issued to the Selling Stockholders and dMY will seek to withdraw this registration statement prior to its effectiveness.


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TABLE OF CONTENTS

 

CERTAIN DEFINED TERMS

     ii  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY

     vii  

TRADEMARKS

     x  

SUMMARY OF THE PROSPECTUS

     1  

THE OFFERING

     7  

SELECTED HISTORICAL FINANCIAL INFORMATION OF dMY

     8  

SELECTED HISTORICAL FINANCIAL INFORMATION OF RSI

     9  

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     11  

COMPARATIVE SHARE INFORMATION

     13  

RISK FACTORS

     15  

USE OF PROCEEDS

     52  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     53  

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     61  

dMY’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     67  

BUSINESS OF RSI

     79  

RSI’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     104  

MANAGEMENT

     122  

EXECUTIVE COMPENSATION

     132  

DESCRIPTION OF SECURITIES

     141  

BENEFICIAL OWNERSHIP OF SECURITIES

     158  

SELLING STOCKHOLDERS

     161  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     167  

U.S. FEDERAL INCOME TAX CONSIDERATIONS

     177  

PLAN OF DISTRIBUTION

     182  

LEGAL MATTERS

     184  

EXPERTS

     184  

WHERE YOU CAN FIND MORE INFORMATION

     184  

INDEX TO FINANCIAL STATEMENTS

     F-1  

 

 

You should rely only on the information contained in this prospectus. No one has been authorized to provide you with information that is different from that contained in this prospectus. This prospectus is dated as of the date set forth on the cover hereof. You should not assume that the information contained in this prospectus is accurate as of any date other than that date.

For investors outside the United States: We have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.



 

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CERTAIN DEFINED TERMS

Unless otherwise stated or unless the context otherwise requires, the terms “we,” “us,” “our” and “dMY” refer to dMY Technology Corp., a Delaware corporation. In this prospectus:

Aggregate Put-Call Consideration Amount” means the sum of all Put-Call Consideration Amounts (if any).

Available Closing Date Cash” means an amount equal to the sum of (i) the cash remaining in the Company’s trust account as of immediately prior to the Closing following any redemptions of Class A Common Stock by the Company’s current stockholders and payment of the aggregate amount of transaction expenses incurred by the parties to the Business Combination Agreement as of the Closing plus (ii) the aggregate amount of proceeds received by the Company at or prior to the Closing in connection with the PIPE.

Board” means the members of the board of directors of the post-combination company.

Business Combination” means the acquisitions and transactions contemplated by the Business Combination Agreement.

Business Combination Agreement” means the Business Combination Agreement, dated as of July 27, 2020, by and among dMY, RSI, the Sellers, the Sponsor and the Sellers’ Representative, as amended and restated by the parties on October 9, 2020 and further amended on December 4, 2020.

Charter” means the amended and restated certificate of incorporation of the Company.

Class A Common Stock” means the Class A Common Stock of the Company, par value $0.0001 per share.

Class B Common Stock” means the Class B Common Stock of the Company, par value $0.0001 per share.

Class B Common Stock Conversion” means the automatic conversion at the Closing of all then-outstanding shares of Class B Common Stock into shares of Class A Common Stock on a one-for-one basis.

Class V Voting Stock” means the Class V Voting Stock of the Company, par value $0.0001 per share.

Closing” means the closing of the Business Combination.

Closing Date” means the date on which the Closing occurs.

Company” refers (i) before the Business Combination, to dMY and (ii) immediately following the Business Combination, to the combined company that shall be renamed Rush Street Interactive, Inc. upon the Closing, as the context requires.

Contribution Amount” means an amount of cash equal to the Available Closing Date Cash minus the Purchased RSI Units Cash Consideration. For the avoidance of doubt, the Contribution Amount shall include the Aggregate Put-Call Consideration Amount (if any).

Controlling Holders” means Neil G. Bluhm and Gregory A. Carlin and their respective trusts.

DGCL” means the General Corporation Law of the State of Delaware.

dMY,” “we,” “us” or “our” refer to dMY Technology Group, Inc.



 

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Earnout Shares” means (i) 1,212,813 of the Issued RSI Units issued to the Special Limited Partner and 1,212,813 shares of Class A Common Stock held by the Initial Stockholders (after giving effect to the Class B Common Stock Conversion) and (ii) 15,000,000 of the Retained RSI Units held by the Sellers and 15,000,000 shares of Class V Voting Stock issued to the Sellers by the Company in connection with the Business Combination, each of which will be subject to certain restrictions and potential forfeiture pending the achievement (if any) of certain earnout targets pursuant to the terms of the Business Combination Agreement. For the avoidance of doubt, the Earnout Shares shall not consist of any Put-Call Units.

Exchange Act” means the Securities Exchange Act of 1934, as amended.

Exchange Rights” means the right of the Sellers to exchange Retained RSI Units for either one share of Class A Common Stock or, at the election of RSI GP in its capacity as the general partner of RSI, depending on, among other things, the availability of cash at RSI after first considering the cash necessary at RSI to fund RSI’s outstanding and anticipated operating expenses, debt service costs and declared dividends (in each case, if any), license fees and expenses, tax obligations and capital for existing and continued growth in new jurisdictions, the cash equivalent of the market value of one share of Class A Common Stock, pursuant to the terms and conditions of the RSI A&R LPA.

Fidelity Subscription Agreement” means a subscription agreement with certain funds and accounts managed by Fidelity Management & Research Company LLC, pursuant to which such investors have agreed to purchase, together with the subscribers to the Other Subscription Agreements, in connection with Closing, an aggregate of up to 16,043,002 shares of Class A Common Stock for a purchase price of $10.00 per share, for an aggregate purchase price of $160,430,020.

Founder Holders” means the independent directors of dMY (consisting of Darla Anderson, Francesca Luthi and Charles E. Wert) together with the Sponsor.

Founder Holders Forfeiture Agreement” means the agreement, to be dated as of the Closing Date, pursuant to which the Initial Stockholders will agree to (on a pro rata basis) forfeit for no consideration up to 1,205,937 shares of Class A Common Stock in the aggregate held by the Initial Stockholders to the extent that the Total Measureable Cash Amount (as defined therein) does not equal at least $245,000,000.

Founder Holders Forfeiture Shares” means up to 1,205,937 shares of the Class A Common Stock held by the Founder Holders (after giving effect to the Class B Common Stock Conversion) that are subject to forfeiture for no consideration to the extent that the Total Measureable Cash Amount (as defined in the Founder Holders Forfeiture Agreement) does not equal at least $245,000,000 (as more fully described in the Founder Holders Forfeiture Agreement).

Founder Shares” means the shares of Class B Common Stock purchased by the Sponsor and the following independent directors of the Company: Darla Anderson, Francesca Luthi and Charles E. Wert.

GAAP” means generally accepted accounting principles.

Initial Stockholders” means the Sponsor, Darla Anderson, Francesca Luthi and Charles E. Wert.

Investor Rights Agreement” means the agreement, to be dated as of the Closing Date, pursuant to which, among other things, the Sponsor will have the right to nominate two directors to the Board and the Sellers will have the right (i) to nominate the remaining directors of the Board, and (ii) to appoint up to three non-voting board observers to the Board, in each case subject to certain conditions.



 

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Issued RSI Units” means any RSI Units that are issued to the Special Limited Partner pursuant to the Business Combination Agreement.

IPO” means the Company’s initial public offering of units consummated on February 25, 2020.

Minimum Cash Condition” means Available Closing Date Cash of at least $160,000,000 minus the amount by which the transaction expenses incurred by RSI and the Sellers exceeds $12,500,000.

NYSE” means the New York Stock Exchange.

“Other Subscription Agreements” means the subscription agreements by and among the Company, the Sellers’ Representative and certain other subscribers pursuant to which such investors have agreed to purchase, together with the subscribers to the Fidelity Subscription Agreement, in connection with Closing, an aggregate of up to 16,043,002 shares of Class A Common Stock for a purchase price of $10.00 per share, for an aggregate purchase price of $160,430,020.

“Permitted Equity Financing” means purchases of Class A Common Stock at a price per share no less than the Minimum Stock Sale Price consummated (a) by the Selling Stockholders or (b) until the date which is five (5) business days following the Closing by any other subscribers that agree to purchase Class A Common Stock as reflected in subscription agreements and subject to the requirements set forth in Section 7.15 of the Business Combination Agreement (including, but not limited to, the requirement that such subscription agreements, in addition to the subscription agreements entered into by the Selling Stockholders, do not in the aggregate provide for payment for Class A Common Stock such that, following such payment to the Buyer, the Aggregate Available Cash (as defined in the Business Combination Agreement) would exceed two hundred forty-five million dollars ($245,000,000)).

Permitted Equity Financing Sources” means Selling Stockholders or any other financing sources that have been approved by RSI and dMY and which participate in a Permitted Equity Financing.

PIPE” means the private placement to close immediately prior to the Closing, pursuant to which dMY agreed to issue and sell to the Selling Stockholders an aggregate of up to 16,043,002 shares of Class A Common Stock at $10.00 per share, for an aggregate purchase price of $160,430,020.

PIPE Shares” means the 16,043,002 shares of dMY’s Class A Common Stock being registered for resale by the Selling Stockholders.

Plan” means the Rush Street Interactive, Inc. 2020 Omnibus Equity Incentive Plan.

Post-Closing Contribution Amount” means any additional proceeds the Company receives through Permitted Equity Financing Sources during the five business day period following the Closing Date (provided that the aggregate proceeds received in connection with the PIPE and during the five business day period following the Closing Date may not exceed $245,000,000), which will be contributed to the Special Limited Partner, which will in turn contribute such amounts to RSI.

Proposed Charter” means the second amended and restated certificate of incorporation of the Company which, if approved, would take effect upon the Closing.

public shares” means the shares of Class A Common Stock included in the units sold by dMY in its IPO.

Purchased RSI Units” means a number of Retained RSI Units (not to exceed (a) 12,500,000 RSI Units in the event that the Put-Calls are not in effect as of the Closing or (b) 9,923,550 RSI Units in the event that the



 

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Put-Calls are in effect as of the Closing) equal to the quotient of (a) the Purchased RSI Units Cash Consideration divided by (b) $10. For the avoidance of doubt, the Purchased RSI Units shall not include any Sellers Earnout Company Units and if, and only if, the Closing occurs on or prior to December 20, 2020, the Purchased RSI Units shall not include any Put-Call Units.

Purchased RSI Units Cash Consideration” means, to the extent that the Available Closing Date Cash exceeds $160,000,000, an amount of the Available Closing Date Cash (not to exceed $125,000,000) determined by calculating (1) the sum of (i) the Available Closing Date Cash less $160,000,000 (provided that the amount of cash attributable to this clause (i) is subject to a cap of $60,000,000) plus (ii) 50% of the amount by which the Available Closing Date Cash exceeds $220,000,000 (provided that the amount of cash attributable to this clause (ii) is subject to a cap of $65,000,000) minus (2) the Aggregate Put-Call Consideration Amount (if any).

Put-Call Agreements” those certain Put-Call Agreements, dated as of October 9, 2020, by and among the Company, RSI and each of the Put-Call Sellers.

Put-Call Consideration Amount” means, with respect to a Put-Call Seller, if, and only if, the Closing occurs on or prior to December 20, 2020, the amount equal to (a) the seller proportion (expressed as a percentage in a notice by RSI to the Company prior to the Closing in accordance with the Business Combination Agreement) applicable to such Put-Call Seller multiplied by (b) the amount equal to (1) the sum of (i) the Available Closing Date Cash less $160,000,000 (provided that the amount of cash attributable to this clause (i) is subject to a cap of $60,000,000) plus (ii) 50% of the amount by which the Available Closing Date Cash exceeds $220,000,000 (provided that the amount of cash attributable to this clause (ii) is subject to a cap of $65,000,000). For the avoidance of doubt, if, and only if, the Closing occurs after December 20, 2020, the Put-Call Consideration Amount with respect to each Put-Call Seller shall be equal to zero dollars ($0).

Put-Call Sellers” means each of Richard Schwartz, Einar Roosileht and Mattias Stetz.

Put-Call Units” means the number of RSI Units held by each Put-Call Seller that are subject to the Put-Call.

Put-Calls” means those put and call rights contemplated by the Put-Call Agreements, which rights will be effective if, and only if, the Closing occurs on or prior to December 20, 2020 and which rights and Put-Call Agreements will automatically terminate and no longer be effective if the Closing occurs after December 20, 2020.

Redemption Amount” means the amount equal to the difference of (a) the sum of (i) the Available Closing Date Cash plus the aggregate proceeds received by the Company from any Permitted Equity Financing consummated after the Closing and on or prior to the fifth business day following the Closing Date less $160,000,000 (provided that the amount of cash attributable to this clause (i) will not be less than zero or exceed $60,000,000) plus (ii) the positive product (if any) of (A) 50% multiplied by (B) the amount by which the Available Closing Date Cash plus the aggregate proceeds received by the Company from any Permitted Equity Financing consummated after the Closing and on or prior to the fifth business day following the Closing Date exceeds $220,000,000 (provided that the amount of cash attributable to this clause (ii) will in no event be less than zero or exceed $65,000,000) minus (b) the Purchased RSI Units Cash Consideration minus (c) the Aggregate Put-Call Consideration Amount, if any.

Retained RSI Units” mean those RSI Units that are retained by the Sellers pursuant to the Business Combination Agreement.

RSI” refers to Rush Street Interactive, L.P., a Delaware limited partnership.



 

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RSI A&R LPA” means the Amended and Restated Agreement of Limited Partnership of RSI.

RSI Enterprise Value” means $1,725,000,000.

RSI GP” means RSI GP, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company.

RSI Units” means the common units of RSI, following the transactions contemplated by the Recapitalization Agreement.

RSG” means Rush Street Gaming, LLC, a current affiliate of RSI.

SEC” means the Securities and Exchange Commission.

Securities Act” means the Securities Act of 1933, as amended.

Seller” means each of Rush Street Interactive GP, LLC, Greg and Marcy Carlin Family Trust, Gregory Carlin, Rush Street Investors, LLC, Neil Bluhm, NGB 2013 Dynasty Trust, Einar Roosileht, Richard Schwartz and Mattias Stetz.

Sellers’ Representative” means Rush Street Interactive GP, LLC, in its capacity as the Sellers’ representative.

Selling Stockholders” means the subscribers that agreed to purchase Class A Common Stock immediately prior to the Closing pursuant to the PIPE, including, without limitation, as reflected in the Subscription Agreements.

Special Limited Partner” means a newly formed, wholly-owned subsidiary of the Company.

Sponsor” means the Company’s sponsor, dMY Sponsor, LLC.

Subscription Agreements” means the Other Subscription Agreements together with the Fidelity Subscription Agreement.



 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY

The statements contained in this prospectus that are not purely historical are forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. The information included in this prospectus in relation to RSI has been provided by RSI and its management team, and forward-looking statements include statements relating to RSI’s management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this prospectus may include, for example, statements about:

 

   

our ability to complete the Business Combination, or, if we do not consummate the Business Combination, any other initial business combination;

 

   

the benefits of the Business Combination;

 

   

the future financial performance of the post-Business Combination company;

 

   

expansion plans and opportunities; and

 

   

our potential ability to obtain financing to complete the Business Combination.

The forward-looking statements contained in this prospectus are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, the items in the following list, which summarizes some of the principal risks relating to the Business Combination and dMY and RSI’s businesses:

 

   

the ability to satisfy the conditions precedent to the closing of the Business Combination;

 

   

the occurrence of any event, change or other circumstances that could give rise to the termination of the Business Combination Agreement;

 

   

the ability to obtain and/or maintain the listing of our Class A Common Stock on the NYSE following the Business Combination;

 

   

our ability to raise financing in the future;

 

   

our success in retaining or recruiting, or changes required in, our officers, key employees or directors following the Business Combination;

 

   

our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving the Business Combination, as a result of which they would then receive expense reimbursements;

 

   

our public securities’ potential liquidity and trading;

 

   

the lack of a market for our securities;

 

   

the use of proceeds not held in the trust account or available to us from interest income on the trust account balance;



 

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competition in the retail and online sports wagering and online gaming industry is intense and, as a result, RSI may fail to attract and retain users, which may negatively impact RSI’s operations and growth prospects;

 

   

economic downturns and political and market conditions beyond RSI’s control, including a reduction in consumer discretionary spending and sports leagues shortening, delaying or cancelling their seasons due to COVID-19, could adversely affect its business, financial condition, results of operations and prospects;

 

   

RSI’s projections, including for revenues, market share, expenses and profitability, are subject to significant risks, assumptions, estimates and uncertainties;

 

   

RSI’s growth prospects may suffer if it is unable to develop successful offerings, if it fails to pursue additional offerings or if it loses any of its key executives or other key employees;

 

   

RSI may be subject to litigation in the operation of its business and RSI’s insurance may not provide adequate levels of coverage against any claims;

 

   

the requirements of being a public company, including compliance with the Securities and Exchange Commission’s (the “SEC”) requirements regarding internal controls over financial reporting, may strain RSI’s resources and divert management’s attention, and the increases in legal, accounting and compliance expenses that will result from the Business Combination may be greater than RSI anticipates;

 

   

following the consummation of the Business Combination, RSI will be dependent on RSG and certain of its affiliates to provide it with certain services, which may not be sufficient to meet its needs, and RSI may have difficulty finding replacement services or be required to pay increased costs to replace these services to the extent that its services agreement with RSG terminates;

 

   

RSI’s business is subject to a variety of United States and foreign laws (including Colombia, where RSI has business operations), many of which are unsettled and still developing, and RSI’s growth prospects depend on the legal status of real-money gaming in various jurisdictions;

 

   

failure to comply with regulatory requirements or to successfully obtain a license or permit applied for could adversely impact RSI’s ability to comply with licensing and regulatory requirements or to obtain or maintain licenses in other jurisdictions, or could cause financial institutions, online and mobile platforms and distributors to stop providing services to RSI;

 

   

RSI relies on information technology and other systems and platforms (including reliance on third-party providers to validate the identity and identify the location of its users and to process deposits and withdrawals made by its users), and any breach or disruption of such information technology could compromise RSI’s networks and the information stored there could be accessed, publicly disclosed, lost or stolen;

 

   

RSI intends to license certain trademarks and domain names to RSG and its affiliates, and RSG’s and its affiliates’ use of such trademarks and domain names, or failure to protect or enforce RSI’s intellectual property rights, could harm RSI’s business, financial condition, results of operations and prospects;

 

   

RSI will rely on licenses and service agreements to use the intellectual property rights of third parties which are incorporated into or used in its products and services;

 

   

RSI may invest in or acquire other businesses, or may invest or spend the proceeds of the Business Combination in ways with which the investors may not agree or which may not yield a return, and



 

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RSI’s business may suffer if it is unable to successfully integrate acquired businesses into its company or otherwise manage the growth associated with multiple acquisitions; and

 

   

other factors detailed under the section entitled “Risk Factors” herein.

Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.



 

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TRADEMARKS

This prospectus includes RSI’s trademarks such as “21+3”, “Lucky Lady” and “Lucky,” which are protected under applicable intellectual property laws and are the property of RSI or its subsidiaries. This prospectus also contains trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.



 

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SUMMARY OF THE PROSPECTUS

This summary highlights selected information from this prospectus and does not contain all of the information that is important to you in making an investment decision. This summary is qualified in its entirety by the more detailed information included in this prospectus. Before making your investment decision with respect to our securities, you should carefully read this entire prospectus, including the information under “Risk Factors,” “dMY’s Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “RSI’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements included elsewhere in this prospectus.

dMY Technology Group, Inc.

dMY is a blank check company, incorporated in Delaware, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses. Based on our business activities, dMY is a “shell company” as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) because we have no operations and nominal assets consisting almost entirely of cash.

Our Class A Common Stock and warrants are currently listed on the NYSE under the symbols “DMYT” and “DMYT WS,” respectively. Certain of our shares of Class A Common Stock and warrants currently trade as units consisting of one share of Class A Common Stock and one-half of one redeemable warrant, and are listed on the NYSE under the symbol “DMYT.U” The units will automatically separate into their component securities upon consummation of the Business Combination and, as a result, will no longer trade as an independent security. Upon the Closing, we intend to change our name from “dMY Technology Group, Inc.” to “Rush Street Interactive, Inc.” We intend to list our Class A Common Stock and warrants on the NYSE under the symbols “RSI” and “RSI WS,” respectively, upon the Closing.

The mailing address of dMY’s principal executive office is 1180 North Town Center Drive, Suite 100, Las Vegas, Nevada 89144. Our telephone number is (702) 781-4313.

Rush Street Interactive, LP

RSI is a Delaware limited partnership, headquartered in Chicago, Illinois, that operates online casino and sports betting sites in certain jurisdictions in the United States and in Latin America.

The mailing address of RSI’s headquarters is 900 N Michigan Avenue, Chicago, Illinois, 60611.

The Business Combination

The Business Combination Agreement

On July 27, 2020, dMY entered into a business combination agreement with RSI, the Sellers, the Sponsor, and Rush Street Interactive GP, LLC, in its capacity as the Sellers’ representative (the “Sellers’ Representative”). The parties amended and restated the business combination Agreement on October 9, 2020 and further amended the business combination agreement on December 4, 2020. Following the Closing, the Company will be organized in an umbrella partnership–C corporation (“Up-C”) structure, in which substantially all of the assets of the Company will be held by RSI, and the Company’s only assets will be its equity interests in RSI (which will be held indirectly through the Special Limited Partner and RSI GP, which will be wholly-owned subsidiaries of the Company). It is anticipated that dMY will change its name at Closing to “Rush Street Interactive, Inc.”



 

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The Business Combination Agreement provides that the Sellers’ obligation to consummate the Business Combination is conditioned on, among other things, that (i) the Company has an amount equal to the sum of (a) the cash remaining in the Company’s trust account as of immediately prior to the Closing following any redemptions of Class A Common Stock by the Company’s current stockholders and payment of the aggregate amount of transaction expenses incurred by the parties to the Business Combination Agreement as of the Closing plus (b) the aggregate amount of proceeds received by the Company at or prior to the Closing in connection with the PIPE (“Available Closing Date Cash”) of at least $160,000,000 minus the amount by which the transaction expenses incurred by RSI and the Sellers exceeds $12,500,000 and (ii) all approvals, determinations, grants, confirmations and other conditions with respect to gaming regulatory authorities in connection with the transactions contemplated by the Business Combination Agreement and the related agreements have been made, obtained, satisfied or given and are in full force and effect. The consummation of the Business Combination is also subject to the satisfaction or waiver of certain other closing conditions pursuant to the Business Combination Agreement.

For more information on the Business Combination Agreement, see the section entitled “dMY’s Management’s Discussion and Analysis of Financial Condition and Results of Operations—The Business Combination.”



 

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Structure of the Business Combination

The following diagram illustrates in simplified terms the expected structure of dMY upon the Closing.

After the Business Combination

 

LOGO

The Subscription Agreements

In connection with the execution of the Business Combination Agreement, the Company entered into the Subscription Agreements, pursuant to which the PIPE investors have agreed to purchase in connection with Closing an aggregate of up to 16,043,002 shares of Class A Common Stock for a purchase price of $10.00 per share, for an aggregate purchase price of $160,430,020. The obligations of each party to consummate the PIPE are conditioned upon, among other things, customary closing conditions and the consummation of the



 

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transactions contemplated by the Business Combination Agreement. If the conditions precedent to closing the Business Combination are not fulfilled or waived and the Business Combination does not close, then the PIPE Shares will not be issued. In this event, the registration statement of which this prospectus forms a part will be withdrawn by the issuer prior to the effectiveness of the registration statement.

Sources of Industry and Market Data

Where information has been sourced from a third-party, the source of such information has been identified. Unless otherwise indicated, the information contained in this prospectus on the market environment, market developments, growth rates, market trends and competition in the markets in which dMY and RSI operate is taken from publicly available sources, including third-party sources, or reflects dMY’s or RSI’s estimates that are principally based on information from publicly available sources.

Risks Related to Our Business

Investing in our securities involves risks. You should carefully consider the risks described in “Risk Factors” beginning on page 15 before making a decision to invest in our common stock. If any of these risks actually occurs, our business, financial condition and results of operations would likely be materially adversely affected. In such case, the trading price of our securities would likely decline, and you may lose all or part of your investment. Set forth below is a summary of some of the principal risks we face:

 

   

Competition in the retail and online sports wagering and online gaming industry is intense and, as a result, we may fail to attract and retain users, which may negatively impact our operations and growth prospects.

 

   

Sports leagues shortening, delaying or cancelling their seasons due to COVID-19 could adversely affect our business, financial condition, results of operations and prospects.

 

   

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.

 

   

Our operating results may vary, which may make future results difficult to predict with certainty.

 

   

The success, including win or hold rates, of existing or future online wagering products depends on a variety of factors and is not completely controlled by us.

 

   

If we fail to detect fraud or theft, including by our users 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 rely on strategic relationships with casinos in order to be able to offer our products in certain jurisdictions. If we cannot establish and manage relationships with casino partners, our business, financial condition, results of operations and prospects could be adversely affected.

 

   

RSI’s current and projected performance relies upon continued compatibility between the RSI app and the major mobile operating systems, third party platforms continuing to allow distribution of our product offerings, high-bandwidth data capabilities and the interoperability of our platforms with widely used mobile operating systems. Disruptions in the availability of these may negatively impact our business, financial conditions, 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 key users and our revenue and results of operations may decline.



 

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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 will result from the Business Combination may be greater than we anticipate.

 

   

As a private company, RSI has not been subject to the SEC’s requirements regarding its internal controls over financial reporting. 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.

 

   

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 key executives or other key employees could harm our business.

 

   

Due to the nature of our business, we are subject to taxation in a number of 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.

 

   

We have business operations located in Colombia, outside of the United States, which subjects us to additional costs and risks that could adversely affect our operating results.

 

   

Following the consummation of the Business Combination, we will be 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.

 

   

Negative publicity of us or an adverse shift in public opinion regarding sports wagering or online casino wagering may adversely impact our business and user retention.

Emerging Growth Company and Smaller Reporting Company

dMY is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (“SOX”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. dMY has elected not to opt out of this extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, dMY, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of dMY’s financial statements with certain other public companies difficult or impossible because of the potential differences in accounting standards used.

dMY will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering (the “IPO”), (b) in which we have total annual gross revenue of at least $1.07 billion (as adjusted for inflation pursuant to SEC rules from time



 

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to time), or (c) in which we are deemed to be a large accelerated filer, which means the market value of our shares of Class A Common Stock that are held by non-affiliates exceeds $700 million as of the prior June 30th, and (ii) the date on which we issued more than $1.00 billion in non-convertible debt during the prior three-year period.

Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our common stock held by non-affiliates exceeds $250 million as of the end of that fiscal year’s second fiscal quarter, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700 million as of the end of that fiscal year’s second fiscal quarter. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.



 

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THE OFFERING

 

Issuer

  

dMY Technology Group, Inc.

 

In connection with the closing of the Business Combination, dMY will change its name to Rush Street Interactive, Inc. If the Business Combination is not consummated, the shares of Class A Common Stock registered pursuant to this prospectus will not be issued.

Class A Common Stock offered by the Selling Stockholders

  


Up to 16,043,002 shares of Class A Common Stock, which are expected to be issued pursuant to the terms of the Subscription Agreements in a private placement in connection with, and as part of the consideration for, the Business Combination.

Class A Common Stock issued and outstanding prior to the consummation of the Business Combination

  


23,000,000

Class A Common Stock to be issued and outstanding after the consummation of the Business Combination (assuming no redemptions)

  



43,580,189

Class A Common Stock to be issued and outstanding after the consummation of the Business Combination (assuming maximum redemptions)(1)

  



22,331,250

Use of proceeds

   We will not receive any of the proceeds from the sale of the shares of Class A Common Stock by the Selling Stockholders.

Market for our shares of Class A Common Stock

   Our Class A Common Stock is currently listed on the NYSE under the symbol “DMYT.” Following the Closing, we expect that our Class A Common Stock will be listed on the NYSE under the symbol “RSI.”

Risk factors

   Any investment in the securities offered hereby is speculative and involves a high degree of risk. You should carefully consider the information set forth under “Risk Factors” and elsewhere in this prospectus.

 

(1)

Represents the number of shares of the Company’s common stock outstanding at Closing assuming that 20,043,002 of dMY’s public shares are redeemed in connection with the Business Combination.



 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF DMY

The following selected financial data is only a summary of dMY’s combined financial statements and should be read in conjunction with dMY’s combined financial statements and related notes and “dMYs Managements Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this prospectus. dMY’s historical results are not necessarily indicative of future results, and the results for any interim period are not necessarily indicative of the results that may be expected for the full fiscal year. The following selected statement of operations data for dMY’s nine months ended September 30, 2020 and the period from September 27, 2019 (inception) through December 31, 2019, and balance sheet data for dMY as of September 30, 2020 and December 31, 2019 have been derived from dMY’s financial statements included elsewhere in the prospectus.

 

in thousands, except per share data

   As of and for the
Nine Months Ended
September 30, 2020
     As of and for
the period from
September 27, 2019
(inception) through
December 31, 2019
 

Statement of Operations Data:

     

General and administrative expense

   $ 2,917      $ 1  

Franchise tax expense

     151         
  

 

 

    

 

 

 

Loss from operations

     (3,068      (1

Gain on marketable securities (net) held in Trust Account

     759         

Income tax expense

     (128       
  

 

 

    

 

 

 

Net loss

   $ (2,437    $ (1
  

 

 

    

 

 

 

Basic and diluted net loss per share - Class A

   $ 0.02      $  

Basic and diluted weighted average shares outstanding - Class A

     23,000,000         

Basic and diluted net loss per share - Class B

   $ (0.51    $ (0.00)  

Basic and diluted weighted average shares outstanding - Class B

     5,750,000        5,000,000  

Balance Sheet:

     

Total assets

   $ 231,630      $ 73  

Total liabilities

     10,733        49  

Common stock subject to possible redemptions

     215,897         

Total stockholders’ equity

   $ 5,000      $ 24  


 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF RSI

The following selected financial data is only a summary for RSI’s combined financial statements and should be read in conjunction with RSI’s combined financial statements and related notes and RSI’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this prospectus. RSI’s historical results are not necessarily indicative of future results, and the results for any interim period are not necessarily indicative of the results that may be expected for the full fiscal year. The following selected statement of operations data and statement of cash flows data for RSI’s nine months ended September 30, 2020 and September 30, 2019, fiscal year 2019 and fiscal year 2018, and balance sheet data for RSI as of September 30, 2020, December 31, 2019 and 2018 have been derived from RSI’s consolidated financial statements included elsewhere in the prospectus.

 

     Nine Months Ended
September 30,
     Year Ended
December 31,
 

in thousands

   2020(1)      2019      2019      2018  

Statement of Operations Data:

           

Revenues

   $ 178,452      $ 35,848      $ 63,667      $ 18,226  

Net loss

   $ (90,027    $ (7,360    $ (22,450    $ (10,735

Statement of Cash Flows:

           

Net cash provided by (used in) operating activities

   $ 2,559      $ (7,414    $ (2,459    $ (5,138

Net cash used in investing activities

   $ (4,696    $ (5,645    $ (5,770    $ (644

Net cash provided by financing activities

   $ 7,150      $ 14,500      $ 15,545      $ 8,000  

Balance Sheet:

           

Total assets

   $ 68,574         $ 25,543      $ 8,165  

Total liabilities

   $ 154,221         $ 28,911      $ 10,704  

Preferred units

   $ 34,437         $ 28,073      $

Total members’ deficit

   $ (120,084       $ (31,441    $ (2,539

 

(1)

During the three months ended and as of September 30, 2020, RSI under accrued related party royalty expense in costs of revenue, and overstated the related amount due from affiliated land-based casinos, by approximately $9.0 million. See Note 1 to RSI’s consolidated financial statements included in this prospectus. However, on December 10, 2020, RSI retrospectively amended its existing agreements with an affiliated land-based casino to reduce the royalty expense owed by RSI by $9.0 million. Therefore, no adjustment has been made to the unaudited September 30, 2020 consolidated financial statements. This amendment is, by its terms, one time in nature, and similar amendments will not occur in the future. Absent such amendment, RSI’s costs of revenue would have been increased by $9.0 million and the amount due from affiliated land-based casinos would have been lower by $9.0 million for the three months ended and as of September 30, 2020.

Non-GAAP Information

This prospectus includes Adjusted EBITDA, which is a non-GAAP performance measure that RSI uses to supplement its results presented in accordance with U.S. generally accepted accounting principles (“GAAP”). RSI believes Adjusted EBITDA is useful in evaluating its operating performance, as it is similar to measures reported by RSI’s public competitors and is regularly used by security analysts, institutional investors and other interested parties in analyzing operating performance and prospects. Adjusted EBITDA is not intended to be a substitute for any U.S. GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry.

RSI defines Adjusted EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization, share-based compensation, adjustments for certain one-time or non-recurring items and other



 

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adjustments. RSI includes this non-GAAP financial measure because it is used by management to evaluate RSI’s core operating performance and trends and to make strategic decisions regarding the allocation of capital and new investments. Adjusted EBITDA excludes certain expenses that are required in accordance with U.S. GAAP because non-cash (for example, in the case of depreciation and amortization, share-based compensation) or are not related to RSI’s underlying business performance (for example, in the case of interest income, net).

The table below presents RSI’s Adjusted EBITDA reconciled from its comprehensive loss, the closest U.S. GAAP measure, for the periods indicated:

 

     Nine Months Ended
September 30,
     Year Ended
December 31,
 

($ in thousands)

   2020      2019      2019      2018  
     (Unaudited)                

Comprehensive loss

   $ (94,759    $ (7,174    $ (30,984    $ (10,867
  

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation and amortization

     1,368        799        1,139        898  

Interest, net

     101        92        123        42  

Deemed dividend on preferred units

     4,288               8,544         

Share-based compensation expense

     103,282               13,407         
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 14,280      $ (6,283    $ (7,771    $ (9,927


 

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SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following summary unaudited pro forma condensed combined financial data (the “Summary Pro Forma Data”) gives effect to the Business Combination and related transactions described in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information.” The Business Combination will be accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, dMY is treated as the acquired company and RSI is treated as the acquirer for financial statement reporting purposes. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of RSI issuing stock for the net assets of dMY, accompanied by a recapitalization. The net assets of dMY are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those of RSI. The summary unaudited pro forma condensed combined balance sheet data as of September 30, 2020 gives effect to the Business Combination as if it had occurred on September 30, 2020. The summary unaudited pro forma condensed combined statement of operations data for the nine months ended September 30, 2020 and year ended December 31, 2019 gives effect to the Business Combination as if it had occurred on January 1, 2019.

The Summary Pro Forma Data have been derived from, and should be read in conjunction with, the more detailed unaudited pro forma condensed combined financial information of the post-combination company appearing elsewhere in this prospectus and the accompanying notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial information is based upon, and should be read in conjunction with, the historical consolidated financial statements and related notes of dMY and RSI for the applicable periods included in this prospectus. The Summary Pro Forma Data have been presented for informational purposes only and are not necessarily indicative of what the Company’s financial position or results of operations actually would have been had the Business Combination been completed as of the dates indicated. In addition, the Summary Pro Forma Data does not purport to project the future financial position or operating results of the Company.

The unaudited pro forma condensed combined financial information has been prepared using the assumptions below with respect to the potential redemption into cash of common stock:

 

   

Assuming Minimum Redemptions: This presentation assumes that (i) none of the holders of shares of Class A Common Stock included in the units sold by dMY in its IPO (the “public shares”) exercise their redemption rights, (ii) the parties to the Business Combination Agreement incur $30 million of transaction expenses, (iii) the put and call rights contemplated by the Put-Call Agreements (the “Put-Calls”) are in effect as of the Closing and are validly exercised shortly following the Closing or are not in effect, (iv) the maximum amount of a number of those common units of RSI (the “RSI Units”) that are retained by the Sellers pursuant to the Business Combination Agreement (the “Retained RSI Units”) (not to exceed (a) 12,500,000 RSI Units in the event that the Put-Calls are not in effect as of the Closing or (b) 9,923,550 RSI Units in the event that the Put-Calls are in effect as of the Closing) equal to the quotient of (a) the Purchased RSI Units Cash Consideration divided by (b) $10 (the “Purchased RSI Units”) are purchased from the Sellers (other than each of Richard Schwartz, Einar Roosileht and Mattias Stetz (the “Put-Call Sellers”)) (i.e., $99,235,500 if the Put-Calls are in effect or $125,000,000 if the Put-Calls are not in effect) at Closing, (v) none of the 1,205,937 shares of the Class A Common Stock held by the Founder Holders that are subject to forfeiture for no consideration to the extent that the Total Measureable Cash Amount (as defined in the Founder Holders Forfeiture Agreement) does not equal at least $245,000,000 (the “Founder Holders Forfeiture Shares”) are forfeited because the Available Closing Date Cash exceeds $245,000,000, (vi) the Earnout Shares (as defined below) are excluded unless and until such shares become earned in accordance with the Business Combination Agreement, (vii) there is no exercise at the Closing of the Sponsor’s 6,600,000 private placement warrants at an exercise price of $11.50 per share (which warrants are not exercisable until the later of 12 months from the closing of the IPO and 30 days after the completion of the



 

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Business Combination), (viii) none of the parties set forth above purchase shares of Class A Common Stock in the open market, (ix) there are no other issuances of equity interests of the Company prior to or in connection with the Closing and (x) there are no issuances of any shares of the Company’s Class A Common Stock within the five business days following the Closing to additional private placement investors or following the Closing under the Rush Street Interactive, Inc. 2020 Omnibus Equity Incentive Plan (the “Plan”).

 

   

Assuming Maximum Redemptions: This presentation assumes that approximately 87% of dMY’s public stockholders exercise redemption rights with respect to their public shares (representing the maximum amount of public shares that can be redeemed to satisfy the Available Closing Date Cash of at least $160,000,000 minus the amount by which the transaction expenses incurred by RSI and the Sellers exceeds $12,500,000 (the “Minimum Cash Condition”)). This scenario assumes that 20,043,002 public shares are redeemed for an aggregate redemption payment of approximately $200,430,020, based on $230.8 million in the trust and 23,000,000 public shares outstanding as of September 30, 2020. In accordance with the amended and restated certificate of incorporation of the Company (the “Charter”), a public stockholder, together with any affiliate of his or hers, or any other person with whom he or she is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from redemption with respect to 20% or more of public shares without the Company’s prior written consent. In no event will the Company redeem the public shares in an amount that would cause its net tangible assets to be less than $5,000,001.

 

(in thousands, except share and per share amounts)

   Assuming
No
Redemptions
    Assuming
Maximum
Redemptions
 

Selected Unaudited Pro Forma Condensed Combined Statement of Operations Data

  

 

 

 

 

 

 

 

Nine Months Ended September 30, 2020

  

 

 

 

 

 

 

 

Revenues

   $ 178,452     $ 178,452  

Net loss per share – basic and diluted

   $ (0.48   $ (0.50

Weighted-average shares outstanding – basic and diluted

     43,580,189       22,331,250  

Selected Unaudited Pro Forma Condensed Combined Statement of Operations Data

  

 

 

 

 

 

 

 

Year Ended December 31, 2019

  

 

 

 

 

 

 

 

Revenues

   $ 63,667     $ 63,667  

Net loss per share – basic and diluted

   $ (0.12   $ (0.12

Weighted-average shares outstanding – basic and diluted

     43,580,189       22,331,250  

Selected Unaudited Pro Forma Condensed Combined Balance Sheet Data as of September 30, 2020

  

 

 

 

 

 

 

 

Total assets

   $ 302,875     $ 227,445  

Total liabilities

   $ 42,771     $ 42,771  

Total stockholders’ equity

   $ 260,104     $ 184,674  


 

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COMPARATIVE SHARE INFORMATION

The following table sets forth selected historical comparative share and unit information for dMY and RSI and unaudited pro forma condensed combined per share information of dMY after giving effect to the Business Combination, assuming two redemption scenarios as follows.

 

   

Assuming No Redemptions: This presentation assumes that (i) none of the holders of public shares exercise their redemption rights, (ii) the parties to the Business Combination Agreement incur $30 million of transaction expenses, (iii) the Put-Calls are in effect as of the Closing and are validly exercised shortly following the Closing or are not in effect, (iv) the maximum amount of Purchased RSI Units are purchased from the Sellers (other than the Put-Call Sellers) (i.e., $99,235,500 if the Put-Calls are in effect or $125,000,000 if the Put-Calls are not in effect) at Closing, (v) none of the 1,205,937 Founder Holders Forfeiture Shares are forfeited because the Available Closing Date Cash exceeds $245,000,000, (vi) the Earnout Shares (as defined below) are excluded unless and until such shares become earned in accordance with the Business Combination Agreement, (vii) there is no exercise at the Closing of the Sponsor’s 6,600,000 private placement warrants at an exercise price of $11.50 per share (which warrants are not exercisable until the later of 12 months from the closing of the IPO and 30 days after the completion of the Business Combination), (viii) none of the parties set forth above purchase shares of Class A Common Stock in the open market, (ix) there are no other issuances of equity interests of the Company prior to or in connection with the Closing and (x) there are no issuances of any shares of the Company’s Class A Common Stock within the five business days following the Closing to additional private placement investors or following the Closing under the Plan.

 

   

Assuming Maximum Redemptions: This presentation assumes that approximately 87% of dMY’s public stockholders exercise redemption rights with respect to their public shares (representing the maximum amount of public shares that can be redeemed to satisfy the Minimum Cash Condition). This scenario assumes that 20,043,002 public shares are redeemed for an aggregate redemption payment of approximately $200,430,020, based on $230.8 million in the trust and 23,000,000 public shares outstanding as of September 30, 2020. In accordance with the Charter, a public stockholder, together with any affiliate of his or hers, or any other person with whom he or she is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from redemption with respect to 20% or more of public shares without the Company’s prior written consent. In no event will the Company redeem the public shares in an amount that would cause its net tangible assets to be less than $5,000,001.

The pro forma book value information reflects the Business Combination as if it had occurred on September 30, 2020. The weighted average shares outstanding and net earnings per share information reflect the Business Combination as if it had occurred on January 1, 2019.

This information is only a summary and should be read together with the selected historical financial information included elsewhere in this prospectus, and the historical financial statements of dMY and RSI and related notes that are included elsewhere in this prospectus. The unaudited pro forma combined per share information of dMY and RSI is derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial statements and related notes included elsewhere in this prospectus.

The unaudited pro forma combined earnings per share information below does not purport to represent the earnings per share which would have occurred had the companies been combined during the periods presented, nor earnings per share for any future date or period. The unaudited pro forma combined book value per share information below does not purport to represent what the value of dMY and RSI would have been had the companies been combined during the periods presented.



 

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     RSI
(Historical)
     dMY
(Historical)
     Pro Forma
Combined
(Assuming No
Redemptions)
    Pro Forma
Combined
(Assuming
Maximum
Redemptions)
 

As of and for the Nine Months Ended September 30, 2020

          

Book value per share

     N/A      $ 0.22      $ 5.97     $ 8.27  

Basic and diluted net loss per share — Class A

     N/A      $ 0.02      $ (0.48   $ (0.50

Basic and diluted weighted average shares outstanding — Class A

     N/A        23,000,000        43,580,189       22,331,250  

For the Twelve Months Ended December 31, 2019

     N/A          

Basic and diluted net loss per share — Class A

     N/A        N/A      $ (0.12   $ (0.12

Basic and diluted weighted average shares outstanding — Class A

     N/A        N/A        43,580,189       22,331,250  


 

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RISK FACTORS

An investment in the Company’s securities involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. The Company’s business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not known to it or that the Company considers immaterial as of the date of this prospectus. The trading price of the Company’s securities could decline due to any of these risks, and, as a result, you may lose all or part of your investment.

First person pronouns used in this section, such as the words “we,” “our,” and “us,” refer to RSI or the Company, as the context requires.

Risks Relating to RSI

Risks Related to Our Business

Competition in the retail and online sports wagering and online gaming industry is intense and, as a result, we may fail to attract and retain users, 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 gaming and retail or online casino gaming, as well as against providers of online and mobile entertainment and leisure products more generally. Other companies producing retail or online sports wagering or online gaming and/or interactive entertainment products and services are often established and well-financed, and other well-capitalized companies may introduce competitive services. Our competitors may spend more money and time on developing and testing products and services, undertake more extensive marketing campaigns, adopt more aggressive pricing or promotional policies 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. Such competitors may also undertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing policies. Furthermore, in the future, new competitors, whether licensed or not, may enter the retail or online sports wagering or gaming industries. If we are not able 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 expenses in order to compete.

We operate in the global entertainment and gaming industries within the broader entertainment industry with our business-to-consumer (“B2C”), business-to-business-to-consumer (“B2B2C”), business-to-business (“B2B”) offerings such as online casino wagering, online sports wagering, retail sports wagering and social gaming, and our B2B offerings through our proprietary online gaming platform and other services. Our users face a vast array of entertainment choices. Other forms of entertainment, such as television, movies, sporting events and in-person casinos, are more well established and may be perceived by our users to offer greater variety, affordability, interactivity and enjoyment. We compete with these other forms of entertainment for the discretionary time and income of our users. If we are unable to sustain sufficient interest in our online casino wagering, online sports wagering and social gaming platforms and our retail sports wagering services 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 achieve growth in revenue in the future will depend, in large part, upon our ability to attract new users to our offerings and retain existing users of our offerings, as well as continued user adoption of online casino and retail and online sports wagering more generally. Growth in the online casino and gaming industries and the level of demand for and market acceptance of our product offerings will be subject to a high degree of uncertainty. We cannot assure that consumer adoption of our product offerings will continue or exceed current growth rates, 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.

 

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Sports leagues shortening, delaying or cancelling their seasons due to COVID-19 could adversely affect our business, financial condition, results of operations and prospects.

The recent outbreak of the novel coronavirus (“COVID-19”) has resulted in, among other things, suspension, shortening, delay, or cancellation of sports leagues. If the suspension, shortening, delay or cancellation of sporting events and sports leagues continues, we may not be able to accept wagers on such sporting events or sustain sufficient interest in our retail and online sports wagering platforms. Further, shortened seasons for sports leagues may result in a smaller amount of money wagered on sporting 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 wagering odds or event times have occurred occasionally, resulting in large liabilities. Though, to date, it has been general practice to void wagers associated with such clear errors or to correct the odds, it cannot be assured that in each and every case of such clear error regulators will continue the practice of approving the voiding of such clear errors.

Our sports wagering products provide for the opportunity to wager across hundreds of sporting 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 or the start times for the event posted 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 wagers associated with such clear errors. Further, in mature jurisdictions, wagers based upon clear error can be voided without need of prior regulatory approval. However, there can be no guarantee that this voiding of wagers practice will continue. If regulators were to not allow voiding of wagers associated with clear errors in odds making, 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 the 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 the development of new products 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 reduction in consumer discretionary spending, could adversely affect our business, financial condition, results of operations and prospects,” our business may be affected by reductions in consumer spending from time to time as a result of a number of factors which may be difficult to predict. This may result in decreased revenue levels, and we may be unable to adopt measures in a timely manner to compensate for 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.

 

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Our operating results may vary, which may make future results difficult to predict with certainty.

In the past, our financial results have varied on a quarter-by-quarter basis and may continue to do so in the future. This variance is due to a variety of factors certain of which are beyond our control. Our financial results in any given quarter may be influenced by, among other things, consumer engagement and wagering results, and other factors which are outside of our control or we cannot predict.

Our financial results are dependent, in part, on continued consumer engagement. Our consumer engagement in our sports wagering and online casino wagering services may vary or decrease, potentially resulting in a negative impact on our business, operations, financial condition or prospects, on account of, among other factors, the user’s level of satisfaction with our platforms, our ability to improve, innovate and adapt our platform, the number of sports events and the length of sporting seasons, outages and disruptions of online services, the offerings of our competitors, our marketing and advertising efforts, or declines in consumer activity generally as a result of economic downturns

Additionally, our quarterly financial results may also be impacted on the number and amount of operator losses and jackpot payouts we may experience. Though, operator losses are limited per stake to a maximum payout in our online casino wagering product offering, when looking at wagers across a period of time, these losses can potentially be significant. Our quarterly financial results are also subject to any jackpot payouts made in a particular quarter. As part of our online casino wagering offering, we offer progressive jackpot games. Each time a progressive jackpot game is played, a portion of the amount wagered by the user is contributed to the jackpot for that specific game or group of games. Once a jackpot is won, the progressive jackpot is paid out and is reset with a predetermined base amount. As winning of 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. Payment of the progressive jackpot decreases our cash position and depending upon the size of the jackpot may have a significant negative affect on our cash flow and financial condition.

The success, including win or hold rates, of existing or future online wagering products depends on a variety of factors and is not completely controlled by us.

The online casino wagering and retail and online sports wagering industries are characterized by an element of chance. Accordingly, we employ theoretical win rates to estimate what a certain type of online casino wager or retail or online sports wager, on average, will win or lose in the long run. Net win is impacted by variations in the hold percentage (the ratio of net winnings to total amount wagered) with respect to the online casino and retail and online sports wagering we offer to our users. We use the hold percentage as an indicator of an online casino game or retail or online sports wager’s performance against its expected outcome. Although each online casino wager or retail or online sports wager 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 wagering and retail and online sports wagering, the element of chance may affect win rates (hold percentages); these win rates, particularly for retail and online sports wagering, may also be affected in the short term by factors that are largely beyond our control, such as unanticipated event outcomes, a user’s skill, experience and behavior, the mix of games played or wagers placed, the financial resources of users, the volume of wagers 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 wagering, it is possible that our platform erroneously posts odds or is otherwise misprogrammed to pay out odds that are highly favorable to bettors, and bettors place wagers before the odds are corrected. Additionally, odds compilers and risk managers are capable of human error, so even if our wagering products 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 wagers may differ from the theoretical win rates we have estimated and could result in the winnings of our online casino games or sports bet’s users 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.

 

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Our success also depends in part on our ability to anticipate and satisfy user preferences in a timely manner. As we operate in a dynamic environment characterized by rapidly changing industry and legal standards, our products are subject to changing consumer preferences that cannot be predicted with certainty. We need to continually introduce new offerings and identify future product offerings that complement our existing platforms, respond to our users’ needs and improve and enhance our existing platforms to maintain or increase our user engagement and growth of our business. We may not be able 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 users 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, claims of unauthorized payments by a user and attempted payments by users 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.

Acts of fraud or other forms of cheating by our gaming customers may involve various tactics, including collusion with our employees and the exploitation of loopholes in our promotional bonus schemes. Successful exploitation of our systems could have negative effects on our product offerings, services and user experience and could harm our reputation. Additionally, we may inadvertently send overly generous promotional schemes that users or regulators force us to honor. Failure to discover such acts or schemes in a timely manner could result in harm to our operations. In addition, negative publicity related to such schemes could have an adverse effect on our reputation, potentially causing a material adverse effect on our business, financial condition, results of operations and prospects. In the event of the occurrence of any such issues with our existing platform or product offerings, substantial engineering and marketing resources and management attention, 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, users’ or other proprietary information or other breach of our information security could result in legal claims or legal 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 users, 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.

 

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We rely on strategic relationships with casinos in order to be able to offer our products in certain jurisdictions. If we cannot establish and manage relationships with casino partners, our business, financial condition, results of operations and prospects could be adversely affected.

Under some states’ wagering and gaming laws, online casino wagering, online sports wagering and retail sports wagering is limited to a finite number of retail operators, such as casinos, tribes or tracks, who own a “skin” or “skins” under that state’s law. A “skin” is a legally-authorized license from a state to offer sports wagering, online casino wagering or online gaming. The “skin” provides a market access opportunity for retail and online sports operators and online 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 wagering and gaming law. In most of the jurisdictions in which we offer online casino wagering and sports wagering, we currently rely on a casino, tribe or track in order to get a “skin.” These “skins” are what allows us to gain access to jurisdictions where sports wagering and online casino wagering operators are required to have a relationship with a land-based (“bricks-and-mortar”) gaming business. If we cannot establish, renew or manage our relationships with our bricks-and-mortar 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 of the states in which we operate where we are required to have a relationship with a bricks-and-mortar gaming business, customers who want to participate in online sports wagering or online gaming must sign-up for an online account at our retail location within the casino facility of our bricks-and-mortar gaming business partners. Certain of these casino facilities were closed by government order for a time in response to the COVID-19 pandemic. Though certain of these facilities have re-opened, if they were to be closed again due to the ongoing COVID-19 response, our ability to register new online 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 upon continued compatibility between the RSI app and the major mobile operating systems, third party platforms continuing to allow distribution of our product offerings, high-bandwidth data capabilities and the interoperability of our platforms with widely used mobile operating systems. Disruptions in the availability of these may negatively impact our business, financial conditions, results of operations and prospects.

Our users primarily access our online sports wagering and online casino wagering product offerings through the RSI app on their mobile devices, and we believe that this will continue to be the case going forward. To provide our users our product offerings through our app on their mobile devices, our app must be compatible with major mobile operating systems. Our app relies upon third party platforms to distribute our product offerings, interoperability of our platforms 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 its product offerings. Our online sports wagering and online casino wagering product offerings are primarily distributed through a traditional website and the Apple App Store and may in the future be offered through The Google Play store. In light of this, the promotion, distribution, and operation of our app are subject to the respective distribution platforms’ standard 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 platforms with popular mobile operating systems, technologies, networks, and standards that we do not control, such as the Android and iOS operating systems. Any changes, bugs, technical, or regulatory issues in such systems, our relationships with

 

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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 our product usage and monetization on mobile devices.

In addition, our products require high-bandwidth data capabilities for placement of time-sensitive wagers. If high-bandwidth capabilities do not continue to grow or grow more slowly than generally anticipated, particularly for mobile devices, our user growth, retention, and engagement may be negatively impacted. To deliver high-quality content over mobile cellular networks, our product offerings also 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 platforms. 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 products 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 users to access and use our platform on their mobile devices, if our users choose not to access or use our platform on their mobile devices, or if our users choose to use mobile products that do not offer access to our platform, our user growth, retention, and engagement could be materially harmed. Additionally, if any of the third-party platforms used for distribution of our product 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 key users and our revenue and results of operations may decline.

We were founded in 2012 and have primarily focused our efforts in the last eight years on growing our current product offerings. We have rapidly expanded, and we anticipate expanding further as new product offerings mature and as we pursue our growth strategies. The industries in which we operate are characterized by rapid technological change, evolving industry standards, frequent new product offering introductions and changes in customer demands, expectations and regulations. To keep pace with the technological developments, achieve product acceptance and remain relevant to users, we will need to continue developing new and upgraded functionality of our products and services 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 not able 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 of users, 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 will result from the Business Combination may be greater than we anticipate.

As a result of the Business Combination, RSI will become a public company, and as such (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 will be subject to the reporting requirements of the

 

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Exchange Act, and will be required to 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 NYSE, including changes in corporate governance practices and the establishment and maintenance of effective disclosure and financial controls. Compliance with these rules and regulations can be burdensome. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our historical legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance than RSI obtained as private companies, and could also make it more difficult for us to attract and retain qualified members of the members of the board of directors of the post-combination company (the “Board”) as compared to RSI as 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 may need 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 in the event that 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 are evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

As a private company, RSI has not been subject to the SEC’s requirements regarding its internal controls over financial reporting. 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.

RSI has not been required to document and test its internal controls over financial reporting, its management has not been required to certify the effectiveness of its internal controls and its auditors have not been required to opine on the effectiveness of its internal control over financial reporting. Similarly, as an “emerging growth company,” dMY has been exempt from the SEC’s internal control reporting requirements. We may lose our emerging growth company status and become subject to the SEC’s 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 would occur 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 not be able to complete our evaluation, testing and any required remediation in a timely fashion.

In connection with the audit of RSI’s consolidated financial statements as of December 31, 2019 and 2018, RSI and its independent registered public accounting firm identified one “material weakness” in our 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 our difficulty preparing our consolidated financial statements on an accurate and timely basis, and how our lack of accounting department 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 plan to take measures to remedy these deficiencies. However, the implementation of any measures may not fully address the material weakness and deficiencies in our internal control over financial reporting.

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 international expansion. Any failure to implement and maintain effective internal controls over financial

 

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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 common stock.

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 key 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 RSG’s co-founders and our Chief Executive Officer. The leadership of the current executive officers of RSI has been a critical element of RSI’s 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 and expensive and cause additional disruptions to our business. Additionally, our Chief Executive Officer will continue to be 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 excellent 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 a number of 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 United States federal, state and international taxes due to the nature of our business. The tax laws that are applicable 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 the collection of information not regularly produced within our Company, the use of estimates in our consolidated financial statements, and the exercise of significant judgment in accounting for its 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 or interpretation 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 could intensify the efforts of governments to raise revenues through increases in gaming taxes and/or other taxes. It is not possible to determine with certainty the likelihood of changes in tax laws or in the administration or 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.

 

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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. The application of such laws may be inconsistent 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 that we 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 that 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.

We have business operations located in Colombia, outside of the United States, 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-United States jurisdictions. Compliance with international, Colombian and United States 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:

 

   

challenges caused by distance as well as language and cultural differences;

 

   

general economic conditions in Colombia (and any other jurisdictions where we may pursue non- United States opportunities);

 

   

regulatory changes;

 

   

political unrest, terrorism and the potential for other hostilities;

 

   

public health risks, particularly in areas in which we have significant operations;

 

   

longer payment cycles and difficulties in collecting accounts receivable;

 

   

overlapping or changes in tax regimes;

 

   

difficulties in transferring funds from certain countries;

 

   

laws such as the United States Foreign Corrupt Practices Act, and local laws which also prohibit corrupt payments to governmental officials;

 

   

local laws which prohibit money-laundering and financing of terrorist and other unlawful financial activities; and

 

   

reduced protection for intellectual property rights in some countries.

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.

Following the consummation of the Business Combination, we will be 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.

Historically, RSG has provided, and following the consummation of the Business Combination will continue to provide, certain corporate and shared services related to corporate functions such as executive oversight, risk management, information technology, accounting, audit, legal, investor relations, human

 

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resources, tax, treasury, procurement and other services. RSI reimburses RSG for all third party costs it incurs in providing services to RSI at cost (with no mark-up) and reimburses 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 the provision of services to RSI. Following the consummation of the Business Combination, RSG will continue to provide many of these services under a services agreement between us and RSG. While these services are being provided to us by RSG, we will be dependent on RSG 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. Should the services agreement with RSG terminate, we may not be able to replace these services or enter into appropriate third-party agreements on terms and conditions, including cost and quality of service, comparable to those that we will receive from RSG under the services agreement. Although we may in the future choose to replace portions of the services that will be provided by RSG following the consummation of the Business Combination, 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 wagering or online casino wagering may adversely impact our business and user retention.

A negative change in the public’s opinion of sports wagering or online sports wagering, or how politicians and other governmental authorities view sports wagering or online casino wagering could result in future legislation or new regulations restricting or prohibiting certain (or all) sports wagering or online casino wagering activities in certain jurisdiction, the result of which may negatively impact our business, financial condition, results of operations and prospects. Further, negative publicity of us or our product offerings, platform or user experience or the sports wagering and online casino wagering industry generally could lead to new restrictions and limitations on us or sports wagering and online casino wagering generally, which may have a negative impact on our business, financial condition, results of operations and prospects.

Risks Related to Government Regulation

Our business is subject to a variety of United States 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 products and services, or changes in tax rules and regulations or interpretation thereof related to our products and services, 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 wagering and retail and online sports wagering in the jurisdictions in which we conduct our business or in some circumstances, of those jurisdictions in which we offer our product 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 in the process of 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.

RSI offers its products in seven states that have adopted legislation and regulations permitting online casino wagering, online sports wagering or retail sports wagering. In those states that currently require a license or registration, RSI has either obtained the appropriate license or registration or has obtained a provisional license. RSI also has one foreign license and operates under that license.

 

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In May 2018, the United States Supreme Court struck down as unconstitutional the Professional and Amateur Sports Protection Act of 1992 (“PASPA”). This decision has the effect of lifting federal restrictions on sports wagering and thus allows states to determine by themselves the legality of sports wagering. Since the repeal of PASPA, several states (plus Washington D.C.) have legalized online sports wagering. To the extent new real money online casino wagering or retail or sports wagering jurisdictions are established or expanded, we cannot guarantee that we will be successful in penetrating such new jurisdictions or expanding our business or user 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 of RSI — Risks Relating to Government Regulation.” To expand into new jurisdictions, we may need to be licensed and obtain approvals of our product 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. There is also a risk that civil and criminal proceedings, including class actions brought by or on behalf of prosecutors or public entities or incumbent monopoly providers, or private individuals, could be initiated against us, Internet service providers, credit card and other payment processors, 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 or 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 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 of our determination 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 Unlawful Internet Gambling Enforcement Act of 2006 (“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 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 Travel Act makes it a crime to use the mail or

 

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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, there was uncertainty as to whether the Federal Wire Act of 1961 (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 which 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 few years, state-authorized Internet casino gaming has been launched in Delaware, New Jersey and Pennsylvania and has been approved in Michigan and state authorized online poker has been 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.

A number of states have legalized, or are currently considering legalizing, real money gaming, and our growth, business, financial condition, results of operations and prospects are significantly dependent upon the legalization of real money gaming expanding to new jurisdictions. Our business plan is partially based upon 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 wagering or online gaming websites in United States jurisdictions where such games are legalized, our future growth in online sports wagering and online gaming could be materially impaired.

As we enter into new jurisdictions, states or the federal government may legalize real money gaming in a manner that is 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 planned 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 tax rates on online sports wagering 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.

 

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Therefore, even in cases in which a jurisdiction purports to license and regulate online sports wagering and online gaming, the licensing and regulatory regimes can vary considerably in terms of their business-friendliness and at times may be intended to provide incumbent operators with advantages over new licensees. Therefore, 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 and mobile platforms and distributors to stop providing services to us.

Compliance with the various regulations applicable to real money wagering is costly and time-consuming. Regulatory authorities at the non-United States, United States federal, state and local levels have broad powers with respect to the regulation 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 will 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 cannot assure you that we will be able to obtain and maintain the licenses and related approvals necessary to conduct our online casino and retail and online sports wagering 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, shareholders 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 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 shareholders. 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.

 

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We follow the industry practice of restricting and managing wagering 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 wagering operators to manage customer wagering limits at the individual level to manage enterprise risk levels. We believe this practice is beneficial overall, because if it were not possible, the wagering 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 shareholders. 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 shareholder 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.

The Proposed 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.

The second amended and restated certificate of incorporation of the Company which, if approved, would take effect upon the Closing Date (the “Proposed 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 shareholders, 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.

 

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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 shareholder 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 intend to 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 intend to enter into a license agreement (the “License Agreement”), with RSG (the “Licensee”), pursuant to which we expect to grant to Licensee and its affiliates a perpetual, royalty-free, license to use, in certain fields of use, certain trademarks and domain names that will be assigned to us by the Licensee and certain of its affiliates 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 will preclude our use of certain trademarks and domain names in the exclusive fields of use. Certain trademarks and domain names that we license to Licensee may include the words “Rush Street,” and Licensee’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 product offerings 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 product offerings and to user 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 be harmful to 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 user information; to prevent outages, data or information loss, and fraud; and to 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, website disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors and capacity constraints. To date, such disruptions have not had a material impact on RSI, individually or in the aggregate; however, future disruptions from unauthorized access to, fraudulent manipulation of, or tampering with our computer 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 product 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 the security of our systems. If a particular product offering is unavailable when users attempt to access it or navigation through our platforms is slower than they expect, users may be unable to use our product offerings as desired and may be less likely to return to our platforms as often, if at all. Furthermore, programming errors, defects and data corruption could disrupt our operations, adversely affect the experience of our users, harm our reputation, cause our users to stop utilizing our platforms, divert our resources or delay market acceptance of our product

 

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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 user base and engagement continue to grow, and the amount and types of product 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 users’ 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 product 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 user 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 users have a negative experience with our product offerings, or if our brand or reputation is negatively affected, users may be less inclined to continue or resume utilizing our product offerings or to recommend our platform to other potential users. As such, a failure or significant interruption in our service 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 or stolen. Any such access, disclosure, other loss 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 users, 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 secure maintenance and transmission of user information is a critical element of our operations. Our information technology and other systems that maintain and transmit user information, or the systems of third-party service providers and business partners, may be compromised by a 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 the actions or inactions of a third-party service provider or business partner. As a result, our users’ information may be lost, disclosed, accessed or taken without such users’ consent. We have experienced attempts to breach our systems and other similar incidents in the past. For example, we have been and expect that we will continue to be subject to attempts to gain unauthorized access to or through our information systems or those we develop for our customers, whether by our employees or third parties, including phishing attacks by computer programmers and hackers who may develop and deploy viruses, worms or other malicious software programs. To date these attacks have not had a material impact on our operations or financial results, but we cannot provide assurance that they will not have a material impact in the future, including by overloading our systems and network and preventing our product offering from being accessed by legitimate users.

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

 

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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 service 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, 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 also increases. Breaches of our security measures or those of our third-party service providers or cybersecurity incidents could result in: unauthorized access to our sites, networks and systems; unauthorized access to and misappropriation of user information, including users’ personally identifiable information, or other confidential or proprietary information of ourselves or third parties; viruses, worms, spyware or other malware being served from our sites, 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 breaches of security 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 increasing costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants.

In addition, any party who is able to illicitly obtain a user’s password could access the user’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 service 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 or we may need to in the future to address problems caused by breaches, including notifying affected users 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, RSI has filed applications to protect aspects of its intellectual property, currently holds 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 intellectual property rights held by us, and pending and future trademark and patent applications may

 

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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 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 brand and other intangible assets may be diminished, and competitors may be able to more effectively mimic our product 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 which 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 offerings, 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 B2B, B2B2C, and B2C offerings. Substantially all of our product offerings 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 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. In the event that we cannot renew and/or expand existing licenses or services agreements, we may be required to discontinue or limit our use of the product offerings 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 that such approvals will be granted or that the approval process will not result in delays or disruptions to our strategic objectives.

 

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Risks Related to our Third Party Vendor Relationships

We rely on third party cloud infrastructure and hosting service providers and service rooms hosted by certain of our land-based casino partners. Disruption or interference with this infrastructure or services rooms could adversely affect our business, financial condition, results of operations and prospects.

We host our sports wagering and online casino wagering platforms and offerings using third party public and on-premise private cloud infrastructure and hosting services and on-premise service 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 service 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 we expect that in the future we will 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 users 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 identify the location of our users, 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 we are in compliance 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 users received from third-party service providers may result in us inadvertently allowing access to our product offerings to individuals who should not be permitted to access them, or otherwise inadvertently deny access to individuals who should be able to access our product offerings, in each case based on inaccurate identity or geographic location determination. 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 users. 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 materializes, we may be subject to disciplinary action, fines, 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 product offerings.

Our platform contains software components licensed to us by third-party authors under “open source” licenses (“Open Source Software”). Use and distribution of Open Source Software may entail greater risks than use of 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 product offerings.

 

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Some licenses for Open Source Software 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 product offerings to conditions we do not intend, the terms of many licenses for Open Source Software have not been interpreted by United States 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 product 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 our use of Open Source Software in our platform and product offerings will be effective. If we are held to have breached or failed to fully comply with all the terms and conditions 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 product offerings on terms that are not economically feasible, to re-engineer our platform, to discontinue or delay the provision of our product 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 deposits and withdrawals made by our users into the 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 a third-party payment processor to process payments made by our users into our platform. If our third-party payment processor terminates its relationship with us or refuses to renew its agreement with us on commercially reasonable terms, we would need to find an alternate payment processor, and may not be able 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 processor may not meet our expectations, contain errors or vulnerabilities, be compromised or experience outages. Any of these risks could cause us to lose our ability to accept online payments or other payment transactions or make timely payments to users on our platform, any of which could make our platform less trustworthy and convenient and adversely affect our ability to attract and retain our users.

Nearly all of 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 users 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 users, 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 product offerings less convenient and attractive to our users. If any of these events were to occur, our business, financial condition, results of operations and prospects could be adversely affected.

 

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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. For example, 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 in compliance with such regulations, we may be subject to fines or other penalties in one or more jurisdictions levied by federal or 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, 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 product offerings to some users, 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 users 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 other third-party service and content providers (including third party sports wagering 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 wagering odds data, sports wagering risk management services and sports wagering 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 protection against distributed denial-of-service attacks. If those providers do not perform adequately, our users may experience issues or interruptions with their experiences, and we may be held responsible by gaming regulators for the errors of third-party content providers. Furthermore, 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 if any of our third party service providers is acquired by a competitor, we may need to find an alternate provider, and in each case we may not be able to secure similar terms or replace such providers in an acceptable time frame. 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 risks 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 service providers, including any publicity related to regulatory concerns or allegations of bad actions undertaken by any of our third-party service providers, 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 license and services agreements with third party vendors 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

 

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against our vendors or against us, if our third party 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 product 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 and effort and may be of lower quality or performance standards. This would limit and delay our ability to provide new or competitive product offerings and increase our costs. If alternate technology cannot be obtained or developed, we may not be able to offer certain functionality as part of our product 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 CloudFare 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), 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 the ability of our users to access our platform or product 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 the capabilities of our system infrastructure and support. 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 users. 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 users’ 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 product offerings, cause us to incur significant legal, remediation and notification costs, degrade the customer experience and cause users to lose confidence in our product 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 we expect to continue to rely, on relationships with casinos and other third parties in order to attract users to our platform. These relationships along with providers of online services, search engines, social media, directories and other websites and ecommerce businesses direct consumers to the RSI platform. While we believe there are other third parties that could drive users to our platform, adding or transitioning to them may disrupt our business and increase our costs. In the event that any of our existing relationships or our future relationships fails to provide services to us in accordance with the terms of our arrangement, or at all, and we are not able to find suitable alternatives, this could impact our ability to attract consumers cost effectively and harm our business, financial condition, results of operations and prospects.

 

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Risks Related to Our Affiliate Arrangements

Following the completion of the Business Combination, we will be a “controlled” company within the meaning of the rules of the NYSE and, as a result, we will 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.

After completion of the Business Combination, Neil G. Bluhm and Gregory A. Carlin and their respective trusts (the “Controlling Holders”) will control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. 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:

 

   

the requirement that a majority of our Board consist of independent directors;

 

   

the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

   

the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

Following this offering, we intend to utilize 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 of the corporate governance requirements of the NYSE. Furthermore, the Controlling Holders intend to enter into a voting agreement whereby they agree to vote together on certain matters presented to the Company’s stockholders for so 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 its 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 will own more than 50% of our common stock after completion of the Business Combination, and they intend to enter into a voting agreement prior to Closing where they agree to vote together on certain matters presented to the stockholders. This means that, based on their combined percentage voting power held after the offering, the Controlling Holders together will control the vote of all matters submitted to a vote of our shareholders, which will enable them to control the election of the members of the Board and all other corporate decisions. Additionally, the Controlling Holders intend to enter into a voting agreement prior to the consummation of the Business Combination in which they will agree to continue to vote together on certain matters to be voted on by the stockholders, including director nominees. Even when the Controlling Holders cease to own shares of our stock representing a majority of the total voting power, for so 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 shareholder 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, for so 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 us or a change in the

 

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composition of our Board and could preclude any unsolicited acquisition of us. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of us and ultimately might affect the market price of our common stock.

In addition, the Company will enter into the Investor Rights Agreement, pursuant to which, for so long as the Company is a “controlled company” under the applicable rules of the NYSE, the Sellers’ Representative (as representative of the Controlling Holders and the other original equityholders in Rush Street Interactive, LP) and the Sponsor will have the right to nominate nine (or the maximum number that may be nominated by the Sellers’ Representative without violating NYSE’s controlled company requirements) and two directors, respectively, to the Board, subject to certain independence and holdings requirements (the “Investor Rights Agreement”). In the event that the Company is no longer a “controlled company” under the applicable rules of NYSE, 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 issued and outstanding voting securities of the Company 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 investments 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 suppliers or customers of ours. Our certificate of incorporation to be effective in connection with the closing of this offering will provide that none of the Controlling Holders, any of 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, the entry into agreements with the “Rivers” branded casinos located in each of Pennsylvania, Illinois, New York and the anticipated “Rivers” branded casino in Portsmouth, Virginia to operate retail and online sports wagering and online gaming on behalf of such casinos as and when retail and online sports wagering and online gaming are legalized in each respective jurisdiction. 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 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, director and a significant stockholder and Mr. Carlin, our chief executive officer, director and a significant stockholder, has an indirect ownership interest in certain of our related parties, including Rush Street Gaming and the “Rivers” branded casinos, with which we have entered into, or in the future may enter into, agreements or arrangements. In addition, Mr. Carlin will be chief executive officer of both Rush Street Gaming and us following the Business Combination. See “Certain Relationships and Related Party Transactions”. 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.

 

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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 intend 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 product 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, those securities may have rights, preferences or privileges senior to the rights of our currently issued and outstanding equity or debt, and our existing shareholders 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 into our company or otherwise manage the growth associated with multiple acquisitions.

As part of its 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 new teams, or integrate the products and technologies associated with these acquisitions into our company, our business could be seriously harmed. Acquisitions may expose us to operational challenges and risks, including:

 

   

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;

 

   

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;

 

   

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;

 

   

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;

 

   

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

 

   

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.

We may invest or spend the proceeds of the Business Combination in ways with which the investors may not agree or in ways which may not yield a return.

Our management will have considerable discretion in the application of the net proceeds of the Business Combination, and our shareholders will not have the opportunity to approve how the proceeds are being used. If the net proceeds are used for corporate purposes that do not result in an increase to the value of our business, our stock price could decline.

Risks Relating to dMY and the Business Combination

Subsequent to the consummation of the Business Combination, the Company may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on the Company’s financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.

Although dMY has conducted due diligence on RSI, dMY cannot assure you that this diligence revealed all material issues that may be present in its businesses, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of dMY’s or RSI’s control will not later arise. As a result, the Company may be forced to later write-down or write-off assets, restructure its operations, or incur impairment or other charges that could result in losses. Even if the due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with dMY’s preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on the Company’s liquidity, the fact that the Company reports charges of this nature could contribute to negative market perceptions about the Company or its securities. In addition, charges of this nature may cause the Company to violate net worth or other covenants to which we may be subject. Accordingly, our stockholders following the Business Combination could suffer a reduction in the value of their shares. Such stockholders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by dMY’s officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the proxy solicitation or tender offer materials, as applicable, relating to the Business Combination contained an actionable material misstatement or material omission.

To the extent that any shares of Class A Common Stock are issued in connection with the exchange by Sellers of RSI Units for Class A Common Stock as permitted by the terms of the RSI A&R LPA or upon exercise of any of the warrants, or to the extent that the Earnout Shares become earned in accordance with the terms and conditions of the Business Combination Agreement, the number of shares eligible for resale in the public market would increase.

Pursuant to the terms of the Amended and Restated Agreement of Limited Partnership of RSI (the “RSI A&R LPA”), the Sellers will be able to exchange all or any portion of their RSI Units, together with the cancelation of an equal number of shares of the Class V Voting Stock of the Company, par value $0.0001 per share (the “Class V Voting Stock”) equal to the number of exchanged RSI Units, for a number of shares of Class A Common Stock equal to the number of exchanged RSI Units. The Sellers are expected to retain 145,000,000 RSI units immediately after the Closing, assuming (a) none of dMY’s public shareholders exercise redemption rights with respect to their public shares, (b) the parties to the Business Combination Agreement

 

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incur $30 million of transaction expenses, (c) the Put-Calls are in effect as of the Closing and are exercised shortly following the Closing or are not in effect, (d) the maximum amount of Purchased RSI Units (other than the number of RSI Units held by each Put-Call Seller that are subject to the Put-Call (the “Put-Call Units”)) are purchased from the Sellers (other than the Put-Call Sellers) (i.e., $99,235,500 if the Put-Calls are in effect or $125,000,000 if the Put-Calls are not in effect) at Closing, (e) none of the 1,205,937 Founder Holders Forfeiture Shares are forfeited because the Available Closing Date Cash exceeds $245,000,000, (f) the Earnout Shares (as defined below) are excluded unless and until they are earned in accordance with the Business Combination Agreement, (g) there is no exercise of Sponsor’s 6,600,000 private placement warrants at an exercise price of $11.50 per share (which warrants are not exercisable until the later of 12 months from the closing of the IPO and 30 days after the completion of the Business Combination), (h) none of the parties purchase shares of Class A Common Stock in the open market, (i) there are no other issuances of equity interests of the Company prior to or in connection with the Closing, (j) there are no issuances of any shares of the Company’s Class A Common Stock to the Sellers upon the exchange of Retained RSI Units (and the surrender of a corresponding number of shares of Class V Voting Stock), and (k) there are no issuances of any shares of Class A Common Stock within the five business days following the Closing to additional private placement investors or following the Closing under the Company’s Plan.

Furthermore, following the Business Combination, the Company will have 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 will become exercisable on the later of 12 months from the closing of the IPO and 30 days following the Closing for one share of Class A Common Stock. In addition, there will be 6,600,000 private placement warrants outstanding exercisable for 6,600,000 shares of common stock at an exercise price of $11.50 per share, which warrants will become exercisable on the later of 12 months from the closing of the IPO and 30 days following the Closing for one share of Class A Common Stock.

To the extent that any shares of Class A Common Stock are issued in connection with a redemption by any Sellers of Class V Voting Stock for Class A Common Stock pursuant to the terms of the RSI A&R LPA or 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.

Pursuant to the Business Combination Agreement, 1,212,813 shares of Class A Common Stock held by the independent directors of dMY together with the Sponsor (the “Founder Holders”) and 15,000,000 shares of Class V Voting Stock issued to the Sellers in connection with the Business Combination are subject to earnout criteria set forth in the Business Combination Agreement and, until such earnout criteria are met, the holders thereof will not be entitled to sell or transfer or vote any of such shares. To the extent that (i) 1,212,813 of the RSI Units that are issued to a newly formed, wholly-owned subsidiary of the Company (the “Special Limited Partner”) pursuant to the Business Combination Agreement (the “Issued RSI Units”) and 1,212,813 shares of Class A Common Stock held by the Sponsor, Darla Anderson, Francesca Luthi and Charles E. Wert (together, the “Initial Stockholders”) (after giving effect to the Class B Common Stock Conversion) and (ii) 15,000,000 of the Retained RSI Units held by the Sellers and 15,000,000 shares of Class V Voting Stock issued to the Sellers by the Company in connection with the Business Combination, each of which will be subject to certain restrictions and potential forfeiture pending the achievement (if any) of certain earnout targets pursuant to the terms of the Business Combination Agreement (the “Earnout Shares”) held by the Founder Holders become earned, the Founder Holders will be entitled to one vote per share for each such Earnout Share and there will be an increase in the number of shares of Class A Common Stock eligible for resale in the public market. To the extent that the Earnout Shares held by the Sellers become earned, the Sellers will be entitled to one vote per share for each such Earnout Share and will be entitled to redeem such shares of Class V Voting Stock for Class A Common Stock pursuant to the terms of the RSI A&R LPA and there will be an increase in the number of shares of Class A Common Stock eligible for resale in the public market.

 

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If dMY or the Company raises capital in connection with the Business Combination or 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 the Company’s common stock, and the market price of the Company’s common stock may be adversely effected.

If dMY or the Company raises capital in the future, including by selling shares of Class A Common Stock in connection with any purchases of Class A Common Stock at a price per share no less than the Minimum Stock Sale Price consummated (a) by the Selling Stockholders or (b) until the date which is five (5) business days following the Closing by any other subscribers that agree to purchase Class A Common Stock as reflected in subscription agreements and subject to the requirements set forth in Section 7.15 of the Business Combination Agreement (the “Permitted Equity Financing”), then existing stockholders may experience dilution. The Proposed 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 the Company’s common stock.

dMY did not obtain an opinion from an independent investment banking or accounting firm, and consequently, there can be no assurance from an independent source that the price dMY is paying is fair to dMY from a financial point of view.

dMY was not required to obtain an opinion from an independent investment banking or accounting firm that the price dMY is paying in connection with the Business Combination is fair to dMY from a financial point of view. dMY’s board of directors did not obtain a third-party valuation or fairness opinion in connection with its initial determination to approve and recommend the Business Combination. Accordingly, investors will be relying solely on the judgment of dMY’s board of directors in valuing RSI’s business, and assuming the risk that the board of directors may not have properly valued the Business Combination.

The only principal asset of the Company following the Business Combination will be its interest in RSI (through the Company’s wholly-owned subsidiary), and accordingly it will depend on distributions from RSI to pay taxes and expenses.

Upon consummation of the Business Combination, the Company will be a holding company and will have no material assets other than its ownership of the Issued RSI Units (through its wholly-owned subsidiary, RSI ASLP, Inc., a Delaware corporation) and its ownership of all of the limited liability company interests of RSI GP. The Company is not expected to have independent means of generating revenue or cash flow, and its ability to pay its taxes, operating expenses, and pay any dividends in the future, if any, will be dependent upon the financial results and cash flows of RSI. There can be no assurance that RSI will generate sufficient cash flow to distribute funds to the Company or that applicable state law and contractual restrictions, including negative covenants under debt instruments will permit such distributions. If RSI does not distribute sufficient funds to the Company to pay its taxes or other liabilities, the Company may default on contractual obligations or have to borrow additional funds. In the event that the Company is required to borrow additional funds it could adversely affect our liquidity and subject us to additional restrictions imposed by lenders.

RSI will continue to be treated as a partnership for United States federal income tax purposes and, as such, generally will not be subject to any entity-level United States federal income tax. Instead, taxable income will be allocated, for United States federal income tax purposes, to the holders RSI Units, including the Special Limited

 

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Partner, which is a member of Company’s consolidated group for United States federal income tax purposes. Accordingly, the Company will be required to pay United States federal income taxes on the Special Limited Partner’s allocable share of the net taxable income of RSI. Under the terms of the RSI A&R LPA, RSI is obligated to make tax distributions to holders of RSI Units (including the Special Limited Partner) calculated at certain assumed rates. In addition to tax expenses, the Company and the Special Limited Partner will also incur expenses related to its operations, including payment obligations of the Special Limited Partner under the Tax Receivable Agreement, which could be significant and some of which will be reimbursed by RSI (excluding payment obligations under the Tax Receivable Agreement). The Special Limited Partner intends to cause RSI to make ordinary distributions and tax distributions to the holders of RSI 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 the Company. However, as discussed below, RSI’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 RSI and its subsidiaries and restrictions on distributions that would violate any applicable restrictions contained in RSI’s debt agreements, or any applicable law, or that would have the effect of rendering RSI 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 RSI generally will not be subject to any entity-level United States 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 RSI’s calculations of taxable income are incorrect, RSI 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.

The Company anticipates that the distributions the Special Limited Partner will receive from RSI may, in certain periods, exceed the Company’s 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 the Company’s Class A Common Stock. The Company will have no obligation to distribute such cash (or other available cash other than any declared dividend) to its stockholders. The Company may, if necessary, undertake ameliorative actions, which may include pro rata or non-pro rata reclassifications, combinations, subdivisions or adjustments of outstanding RSI Units, to maintain one-for-one parity between RSI Units held by the Special Limited Partner and shares of Class A Common Stock of the Company.

Dividends on the Company’s common stock, if any, will be paid at the discretion of the Board, which will consider, among other things, the Company’s available cash, available borrowings and other funds legally available therefor, taking into account the retention of any amounts necessary to satisfy the obligations of the Company that will not be reimbursed by RSI, including taxes and amounts payable under the Tax Receivable Agreement and any restrictions in then applicable bank financing agreements. Financing arrangements may include restrictive covenants that restrict the Company’s ability to pay dividends or make other distributions to its stockholders. In addition, RSI is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of RSI (with certain exceptions) exceed the fair value of its assets. RSI’s subsidiaries are generally subject to similar legal limitations on their ability to make distributions to RSI. If RSI does not have sufficient funds to make distributions, the Company’s ability to declare and pay cash dividends may also be restricted or impaired.

 

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Pursuant to the Tax Receivable Agreement, the Special Limited Partner will be required to pay to Sellers and/or the exchanging holders of RSI Units, as applicable, 85% of the net income tax savings that the Company and its consolidated subsidiaries (including the Special Limited Partner) realizes as a result of increases in tax basis in RSI’s assets related to the transactions contemplated under the Business Combination Agreement and the future exchange of the Retained RSI Units for shares of Class A Common Stock (or cash) pursuant to the RSI 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.

The Sellers will sell RSI Units for the Purchased Company Unit Closing Cash Consideration and may in the future exchange their RSI Units, together with the cancelation of an equal number of shares of Class V Voting Stock, for shares of Class A Common Stock of the Company (or cash) pursuant to the RSI 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 the tangible and intangible assets of RSI. 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 the Company 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 will enter into the Tax Receivable Agreement, which generally provides for the payment by it of 85% of certain net tax benefits, if any, that the Company and its consolidated subsidiaries (including the Special Limited Partner) realizes (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 RSI Units for Class A Common Stock (or cash) pursuant to the RSI 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 RSI. The actual increase in the Special Limited Partner’s allocable share of RSI’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 the Class A Common Stock at the time of the exchange and the amount and timing of the recognition of the Company’s and its 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 its control, the Company expects 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 the Company’s 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 the Company. 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 the Company and its consolidated subsidiaries (including the Special Limited Partner) realizes or be accelerated.

Payments under the Tax Receivable Agreement will be based on the tax reporting positions that the Company and its consolidated subsidiaries (including the Special Limited Partner) determines, and the IRS or another taxing authority may challenge all or any part of the tax basis increases, as well as other tax positions that

 

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the Company and its consolidated subsidiaries (including the Special Limited Partner) takes, and a court may sustain such a challenge. In the event that any tax benefits initially claimed by the Company or its 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 the Company and its 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 the Company and its 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 the Company’s and its consolidated subsidiaries’ (including the Special Limited Partner’s) actual income or franchise tax savings, which could materially impair the Company’s and its 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 under the Tax Receivable Agreement, (ii) certain changes of control of the Company, the Special Limited Partner or RSI occur (as described in the RSI A&R LPA), (iii) the Special Limited Partner in certain circumstances, fails to make a payment required to be made pursuant to the Tax Receivable Agreement by its final payment date, which non-payment continues for 30 days following such final payment date or (iv) the Company or the Special Limited Partner materially breaches any of its 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 the Company and/or the Special Limited Partner of written notice thereof and written notice of acceleration is received by the Company 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 the Company’s and its 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 the Company and its consolidated subsidiaries (including the Special Limited Partner) realizes subsequent to such payment because such payment would be calculated assuming, among other things, that the Company and its consolidated subsidiaries (including the Special Limited Partner) would have certain assumed tax benefits available to it and that the Company and its 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 the Company’s liquidity if the payments under the Tax Receivable Agreement exceed the actual income or franchise tax savings that the Company and its 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.

 

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Increases in the Company’s income tax rates, changes in income tax laws or disagreements with tax authorities can adversely affect the Company’s business, financial condition or results of operations.

Increases in the Company’s income tax rates or other changes in income tax laws in the United States or any particular jurisdiction in which the Company operates could reduce its after-tax income from such jurisdiction and adversely affect its business, financial condition or results of operations. Existing tax laws in the United States 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 Internal Revenue Service (“IRS”) pursuant to the TCJA may continue to impact the Company in future periods. Additional changes in the United States tax regime, including changes in how existing tax laws are interpreted or enforced, can adversely affect the Company’s business, financial condition or results of operations.

The Company 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 the Company operates, 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 the Company’s historical provisions and accruals, resulting in an adverse impact on the Company’s business, financial condition or results of operations.

If the benefits of the Business Combination do not meet the expectations of investors or securities analysts, the market price of the Company’s securities may decline.

Following the Business Combination, fluctuations in the price of the Company’s securities could contribute to the loss of all or part of your investment. Prior to the Business Combination, there has not been a public market for the stock of the Company and trading in shares of Class A Common Stock has not been active. Accordingly, the valuation ascribed to the Company in the Business Combination may not be indicative of the price that will prevail in the trading market following the Business Combination. If an active market for the Company’s securities develops and continues, the trading price of its securities following the Business Combination could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond the Company’s control. Any of the factors listed below could have a material adverse effect on your investment in the Company’s securities and the Company’s securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of the Company’s securities may not recover and may experience a further decline.

Factors affecting the trading price of the Company’s securities may include:

 

   

actual or anticipated fluctuations in its quarterly financial results or the quarterly financial results of companies perceived to be similar to it;

 

   

changes in the market’s expectations about the Company’s operating results;

 

   

success of competitors;

 

   

the Company’s operating results failing to meet the expectation of securities analysts or investors in a particular period;

 

   

changes in financial estimates and recommendations by securities analysts concerning the Company or the industries in which the Company operates in general;

 

   

operating and stock price performance of other companies that investors deem comparable to the Company;

 

   

the Company’s ability to market new and enhanced products on a timely basis;

 

   

changes in laws and regulations affecting the Company’s business;

 

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commencement of, or involvement in, litigation involving the Company;

 

   

changes in the Company’s capital structure, such as future issuances of securities or the incurrence of additional debt;

 

   

the volume of shares of the Company’s Class A Common Stock available for public sale;

 

   

any major change in the Company’s Board or management;

 

   

sales of substantial amounts of Class A Common Stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and

 

   

general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.

Broad market and industry factors may materially harm the market price of the Company’s securities irrespective of the Company’s 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 the Company’s 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 the Company could depress the Company’s stock price regardless of its business, prospects, financial conditions, or results of operations. A decline in the market price of the Company’s securities also could adversely affect its ability to issue additional securities and its ability to obtain additional financing in the future.

Future resales of common stock after the consummation of the Business Combination may cause the market price of the Company’s securities to drop significantly, even if the Company’s business is doing well.

The Founder Holders’ shares of Class B Common Stock (the “Founder Shares”), private placement warrants and any shares of common stock issued upon conversion or exercise thereof are each subject to transfer restrictions pursuant to lock-up provisions in a letter agreement, originally entered into on February 20, 2020, as amended, between the Founder Holders and dMY. The Founder Holders and dMY also entered into a registration rights agreement, dated as of February 20, 2020, which contractually restricted them from selling or transferring any shares of the Company’s common stock they receive in connection with the Business Combination pursuant to the lock-up provisions contained therein. At the Closing, the Company, Selling Stockholders, the Founder Holders, and the Sellers’ Representative will enter into an Investor Rights Agreement, pursuant to which, among other things, i) the Company and the Founder Holders will agree to terminate the registration rights agreement, (ii) the Company will provide the Selling Stockholders and the Sponsor certain registration rights with respect to the shares of Class A Common Stock held by the Selling Stockholders and the Sponsor, (iii) the Founder Holders and the Selling Stockholders will agree not to transfer, sell, assign or otherwise dispose of the shares of Class A Common Stock and the RSI Units held by such person for up to 12 months following the Closing (with respect to the Founder Holders) and 180 days following the Closing (with respect to the Selling Stockholders), in each case, subject to certain exceptions, including an exception for the sale of the Put-Call Units to RSI pursuant to and in accordance with the Business Combination Agreement and certain Put-Call Agreements, dated as of October 9, 2020, by and among the Company, RSI and each of the Put-Call Sellers (the “Put-Call Agreements”), as applicable and (iv) the amended letter agreement shall be deemed further amended to remove the 12-month lock-up period contained therein applicable to the Sponsor, Niccolo de Masi, Harry You and the independent directors. As such, sales of a substantial number of shares of the Company’s common stock 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 the Company’s common stock. Upon completion of the Business Combination, the Company will indirectly own approximately 23.11% of RSI Units and the Selling Stockholders will collectively own approximately 76.89% of the RSI Units, assuming that no public stockholders redeem their public shares in connection with the Business Combination.

As restrictions on resale end and registration statements are available for use, the sale or possibility of sale of shares by the parties to the Investor Rights Rights Agreement could have the effect of increasing the volatility in the Company’s share price or the market price of the Company’s common stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.

 

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The unaudited pro forma condensed combined financial information included in this prospectus may not be indicative of what the Company’s actual financial position or results of operations would have been.

The unaudited pro forma condensed combined financial information in this prospectus is presented for illustrative purposes only and is not necessarily indicative of what the Company’s actual financial position or results of operations would have been had the Business Combination been completed on the dates indicated. See the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” for more information.

The Business Combination is subject to conditions, including certain conditions that may not be satisfied on a timely basis, if at all.

The completion of the Business Combination is subject to a number of conditions. The completion of the Business Combination is not assured and is subject to risks, including the risk that (i) approval of the Business Combination by dMY’s stockholders is not obtained, (ii) that there are not sufficient funds in the trust account, (iii) that the Company does not have Available Closing Date Cash of at least $160,000,000 minus the amount by which the transaction expenses incurred by RSI and the Sellers exceeds $12,500,000 and (iv) that all approvals, determinations, grants, confirmations and other conditions with respect to gaming regulatory authorities in connection with the transactions contemplated by the Business Combination Agreement and the related agreements are not made, obtained, satisfied or given or are in full force and effect, in each case subject to certain terms specified in the Business Combination Agreement, or that other closing conditions are not satisfied. If dMY does not complete the Business Combination, it could be subject to several risks, including:

 

   

the parties may be liable for damages to one another for breach under the terms and conditions of the Business Combination Agreement;

 

   

negative reactions from the financial markets, including declines in the price of dMY’s shares due to the fact that current prices may reflect a market assumption that the Business Combination will be completed; and

 

   

the attention of dMY’s management will have been diverted to the Business Combination rather than dMY’s own operations and pursuit of other opportunities that could have been beneficial to that organization.

There can be no assurance that the Company will be able to comply with the continued listing standards of the NYSE.

The Company’s continued eligibility for listing on the NYSE depends on a number of factors, including the number of public shares that are redeemed in connection with the vote at the special meeting to approve the Business Combination and the Company having a minimum level of stockholders’ equity following the Closing, among meeting other listing standards. If, after the Business Combination, the NYSE delists the Class A Common Stock from trading on its exchange for failure to meet the listing standards, the Company and its stockholders could face significant material adverse consequences including:

 

   

a limited availability of market quotations for our securities;

 

   

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 ;

 

   

a limited amount of analyst coverage; and

 

   

a decreased ability to issue additional securities or obtain additional financing in the future.

 

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The Exclusive Forum Provision in the Proposed Charter may have the effect of discouraging lawsuits against our directors and officers.

The Proposed 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 Company stockholder to us or to our stockholders, (iii) any action asserting a claim against us, our directors, officers, other employees or Company stockholders arising pursuant to any provision of the General Corporation Law of the State of Delaware (the “DGCL”), the Proposed Charter or our bylaws, or (iv) any action asserting a claim against us, our directors, officers, other employees or Company 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 Court of Chancery in the State of Delaware; provided, however, that, in the event that the Court of Chancery in the State of Delaware lacks subject matter jurisdiction over any such actions, the Proposed Charter provides that the sole and exclusive forum shall be another state or federal court located within the State of Delaware, in each such case, unless the Court of Chancery (or such other state or federal court located within the State of 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, the Proposed Charter requires, unless we consent in writing to the selection of an alternative forum, that the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. This provision in the Proposed Charter will not address or apply to claims that arise 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 the Proposed Charter may inhibit a takeover of the Company, which could limit the price investors might be willing to pay in the future for Class A Common Stock and could entrench management.

The Proposed 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 the Proposed 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 a reduction in consumer discretionary spending, could adversely affect our business, financial condition, results of operations and prospects.

Our financial performance is subject to global and United States economic conditions and their impact on levels of spending by users. 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 a further downturn as a result of a second wave of the COVID-19 pandemic, we may experience a

 

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material adverse effect on our business, financial condition, results of operations or prospects. The ultimate severity of the coronavirus outbreak is uncertain at this time and therefore we cannot predict the full impact it may have on our end markets and our operations; however, the effect on our business, financial condition, results of operations and prospects could be material and adverse.

Consumer discretionary spending or consumer preferences are driven by socioeconomic factors beyond our control, and our business is sensitive to reductions from time to time in discretionary consumer 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 by consumers of weak or weakening economic conditions, may reduce our users’ disposable income or result in fewer individuals engaging in entertainment and leisure activities, such as online casino wagering and retail or online sports wagering. 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, could lead to a further reduction in discretionary spending on leisure activities, such as online casino wagering and retail or online sports wagering.

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 competition and antitrust, intellectual property, privacy, consumer protection, accessibility claims, securities, tax, labor and employment, 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 upon appeal, or in payments of substantial monetary damages or fines, the posting of bonds requiring significant collateral, letters of credit or similar instruments, or we may decide to settle lawsuits on similarly unfavorable terms. These proceedings could also result in reputational harm, criminal sanctions, consent decrees or orders preventing us from offering certain products or requiring a change in its 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 its 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.

We have received formal and informal inquiries from time to time, from government authorities and regulators, and gaming regulators, regarding compliance with laws and other matters, and we may receive such inquiries in the future, particularly as we grow and expand our operations. 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. In addition, it is possible that future orders issued by, or inquiries or enforcement actions initiated by, government

 

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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 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 our ability to obtain and maintain licenses to offer our product 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 product offerings, increasing our user 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 wagering 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 services providers, which may make it difficult to sell our products and services.

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 service providers may be hesitant to offer banking and payment processing services to real money gaming businesses. Consequently, those 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 users were unable to use their credit cards, bank accounts or e-wallets to make deposits and withdrawals from our platforms 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.

 

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USE OF PROCEEDS

All of the shares of Class A Common Stock offered by the Selling Stockholders pursuant to this prospectus will be sold by the Selling Stockholders for their respective accounts. We will not receive any of the proceeds from these sales.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information presents the combination of the financial information of dMY and RSI, adjusted to give effect to the Business Combination and related transactions. The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X.

The unaudited pro forma condensed combined balance sheet as of September 30, 2020 combines the historical balance sheet of dMY and the historical balance sheet of RSI on a pro forma basis as if the Business Combination and related transactions, summarized below, had been consummated on September 30, 2020. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2019 and the nine months ended September 30, 2020, combine the historical statements of operations of dMY and historical statements of operations of RSI for such periods on a pro forma basis as if the Business Combination and related transactions, summarized below, had been consummated on January 1, 2019, the beginning of the earliest period presented:

 

   

the Business Combination; and

 

   

the issuance and sale of up to 16,043,002 shares of dMY Class A Common Stock for a purchase price of $10.00 per share and an aggregate purchase price of $160.4 million in the PIPE pursuant to the Subscription Agreements.

The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give pro forma effect to events that are: (i) directly attributable to the Business Combination; (ii) factually supportable; and (iii) with respect to the statements of operations, expected to have a continuing impact on the Company’s results following the completion of the Business Combination.

The unaudited pro forma condensed combined financial statements have been developed from and should be read in conjunction with:

 

   

the accompanying notes to the unaudited pro forma condensed combined financial statements;

 

   

the historical audited financial statements of dMY as of December 31, 2019 and for the period from September 27, 2019 (inception) through December 31, 2019 and the related notes, found elsewhere in this prospectus;

 

   

the historical audited consolidated financial statements of RSI as of and for the year ended December 31, 2019 and the related notes, found elsewhere in this prospectus;

 

   

the historical unaudited financial statements of dMY as of and for the nine months ended September 30, 2020 and the related notes, found elsewhere in this prospectus;

 

   

the historical unaudited consolidated financial statements of RSI as of and for the nine months ended September 30, 2020 and the related notes, found elsewhere in this prospectus;

 

   

other information relating to dMY and RSI contained in the prospectus, including the Business Combination Agreement and the description of certain terms thereof set forth in the section entitled “The Business Combination.”

Pursuant to dMY’s existing amended and restated certificate of incorporation, dMY’s public stockholders are being offered the opportunity to redeem, upon the closing of the Business Combination, shares of Class A Common Stock then held by them for cash equal to their pro rata share of the aggregate amount on deposit (as of two business days prior to the Closing) in the Trust Account (as defined in the prospectus). For illustrative purposes, based on the cash held in the Trust Account as of September 30, 2020 of approximately $230.8 million, the estimated per share redemption price would have been approximately $10.00 per share.

 

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Notwithstanding the legal form of the Business Combination pursuant to the Business Combination Agreement, the Business Combination will be accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, dMY is treated as the acquired company and RSI is treated as the acquirer for financial statement reporting purposes. RSI has been determined to be the accounting acquirer based on evaluation of the following facts and circumstances:

 

   

RSI’s existing shareholders, through their ownership of the Class V Voting Stock, will have the greatest voting interest in the combined entity under the no and maximum redemption scenarios with over 75% of the voting interest in each scenario;

 

   

RSI’s directors will represent the majority of the Board;

 

   

RSI’s senior management will be the senior management of the combined company; and

 

   

RSI is the larger entity based on historical operating activity and has the larger employee base.

The unaudited pro forma condensed combined financial statements present two redemption scenarios as follows:

 

   

Assuming No Redemptions — This scenario assumes that (i) none of the holders of public shares exercise their redemption rights, (ii) the parties to the Business Combination Agreement incur $30 million of transaction expenses, (iii) the Put-Calls are in effect as of the Closing and are validly exercised shortly following the Closing or are not in effect, (iv) the maximum amount of Purchased RSI Units are purchased from the Sellers (other than the Put-Call Sellers) (i.e., $99,235,500 if the Put-Calls are in effect or $125,000,000 if the Put-Calls are not in effect) at Closing, (v) none of the 1,205,937 Founder Holders Forfeiture Shares are forfeited because the Available Closing Date Cash exceeds $245,000,000, (vi) the Earnout Shares are excluded unless and until such shares become earned in accordance with the Business Combination Agreement, (vii) there is no exercise at the Closing of the Sponsor’s 6,600,000 private placement warrants at an exercise price of $11.50 per share (which warrants are not exercisable until the later of 12 months from the closing of the IPO and 30 days after the completion of the Business Combination), (viii) none of the parties set forth above purchase shares of Class A Common Stock in the open market, (ix) there are no other issuances of equity interests of the Company prior to or in connection with the Closing and (x) there are no issuances of any shares of the Company’s Class A Common Stock within the five business days following the Closing to additional private placement investors or following the Closing under the Plan; and

 

   

Assuming Maximum Redemptions — This scenario assumes that approximately 87% of dMY’s public stockholders exercise redemption rights with respect to their public shares (representing the maximum amount of public shares that can be redeemed to satisfy the Minimum Cash Condition). This scenario assumes that 20,043,002 public shares are redeemed for an aggregate redemption payment of approximately $200,430,020, based on $230.8 million in the trust and 23,000,000 public shares outstanding as of September 30, 2020. In accordance with the Charter, a public stockholder, together with any affiliate of his or hers, or any other person with whom he or she is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from redemption with respect to 20% or more of public shares without the Company’s prior written consent. In no event will the Company redeem the public shares in an amount that would cause its net tangible assets to be less than $5,000,001.

Description of the Business Combination

On July 27, 2020, dMY and RSI entered into the Business Combination Agreement pursuant to which the Sellers will receive a combination of cash and shares of non-economic Class V Voting Stock equal to the number of Retained RSI Units (net of the number of Purchased RSI Units), and will retain approximately 76.9% of the economic interests in the post-combination combined company through the Retained RSI Units, assuming no

 

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redemptions (87.6% of the economic interests assuming maximum redemptions). On October 9, 2020, the parties amended and restated the Business Combination Agreement. On December 4, 2020, the parties further amended the Business Combination Agreement. Following the Closing, the combined company will be organized in an umbrella partnership–C corporation (“Up-C”) structure, in which substantially all of the assets of the combined company will be held by RSI, and the Company’s only assets will be its equity interests in RSI (which will be held indirectly through the Special Limited Partner and RSI GP, which will be wholly-owned subsidiaries of the post-Business Combination company). See “dMY’s Management’s Discussion and Analysis of Financial Condition and Results of Operations – The Business Combination” for a more comprehensive description of the Business Combination.

Simultaneously with the Closing, the Company, the Special Limited Partner, RSI, the Sellers and the Sellers’ Representative will enter into the Tax Receivable Agreement, which will provide for, among other things, payment by the Special Limited Partner to the Sellers of 85% of the net income tax savings realized by the Company and its consolidated subsidiaries (including the Special Limited Partner) as a result of the increases in tax basis and certain other tax benefits related to the transactions contemplated under the Business Combination Agreement and the exchange of Retained RSI Units for Class A Common Stock (or cash) pursuant to the RSI A&R LPA and tax benefits related to entering into the Tax Receivable Agreement. Based primarily on historical losses of RSI, management has determined it is more-likely-than-not that the Company will be unable to utilize its deferred tax assets subject to the Tax Receivable Agreement; therefore, management has not recorded the deferred tax assets or a corresponding liability under the Tax Receivable Agreement related to the tax savings the company may realize from the utilization of tax deductions related to basis adjustments created by the transactions contemplated in the Business Combination Agreement and the exchange of Retained RSI Units for Class A Common Stock (or cash) pursuant to the RSI A&R LPA and tax benefits related to entering into the Tax Receivable Agreement. However, if utilization of the deferred tax assets were more-likely-than-not the Company would recognize a deferred tax asset of approximately $96 million and a liability of approximately $42 million, assuming (i) no redemptions of public shares; (ii) a price of $10 per share; (iii) a constant corporate tax rate of 29.94%; and (iv) no material changes in tax law. Under the same assumptions but instead considering the maximum redemption of public shares instead of no redemptions, the Company would recognize a deferred tax asset of approximately $39 million and no liability. The following represents the aggregate consideration, which includes, to the extent that the Available Closing Date Cash exceeds $160,000,000, an amount of the Available Closing Date Cash (not to exceed $125,000,000) determined by calculating (1) the sum of (i) the Available Closing Date Cash less $160,000,000 (provided that the amount of cash attributable to this clause (i) is subject to a cap of $60,000,000) plus (ii) 50% of the amount by which the Available Closing Date Cash exceeds $220,000,000 (provided that the amount of cash attributable to this clause (ii) is subject to a cap of $65,000,000) minus (2) the Aggregate Put-Call Consideration Amount (if any) (the “Purchased RSI Units Cash Consideration”), the sum of all amounts equal to (a) the seller proportion applicable to such Put-Call Seller multiplied by (b) the amount equal to (1) the sum of (i) the Available Closing Date Cash less $160,000,000 plus (ii) 50% of the amount by which the Available Closing Date Cash exceeds $220,000,000 (the “Put-Call Consideration Amounts”), if any (such sum, the “Aggregate Put-Call Consideration Amount”) and the value of the Retained RSI Units, in both the no redemption and maximum redemption scenarios:

 

     Assuming No
Redemptions
     Assuming
Maximum
Redemptions
 

Retained RSI Units(1)

     145,000,000        157,500,000  

Value per share(2)

   $ 10.00      $ 10.00  
  

 

 

    

 

 

 

Total value of Retained RSI Units

   $ 1,450,000,000      $ 1,575,000,000  

Plus: Purchased RSI Units Cash Consideration

   $ 99,235,503         

Plus: Aggregate Put-Call Consideration Amount(3)

   $ 25,764,497         
  

 

 

    

 

 

 

Total consideration

   $ 1,575,000,000      $ 1,575,000,000  
  

 

 

    

 

 

 

 

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(1)

Retained RSI Units excludes 15,000,000 of the Retained RSI Units held by the Sellers subject to certain restrictions and potential forfeiture pending the achievement (if any) of certain earnout targets pursuant to the terms of the Business Combination Agreement.

(2)

Share consideration is calculated using a $10.00 reference price. As the Retained RSI Units are exchangeable, together with the cancelation of an equal number of shares of Class V Voting Stock, for an equal number of Class A Common Stock, actual total share consideration will be dependent on the value of the dMY Common Stock at Closing.

(3)

Assumes the RSI Units subject to the Put-Call Agreements are Purchased by RSI with the Aggregate Put-Call Consideration Amount upon the exercise of the Put-Calls shortly following the Closing of the Business Combination. Only applicable in a no-redemption scenario.

The following summarizes the pro forma common stock shares outstanding of dMY following the Business Combination under the two redemption scenarios:

 

     Assuming No
Redemptions
(Shares)
     %     Assuming
Maximum
Redemptions
(Shares)
     %  

dMY public stockholders - Class A

     23,000,000        12.2     2,956,998        1.6

Holders of dMY sponsor shares - Class A(1)

     4,537,187        2.4     3,331,250        1.9

PIPE Investors - Class A

     16,043,002        8.5     16,043,002        8.9

RSI Sellers - Class V(2)(3)(4)

     145,000,000        76.9     157,500,000        87.6
  

 

 

    

 

 

   

 

 

    

 

 

 

Pro Forma Common Stock

     188,580,189        100.0     179,831,250        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1)

Excludes 1,212,813 shares of Class A Common Stock subject to certain restrictions and potential forfeiture pending the achievement (if any) of certain earnout targets pursuant to the terms of the Business Combination Agreement.

(2)

Excludes 15,000,000 shares of Class V Voting Stock subject to certain restrictions and potential forfeiture pending the achievement (if any) of certain earnout targets pursuant to the terms of the Business Combination Agreement.

(3)

The Class V Voting Stock entitle its holder to one vote per share but not any rights to dividends or distributions. Each share of Class V Voting Stock is issued to the Sellers for each Retained RSI Unit retained by the Seller following the Closing of the Business Combination.

(4)

Assumes the RSI Units subject to the Put-Call Agreements are purchased by RSI with the Aggregate Put-Call Consideration Amount upon the exercise of the Put-Calls shortly following the Closing of the Business Combination. Only applicable in a no-redemption scenario.

Assumptions and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma condensed combined financial statements are described in the accompanying notes. The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only and are not necessarily indicative of the operating results and financial position that would have been achieved had the Business Combination occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial statements do not purport to project the future operating results or financial position of dMY following the completion of the Business Combination. The unaudited pro forma adjustments represent dMY management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF SEPTEMBER 30, 2020

(in thousands)

 

                Assuming No Redemptions     Assuming Maximum
Redemptions
 
    RSI
(Historical)
    dMY
(Historical)
    Pro Forma
Adjustments
(Note 2)
          Pro Forma
Combined
    Pro Forma
Adjustments
(Note 2)
          Pro Forma
Combined
 

Assets

               

Cash and cash equivalents

  $ 10,866     $ 482       230,759       (a   $ 247,537       230,759       (a   $ 172,107  
        (8,050     (b       (8,050     (b  
        (21,950     (c       (21,950     (c  
        160,430       (d       160,430       (d  
        (125,000     (k       (200,430     (l  

Restricted cash

    4,249                     4,249               4,249  

Players receivable

    659                     659               659  

Due from affiliates

    35,185                     35,185               35,185  

Prepaid expenses and other current assets

    6,025       390       (2,760     (c     3,655       (2,760     (c     3,655  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    56,984       872       233,429         291,285       157,999         215,855  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investments held in Trust Account

          230,759       (230,759     (a           (230,759     (a      

License fee, net

    8,555                     8,555               8,555  

Property and equipment, net

    1,308                     1,308               1,308  

Operating lease right-of-use assets, net

    816                     816               816  

Other assets

    911                     911               911  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 68,574     $ 231,631     $ 2,670       $ 302,875     $ (72,760     $ 227,445  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

               

Accounts payable

  $ 7,141     $ 39     $       $ 7,180     $       $ 7,180  

Accrued expenses

    27,913       2,441       (5,201     (c     25,153       (5,201     (c     25,153  

Share-based liability

    108,932             1,984       (g           1,984       (g      
        (110,916     (h       (110,916     (h  

Deferred royalty, short-term

    159                     159               159  

Operating lease liabilities, short term

    206                     206               206  

Due to partners

    650                     650               650  

Due to affiliates

    4,331                     4,331               4,331  

Other current liabilities

    398       203               601               601  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    149,730       2,683       (114,133       38,280       (114,133       38,280  

Deferred royalty, long term

    3,870                     3,870               3,870  

Operating lease liabilities, long term

    621                     621               621  

Deferred underwriting commissions associated with initial public offering

          8,050       (8,050     (b           (8,050     (b      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    154,221       10,733       (122,183       42,771       (122,183       42,771  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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                Assuming No Redemptions     Assuming Maximum
Redemptions
 
    RSI
(Historical)
    dMY
(Historical)
    Pro Forma
Adjustments
(Note 2)
          Pro Forma
Combined
    Pro Forma
Adjustments
(Note 2)
          Pro Forma
Combined
 

Commitments and contingencies

               

Common stock subject to possible redemptions

          215,897       (215,897     (e           (215,897     (e      

Preferred units

    34,437             (34,437     (h           (34,437     (h      

Stockholders’ equity/ Members’ deficit

               

Preferred stock

                                       

Common stock

               

Class A

                2       (d     5       2       (d     2  
        2       (e       2       (e  
        1       (f             (f  
              (2     (l  

Class B

          1       (1     (f           (1     (f      

Class V

        15       (j     15       16       (j     16  

Members’ units

    35,186             145,353       (h           145,353       (h      
        (180,539     (k       (180,539     (m  

Additional paid in capital

          7,437       (19,509     (c     215,819       (19,509     (c     178,431  
        160,428       (d       160,428       (d  
        215,895       (e       215,895       (e  
        (2,437     (i       1       (f  
        (15     (j       (2,437     (i  
        (125,000     (k       (16     (j  
        (20,980     (k       (200,428     (l  
              17,060       (m  

Accumulated other comprehensive loss

    (566               (566         (566

Accumulated deficit

    (154,704     (2,437     2,437       (i     (155,162     2,437       (i     (154,950
        (1,984     (g       (1,984     (g  
        1,526       (k       1,738       (m  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity attributable to common shareholders / members’ deficit

    (120,084     5,001       175,194         60,111       138,016         22,933  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Noncontrolling interests

                199,993       (k     199,993       161,741       (m     161,741  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity/ members’ deficit

    (120,084     5,001       375,187         260,104       299,757         184,674  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity/ members’ deficit

  $ 68,574     $ 231,631     $ 2,670       $ 302,875     $ (72,760     $ 227,445  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2019

(in thousands, except share and per share data)

 

                Assuming No Redemptions     Assuming Maximum
Redemptions
 
    RSI
(Historical)
    dMY
(Historical)
    Pro Forma
Adjustments
(Note 2)
    Pro Forma
Combined
    Pro Forma
Adjustments
(Note 2)
    Pro Forma
Combined
 

Revenue

  $ 63,667     $
 


  $     $ 63,667     $     $ 63,667  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating costs and expenses

           

Cost of revenue

    32,893                   32,893             32,893  

Advertising and promotions

    28,313                   28,313             28,313  

General, administrative and other

    23,649       1             23,650             23,650  

Depreciation and amortization

    1,139                   1,139             1,139  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

    85,994       1             85,995             85,995  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (22,327     (1           (22,328           (22,328
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense

           

Interest expense, net

    (123                 (123           (123
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

    (123                 (123           (123
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (22,450     (1           (22,451           (22,451
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to noncontrolling interests

                (17,263 )(cc)      (17,263     (19,663 )(cc)      (19,663
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common shareholders

  $ (22,450   $ (1   $ 17,263     $ (5,188   $ 19,663     $ (2,788
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted weighted average shares outstanding - Class A

          43,580,189         22,331,250  

Basic and diluted net loss per share - Class A

        $ (0.12     $ (0.12

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020

(in thousands, except share and per share data)

 

                Assuming No Redemptions     Assuming Maximum
Redemptions
 
    RSI
(Historical)
    dMY
(Historical)
    Pro Forma
Adjustments
(Note 2)
    Pro Forma
Combined
    Pro Forma
Adjustments
(Note 2)
    Pro Forma
Combined
 

Revenue

  $ 178,452     $   $     $ 178,452     $     $ 178,452  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating costs and expenses

           

Cost of revenue

    118,774                   118,774             118,774  

Advertising and promotions

    33,421                   33,421             33,421  

General, administrative and other

    114,815       3,068       (2,441 )(dd)      115,442       (2,441 )(dd)      115,442  

Depreciation and amortization

    1,368                   1,368             1,368  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

    268,378       3,068       (2,441     269,005       (2,441     269,005  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (89,926     (3,068     2,441       (90,553     2,441       (90,553
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense)

           

Interest expense, net

    (101                 (101           (101

Gain on marketable securities, net, dividends and interest, held in Trust Account

          759       (759 )(aa)            (759 )(aa)       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

    (101     759       (759     (101     (759     (101
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense

    (90,027     (2,309     1,682       (90,654     1,682       (90,654
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

          128       (128 )(bb)            (128 )(bb)       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (90,027     (2,437     1,810       (90,654     1,810       (90,654
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to noncontrolling interests

                (69,704 )(cc)      (69,704     (79,397 )(cc)      (79,397
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common shareholders

  $ (90,027   $ (2,437   $ 71,514     $ (20,950   $ 81,207     $ (11,257
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted weighted average shares outstanding - Class A

          43,580,189         22,331,250  

Basic and diluted net loss per share - Class A

        $ (0.48     $ (0.50

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

1.

Basis of Presentation

The Business Combination will be accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. Under this method of accounting, dMY is treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of RSI issuing stock for the net assets of dMY, accompanied by a recapitalization. The net assets of dMY are stated at historical cost, with no goodwill or other intangible assets recorded.

The unaudited pro forma condensed combined balance sheet as of September 30, 2020 gives pro forma effect to the Business Combination as if it had been consummated on September 30, 2020. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2019 and the nine months ended September 30, 2020, give pro forma effect to the Business Combination as if it had been consummated on January 1, 2019.

The unaudited pro forma condensed combined balance sheet as of September 30, 2020 has been prepared using, and should be read in conjunction with, the following:

 

   

dMY’s unaudited balance sheet as of September 30, 2020 and the related notes, found elsewhere in this prospectus; and

 

   

RSI’s unaudited consolidated balance sheet as of September 30, 2020 and the related notes, found elsewhere in this prospectus.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2019 has been prepared using, and should be read in conjunction with, the following:

 

   

dMY’s audited statement of operations for the period from September 27, 2019 (inception) through December 31, 2019 and the related notes, found elsewhere in this prospectus; and

 

   

RSI’s audited consolidated statement of operations for the year ended December 31, 2019 and the related notes, found elsewhere in this prospectus.

The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2020 has been prepared using, and should be read in conjunction with, the following:

 

   

dMY’s unaudited statement of operations for the nine months ended September 30, 2020 and the related notes, found elsewhere in this prospectus; and

 

   

RSI’s unaudited consolidated statement of operations for the nine months ended September 30, 2020 and the related notes, found elsewhere in this prospectus.

Management has made significant estimates and assumptions in its determination of the pro forma adjustments. As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.

The unaudited pro forma condensed combined financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings or cost savings that may be associated with the Business Combination. The pro forma adjustments reflecting the consummation of the Business Combination are based on certain currently available information and certain assumptions and methodologies that management believes are reasonable under the circumstances. The unaudited condensed pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments and it is possible the difference may be material. Management believes that its assumptions and methodologies provide a reasonable basis for

 

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presenting all of the significant effects of the Business Combination based on information available to management at the time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial information.

The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the post-combination company. They should be read in conjunction with the historical financial statements and notes thereto of dMY and RSI.

During the three months ended and as of September 30, 2020, RSI under accrued related party royalty expense in costs of revenue, and overstated the related amount due from affiliated land-based casinos, by approximately $9.0 million. See Note 1 to RSI’s consolidated financial statements included in the financial pages included elsewhere in this prospectus. However, on December 10, 2020, RSI retrospectively amended its existing agreements with an affiliated land-based casino to reduce the royalty expense owed by RSI by $9.0 million. Therefore, no adjustment has been made to the unaudited September 30, 2020 consolidated financial statements. This amendment is, by its terms, one time in nature, and similar amendments will not occur in the future. Absent such amendment, RSI’s costs of revenue would have been increased by $9.0 million and the amount due from affiliated land-based casinos would have been lower by $9.0 million for the three months ended and as of September 30, 2020.

 

2.

Adjustments to Unaudited Pro Forma Condensed Combined Financial Information

The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Business Combination and has been prepared for informational purposes only. The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial information to give pro forma effect to events that are (1) directly attributable to the Business Combination, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the results of the post-combination company. dMY and RSI have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet

The adjustments included in the unaudited pro forma condensed combined balance sheet as of September 30, 2020 are as follows:

 

  a   Reflects the reclassification of investments held in Trust Account that becomes available following the Business Combination.

 

  b   Reflects the settlement of $8.1 million in deferred underwriting commissions.

 

  c   Represents preliminary estimated transaction costs incurred by dMY and RSI of approximately $22.0 million for legal, financial advisory and other professional fees incurred in consummating the Business Combination. Of the amount, approximately $2.8 million was both deferred in prepaid expenses and other current assets and accrued in Accrued expenses by RSI as of September 30, 2020, and approximately $2.4 million was accrued by dMY in Accrued expenses as of September 30, 2020 and recognize in expense during the nine-months ended September 30, 2020. The net amount of the total preliminary estimated transaction costs of $22.0 million and the $2.4 million previously recognized as expense by dMY was capitalized as part of the Business Combination and reflected in the unaudited pro forma condensed combined balance sheet as a decrease in additional paid in capital.

 

  d   Reflects the proceeds of $160.4 million from the issuance and sale of up to 16,043,002 shares of dMY Class A Common Stock at $10.00 per share in the PIPE pursuant to the terms of the Subscription Agreements.

 

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  e   Reflects the reclassification of $215.9 million of dMY Class A Common Stock subject to possible redemption to permanent equity.

 

  f   Reflects the conversion of dMY Class B Common Stock, par value $0.0001 per share (“Class B Common Stock”) held by the Initial Stockholders into dMY Class A Common Stock. For the Maximum Redemption scenario only, the adjustment also reflects the forfeiture of 1,205,937 shares of Class A Common Stock held by the Founder Holders pursuant to an agreement, pursuant to which the Initial Stockholders will agree to (on a pro rata basis) forfeit for no consideration up to 1,205,937 shares of Class A Common Stock in the aggregate held by the Initial Stockholders to the extent that the Total Measureable Cash Amount (as defined therein) does not equal at least $245,000,000 (the “Founder Holders Forfeiture Agreement”).

 

  g   Represents approximately $2.0 million of share-based expense associated with incentive profits interests that will vest upon the Closing of the Business Combination. These costs are not included in the unaudited pro forma condensed combined statements of operations as they are nonrecurring.

 

  h   Reflects the recapitalization of the equity interests of RSI effective as of immediately prior to the Closing into a single class of common units pursuant to the Recapitalization Agreement.

 

  i   Reflects the elimination of dMY’s historical accumulated deficit.

 

  j   Reflects the issuance of Class V Voting Stock of the Company upon the Closing of the Business Combination. The Class V Voting Stock, par value $0.0001, entitles its holder to one vote per share but not any right to dividends or distributions. 145,000,000 shares of Class V Voting Stock are issued in the No Redemptions scenario and 157,500,000 shares of Class V Voting Stock are issued in the Maximum Redemption scenario.

 

  k   Represents the pro forma adjustment to the No Redemptions scenario to: 1) reflect the payment of the $125.0 million for 12,500,000 Purchased RSI Units, including the Purchased RSI Units Cash Consideration and the Aggregate Put-Call Consideration Amount, and 2) to present the Retained RSI Units as noncontrolling interest upon the reorganization of the post-combination company into an Up-C structure. The noncontrolling interest adjustment reflects the allocation of the post-combination company’s total stockholders’ equity to the Retained RSI Unit holders approximate 76.9% economic interest in the post-combination company, assuming no redemptions, as follows:

 

     Total
Stockholders’
Equity
(100%)
     Noncontrolling
Interest
(76.9%)
     Common
Stockholders’
Equity
(23.1%)
 

Historical RSI members’ deficit

   $ (120,084    $ (92,333    $ (27,751

Historical dMY total stockholders’ equity

     5,001        3,845        1,156  

Class A Common Stock issued in the PIPE

     160,430        123,355        37,075  

Reclass of redeemable public shares to permanent equity

     215,897        166,004        49,893  

Recognition of accelerated share-based compensation

     (1,984      (1,526      (458

Recapitalization of RSI preferred units

     145,353        111,762        33,591  

Payment of transaction costs

     (19,509      (15,001      (4,508

Payment of Purchased RSI Units Cash Consideration and Aggregate Put-Call Consideration Amount

     (125,000      (96,113      (28,887
  

 

 

    

 

 

    

 

 

 
   $ 260,104      $ 199,993      $ 60,111  
  

 

 

    

 

 

    

 

 

 

 

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The following table represents the share of economic interest of the combined entity between the holders of the Retained RSI Units (noncontrolling interests) and the holders of the Class A Common Stock of dMY (stockholders’ equity) as a result of the Business Combination, assuming no redemptions:

 

     Economic
Interests
     % of
Economic
Interests
 

Retained RSI Units

     145,000,000        76.9

Class A Common Stock

     43,580,189        23.1
  

 

 

    

 

 

 
     188,580,189      100.0%  
  

 

 

    

 

 

 

The adjustment to noncontrolling interest was recorded with an offset: 1) to eliminate Members’ units balance of RSI of $180.5 million; 2) to accumulated deficit for $1.5 million, representing the portion of the share-based expense in Note (g) allocated to noncontrolling interests; and 3) to additional paid-in capital for the residual amount of $21.0 million.

 

  l   Represents the redemption of the maximum number of shares of 20,043,002 of dMY Class A Common Stock for $200.4 million allocated to Class A Common Stock and additional paid-in capital using par value of $0.0001 per share and at a redemption price of $10.00 per share (based on the investments held in the Trust Account as of September 30, 2020 of $230.8 million).

 

  m   Represents the pro forma adjustment to the Maximum Redemption scenario to present the Retained RSI Units as noncontrolling interest upon the reorganization of the post-combination company into an Up-C structure. The noncontrolling interest adjustment reflects the allocation of the post-combination company’s total equity to the Retained RSI Unit holders approximate 87.6% economic interest in the post-combination company, assuming maximum redemptions, as follows:

 

     Total
Stockholders’
Equity
(100%)
     Noncontrolling
Interest
(87.6%)
     Common
Stockholders’
Equity
(12.4%)
 

Historical RSI members’ deficit

   $ (120,084    $ (105,172    $ (14,912

Historical dMY total stockholders’ equity

     5,001        4,380        621  

Class A Common Stock issued in the PIPE

     160,430        140,508        19,922  

Reclass of redeemable public shares to permanent equity

     215,897        189,087        26,810  

Redemption of maximum public shares

     (200,430      (175,541      (24,889

Recognition of accelerated share-based compensation

     (1,984      (1,738      (246

Recapitalization of RSI preferred units

     145,353        127,303        18,050  

Payment of transaction costs

     (19,509      (17,086      (2,423
  

 

 

    

 

 

    

 

 

 
   $ 184,674      $ 161,741      $ 22,933  
  

 

 

    

 

 

    

 

 

 

The following table represents the share of economic interest of the combined entity between the holders of the Retained RSI Units (noncontrolling interests) and the holders of Class A Common Stock of dMY (stockholders’ equity) as a result of the Business Combination, assuming maximum redemptions:

 

     Economic
Interests
     % of
Economic
    Interests    
 

Retained RSI Units

     157,500,000        87.6

Class A Common Stock

     22,331,250        12.4
  

 

 

    

 

 

 
     179,831,250        100.0
  

 

 

    

 

 

 

 

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The adjustment to noncontrolling interest was recorded with an offset: 1) to eliminate Members’ units balance of RSI of $180.5 million; 2) to accumulated deficit for $1.7 million, representing the portion of the share-based expense in Note (g) allocated to noncontrolling interests; and 3) to additional paid-in capital for the residual amount of $17.1 million.

Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations

The pro forma adjustments included in the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2019 and for the nine months ended September 30, 2020 are as follows:

 

  aa   Represents pro forma adjustment to eliminate gain on marketable securities related to the Trust Account

 

  bb   Reflects the elimination of dMY’s income tax expense, which primary relates to the gain on marketable securities held in the Trust Account.

 

  cc   Represents the pro forma adjustment to allocate net income (loss) to the noncontrolling interests as follows:

 

     Year Ended
December 31, 2019
    Nine Months Ended
September 30, 2020
 
     Assuming No
Redemptions
    Assuming
Maximum
Redemptions
    Assuming No
Redemptions
    Assuming
Maximum
Redemptions
 

Net loss

   $ (22,451   $ (22,451   $ (90,654   $ (90,654

Economic interest held by noncontrolling interest holders

     76.9     87.6     76.9     87.6

Net loss attributable to noncontrolling interests

   $ (17,263   $ (19,663   $ (69,704   $ (79,397

 

  dd   Reflects the elimination of non-recurring costs incurred by dMY in connection with the Business Combination

 

3.

Loss per Share

Represents the net loss per share calculated using the historical weighted average shares outstanding, and the issuance of additional shares in connection with the PIPE, assuming the shares were outstanding since January 1, 2019. As the Business Combination is being reflected as if it had occurred at the beginning of the periods presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issuable relating to the PIPE have been outstanding for the entire periods presented. When assuming the maximum redemption, this calculation is adjusted to eliminate such shares for the entire period.

 

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The unaudited pro forma condensed combined financial information has been prepared assuming two alternative levels of redemption for the year ended December 31, 2019 and nine months ended September 30, 2020 (in thousands, except share and per share data):

 

    Year Ended
December 31, 2019
    Nine Months Ended
September 30, 2020
 
    Assuming No
Redemptions
    Assuming
Maximum
Redemptions
    Assuming No
Redemptions
    Assuming
Maximum
Redemptions
 

Pro forma net loss attributable to common shareholders (in thousands)

  $ (5,188   $ (2,788   $ (20,950   $ (11,257

Weighted average shares outstanding, basic and diluted—Class A

    43,580,189       22,331,250       43,580,189       22,331,250  

Net loss per share, basic and diluted—Class A(1)

  $ (0.12   $ (0.12   $ (0.48   $ (0.50

Weighted average shares calculation, basis and diluted—Class A

       

dMY public stockholders—Class A

    23,000,000       2,956,998       23,000,000       2,956,998  

Holders of dMY sponsor shares—Class A(2)

    4,537,187       3,331,250       4,537,187       3,331,250  

PIPE Investors—Class A

    16,043,002       16,043,002       16,043,002       16,043,002  
 

 

 

   

 

 

   

 

 

   

 

 

 
    43,580,189     22,331,250     43,580,189     22,331,250  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

For the purpose of calculating diluted loss per share, it was assumed that all outstanding dMY Warrants sold in the IPO are exchanged for dMY Class A Common Stock. However, since this results in anti-dilution, the effect of such exchange was not included in the calculation of diluted loss per share.

(2)

The pro forma basic and diluted shares of the Holders of dMY sponsor shares exclude 1,212,813 shares of Class A Common Stock to be placed into escrow subject to the achievement of certain earnout targets pursuant to the Business Combination Agreement, as these shares are not deemed to be participating securities and would reduce the diluted net loss per share.

 

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dMY’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary” appearing elsewhere in this prospectus.

Overview

We are a blank check company incorporated in Delaware on September 27, 2019. We were formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Our sponsor is dMY Sponsor, LLC, a Delaware limited liability company (the “Sponsor”).

Our registration statement for our IPO was declared effective on February 20, 2020. On February 25, 2020, we consummated our IPO of 23,000,000 units, including the issuance of 3,000,000 units as a result of the underwriters’ exercise of their over-allotment option in full, at $10.00 per unit, generating gross proceeds of $230.0 million, and incurring offering costs of approximately $13.2 million, inclusive of $8.05 million in deferred underwriting commissions.

Simultaneously with the closing of the IPO, we consummated the private placement of 6,600,000 warrants at a price of $1.00 per warrant in a private placement to the Sponsor, generating proceeds of $6.6 million. We intend to consummate an initial business combination using cash from the proceeds of our initial public offering that closed on February 25, 2020, and from additional issuances of, if any, our equity and our debt, or a combination of cash, equity and debt.

Upon the closing of the IPO and the private placement, $230.0 million ($10.00 per unit) of the net proceeds of the IPO and certain of the proceeds of the private placement was placed in a trust account located in the United States at JP Morgan Chase Bank, N.A. with Continental Stock Transfer & Trust Company acting as trustee, and invested only in U.S. “government securities,” within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or in money market funds meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. government treasury obligations, as determined by us, until the earlier of: (i) the completion of our initial business combination and (ii) the distribution of the trust account as described below.

As indicated in the accompanying financial statements, at September 30, 2020, we had approximately $482,000 in our operating bank account. We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete our initial business combination will be successful.

The Business Combination

The Business Combination Agreement

On July 27, 2020, dMY entered into a business combination agreement with RSI, the Sellers, the Sponsor, and the Sellers’ Representative. The parties amended and restated the business combination Agreement on October 9, 2020 and further amended the business combination agreement on December 4, 2020. Following the Closing, the Company will be organized in an umbrella partnership–C corporation (“Up-C”) structure, in which substantially all of the assets of the Company will be held by RSI, and the Company’s only assets will be its equity interests in RSI (which will be held indirectly through wholly-owned subsidiaries of the Company). It is anticipated that dMY will change its name at Closing to “Rush Street Interactive, Inc.”

 

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As part of the Business Combination, (i) the Sellers will retain certain of their RSI Units and will receive an equal number of non-economic voting shares in the Company, (ii) RSI will be controlled by a newly formed, wholly-owned subsidiary of the Company and RSI GP and (iii) Special Limited Partner will acquire the Issued RSI Units from RSI and certain outstanding RSI Units from some or all of the Sellers.

Specifically, pursuant to the Business Combination Agreement, subject to the satisfaction or waiver of the conditions set forth therein, at the time of the Closing, (i) the Sellers will retain the Retained RSI Units that will cause the Sellers’ aggregate percentage ownership in RSI immediately following the Closing to be equal to the percentage determined as the quotient of (a) $1,725,000,000 (the “RSI Enterprise Value”) divided by (b) the sum of (1) the RSI Enterprise Value plus (2) the product of (A) the total number of outstanding shares of Class A Common Stock, issued and outstanding immediately prior to the Closing (after giving effect to any redemptions of Class A Common Stock by the Company’s current stockholders, the automatic conversion at the Closing of all then-outstanding shares of Class B Common Stock into shares of Class A Common Stock on a one-for-one basis (the “Class B Common Stock Conversion”) (as discussed below), and any Class A Common Stock purchased in connection with the PIPE) multiplied by (B) $10; (ii) the Sellers (other than the Put-Call Sellers to the extent that the Put-Calls are in effect as of the Closing) will transfer to the Special Limited Partner the Purchased RSI Units; (iii) the Company will issue to RSI (for immediate further distribution to the Sellers) the number of shares of newly issued Class V Voting Stock equal to the number of Retained RSI Units (net of the number of Purchased RSI Units, but including the number of Put-Call Units to the extent that the Put-Calls are in effect as of the Closing), which will entitle its holder to one vote per share but not any right to dividends or distributions; (iv) the Special Limited Partner will contribute cash to RSI in the amount of the Contribution Amount (as defined below) in exchange for a number of RSI Units equal to the aggregate number of shares of Class A Common Stock outstanding as of the Closing (after giving effect to any redemptions of Class A Common Stock by the Company’s current stockholders, the Class B Common Stock Conversion (as defined and discussed below), and any Class A Common Stock issued to investors in the PIPE) minus the number of Purchased RSI Units; (v) RSI GP will acquire 100% of the general partnership interests of RSI; and (vi) if the Closing occurs on or prior to December 20, 2020, the Put-Calls will be effective and beginning on December 21, 2020 until December 28, 2020, the Put-Call Sellers will have the right to sell to RSI, and RSI will have the right to purchase from the Put-Call Sellers, the Put-Call Units (which Put-Call Units shall not consist of any Earnout Shares), on the terms and subject to the conditions set forth in the Business Combination Agreement and the Put-Call Agreements (as defined and further described below). At the Closing, we anticipate the Company’s wholly-owned subsidiary, the Special Limited Partner, will hold between approximately 12.4% and 23.1% of RSI’s economic interests, while the Sellers will hold between approximately 76.9% and 87.6% of such interests, depending on the extent to which the Company’s current stockholders exercise their right to redeem their Class A Common Stock. For a description of the assumptions underlying such maximum and minimum redemption scenarios, see the section entitled “Unaudited Pro Forma Condensed Combined Financial Information.”

In addition, in connection with the Business Combination, (i) the Class B Common Stock Conversion will occur and (ii) the Company, the Special Limited Partner, RSI, the Sellers and the Sellers’ Representative will enter into a customary Tax Receivable Agreement (as further described and discussed below).

Pursuant to the Business Combination Agreement, at the Closing, the Earnout Shares will be subject to certain restrictions and potential forfeiture pending the achievement (if any) of certain earnout targets pursuant to the terms of the Business Combination Agreement. In addition, pursuant to the Founder Holders Forfeiture Agreement (as defined and described below), up to 1,205,937 shares of Class A Common Stock held by the Founder Holders (after giving effect to the Class B Common Stock Conversion) will be subject to forfeiture for no consideration to the extent that the Total Measureable Cash Amount (as defined in the Founder Holders Forfeiture Agreement) does not equal at least $245,000,000 (as more fully described in the Founder Holders Forfeiture Agreement).

 

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Pursuant to the Business Combination Agreement, unless and until the Earnout Shares become earned in accordance with the Business Combination Agreement, the holders thereof will not be entitled to sell or transfer or vote any of such shares. Pursuant to the Business Combination Agreement, all or a portion of the Earnout Shares will become earned (and the foregoing restrictions will then no longer apply to such Earnout Shares) (i) upon the achievement of certain earnout targets based upon the volume weighted average share price of the Company’s Class A Common Stock equal or exceeding $12.00 or $14.00 per share, respectively, for ten (10) trading days of any twenty (20) consecutive trading day period following the Closing, in each case on or any time prior to the third anniversary of the Closing Date, (ii) if a change of control of the Company or RSI is completed on or prior to the third anniversary of the Closing, and (iii) upon the achievement of the Company of certain net revenue targets, each as more fully described in the Business Combination Agreement.

The aggregate consideration payable or issuable by the Company in exchange for the Issued RSI Units is comprised of (i) an amount in cash equal to an amount of cash equal to the Available Closing Date Cash minus the Purchased RSI Units Cash Consideration (the “Contribution Amount”), and (ii) the Class V Voting Stock issued to the Sellers as described above. To the extent that the Available Closing Date Cash exceeds $160,000,000, an amount of the Available Closing Date Cash (not to exceed (a) $125,000,000 in the event that the Put-Calls are not in effect as of the Closing or (b) $99,235,500 in the event that the Put-Calls are in effect as of the Closing) determined by calculating the Purchased RSI Units Cash Consideration will be used to purchase from the Sellers (other than the Put-Call Sellers to the extent that the Put-Calls are in effect as of the Closing) the Purchased RSI Units and the remainder of the Available Closing Date Cash (which will include the Aggregate Put-Call Consideration Amount (if any)) will be contributed to RSI in exchange for the Issued RSI Units.

In connection with the execution of the Business Combination Agreement, the Company entered into the Subscription Agreements to consummate the PIPE. The obligations of each party to consummate the PIPE are conditioned upon, among other things, customary closing conditions and the consummation of the transactions contemplated by the Business Combination Agreement.

Additionally, in the event the Company receives additional proceeds through Selling Stockholders or any other financing sources that have been approved by RSI and dMY and which participate in a Permitted Equity Financing (“Permitted Equity Financing Sources”) during the five business day period following the Closing Date (provided that the aggregate proceeds received in connection with the PIPE and during the five business day period following the Closing Date may not exceed $245,000,000), the Company will cause any additional proceeds the Company receives through Permitted Equity Financing Sources, which will be contributed to the Special Limited Partner, which will in turn contribute such amounts to RSI (the “Post-Closing Contribution Amounts”), to be contributed to the Special Limited Partner, which will in turn contribute such amounts to RSI, and in exchange, RSI will issue to the Special Limited Partner additional RSI Units, in an amount equal to the number of shares of Class A Common Stock sold by the Company to such equity financing sources, at the price at which the shares of Class A Common Stock were sold by the Company to such equity financing sources (which price may not be less than $10.00 per share). Thereafter, so long as the Sellers (other than the Put-Call Sellers to the extent that the Put-Calls are in effect as of the Closing) have not already sold to the Special Limited Partner (x) 12,500,000 RSI Units (in the event that the Put-Calls are not in effect as of the Closing) or (y) 9,923,550 RSI Units (in the event that the Put-Calls are in effect as of the Closing), a portion of the Post-Closing Contribution Amount equal to the amount equal to the difference of (a) the sum of (i) the Available Closing Date Cash plus the aggregate proceeds received by the Company from any Permitted Equity Financing consummated after the Closing and on or prior to the fifth business day following the Closing Date less $160,000,000 plus (ii) the positive product of (A) 50% multiplied by (B) the amount by which the Available Closing Date Cash plus the aggregate proceeds received by the Company from any Permitted Equity Financing consummated after the Closing and on or prior to the fifth business day following the Closing Date exceeds $220,000,000 minus (b) the Purchased RSI Units Cash Consideration minus (c) the Aggregate Put-Call Consideration Amount (the “Redemption Amount”) will be used to redeem from the Sellers a number of Retained RSI Units equal to (i) the Redemption Amount divided by (ii) $10.00. In connection with such redemption, the Sellers (other than the Put-Call Sellers to the extent that the Put-Calls are in effect as of the Closing) will forfeit a corresponding

 

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number of shares of Class V Voting Stock held by the Sellers. The Purchased RSI Units Cash Consideration and the portion of the Post-Closing Contribution Amount payable to the Sellers (other than the Put-Call Sellers to the extent that the Put-Calls are in effect as of the Closing) will not in the aggregate exceed (1) $125,000,000 (in the event that the Put-Calls are not in effect as of the Closing) or (2) $99,235,500 (in the event that the Put-Calls are in effect as of the Closing).

On or about the date on which the parties amended and restated the Business Combination Agreement, the Company and RSI entered into Put-Call Agreements with each of the Put-Call Sellers. Pursuant to the Put-Call Agreements and the Business Combination Agreement, if the Closing occurs on or prior to December 20, 2020, the Put-Call Agreements will remain effective and beginning on December 21, 2020 until December 28, 2020, the Put-Call Sellers will have the right to sell to RSI for $9.00 per unit, and RSI will have the right to purchase from the Put-Call Sellers for $11.00 per unit, the number of RSI Units held by the Put-Call Sellers (not to exceed 2,576,450 in the aggregate) that would have otherwise been sold to the Company at the Closing as Purchased RSI Units at the Closing or redeemed by RSI following the Closing as described herein.

Specifically, the number of Put-Call Units is determined as the quotient of (A) the Put-Call Consideration Amount divided by (B) $10.00. The Put-Call Units shall not be comprised of any Earnout Shares. If the Closing occurs on or prior to December 20, 2020 and the Put-Call is therefore effective, the Put-Call Sellers will retain their Put-Call Units and the Aggregate Put-Call Consideration Amount will comprise a portion of the Contribution Amount and will be contributed by the Company to RSI at the Closing (for use in connection with the exercise, if any, of the Put-Calls or for any other use determined by RSI). If the Closing occurs after December 20, 2020, the Put-Call Agreements will automatically terminate and no longer be effective and the Put-Call Units held by the Put-Call Sellers may be sold to the Company at the Closing as Purchased RSI Units or redeemed by RSI following the Closing in accordance with the Business Combination Agreement as described herein.

In the event that the Put-Call is in effect, the cash proceeds that the Company (through its wholly-owned subsidiary, Special Limited Partner) would have otherwise paid directly to the Put-Call Sellers at the Closing in exchange for the Put-Call Units will instead be contributed by the Special Limited Partner directly to RSI in exchange for a number of additional Issued RSI Units equal to the number of Put-Call Units. As a result, the total number of RSI Units that will be held and controlled by the Company through its wholly-owned subsidiary, the Special Limited Partner, upon the Closing of the Business Combination will not be impacted by the Put-Call Agreements or be dependent on whether the Closing occurs prior to or after December 20, 2020. However, by virtue of RSI issuing additional Issued RSI Units to the Special Limited Partner (as compared to the Special Limited Partner purchasing the Put-Call Units from the Put-Call Sellers), the Special Limited Partner will hold a smaller percentage of the outstanding RSI Units as of the Closing if the Put-Call is in effect given that there will be a larger number of outstanding RSI Units. In those circumstances, to the extent that the Put-Call is not ultimately exercised by RSI or the Put-Call Sellers in accordance with the terms of the Put-Call Agreements, the Put-Call Sellers will continue to hold the Put-Call Units and the Special Limited Partner would continue to own a smaller percentage of the RSI Units (as compared to if the Put-Call was never in effect), though RSI would continue to hold the cash proceeds contributed by the Special Limited Partner that would have otherwise been used to redeem the Put-Call Units.

Assuming that (i) none of the Company’s current stockholders exercise their right to redeem their Class A Common Stock, (ii) the aggregate proceeds received by the Company in connection with the PIPE is $160,430,020, (iii) the Put-Calls are in effect as of the Closing and are validly exercised shortly following the Closing or not in effect, (iv) the Sellers (other than the Put-Call Sellers) transfer to the Special Limited Partner the maximum number of Purchased RSI Units (i.e. 9,923,550 if the Put-Calls are in effect or 12,500,000 if the Put-Calls are not in effect) at the Closing pursuant to the Business Combination Agreement, (v) none of the 1,205,937 Founder Holders Forfeiture Shares are forfeited because the Available Closing Date Cash exceeds $245,000,000, (vi) the Earnout Shares are excluded unless and until such shares become earned in accordance with the Business Combination Agreement, (vii) there is no exercise at the Closing of the Sponsor’s 6,600,000

 

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private placement warrants at an exercise price of $11.50 per share (which warrants are not exercisable until the later of 12 months from the closing of the IPO and 30 days after the completion of the Business Combination under the Warrant Agreement governing such warrants), (viii) none of the parties set forth above purchase shares of Class A Common Stock in the open market, (ix) there are no other issuances of equity interests of the Company prior to or in connection with the Closing and (x) there are no issuances of any shares of the Company’s Class A Common Stock within the five business days following the Closing to additional private placement investors or following the Closing under the Plan, (x) the Company is expected to own, indirectly through the Special Limited Partner, approximately 23.11% of the RSI Units at the Closing and will control RSI through RSI GP, and (y) the Sellers will own approximately 76.89% of the RSI Units at the Closing and will control the Company through the ownership of the Class V Voting Stock. Under certain circumstances in which the minimum threshold of $160,000,000 of Available Closing Date Cash is achieved, depending on redemptions by the Company’s current stockholders, the Company may indirectly own approximately 12.41% of the RSI Units at the Closing.

Pursuant to the Business Combination Agreement, the RSI Enterprise Value is subject to adjustment following the Closing in the event that the transaction expenses attributable to RSI and the Sellers, on the one hand, or the Company and the Sponsor, on the other hand, exceed such party’s transaction expense cap. To the extent that the RSI Enterprise Value is adjusted upwards, the Sellers will be issued an aggregate number of additional RSI Units and shares of Class V Voting Stock equal to the amount of the adjustment divided by $10.00. To the extent that the RSI Enterprise Value is adjusted downwards, the Sellers will forfeit for no consideration an aggregate number of RSI Units and shares of Class V Voting Stock equal to the amount of the adjustment divided by $10.00.

Beginning on the six month anniversary of the Closing, the Sellers will have the right to exchange Retained RSI Units for either one share of Class A Common Stock or, at the election of RSI GP in its capacity as the general partner of RSI, depending on, among other things, the availability of cash at RSI after first considering the cash necessary at RSI to fund RSI’s outstanding and anticipated operating expenses, debt service costs and declared dividends (in each case, if any), license fees and expenses, tax obligations and capital for existing and continued growth in new jurisdictions, the cash equivalent of the market value of one share of Class A Common Stock, pursuant to the terms and conditions of the RSI A&R LPA (such exchange rights, as further described in the RSI A&R LPA, the “Exchange Rights”) pursuant to the terms and conditions of the RSI A&R LPA. For each Retained RSI Unit so exchanged, one share of the Class V Voting Stock will be canceled by the Company.

The Business Combination Agreement provides that the Sellers’ obligation to consummate the Business Combination is conditioned on, among other things, that (i) the Company has Available Closing Date Cash of at least $160,000,000 minus the amount by which the transaction expenses incurred by RSI and the Sellers exceeds $12,500,000 and (ii) all approvals, determinations, grants, confirmations and other conditions with respect to gaming regulatory authorities in connection with the transactions contemplated by the Business Combination Agreement and the related agreements have been made, obtained, satisfied or given and are in full force and effect. The consummation of the Business Combination is also subject to the satisfaction or waiver of certain other closing conditions pursuant to the Business Combination Agreement.

From and after the Closing, the Controlling Holders will own a majority of the Company’s outstanding common stock and, therefore, will control a majority of the voting power of the Company’s outstanding common stock. Furthermore, the Controlling Holders intend to enter into a voting agreement prior to the consummation of the Business Combination whereby they agree to vote together on certain matters presented to the Company’s stockholders for so long as the voting agreement is in effect. As a result, the Company will be a “controlled company” within the meaning of the corporate governance standards of the NYSE, which status permits the Company to elect not to comply with certain corporate governance requirements as further described herein.

The Business Combination also calls for additional agreements, including, among others, the below.

 

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Related Agreements

The Subscription Agreements

In connection with the execution of the Business Combination Agreement, the Company entered into the Subscription Agreements, pursuant to which the PIPE investors have agreed to purchase in connection with Closing an aggregate of up to 16,043,002 shares of Class A Common Stock for a purchase price of $10.00 per share, for an aggregate purchase price of $160,430,020. The obligations of each party to consummate the PIPE are conditioned upon, among other things, customary closing conditions and the consummation of the transactions contemplated by the Business Combination Agreement. If the conditions precedent to closing the Business Combination are not fulfilled or waived and the Business Combination does not close, then the PIPE Shares will not be issued. In this event, the registration statement of which this prospectus forms a part will be withdrawn by the issuer prior to the effectiveness of the registration statement.

Tax Receivable Agreement

Simultaneously with the Closing, the Company, the Special Limited Partner, RSI, the Sellers and the Sellers’ Representative will enter into the Tax Receivable Agreement, which will provide for, among other things, payment by the Special Limited Partner to the Sellers 85% of the net income tax savings realized by the Company and its consolidated subsidiaries (including the Special Limited Partner) as a result of the increases in tax basis and certain other tax benefits related to the transactions contemplated under the Business Combination Agreement and the exchange of Retained RSI Units for Class A Common Stock (or cash) pursuant to the RSI 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 (as more fully described in the Tax Receivable Agreement). The Tax Receivable Agreement will remain in effect until all such tax benefits have been utilized or expired unless the Special Limited Partner exercises its rights to terminate the Tax Receivable Agreement for an amount representing the present value of anticipated future tax benefits under the Tax Receivable Agreement or certain other acceleration events occur. The Company may recognize a liability under the Tax Receivable Agreement of up to $495 million if all member interests are exchanged and assuming (i) the generation of sufficient future taxable income, (ii) a price of $10 per share, (iii) a constant corporate tax rate of 29.94% and (iv) no material changes in tax law. The amount payable under the Tax Receivable Agreement would vary from year to year, but the Company estimates that payments would be made over the next fifteen years assuming the generation of sufficient future taxable income. We expect the cash tax savings we would realize from the utilization of deferred tax assets to fund the required payments.

Proposed Charter and Amended and Restated Bylaws of the Company

Upon the Closing Date, the Company will amend and restate (i) subject to receipt of stockholder approval, the Charter by adopting the Proposed Charter and (ii) the current bylaws of the Company by adopting the A&R Bylaws, to establish a structure containing Class A Common Stock, which will carry such economic and voting rights as set forth in the Proposed Charter and A&R Bylaws, and Class V Voting Stock, which will carry only such voting rights as set forth in the Proposed Charter and A&R Bylaws (as more fully described herein).

The Proposed Charter will require that any equity interests owned or controlled by an Unsuitable Person (as defined in the Proposed Charter) or an affiliate thereof be subject to mandatory sale and transfer, subject to the terms and conditions set forth therein, 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.

RSI A&R LPA

At the Closing, the Company, the Special Limited Partner, RSI GP, RSI and the Sellers will enter into the RSI A&R LPA which will, among other things, permit the issuance and ownership of RSI Units as contemplated

 

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to be issued and owned upon the consummation of the Business Combination, admit RSI GP as the general partner of RSI, provide for the Exchange Rights, otherwise amend and restate the rights and preferences of the RSI Units and set forth the rights and preferences of the RSI Units, and establish the ownership of the RSI Units by the persons or entities indicated in the RSI A&R LPA.

Tax Distributions

The RSI A&R LPA will provide quarterly tax distributions payable in accordance with the RSI A&R LPA to the holders of RSI Units on a pro rata basis based upon an agreed-upon formula related to the taxable income of RSI allocable to holders of RSI Units. Generally, these tax distributions will be computed based on RSI’s estimate of the taxable income of RSI allocable to each holder of RSI Units (based on certain assumptions) multiplied by an assumed tax rate equal to the highest effective marginal combined United States federal, state and local income tax rate prescribed for an individual or corporation resident in New York, California or Illinois (whichever results in the application of the highest state and local tax rate), subject to various adjustments. Distributions, including tax distributions, will be made to holders of RSI Units on a pro rata basis.

Exchange of RSI Units for Class A Common Stock

The Sellers will, from and after the six-month anniversary of the Closing up to four times per calendar year be able to exchange all or any portion of their RSI Units, together with the cancelation of an equal number of shares of Class V Voting Stock, for a number of shares of Class A Common Stock equal to the number of exchanged RSI Units by delivering a written notice to RSI, with a copy to the Special Limited Partner; provided that no holder of RSI Units may exchange less than 1,000 RSI Units in any single exchange unless exchanging all of the RSI Units held by such holder at such time, subject in each case to the limitations and requirements set forth in the RSI A&R LPA regarding such exchanges. Notwithstanding the foregoing, the Special Limited Partner may, at its sole discretion, in lieu of delivering shares of Class A Common Stock for any RSI Units surrendered for exchange, pay an amount in cash per RSI Unit equal to the 5-day VWAP of the Class A Common Stock on the date of the receipt of the written notice of the exchange.

Exchange Ratio

For each RSI Unit exchanged, one share of Class V Voting Stock will be canceled and one share of Class A Common Stock will be issued to the exchanging member. If the Class A Common Stock is converted or changed into another security, securities or other property, on any subsequent exchange an exchanging RSI Unit holder will be entitled to receive such security, securities or other property.

Restrictions on Exchange

In certain circumstances, the RSI GP may limit the rights of holders of RSI Units to exchange their RSI Units under the RSI A&R LPA if the RSI GP determines in good faith that such restrictions are necessary to avoid a material risk that RSI will be classified as a “publicly traded partnership” under applicable tax laws and regulations or result in RSI having more than 100 partners under applicable tax laws.

Limited Liability Company Agreement of RSI GP

At the Closing, the Company and RSI GP will enter into the GP LLCA, pursuant to which, among other things, the parties will establish a board of managers of RSI GP, which will initially be comprised of Neil Bluhm, Gregory Carlin and Richard Schwartz, to direct and exercise control over all activities of RSI GP, including RSI GP’s right to manage and control RSI. Pursuant to the GP LLCA, each of Neil Bluhm (or one of his adult children) and Gregory Carlin will be entitled to serve as a manager of the board of RSI GP until they (or their permitted transferees, successors or assigns), taken together, hold fewer equity interests of the Company and RSI (taken together) than any other shareholder or affiliated group of shareholders. In addition, RSI will have sole discretion to appoint managers (including to fill vacancies) and remove managers, subject to receipt of requisite gaming licenses and/or approvals from gaming authorities.

 

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Amended and Restated Certificate of Incorporation and Bylaws of the Special Limited Partner

At the Closing, the Company and the Special Limited Partner will amend the Special Limited Partner’s Certificate of Incorporation and Bylaws to, among other things, provide that (i) the board of directors of the Special Limited Partner will be appointed by the Board and (ii) the Special Limited Partner will comply with applicable gaming laws.

Founder Holders Forfeiture Agreement

At the Closing, the Founder Holders, the Company and the Sellers’ Representative will enter into the Founder Holders Forfeiture Agreement, pursuant to which, among other things, the Founder Holders will agree to forfeit (pro rata) for no consideration up to 1,205,937 shares of Class A Common Stock in the aggregate (consisting of two hundred fifty-four thousand three hundred sixty-one (254,361) Initial Stockholders Earnout Shares (as defined in the Business Combination Agreement) and nine hundred fifty-one thousand five hundred seventy-six (951,576) shares of Class A Common Stock that are not Initial Stockholders Earnout Shares) following the Closing and the Company will agree to forfeit a corresponding number of RSI Units held by the Company to the extent that the Total Measureable Cash Amount (as defined in the Founder Holders Forfeiture Agreement) does not equal at least $245,000,000 (as more fully described in the Founder Holders Forfeiture Agreement).

Amended Insider Letter

In connection with the execution of the Business Combination Agreement, certain current officers and directors of the Company (including the Founder Holders), the Sponsor, the Company, RSI and the Sellers’ Representative have entered into the Amended Insider Letter, pursuant to which, among other things, (x) the Founder Holders agreed to waive any and all anti-dilution rights described in its current Certificate of Incorporation or otherwise with respect to the shares of Class A Common Stock (that formerly constituted shares of Class B Common Stock held by the Founder Holders) held by the Founder Holders that may be implicated by the Business Combination such that the Class B Common Stock Conversion will occur as discussed herein and (y) the Founder Holders appointed the Sponsor as their representative for purposes of the earnout provisions of the Business Combination Agreement and the transactions contemplated thereby (in each case as more fully described in the Amended Insider Letter). Upon execution of the Investor Rights Agreement, the Amended Insider Letter shall be deemed amended to remove the 12-month lock-up period contained therein applicable to the Sponsor, Niccolo de Masi, Harry You and the independent directors and imposes the lock-up period applicable to the Founder Holders as described in the Investor Rights Agreement description below.

Investor Rights Agreement

At the Closing, the Company, Sellers, the Founder Holders, and the Sellers’ Representative will enter into the Investor Rights Agreement, pursuant to which, among other things, (i) the Company and the Founder Holders will agree to terminate the Registration Rights Agreement, dated as of February 20, 2020, entered into by them in connection with the Company’s initial public offering, (ii) the Sponsor will have the right to nominate two directors to the Board and the Sellers’ Representative will have the right to nominate the remaining directors of the Board (initially seven directors), and the Sellers’ Representative will have the right to appoint up to three non-voting board observers to the Board, in each case subject to certain conditions, (iii) the Company will provide the Sellers and the Sponsor certain registration rights with respect to the shares of Class A Common Stock held by the Sellers and the Sponsor, (iv) the Founder Holders and the Sellers will agree not to transfer, sell, assign or otherwise dispose of the shares of Class A Common Stock and the RSI Units held by such person for up to 12 months following the Closing (with respect to the Founder Holders) and 180 days following the Closing (with respect to the Sellers), in each case, subject to certain exceptions, including an exception for the sale of the Put-Call Units to RSI pursuant to and in accordance with the Business Combination Agreement and the Put-Call Agreements, as applicable, and (v) the Amended Insider Letter shall be deemed amended to remove the

 

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12-month lock-up period contained therein applicable to the Sponsor, Niccolo de Masi, Harry You and the independent directors, in each case as more fully described in the Investor Rights Agreement attached as Exhibit F to the Business Combination Agreement.

Services Agreement

At the Closing, RSI and RSG will enter into the Services Agreement, pursuant to which, among other things, RSG will provide certain specified services to RSI for a period of two years following the Closing Date, subject to extension and early termination, including, without limitation, services relating to legal and compliance, human resources and information technology (in each case as more fully described in the Services Agreement). As compensation for RSG’s provision of these services, during the term of the Services Agreement, RSI will reimburse RSG for (i) all third party costs, including fees and costs incurred in connection with any required consents, incurred in connection with the provision of services, (ii) its reasonable and documented out-of-pocket travel and related expenses as approved by RSI, and (iii) an allocable portion of payroll, benefits and overhead (calculated at 150% of an employee’s salary, bonus and benefits cost) with respect to RSG’s or its affiliates’ employees who perform or otherwise assist in providing the services.

Employment Agreement

At the Closing, RSI will enter into an employment agreement with Gregory A. Carlin on terms reasonably mutually acceptable to RSI and Mr. Carlin. Following the Closing, Mr. Carlin will remain Chief Executive Officer of RSG and pursuant to the Employment Agreement, Mr. Carlin will not be required to devote his full business time and attention to RSI.

Recapitalization Agreement

In connection with the execution of the Business Combination Agreement, the Sellers, the Sellers’ Representative and RSI entered into the Recapitalization Agreement, pursuant to which the parties agreed to recapitalize the equity interests of RSI effective as of immediately prior to the Closing into a single class of common units in order to permit the issuance and ownership of the RSI Units as contemplated to be issued and owned upon the consummation of the Business Combination.

Put-Call Agreements

On or about the date on which the parties amended and restated the Business Combination Agreement, the Company, RSI and each of the Put-Call Sellers entered into Put-Call Agreements. Pursuant to the Put-Call Agreements and the Business Combination Agreement, if the Closing occurs on or prior to December 20, 2020, the Put-Call Agreements will remain effective and beginning on December 21, 2020 until December 28, 2020, the Put-Call Sellers will have the right to sell to RSI for $9.00 per unit, and RSI will have the right to purchase from the Put-Call Sellers for $11.00 per unit, the Put-Call Sellers’ Put-Call Units (not to exceed 2,576,450 in the aggregate). If the Closing occurs after December 20, 2020, the Put-Call Agreements will automatically terminate and no longer be effective and the Put-Call Units held by the Put-Call Sellers may be sold to the Company at the Closing as Purchased RSI Units or redeemed by RSI following the Closing in accordance with the Business Combination Agreement as described herein.

Results of Operations

Our entire activity since inception through September 30, 2020 related to our formation, the preparation for the IPO, and since the closing of the IPO, the search for a prospective initial business combination. We have neither engaged in any operations nor generated any revenues to date. We will not generate any operating revenues until after completion of our initial business combination. We will generate non-operating income in the form of interest income on cash and cash equivalents. We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

 

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For the three months ended September 30, 2020, we had net loss of approximately $2.3 million, which consisted of approximately $118,000 in interest income in operating account and gain on marketable securities (net), dividends and interest, held in the trust account, offset by approximately $2,351,000 in general and administrative expenses, $50,000 in franchise tax expense, and approximately $14,000 in income tax expense.

For the nine months ended September 30, 2020, we had net loss of approximately $2.4 million, which consisted of approximately $759,000 in interest income in operating account and gain on marketable securities (net), dividends and interest, held in the trust account, offset by approximately $2,917,000 in general and administrative expenses, $150,500 in franchise tax expense, and approximately $128,000 in income tax expense.

Liquidity and Capital Resources

As of September 30, 2020, we had approximately $482,000 in its operating bank account, a working capital deficit of approximately $1.8 million, and approximately $759,000 of interest income available in the trust account for our tax obligations.

Our liquidity needs to date have been satisfied through a $25,000 contribution from our Sponsor in exchange for the issuance of the Founder Shares to our Sponsor, the note of approximately $90,000 from our Sponsor, and the proceeds from the consummation of the private placement not held in the trust account. On March 19, 2020, we repaid the note in full to our Sponsor. In addition, in order to finance transaction costs in connection with an initial business combination, our Sponsor or an affiliate of our Sponsor, or certain of our officers and directors may, but are not obligated to, provide us working capital loans. As of September 30, 2020, there were no amounts outstanding under any working capital loan.

Our management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on our financial position, results of our operations and/or search for a target company, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Contractual Obligations

We do not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or long-term liabilities, other than an agreement to pay our Sponsor a monthly fee of $10,000 for office space, secretarial and administrative services.

Critical Accounting Policies

This management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to fair value of financial instruments and accrued expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have identified the following as its critical accounting policies:

Class A Common Stock Subject to Possible Redemption

We account for our Class A Common Stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Class A Common Stock subject to mandatory

 

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redemption (if any) is classified as liability instruments and are measured at fair value. Conditionally redeemable Class A Common Stock (including Class A Common Stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, Class A Common Stock is classified as stockholders’ equity. Our Class A Common Stock feature certain redemption rights that are considered to be outside of our control and subject to the occurrence of uncertain future events. Accordingly, at September 30, 2020, 21,589,737 shares of Class A Common Stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of our balance sheet.

Net Income (Loss) Per Share of Common Stock

Net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common stock outstanding during the period. We have not considered the effect of the warrants sold in the IPO and the private placement to purchase an aggregate of 18,100,000 of the Company’s Class A Common Stock in the calculation of diluted income per share, since their inclusion would be anti-dilutive under the treasury stock method.

Our statements of operations include a presentation of income per share for common stock subject to redemption in a manner similar to the two-class method of income per share. Net income per share of common stock, basic and diluted for Class A Common Stock is determined by dividing the gain on marketable securities (net), dividends and interest, held in trust account of approximately $118,000 and approximately $759,000, for the three and nine months ended September 30, 2020, respectively, net of applicable taxes available to be withdrawn from the trust account of approximately $64,000 and approximately $278,000 for the three and nine months ended September 30, 2020, respectively, resulting in net income of approximately $53,000 and approximately $480,000 for the three and nine months ended September 30, 2020, respectively, by the weighted average number of Class A Common Stock outstanding for each period. Net loss per share, basic and diluted for Class B Common Stock is calculated by dividing the net loss of approximately $2.4 million and approximately $2.9 million for the three and nine months ended September 30, 2020, respectively, less income attributable to Class A Common Stock of approximately $54,000 and $481,000 for the three and nine months ended September 30, 2020, respectively, by the weighted average number of Class B Common Stock outstanding for the period.

Recent Accounting Pronouncements

Our management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

Off-Balance Sheet Arrangements

As of September 30, 2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

JOBS Act

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” under the JOBS Act and are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We elected to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

 

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As an “emerging growth company”, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our initial public offering or until we are no longer an “emerging growth company,” whichever is earlier

 

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BUSINESS OF RSI

When used in this section, the use of first person pronouns, such as “we”, “us” and “our” refer to RSI together with its subsidiaries.

Overview

RSI is a leading online gaming company with number one market share by gross gaming revenue in the United States online casino wagering market for the three months ending September 2020 (according to Eilers & Krejcik Gaming (“EKG”) United States Online Casino Tracker October 2020). RSI also has a well-established online sports wagering offering and had the number four market share by gross gaming revenue in the United States online sports wagering market for the nine months ending September 2020 according to EKG. RSI provides customers an array of offerings such as real-money online casino wagering, online and retail sports wagering, and social gaming. RSI launched its first social gaming website in 2015 and began accepting real-money wagers in the United States in 2016. RSI currently operates real-money online casino and online sports wagering in New Jersey and Pennsylvania; currently operates online sports wagering in Indiana, Colorado and Illinois; and currently provides retail sports wagering services in Illinois, Pennsylvania, New York, Indiana and Michigan. In addition, in 2018, RSI became the first United States online gaming operator to launch in Colombia, which was an early adopting Latin American country to legalize and regulate online casino wagering and sports wagering nationally. RSI has market access agreements in two new markets that have legalized online gaming – Michigan, where RSI plans to launch online casino and online sports wagering, and Virginia, where RSI plans to launch online sports wagering. RSI also has a market access agreement in New York to launch online sports and online casino wagering when New York authorizes those activities.

RSI Highlights

 

   

RSI was #1 in United States online casino (slots and table games) revenue for the three months ending September 2020.

 

   

RSI is growing quickly and has experienced a revenue increase of nearly five times from the first nine months of 2019 to the first nine months of 2020 while comprehensive loss increased from $7.17 million to $94.76 million for the same periods.

 

   

RSI is operating online gaming in six states and Colombia, and it has market access secured in three additional states including New York with plans to target other jurisdictions.

 

   

Projected large market opportunity for online casino wagering in the United States projected at $20 billion with another $15 billion from online sports wagering assuming all states authorized wagering (according to EKG). While the majority of our online sports wagering customers are men, we believe that our online casino wagering brands, product offerings and marketing strategies appeal equally well to women. We have demonstrated our ability to appeal to both genders in the larger potential online casino wagering market, where we had approximately a 55-45 female/male split in our active United States online casino wagering-only players in Q3 2020.

 

   

During the first nine months of 2020, RSI’s advertising and promotion expenses equaled 18.7% of RSI revenue, which we believe is amongst the lowest ratios in the industry as a % of revenue. RSI’s founders have invested approximately only $50 million to date to build RSI.

 

   

Upon the completion of this transaction, RSI will be positioned to increase marketing spend in a targeted fashion where we believe we will achieve attractive returns. As an example, despite entering the New Jersey online casino wagering market nearly three years after it launched, we generated revenue in excess of six times the acquisition costs to acquire those same players in those players’ first three years after becoming active on our platform.

 

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We believe that our proprietary online gaming platform and in-house product development team have allowed us to innovate rapidly, introduce new and differentiated features and efficiently enter new geographic markets. Platform ownership has also enabled RSI to offer flexile business models, such as our B2B and B2B2C models.

 

   

In Q3 2020, licenses operated by RSI achieved a #1 online gaming revenue position in Pennsylvania (for both online casino wagering and combined online casino and online sports wagering), the largest state by population with online gaming. RSI generated 30.6% more taxable online slot machine and table games wagering revenue (including 72.9% more taxable slot machine) than the #2 license holder. In addition, RSI has been top #3 in online taxable sports wagering revenue in Pennsylvania each month since September 2019.

 

   

RSI’s achieved its #1 taxable online gaming revenue market share in Pennsylvania while offering promotional credits (sometimes referred to as “free bets” or “free play”) for online slot machines at a lower rate (as a % of taxable revenue) than the competition on average. We believe that to the extent that we can achieve the #1 online gaming market share in Pennsylvania while offering fewer slot machine promotional credits speaks to the quality of our online gaming platform and the overall user experience.

 

   

Because of our experience localizing our proprietary online gaming platform and operating in Colombia, we believe that we can target other markets in Latin America when they are legalized and regulated.

RSI was founded by experienced gaming operators Neil Bluhm, Greg Carlin and Richard Schwartz, whose mission was to offer real-money online gaming products in legal and regulated markets with a particular focus on the emerging United States opportunity. In 2014, RSI acquired the source code that served as the starting point for its proprietary technology and has continued to develop it since then with a talented in-house product development team. RSI management’s focus has always been on developing the most player-friendly online casino wagering experience in the industry. RSI’s proprietary online gaming platform is the foundation of RSI’s 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 RSI’s operations. The platform incorporates multiple sophisticated technologies and provides a central back office function to manage player accounts, payments, risk, bonusing and loyalty programs, while ensuring that RSI can deliver a seamless experience for both players and gaming operators, as well as a wide range of proprietary player bonusing and loyalty features. This technology platform is flexible and supports both real-money online wagering and social gaming on a single code base. RSI began offering online casino wagering utilizing this technology in the United States in September 2016. Following, the lifting of the federal restrictions on sports wagering in May 2018 as a result of the United States Supreme Court’s repeal of the Profession and Amateur Sports Protection Act of 1992 (“PASPA”), RSI began offering online sports wagering utilizing the same proprietary online gaming platform with the same emphasis on player-friendly features.

RSI’s revenue grew from $18.2 million for the year ended December 31, 2018 to $63.7 million for the year ended December 31, 2019. During this period, costs of revenue increased from $10.7 million to $32.9 million and advertising and promotions increased from $10.9 million to $28.3 million. RSI’s revenue grew from $35.8 million in the nine months ending September 2019 to $178.5 million in the corresponding period of 2020 while costs of revenue increased from $16.3 million to $118.8 million and advertising and promotions increased from $19.7 million to $33.4 million during the same period. RSI’s revenue growth has been driven substantially by growth of online casino wagering revenue in New Jersey and the legalization and ramp-up of real-money online wagering in other United States jurisdictions including online sports wagering in New Jersey in 2018; online casino wagering and online sports wagering in Pennsylvania in 2019; online sports wagering in Indiana in 2019; and online sports wagering in Illinois and Colorado in 2020. In addition, RSI began offering online casino wagering and sports wagering in Colombia in 2018.

 

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Prior to the filing of this prospectus, RSI’s founders have invested approximately $50 million into RSI. This capital has been primarily used to fund the development of the proprietary online gaming platform and products, recruit and grow an experienced team, and expand into new geographic and product markets. RSI management has focused on being financially disciplined.

Powering RSI’s product offerings is our proprietary online gaming platform that allows us to prioritize speed to market for new gaming offerings while providing an engaging and unique user experience for its players. Since 2016, RSI has leveraged its platform to expand its real-money operations and launch in the markets listed below. Additionally, RSI was the first company to launch online or retail sports wagering in several of these markets, which we believe has allowed us to acquire customers at a lower cost than we could have if launching in a more mature market.

 

LOGO

RSI’s real-money wagering products are offered under the BetRivers & PlaySugarhouse (United States) and RushBet.co (Colombia) brands. RSI’s social gaming products are marketed in association with each brick-and-mortar casino partner brand for business-to-business (“B2B2C”), and under the RushGames (and soon BetRivers) brands for business-to-consumer (“B2C”). The choice of branding is market-specific and partner-specific and based on brand awareness, market research, and marketing efficiency.

Our Operating Model

We leverage our proprietary online gaming platform to enter new markets. Our operating model focuses on being nimble, innovative, and “first to market” in markets where online wagering has been newly legalized. Often in advance of markets legalizing online gaming, we build relationships with brick-and-mortar casino operators and other potential partners who are looking for online gaming and sports wagering partners.

 

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We leverage our relationships with brick-and-mortar casino operators to find stable, reliable and quality partners for online gaming collaboration. Upon securing an access partner in a local market (if required or desirable) and before we launch operations in that market, we customize our proprietary online gaming platform to the regulations of the jurisdiction. Upon entering a new market, we employ a number of marketing strategies to obtain new customers as well as leverage the database of casino partners when applicable. In addition, RSI also refines its product offering and marketing strategies over time based on data gleaned from each market.

RSI offers a loyalty program that rewards consumers in exciting, fair and transparent ways. RSI is dedicated to reciprocating player loyalty by ensuring there are exciting benefits at each of the ten player loyalty levels we currently offer. Based on player research, RSI addressed player concerns about lack of transparency when it comes to awarding, redeeming, and tracking bonuses. RSI enables players to easily track their loyalty and bonus progressions and give players 100% control over when and how to redeem rewards. Players have the option to ‘bank’ awarded bonuses in RSI’s proprietary ‘bonus bank’, which they can draw from whenever they wish under our industry-leading 1x wager requirement. Every player accumulates bonus store points on every real-money wager made, regardless of loyalty level. These points unlock bonuses and are used to play RSI’s fun proprietary bonus games (free scratch cards, wheel spins, and bingo games) with prizes that guarantee bonus money.

Although RSI has been a first-mover in many markets, RSI has demonstrated success even when not being first to enter a market. RSI entered the New Jersey online casino wagering market approximately three years after the market launched. Less than three years after beginning operations in New Jersey, RSI grew to operating the #4 brand in online casino wagering revenue in New Jersey, out of 19 total in the market, according to EKG’s United States Online Casino Tracker for April 2019.

RSI’s success in New Jersey is also noteworthy because RSI competes with many other companies who have land-based casinos in the state. Neither RSI nor Rush Street Gaming, an affiliated land-based casino operator, operate a land-based casino in New Jersey. We believe our performance in New Jersey shows that we can be successful entering competitive markets without the benefit of a land-based casino presence.

Our operating model has also enabled us to become the #1 online casino wagering operator in terms of revenue in Pennsylvania, the largest state by population in the United States where online casino wagering is currently authorized. According to the Pennsylvania Gaming Control Board, RSI generated 30.6% more taxable online slot machine and table games wagering revenue than the #2 license holder.

RSI has been the #1 operator of online slot machines and table games in terms of taxable revenue in every quarter since RSI launched in Pennsylvania. We believe that our performance in Pennsylvania is particularly notable as we have yet to launch online gaming via an Apple iOS App in Pennsylvania. According to the Pennsylvania Gaming Control Board, in Q3 2020, RSI’s Pennsylvania taxable slot machine and table games revenue market share was 30.6%, compared to 29.9% in Q1 2020 and 34.1% in Q2 2020. This Q3 2020 market share includes competition from both FanDuel and DraftKings, which launched online slot machine and table games wagering in Pennsylvania in January 2020 and May 2020, respectively.

RSI’s market share in the sub-category of online slot machines in Pennsylvania is even more pronounced. According to the Pennsylvania Gaming Control Board, in Q3 2020, despite added competition, RSI’s online slot machine taxable revenue market share was 36.6%, compared to 35.6% in Q1 2020 and 38.4% in Q2 2020. In Q3 2020, RSI generated 72.9% more online slot machine taxable revenue than the #2 license holder in Pennsylvania as measured by the Pennsylvania Gaming Control Board.

To further illustrate our strong performance in online slot machine revenue in Pennsylvania, RSI was able to achieve its #1 share of online slot machine taxable revenue while at the same time issuing fewer promotional credits than the competition, According to data from the Pennsylvania Gaming Control Board, RSI’s promotional credits as a percentage of slot machine revenue (before deducting promotional credits) was 17.4% in Q3 2020. The rest of the Pennsylvania online casinos’ promotional credits as a percentage of slot machine revenue (before

 

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deducting promotional credits) was 27.0% in Q3 2020. We believe this data point is a testament to the quality of our proprietary online gaming platform, player-friendly features, and customer service, that we can have #1 market share while offering significantly less promotional credits as a percentage of revenue than the competition.

Unlike sports wagering, which predominately appeals to males, casino wagering appeals roughly equally to both males and females. In Q3 2020, approximately 90% of our monthly unique online sports wagering-only players were male. For Q3 2020, approximately 55% of our monthly unique online casino wagering-only players were female.

It has been our experience that among casino customers, female customers are more likely to play slot machines, while male customers are more likely to play table games. We believe that we are able to achieve a strong market share in casino revenue, in general, and an even stronger market share in slot machine revenue, in particular, given that our brands, products and marketing strategies appeal to both male and female casino customers. Further, we believe that we are well positioned to continue to appeal to female slot machine customers over the long run.

In Q3 2020, Pennsylvania marketwide slot machine taxable revenue accounted for the majority of combined online slot machine and table games taxable revenue in Pennsylvania.

Q3 2020 Pennsylvania Marketwide Taxable Revenue Split (Online Slot Machines vs. Table Games)

 

LOGO

Source: RSI management estimates; Pennsylvania Gaming Control Board

We believe that RSI is well positioned to be a slot machine market leader when additional markets launch. RSI has derived a higher percentage of its net revenues from slot machines than the market as a whole and expects this trend to continue as new states launch online.

 

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RSI Q3 2020 Pennsylvania Taxable Revenue Split (Online Slot Machines vs. Table Games)

 

LOGO

Source: RSI management estimates; Pennsylvania Gaming Control Board

In the long run, we believe that slot machines will be a larger contributor to online casino wagering revenue than table games, just as slot machines have been a larger contributor than table games to land-based casino revenue. As an example, in Q3 2020, Pennsylvania land-based casino slot machines generated $490 million of revenue, about 2.7 times more than the $177 million of land-based casino revenue generated by table games according to data from the Pennsylvania Gaming Control Board.

We believe our online casino wagering customers are also older on average than our competitors. We believe that the older a customer is, the more disposable income that customer is likely to have and be able to spend on online gaming. In Q3 2020, our online casino wagering-only customers in New Jersey and Pennsylvania averaged 41.8 years of age.

In addition to online casino wagering, RSI has generated more than its fair share of online sports wagering taxable revenues since launching in Pennsylvania in 2019. RSI has ranked in the top 3 in online sports wagering taxable revenue each month since September 2019, with FanDuel and DraftKings also ranked in the top 3 most months. In Q3 2020, RSI has generated a 23% share of the online sports wagering taxable revenue in Pennsylvania according to data from the Pennsylvania Gaming Control Board.

RSI has experienced significant success with retail sports wagering as casinos using RSI’s retail sports wagering services generated the most sports wagering revenue of any casino in each of New York and Pennsylvania in the twelve months ending September 2020 (per the New York State Gaming Commission and Pennsylvania Gaming Control Board, respectively).

Outside of the United States, we have experienced strong growth in our Colombia business. We entered the Colombia market in 2018 and gained valuable operational experience with respect to online sports wagering. When PASPA was struck down in the United States, we were able to leverage the operational experience gained in Colombia and quickly apply that knowledge to the United States market. Our business in Colombia has grown strongly since we entered the market. While 2020, especially the second quarter, was impacted by the lack of live sporting events, online casino revenue has risen almost enough to make up for the loss in online sports wagering revenue.

Lastly, with minimal marketing spend to acquire users, RSI’s social gaming business has grown significantly in the last two years.

While as discussed above RSI has experienced strong market share and revenue growth, RSI has also incurred significant increases in its cost of revenue and other operating costs and expenses to support this growth. RSI’s comprehensive loss for the first nine months of 2019 as compared to the first nine months of 2020 increased from $7.17 million to $94.76 million.

 

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Our People

RSI has built a team of industry professionals focused on technology and operations, with a highly experienced senior management team with significant experience in the online and retail gaming industries. RSI’s culture focuses on valuing employees and enabling them to grow and take on roles that suit their strengths. We believe our culture combined with our growth and success has created very high rates of employee retention. As of November 9, 2020, RSI had approximately 199 employees.

Our Products and Economic Model

Our Revenue-Generating Product Offerings

B2C Operations. RSI currently has four main B2C product offerings — online casino wagering, online sports wagering, retail sports wagering and social gaming. In its B2C offerings, RSI offers products to users. In most markets, RSI pays a fee to third-party license holders to offer online casino wagering and online sports wagering. In the case of retail sports wagering, RSI makes payments to the hosting property to have the right to conduct B2C operations. In the case of social games, RSI is able to conduct operations in jurisdictions without third-party licenses unless prohibited by law. B2C will be RSI’s primary business model on a go-forward basis in new jurisdictions.

B2B2C Operations. RSI currently has three main business-to-business-to-consumer (“B2B2C”) product offerings: online casino wagering, online sports wagering and social gaming. In its B2B2C offerings, RSI offers products to users on behalf of third-party land-based casinos in Pennsylvania and Illinois. This business model works the same way as B2C operations where RSI supplies the platform and provides all of the necessary services for the operation (“managed services”). The only exception is that any operator license fees, hardware costs and expenses from the operations including marketing expenses are absorbed by partners after RSI receives a platform and managed services fee calculated as a percentage of the revenue less certain deductions.

In Pennsylvania and Illinois, the partner properties have paid upfront license fees required to operate sports wagering and online gaming in those states. In Pennsylvania, the partner casinos paid a total of $30 million in upfront license fees—$20 million for sports wagering and $10 million for online casino wagering. In the case of Pennsylvania, the gaming tax rates for online slot machines (54%) and online sports wagering (36%) are high. In Illinois, the partner casino paid a $10 million upfront license fee for sports wagering.

Outside of Pennsylvania and Illinois, RSI does not have any other agreements for B2B2C operations of real-money online gaming.

RSI also operates social gaming on behalf of third-party partner casinos whereby RSI splits the revenue with the partner casino.

B2B Services. RSI offers business-to-business (“B2B”) services to third parties to enable them to operate retail sports wagering under their own brand. In the case of B2B operations, RSI provides services and is typically paid by partners based on a percentage of revenue. Current B2B customers for retail sports wagering include land-based casinos in Pennsylvania, New York, Illinois and Michigan.

Online Casino Wagering

Online casino wagering offerings typically include the full suite of games available in land-based casinos, such as blackjack, roulette and slot machines. For these offerings, RSI functions similarly to land-based casinos, generating revenue through hold, or gross winnings, as users play against the house. There is volatility with online casino wagering, as with land-based casino wagering, but as the volume of wagers placed increases, the revenue retained from wagers placed becomes easier to predict. Our experience has been that online casino wagering is less volatile than online sports wagering.

 

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RSI’s online casino offering consists of a combination of licensed content from leading suppliers in the industry and a small number of games that RSI has developed in-house. Third-party content is subject to standard revenue-sharing agreements specific to each supplier, whereby the supplier receives a percentage of the net gaming revenue generated from the casino games played on RSI’s platform (dependent on RSI’s overall gross gaming revenue for online casino wagering). In exchange, RSI receives a limited license to offer the games on its platform to users in jurisdictions where use is approved by the regulatory authorities. Revenue generated through our self-developed major casino games such as RSI’s multi-bet blackjack (with licensed side bets: 21+3, Lucky Lady, Lucky Lucky), and RSI’s single deck blackjack results in RSI making decreased revenue share payments as a percent of revenue.

Sports Wagering

Sports wagering, whether the wager is placed online or in a retail environment, involves a user placing a wager on an event at some fixed odds (a “Proposition”) determined by RSI. In the event the user wins, RSI pays out the bet. RSI takes some risk on the wager. RSI’s revenue is generated by setting odds such that there is a built-in theoretical margin in each Proposition offered to its users. While different outcomes of the events may cause volatility in RSI’s revenue, RSI believes it can deliver a fairly stable wagering win margin over the long term.

Integrated into RSI’s online sports wagering platform is a third-party risk and trading platform currently provided by Kambi. In addition to traditional fixed-odds wagering, RSI offers other sports wagering products including in-game wagering and multi-sport parlay wagering. We have also incorporated live streaming of sporting events into our sports wagering offering.

RSI’s online sports wagering business experiences seasonality based on the relative popularity of certain sports. Although exciting sporting events occur throughout the year, RSI’s online sports wagering users are most active during the American football season as well as during the basketball seasons (NBA and NCAA).

Social Gaming

RSI’s social gaming business has three main goals: building online databases in key markets ahead of and post-legalization and regulation, increasing engagement and visitation to RSI’s brick-and-mortar casino partner properties, and generating revenues. The social gaming product is a marketing tool that keeps the brands present in mind and engaging with customers through another channel while providing the entertainment value the patrons seek. While the vast majority of RSI’s social gaming players enjoy engaging with the site without paying, there are a number of players that top-up their virtual coins through RSI’s social gaming cashier with a variety of packages for sale. The virtual currency can only be used within the RSI’s social games sites and has no monetary value outside of the game. RSI pays a percentage of the social gaming revenue derived from the purchase of the virtual coins with content suppliers. In B2B2C partnerships, the net social revenue is split between the partner and RSI.

RSI also utilizes its social gaming products to cross-sell to real-money wagering products in jurisdictions where real-money wagering is authorized.

Cost of Revenue

In addition to the casino content costs and costs that RSI pays to its sports wagering trading and risk provider, RSI has four main elements of cost of revenue: payment processing fees and chargebacks, product taxes, platform and content costs and revenue share/market access arrangements. RSI incurs payment processing costs on user deposits and occasionally chargebacks. RSI’s primary product taxes are state taxes, which are determined on a jurisdiction-by-jurisdiction basis and range from 6.75% to 54% of gross revenue minus applicable deductions. Excluding Pennsylvania, the tax rate for sports wagering ranges from 6.75% to 15% and

 

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the tax rate for online casino wagering is 15% in both markets where RSI is currently operating. Importantly, each state defines “gross revenue” differently based on the deductibility of promotion expenses. In addition to state taxes in the United States, RSI pays a federal excise tax of 0.25% of United States sports wagering handle. RSI’s platform and content fees are primarily driven by costs for use of casino content, costs for sports betting trading services and hosting, third-party vendors that provide certain elements of its platform technology (such as geolocation and know-your-customer). Finally, RSI’s revenue share fees are primarily driven by arrangements with land-based casinos in states where land-based casinos have the rights (including many times the exclusive rights) to online casino and sports wagering.

Advertising & Marketing

RSI’s ability to effectively market is critical to operational success. Using experience, dynamic learnings and analytics, RSI leverages marketing to acquire, convert, retain customers. RSI uses a variety of paid marketing channels, in combination with compelling offers and unique game and site features, to attract and engage customers as well as earned media. Furthermore, RSI optimizes its marketing spend using data collected since the beginning of its operations. RSI’s 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 users across various product offerings.

Where paid marketing is concerned, RSI leverages a broad array of advertising channels, including television, radio, social media platforms, sponsorships, affiliates and paid and organic search, and other digital channels. These efforts are concentrated within the specific jurisdictions where RSI operates or intends to operate. We believe that there is significant benefit to having a flexible approach to advertising spending as we can move our advertising spending around based on dynamic testing of what advertising methods and channels are working and what channels and methods are not working.

Distribution

RSI distributes its product 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.

B2C Market Access. RSI has developed proprietary technology, product offerings and partnerships to create a sustainable advantage in the sports wagering and online gaming industry. Strategic multi-year arrangements with casinos enable RSI to offer its products to users. RSI has entered into the following arrangements where legislation or regulations require it to enter the market through a relationship with a land-based casino:

 

   

In September 2015, RSI entered into an agreement with Golden Nugget Casino in Atlantic City, which enabled RSI to operate online casino wagering and subsequently the agreement was amended to include online sports wagering in New Jersey. RSI subsequently terminated the portion of the agreement related to online sports wagering.

 

   

In October 2018, RSI entered into an agreement with Monmouth Racetrack in New Jersey, which enabled RSI to operate online sports wagering in New Jersey.

 

   

In June 2019, RSI entered into an agreement with French Lick Casino & Resort in Indiana, which enabled RSI to operate online and retail sports wagering in Indiana.

 

   

In August 2019, RSI entered into an agreement with Wild Rose casino group in Iowa, which enabled RSI to operate online sports wagering in Iowa.

 

   

In January 2020, RSI entered into an agreement with J.P. McGill’s Hotel & Casino in Colorado, which enabled RSI to operate online sports wagering in Colorado.

 

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In March 2020, RSI entered into an agreement with The Little River Band of Ottawa Indians of Michigan. RSI will provide Little River with a full complement of online casino wagering and online sports wagering.

 

   

In October 2020, RSI entered into an agreement with Rivers Casino & Resort Schenectady (“Rivers Schenectady”) to enable RSI to offer online sports wagering and online casino wagering if either or both of those activities were authorized in New York.

 

   

In October 2020, RSI entered into an agreement with Rivers Casino Portsmouth to conduct online sports wagering in Virginia and online casino wagering if authorized in Virginia.

B2B2C and B2B Distribution. RSI has relationships with the following casino partners:

 

   

In November 2018, RSI entered into an agreement with SugarHouse Casino (since renamed Rivers Casino Philadelphia) to provide retail sports wagering services at SugarHouse Casino in Philadelphia.

 

   

In November 2018, RSI entered into an agreement with Rivers Casino Pittsburgh to provide retail sports wagering services at Rivers Casino Pittsburgh. In May 2019, RSI entered into an agreement to conduct online sports wagering through SugarHouse Casino throughout Pennsylvania. In June 2019, RSI also entered into an agreement to conduct online sports wagering through Rivers Philadelphia throughout Pennsylvania.

 

   

In July 2019, RSI entered into an agreement with Rivers Casino & Resort Schenectady to provide retail sports wagering services at Rivers Casino & Resort Schenectady in New York.

 

   

In March 2020, RSI entered into an agreement with Rivers Casino Des Plaines to provide retail sports wagering services at Rivers Casino Des Plaines in Illinois. RSI expects to enter into an agreement with Rivers Casino Des Plaines to provide Rivers Casino Des Plaines with software and services for its online sports wagering and online gaming sites in Illinois. RSI has begun providing the services for online sports wagering to Rivers Casino Des Plaines in anticipation of the agreement.

 

   

In March 2020, RSI entered into an agreement with The Little River Band of Ottawa Indians of Michigan to provide retail sports wagering services at their Little River casino.

 

   

In May 2020, RSI entered into an agreement with Coushatta Casino Resort, a gaming enterprise owned and operated by the Coushatta Tribe of Louisiana to offer customer-branded free-to-play social casino services.

 

   

RSI entered into an agreement in October 2020 with Rivers Casino Portsmouth to provide retail sports wagering services at the yet-to-be-developed Rivers Portsmouth Casino in Virginia.

RSI Development Team

RSI’s development team is led by Einar Roosileht (CIO) and consists of team members with expertise in system architecture, client & server-side product engineering, database architecture, product engineering management, site/app design and development, project management, security, and technical support. The team constantly aims to innovate and differentiate the RSI product offering.

Proprietary Online Gaming Platform Overview

RSI’s proprietary online gaming platform has been developed and is operated by a seasoned online gaming executive team with global experience operating all product categories, with particular expertise in the two largest online/mobile product categories: casino and sports wagering. RSI’s proprietary online gaming platform and technology stack give RSI the ability and flexibility to develop and provide a personalized and data driven player journey. RSI is able to develop and implement new features in real-time, which enhance the customer

 

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experience and increase customer retention. A key feature of the proprietary platform is the ability to customize the playing experience for each player. RSI achieves player customization by analyzing player history and transactions and offering customized promotions and real-time betting driven bonusing.

 

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By owning its own proprietary online gaming platform, RSI has been able to improve the user experience and incorporate key aspects of its operational services into their product offering:

 

   

Payments & Risk Management

 

   

Regulatory Online Reporting & Accounting / iGaming Compliance

 

   

Website Management / Games Management / Live Tech Ops / Security

 

   

Online Affiliate Management & Tracking

 

   

Retention / CRM / Business Intelligence & Analytics

 

   

Customer Service

Our Industry and Opportunity

RSI currently operates within the online gaming industry. The global gaming industry includes a wide array of products from lotteries to bingo, slot machines, casino games and sports wagering, across land-based and online platforms. The industry has various operators and stakeholders across the private and public sectors, including traditional brick-and-mortar casinos, state-run lottery operators, Native American tribes, legacy online gaming operators, racetracks/racinos/VLTs and gaming technology companies.

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.

The following trends are potential drivers of growth in this industry:

 

   

New jurisdictions in the United States and internationally authorizing and/or privatizing their online casino wagering and online sports wagering industries.

 

   

Increased consumer adoption of digital activities including casino and sports wagering. While many other large United States industries (i.e. banks, retail stores, movies, etc.) digitalized over a decade ago, the United States gaming industry is just starting to do so now.

 

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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 have disposable income to spend on entertainment and gaming. For example, United Kingdom, Denmark, France, Spain, Italy, Ireland, Denmark, Poland, Sweden, and Switzerland have legalized and regulated online casino and online sports wagering. All of the aforementioned countries are classified in the “high income” income group according to the World Bank. We expect this trend to continue moving forward, most notably in the United States.

United States Gaming Industry

RSI sees tremendous opportunity in the United States market. As United States 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 39% of the U.K.’s gross gaming revenue comes from online wagering. To put that U.K. figure into context, Pennsylvania, which launched online casino and sports wagering in H1 2019, generated a combined $1.71 billion in taxable revenue from land-based casino and online casino and online sports wagering revenue in H2 2019 according to data from the Pennsylvania Gaming Control Board. Of this amount, only approximately 4.5% came from online casino and online sports wagering. Although the United States has a much more significant land-based casino industry than the U.K., the statistic shows the future opportunity for online gaming in the United States.

United States Online Casino Wagering

Currently, online casino wagering has been authorized in fewer states than sports wagering. Online casino wagering is authorized in only six states: Delaware, Michigan, New Jersey, Pennsylvania, West Virginia and Nevada (although regulators have not authorized online casino wagering outside of physical casinos in Nevada). RSI believes there is great potential for revenue growth as new markets open in the United States. online casino wagering industry. As an example, the mature land-based casino industry in the United States is substantial. The American Gaming Association estimated that United States land-based commercial and tribal casinos combined for $75.4 billion in revenue in 2018.

Online casino wagering was first launched in New Jersey in the latter half of 2013. The market got off to a slow start; however, revenue has risen steadily over the last several years. Online casino wagering also was not negatively impacted when online sports wagering was introduced in New Jersey in 2018. Online casino wagering 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 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 wagering revenue grows. This fact may serve as a catalyst for lawmakers in other states with land-based casinos to consider authorizing online casino wagering.

We believe that more states have and will consider authorizing online casino wagering for the following reasons.

 

   

We believe that COVID-19 has reduced tax revenue in many states, increasing the need for new sources of tax revenue.

 

   

In states that have land-based casinos, COVID-19 caused temporary casino closures, which reduced tax revenue.

 

   

We believe that COVID-19 has caused increased general consumer adoption of digital activity including online gaming.

 

   

Online casino wagering generated more tax revenue compared to online sports wagering in New Jersey in 2019, meaning authorizing online sports wagering alone may not optimize tax revenue.

 

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Land-based casino revenue grew as online casino wagering grew in New Jersey from 2018 to 2019, demonstrating that land-based casino revenue can grow with online casino wagering revenue.

 

   

We believe that the land-based casino industry, an important stakeholder in many states, generally has shown a wider acceptance of online casino wagering.

Both Pennsylvania and New Jersey were each experiencing online casino wagering taxable revenue growth prior to COVID-19; however, that growth accelerated in March 2020 into Q3 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)

 

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Source: Pennsylvania Gaming Control Board

New Jersey Online Slot and Table Gross Revenue ($ in millions)

 

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Source: New Jersey Division of Gaming Enforcement

United States Sports Wagering

On May 14, 2018, the United States Supreme Court ruled that PASPA — a nationwide ban of sports wagering — was unconstitutional, thereby allowing states (beyond the few states that were grandfathered into the

 

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PASPA law by virtue of authorizing sports wagering prior to PASPA) to enact their own sports wagering laws. In the two years since the United States Supreme Court’s decision, 22 states and the District of Columbia have legalized sports wagering. Of those 23 jurisdictions, 15 states have authorized statewide online sports wagering while eight remain retail-only at casinos or retail locations.

According to data compiled by EKG, the United States generated approximately $492 million in online sports wagering revenue in 2019. While the overall industry is still nascent, growth has been strong. For example, December 2019 online sports wagering revenue in New Jersey, the first state to regulate sports wagering after PASPA was struck down, grew 41% year-over-year including 74% growth in online sports wagering revenue according to data compiled from the New Jersey Division of Gaming Enforcement.

According to data compiled by EKG, the United States generated $268.6 million in legal wagers on Super Bowl LIV held in February 2020. Of that amount, only 47% came from outside of Nevada, showing the opportunity for future growth for online sports wagering in the United States.

United States Sports Wagering Market Landscape

 

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Source: EKG United States Sports Betting Market Monitor – Released July 14, 2020

We believe the United States sports wagering market still has significant opportunity for growth. Only 27% of the United States currently has access to online sports wagering, 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 wagering revenue in February 2020, the last month not impacted by COVID-19, came via online wagering. We note that states such as California, Florida, New York and Texas still have not legalized online sports wagering. RSI believes the sports wagering industry will grow significantly over the next five years as more states authorize sports wagering and as current operating markets mature.

 

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Share of Total Monthly Sports Wagering Handle (September 2020)

 

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Source: EKG United States Sports Betting Market Monitor – Released November 2020

New Jersey and Pennsylvania, two states that offer online sports wagering, accounted for approximately 42% of all sports wagering handle across the United States in November 2020 according to EKG. Online sports wagering handle outperforms retail handle; however, some states have only legalized retail sports wagering (e.g., New York and Arkansas) and other states have legalized restricted forms of online sports wagering (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 loosen restrictions around online sports wagering, 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 state in the United States were to legalize online casino wagering, based on state level projections from EKG, it is projected that the United States market would generate approximately $20 billion in revenue.

If every state in the United States were to legalize online sports wagering, based on state level projections from EKG, it is projected that the United States market would generate approximately $15 billion in revenue.

Latin America Gaming Industry

Latin America is another area of focus for RSI. Since 2018, we have been operating online gaming in Colombia, a country with a population of approximately 49 million. We believe this experience will enable RSI to expand further in Latin America as more markets become regulated. RSI plans to expand further across Latin America and begin operating in other countries. Online gaming is also authorized in Mexico and Brazil, which have populations of approximately 129 million and 212 million, respectively. Both Mexico and Brazil still have relatively low internet penetration, with 60% of both populations having internet access compared to 76% in the US and 95% in the UK, so the expansion of internet penetration in these countries will allow RSI to grow its revenues from online wagering.

The highest populated country in Latin America, Brazil, legalized sports wagering in December 2018. While the government has been in the process of creating a regulatory framework since then, Brazil recently moved to “privatize” its impending sports wagering market in response to the COVID-19 pandemic. By including sports wagering in its Council of Investment Partnerships Program (IPP), Brazil will allow potential operators to bid on

 

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a limited number of sports wagering licenses instead of the previous plan that called for an “unlimited” number of operators and tax revenue dispensed to the government. We believe given RSI’s experience and success in neighboring Colombia, we will be well-qualified to obtain a sports wagering license in Brazil.

Competitive Strengths

As RSI expands and launches in new states and territories, RSI is well-positioned to maintain and build upon its accomplishments by virtue of its competitive strengths:

Proprietary Online Gaming Platform. RSI acquired its proprietary platform in 2014 and has refined it since then. Owning a proprietary online gaming platform has allowed RSI to innovate quickly and introduce numerous player-friendly features. We believe that these features have led to increased conversion rates from registrations to first-time depositors, increased levels of customer engagement and retention and increased player spending. Further, RSI is capable of making changes to its proprietary online gaming platform at a rate that management believes is among the fastest in the industry. As the United States industry develops, our proprietary online gaming platform should help RSI better cater to the evolving needs of the consumer. In the long run, we believe that our proprietary online gaming platform will lead to reduced costs and improved revenue per customer relative to peers, many of which license their technology from third parties.

Unique and Diversified Product Offering. RSI has prioritized the customization of its products and platform. For example, RSI creates its own online casino games, which are higher margin to RSI than those licensed from third parties. RSI has also developed and incorporated numerous proprietary bonusing features that appeal to casino and sports wagering customers alike.

Market Access and Speed to Market. RSI operates online casino wagering and/or online sports wagering where remote statewide registrations are allowed in states with a population of 47 million people (New Jersey, Pennsylvania, Indiana, Colorado, Illinois). In addition, RSI has secured access to states with an incremental population of 41 million subject to statewide remote registrations becoming available (Iowa), states finalizing regulations and selection processes (Michigan and Virginia), and states passing authorizing legislation for online gaming (New York). RSI currently operates online sports wagering in Illinois and Pennsylvania, and it may be permitted to operate in New York as well once authorizing legislation is passed. These three states have a combined population of approximately 44 million. RSI has proven its ability to swiftly enter markets as they are regulated. In the last 18 months, RSI has been “first to market” in Pennsylvania, Indiana, Colorado and Illinois for online sports wagering and in New York and Illinois for retail sports wagering.

Flexible Business Model. RSI will be capable of serving newly regulated states and territories regardless of the form of such regulation. RSI has the ability to function as a B2C or B2B2C operator. This flexibility should allow RSI to have a core advantage in securing market access and help RSI address the largest potential total addressable market (“TAM”).

Large TAM with International Opportunity. We believe our TAM is larger than United States -only operators because of our international operations in real-money online gaming in Colombia as well as our flexible business model as referenced directly above. We believe this experience will help us enter other legal and regulated Latin American markets and beyond.

Broad Demographic Appeal of our Brands & Products. We also believe that our brands, product offerings and marketing strategies have demonstrated an appeal to both female and male customers, as evidenced by an approximately 55-45 female/male split in our active United States online casino wagering-only players in Q3 2020. We believe that while many sports-centric brands appeal more to male customers, our brands and products (especially our slot machine game play experience) appeal strongly to female customers – an important demographic for high value slot machine demand.

 

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Compelling Unit Economics. We believe that we will be able to achieve industry-leading lifetime value to customer acquisition cost ratios, as evidenced by our performance in New Jersey, the most highly competitive market in the United States in terms of the number of online gaming operators. Despite entering the online casino wagering market nearly three years after it launched, we generated revenue in excess of six times the advertising costs to acquire those same players in those players’ 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 5 months of launch in New Jersey. We believe this rapid return on advertising spending is a result of our expertise in targeting, acquiring, engaging and retaining the right customers.

Lifetime Value / Customer Acquisition Cost in New Jersey

 

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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. RSI is led by an executive team with significant global gaming experience, including with online market leaders such as WMS Industries (now Scientific Games), Playtech, and the Kindred Group. RSI’s President and co-Founder 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 market share in the United States. Neil Bluhm (Chairman and co-Founder) and Greg Carlin (CEO and co-Founder) have a prominent track record of developing world-class land-based casinos while Mr. Bluhm has developed a significant amount of real estate.

Social Gaming Platform. In addition to real-money wagering, RSI offers social gaming on the same proprietary online gaming platform, which allows it to build customer databases in territories where real-money wagering is not yet regulated. Having both of these products on the same platform allows RSI to invest in markets before real-money wagering has launched.

Growth Strategies

As RSI continues to invest in its core competitive advantages and improving the user experience for its players, RSI believes it will remain positioned to build a leadership position in the online casino and online sports wagering industries. RSI has established several major areas of strategic focus that will guide the way RSI thinks about its future growth:

 

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Access new geographies. With RSI’s experience in regulated gaming jurisdictions in the United States and Latin America, RSI is prepared to enter new jurisdictions as online casino wagering and online sports wagering are authorized in these jurisdictions. Whether the appropriate route for a geography is to operate as an online operator marketing to users (B2C), as an online operator marketing to users on behalf of a land-based casino partner (B2B2C), as a platform provider to a third-party (B2B), or any permutation of the foregoing, RSI’s goal is to be ready to enter jurisdictions that provide for legal online casino wagering and sports wagering where RSI believes conditions enable it to earn a strong return on our invested capital.

Leverage existing customer-level economics to increase marketing spending. Since January 2017, we have generated 6.3 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 targeted basis and where we project acquiring incremental players will generate revenue that exceed our internal targets.

Continue to invest in products and platform. RSI has established a set of competencies that position it at the forefront of the evolving online sports and online casino wagering industry. RSI will continue iterating on its core user experiences while reinforcing the data-driven, marketing and technological infrastructure that allows RSI to continue to scale its offerings. RSI plans to continue to invest in its users and product offerings as RSI remains driven to keep users engaged while expanding the capabilities of the platform that will enable RSI to rapidly reach new geographies and attract new customers.

Continue to invest in personnel. In support of accessing new geographies, RSI plans to grow operational and technology personnel teams to broaden product development capabilities, innovation, and efficiency, reduce reliance on third parties and scale digital user capabilities.

Acquisitions. On a targeted basis, RSI will seek out acquisition targets that enable RSI to accelerate its online technology plans, obtain exclusive content, expand its customer reach and/or add efficiencies that potentially bring third-party costs in-house.

Competition

In the online casino and sports wagering space, RSI’s competitors come from two main groups—established online-first companies and brick-and-mortar casino companies. Established online-first companies in the United States 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. Additionally, RSI expects competition from United States casinos such as Penn National Gaming through its BarStool brand, Golden Nugget Online Gaming, Hard Rock, Caesars Entertainment through its partnership with William Hill, and Churchill Downs Incorporated.

In addition, theScore, Circa Sports and Smarkets have recently entered the United States market.

Intellectual Property

Our business operations rely 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, and trade secrets that we use to develop and provide our product offerings and related services, as well as online wagering content (both proprietary and licensed) and proprietary data acquired from customers’ use of our product offerings and related services.

We own the copyrights in the software code we author. From time to time, we 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 jurisdictions outside the United States.

 

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We rely on common law rights or contractual restrictions to protect certain 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. We assert our rights in our intellectual property as appropriate 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, several of the trademarks and domain names that we use in connection with our business will be assigned to us by RSG and its affiliates, as applicable, and we will grant 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 will preclude 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, 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.

Properties

RSI’s corporate headquarters are located in Chicago, Illinois. RSI uses this leased facility primarily for management, marketing, finance, legal, regulatory compliance, human resources and general administrative teams. RSI also leases office space in New Jersey, Colombia, and Estonia.

Legal Proceedings

A complaint in a case styled Todd L. Anderson. vs. Rush Street Gaming, LLC and Rush Street Interactive, LLC, Case Number # 120CV04794 that was filed in the United States District Court for the Northern District of Illinois was served on RSI on August 18, 2020 and was subsequently amended and served on RSI on September 15, 2020. The complaint alleges that Todd Anderson was offered a 1% equity stake in RSI in 2012 that was never issued and asserts breach of contract, promissory estoppel and unjust enrichment claims to recover damages. RSI filed a motion to dismiss on October 13, 2020. RSI believes it has multiple defenses and grounds for dismissal of the claim and intends to defend itself vigorously.

From time to time, we may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business. Although the results of litigation and claims are inherently unpredictable and uncertain, we are not currently a party to any legal proceedings the outcome of which, if determined adversely to us, are believed to, either individually or taken together, have a material adverse effect on our business, operating results, cash flows or financial condition. Regardless of the outcome, litigation has the potential to have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

 

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Government Regulation

RSI is subject to various United States and foreign laws and regulations that affect our ability to operate in sports betting and iGaming industries. These industries are generally subject to extensive and evolving regulations that could change based on political and social norms and that could be interpreted in ways that could negatively impact our business.

The gaming industry (inclusive of our iGaming and sports betting product 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 and character of the owners, managers and persons with material financial interests in the gaming operations along with the integrity and security of the iGaming and sports betting product offering. 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 gaming consumers 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:

 

   

ensure that unsuitable individuals and organizations have no role in gaming operations;

 

   

establish procedures designed to prevent cheating and fraudulent practices;

 

   

establish and maintain anti-money laundering practices and procedures;

 

   

establish and maintain responsible accounting practices and procedures;

 

   

maintain effective controls over their financial practices, including establishing minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues;

 

   

maintain systems for reliable record keeping;

 

   

file periodic reports with gaming regulators;

 

   

establish programs to promote responsible gaming; and

 

   

enforce minimum age requirements.

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:

 

   

adopt rules and regulations under the implementing statutes;

 

   

interpret and enforce gaming laws and regulations;

 

   

impose fines and penalties for violations;

 

   

review the character and fitness of participants in gaming operations and make determinations regarding their suitability or qualification for licensure;

 

   

grant licenses for participation in gaming operations;

 

   

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

 

   

establish and collect fees and taxes in jurisdictions where applicable.

While we believe that we are in compliance in all material respects with all applicable sports betting and iGaming laws, licenses and regulatory requirements, we cannot assure that our activities or the activities of our users 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 users are located.

Gaming laws require us, and each of our subsidiaries engaged in gaming operations, certain of our directors, officers and employees, and in some cases, certain of our shareholders holding more than 5% 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, 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 regulatory action; (iii) demand that named individuals or shareholders 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 the 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 the 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 users, including social responsibility 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

 

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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 Sportsbook and iGaming licenses, certain of our officers, directors, and employees and in some cases, certain of our shareholders (typically, beneficial owners of more than 5% 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 shareholder 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, the Proposed 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 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.

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

Sportsbook

North America

In North America, we currently operate our online sports betting product via the PlaySugarHouse app in New Jersey and Pennsylvania and the BetRivers app in Colorado, Illinois, Indiana, and Pennsylvania 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 New Jersey Division of Gaming Enforcement, and the Pennsylvania Gaming Control Board. We are pursuing licenses in Iowa, from the Iowa Racing and Gaming Commission, and in Michigan from the Michigan Gaming Control 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 United States 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 Supreme Court opened the potential for state-by-state authorization of sports betting. Several states and territories already have laws authorizing and regulating some form of sports betting online or in brick-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 Factors Relating to the Business and Industry of RSI —Our business will be subject to a variety of United States and foreign laws, many of which are unsettled and still developing and which could subject us to claims or otherwise harm our business. Any change in existing regulations or their interpretation, or the regulatory climate applicable to our products and services, or changes

 

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in tax rules and regulations or interpretation thereof related to our products and services, could adversely impact our ability to operate our business as currently conducted or as we seek to operate in the future, 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 United States 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 Indian lands. Our subsidiaries provide play-for-fun, sports betting and iGaming services to Native American tribes who have negotiated compacts with their respective states and have received federal approval. Currently, RSI is authorized as a vendor to provide iGaming and Internet 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 wagering product via a web-based solution. We also operate six retail shops where customers can use provided terminals to place wagers and make deposits and withdrawals. We operate pursuant to a concession contract with the gaming regulatory agency Coljuegos Empresa Industrial Comercial DelEstado Administradora Del Monopolio Rentistico De Los Juegos De Suerte y Azar Linea Gratuita. We operate pursuant to a concession contract with the gaming regulatory agency Coljuegos Empresa Industrial Comercial DelEstado Administradora Del Monopolio Rentistico De Los Juegos De Suerte y Azar Linea Gratuita.

iGaming

We currently operate our iGaming platform in New Jersey and Pennsylvania, pursuant to licenses granted by the New Jersey Division of Gaming Enforcement and the Pennsylvania Gaming Control Board, and are pursuing a license in Michigan from the Michigan Gaming Control Board.

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 (the “UIGEA”), the Illegal Gambling Business Act and the Travel Act. No violation of the 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.

 

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In addition to our licensing regime for our offerings, we also take significant measures to protect users’ privacy and data. Our programs consist of the following:

Data Protection and Privacy

Because we handle, collect, store, receive, transmit and otherwise process certain personal information of our users and employees, we are also subject to federal, state and foreign laws related to the privacy and protection of such data. Regulations such as the General Data Protection Regulation of the European Union and the California Consumer Privacy Act are new, untested laws 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 sportsbook and iGaming activities. Our compliance and risk 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 employ various methods and tools across our operations such as geolocation blocking, which restricts access based upon the 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 the funds used by our users 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 in order to comply with the requirements of the evolving regulatory regimes, we cannot assure that our compliance program will prevent the violation of one or more laws or regulations, or that a violation by us or an employee will not result in the imposition of a monetary fine or suspension or revocation of one or more of our licenses.

RSI’s platform has been built from the ground up to meet the needs of differing regulatory regimes, including configurable regulatory and responsible gaming controls such as responsible gaming tests, operator alerts on player behavior, deposit limits, betting limits, loss limits, timeout facilities, session limits, reality checks, balance thresholds and intended gaming amounts. These features allow the operators’ customers full control of their gaming to allow them to play responsibly.

Responsible and Safer Gaming

We view the safety and welfare of our users as critical to our business and have made appropriate investments in our processes and systems. We are committed to industry-leading responsible gaming practices and seek to provide our users 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 is able to 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 user list, which prohibits self-identified users from placing bets or participating in real-money gaming and have embedded the software to limit or restrict the amount individual users 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

 

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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 upon NCPG efforts, including the Safer Sports Betting Initiative and Internet Responsible Gambling Standards, which assist gambling operators 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.

 

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RSI’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the sections of this prospectus captioned “Selected Historical Financial Information of RSI” and “Business of RSI” and our consolidated financial statements and the related notes to those statements included elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under the sections of this prospectus captioned “Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary” and “Risk Factors.”

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain financial measures, in particular the presentation of Adjusted EBITDA, which are not presented in accordance with GAAP. These non-GAAP financial measures are being presented because they provide RSI and readers of this prospectus with additional insight into RSI’s operational performance relative to earlier periods and relative to its competitors. These non-GAAP financial measures are not a substitute for any GAAP financial information. Readers of this prospectus should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. Reconciliations of Adjusted EBITDA to Comprehensive Loss, the most comparable GAAP measure, are provided in this prospectus.

When used in this section, the use of first person pronouns, such as “we”, “us” and “our” refer to RSI together with its subsidiaries.

Our Business

RSI is a leading online gaming company that provides customers an array of offerings such as real-money online casino wagering, online and retail sports wagering, and social gaming. RSI launched its first social gaming website in 2015 and began accepting real-money wagers in the United States in 2016. RSI currently operates real-money online casino and online sports wagering in New Jersey and Pennsylvania; currently operates online sports wagering in Indiana, Colorado and Illinois; and currently provides retail sports wagering services in Illinois, Pennsylvania, New York, Indiana and Michigan. In addition, in 2018, RSI became the first United States online gaming operator to launch in Colombia, which was an early adopting Latin American country to legalize and regulate online casino wagering and sports wagering nationally. RSI has market access agreements in two new markets that have legalized online gaming – Michigan, where RSI plans to launch online casino and online sports wagering and Virginia, where RSI plans to launch online sports wagering. RSI also has a market access agreement in New York to launch online sports and online casino wagering when New York authorizes those activities.

Impact of COVID-19

COVID-19 has significantly impacted RSI. The direct impact on RSI’s business, beyond disruptions in normal business operations, is primarily through the change in consumer habits as a result of people being required to stay in their homes or otherwise voluntarily staying in their homes. During the period of these stay-at-home orders, RSI’s business volumes significantly increased, and have continued to remain strong as these orders were lifted. COVID-19 has also had a direct impact on sports wagering 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 unknown. However, land-based casino closures and certain ongoing limitations on visitations due to COVID-19 may provide additional opportunities for RSI to market online casino and sports wagering to traditional land-based casino patrons. The ultimate impact of COVID-19 and the related restrictions on customer behavior is uncertain.

 

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Our Business Model

We leverage our proprietary online gaming platform and our ability to provide a full-suite service model, or a customized solution to fit a specific situation, to enter new markets. Our operating model focuses on being nimble, innovative, and “first to market” in markets where online wagering has been newly legalized. We build relationships with brick-and-mortar casino operators and other potential partners, often in advance of markets legalizing online gaming, who are looking for online gaming and sports wagering partners. We often launch a social site prior to the real-money online gaming launch to grow the database and begin developing brand loyalty. Furthermore, by offering services to support land-based casinos’ retail sportsbook operations, we can deliver additional value to our partners.

We leverage our relationships with brick-and-mortar casino operators to find stable, reliable and quality partners for online gaming collaboration. Upon securing an access partner in a local market (if required or desirable) and before we launch operations in that market, we customize our proprietary online gaming platform to the regulations of the jurisdiction. Upon entering a new market, we employ a number of marketing strategies to obtain new customers as well as leverage the database of casino partners when applicable. In addition, we also refine our product offering and marketing strategies over time based on data gleaned from each market. Our principal offering is the online casino and online sports wagering product. This product can be launched under an existing RSI brand or customized to be incorporated into a local brand. In certain jurisdictions, we have provided a turn-key solution to service land-based casino sportsbook operations.

We offer a loyalty program that rewards consumers in exciting, fair and transparent ways. We are dedicated to reciprocating player loyalty by ensuring there are exciting benefits at each of the ten player-loyalty levels we currently offer. Based on player research, we addressed player concerns about lack of transparency when it comes to awarding, redeeming, and tracking bonuses. We enable players to easily track their loyalty and bonus progressions and give players 100% control over when and how to redeem rewards. Players 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 requirement. Every player accumulates bonus store points on every real-money wager made, regardless of loyalty level. These points unlock bonuses and are used to play our fun proprietary bonus games (free scratch cards, wheel spins, and bingo games) with prizes that guarantee bonus money.

The Business Combination

The Business Combination Agreement provides that, among other things (i) the Sellers will retain the number of RSI Units; (ii) the Sellers (other than the Put-Call Sellers to the extent that the Put-Calls are in effect as of the Closing) will transfer to the Special Limited Partner, a wholly-owned subsidiary of dMY, a number of RSI Units (other than the Put-Call Units to the extent that the Put-Calls are in effect as of the Closing) (not to exceed (a) 12,500,000 RSI Units (in the event that the Put-Calls are not in effect as of the Closing) or (b) 9,923,550 RSI Units (in the event that the Put-Calls are in effect as of the Closing); (iii) dMY will issue to RSI (for immediate further distribution to the Sellers) a number of Class V Voting Stock equal to the number of RSI Units retained by the Sellers, which will entitle its holder to one vote per share but not any right to dividends or distributions; (iv) a wholly-owned subsidiary of dMY will contribute cash to RSI in exchange for RSI Units; (v) RSI GP, a wholly-owned subsidiary of dMY, will acquire 100% of the non-economic partnership interests of RSI; and (vi) if the Closing occurs on or prior to December 20, 2020, the Put-Calls will be effective beginning on December 21, 2020 until December 28, 2020, the Put-Call Sellers will have the right to sell to RSI, and RSI will have the right to purchase from the Put-Call Sellers, the Put-Call Units, on the terms and subject to the conditions set forth in the Business Combination Agreement and the Put-Call Agreements. Following the closing of the Business Combination, dMY will be organized in an Up-C structure, in which substantially all of the assets of the combined company will be held by RSI and its subsidiaries, and dMY’s only direct assets will be its equity interests in RSI (which will be held indirectly through the Special Limited Partner and RSI GP, which will be wholly-owned subsidiaries of the post-Business Combination company). dMY is expected to own, indirectly through the Special Limited Partner, approximately 23.11% of the RSI Units at the Closing and will control RSI

 

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through RSI GP, and the Sellers will own approximately 76.89% of the RSI Units at the Closing and will control dMY through the ownership of the Class V Voting Stock. Under certain circumstances, depending on redemptions by dMY’s current stockholders, dMY may indirectly own approximately 12.41% of the RSI Units following the Closing. Cash proceeds from the transaction will consist of dMY’s $230 million of cash in trust (subject to reduction for any potential redemptions by existing stockholders of dMY) and an additional $160 million PIPE investment at $10.00 per share in the common stock of dMY. Any cash proceeds from the transaction remaining on the combined company’s balance sheet are expected to be used to accelerate RSI’s growth in both domestic and international markets, support marketing efforts and provide additional working capital. Up to (x) $125 million (in the event that the Put-Calls are not in effect as of the Closing) or (y) $99.2 million (in the event that the Put-Calls are in effect as of the Closing) of cash from the $160 million PIPE may be used to redeem equity from existing RSI unitholders in accordance with the terms of the definitive agreement. If the Closing occurs on or prior to December 20, 2020, up to 2,576,450 RSI Units will be subject to the put and call rights set forth in the Business Combination Agreement and the Put-Call Agreements and, if such rights are exercised, up to $25,764,497 of cash from the $160 million PIPE may be used by RSI to purchase the Put-Call Units from the Put-Call Sellers in accordance with the Business Combination Agreement and the Put-Call Agreements. The combined company will also enter into a customary tax receivable arrangement with the current unit holders of RSI, which will provide for the sharing of certain tax benefits as realized by the combined company. Upon closing, dMY intends to change its name to Rush Street Interactive, Inc. and its NYSE trading symbol to “RSI.” See “dMY’s Management’s Discussion and Analysis of Financial Condition and Results of Operations – The Business Combination” for a more comprehensive description of the Business Combination.

Non-GAAP Information

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

RSI defines Adjusted EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization, share-based compensation, adjustments for certain one-time or non-recurring items and other adjustments. We include this non-GAAP financial measure because it is used by management to evaluate RSI’s core operating performance and trends and to make strategic decisions regarding the allocation of capital and new investments. Adjusted EBITDA excludes certain expenses that are required in accordance with U.S. GAAP because non-cash (for example, in the case of depreciation and amortization, share-based compensation) or are not related to our underlying business performance (for example, in the case of interest income, net).

The table below presents our Adjusted EBITDA reconciled from our comprehensive loss, the closest U.S. GAAP measure, for the periods indicated:

 

     Nine Months Ended
September 30,
    Years Ended December 31,  
     2020     2019     2019     2018  
($ in thousands)    (Unaudited)        

Comprehensive loss

   $ (94,759   $ (7,174   $ (30,984   $ (10,867
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization

     1,368       799       1,139       898  

Interest, net

     101       92       123       42  

Deemed dividend on preferred units

     4,288       —         8,544       —    

Share-based compensation

     103,282       —         13,407       —