The recent cyber attack by sports betting technology provider SBTech could end up costing the company millions but will not disrupt DraftKings’ imminent acquisition of the company.
On Wednesday, Diamond Eagle Acquisition Corp (DEAC) listed by Nasdaq filed papers with the U.S. Securities and Exchange Commission (SEC) outlining an update to the previously negotiated business partnership arrangement between the company and sports betting provider DraftKings and the Malta based SBTech.
The deal is essentially a reverse merger that will allow DraftKings to go public by joining DEAC, a ‘special purpose acquisition company’ created by Jeff Sagansky, a former Hollywood exec. The deal will see SBTech replacing Kambi as the provider of betting technology for the expanded DraftKings.
Wednesday’s filing suggests that DEAC expects any legal blowback from last month’s cyber-attack on SBTech’s data centres, which forced off-line customers of the company’s 50-odd global sports betting for several days until operations could be resumed secure.
Although at the time, due to the coronavirus-related cancellations of most sports leagues, the affected sportsbooks did not actually do much business, DEAC made contingencies in case any SBTech clients demand financial compensation for their downtime.
The parties have decided that $10m of the cash consideration expected to be obtained by SBTech and holders of cashed-out SBTech options at the closing of the transaction would then be put in escrow for two years after the closing of the ‘business combination’ if the extended DraftKings is needed to meet any demands for compensation. Additionally, SBTech and its option holders will be subject to a two-year lock-up worth $20 m in Class A shares to be issued.
Should this prove inadequate to satisfy future allegations, the extended DraftKings will be entitled to seek redress against the $25 million cash escrow and $45 million in locked-up stock that may be required in respect of the other reimbursement obligations of SBT.
DEAC was scheduled to hold a shareholder vote on the proposed combination on Thursday, but a separate filing on Wednesday revealed that the meeting will be held again in virtual format at 10:00 a.m., New York City Time, on April , 2020.
Investors not only seemed unconcerned by DEAC’s announcements but also positively giddy. The company’s stock closed up 15 percent on Wednesday and added another 3 percent in after-hour trading.