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Fair Value Measurements | 3 Months Ended
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Mar. 31, 2024
Fair Value Disclosures [Abstract] |
Fair Value Measurements |
15. | FAIR VALUE MEASUREMENTS
The following tables set forth the fair value of the Group’s financial assets , financial liabilities and redeemable non-controlling interests measured at fair value based on the three-tier fair value hierarchy:
|  | As of March 31, 2024 |
($ in millions) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Financial assets measured at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available for sale – Player deposits – investments |  | $ | 143 |  |  | $ | 30 |  |  | $ | — |  |  | $ | 173 |
Equity securities |  |  | — |  |  |  | — |  |  |  | 7 |  |  |  | 7 |
Derivative financial assets |  |  | — |  |  |  | 19 |  |  |  | — |  |  |  | 19 |
Total |  |  | 143 |  |  |  | 49 |  |  |  | 7 |  |  |  | 199 |
Financial liabilities measured at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial liabilities |  |  | — |  |  |  | 155 |  |  |  | — |  |  |  | 155 |
Fox Option Liability |  |  | — |  |  |  | — |  |  |  | 580 |  |  |  | 580 |
Contingent consideration |  |  | — |  |  |  | — |  |  |  | 19 |  |  |  | 19 |
Total |  |  | — |  |  |  | 155 |  |  |  | 599 |  |  |  | 754 |
Redeemable non-controlling interests at fair value |  | $ | — |  |  | $ | — |  |  | $ | (1,304 | ) |  | $ | (1,304 | )
|  | As of December 31, 2023 |
($ in millions) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Financial assets measured at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available for sale – Player deposits – investments |  | $ | 33 |  |  | $ | 139 |  |  | $ | — |  |  | $ | 172 |
Equity securities |  |  | — |  |  |  | — |  |  |  | 9 |  |  |  | 9 |
Total |  |  | 33 |  |  |  | 139 |  |  |  | 9 |  |  |  | 181 |
Financial liabilities measured at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial liabilities |  |  | — |  |  |  | 178 |  |  |  | — |  |  |  | 178 |
Fox Option Liability |  |  | — |  |  |  | — |  |  |  | 400 |  |  |  | 400 |
Contingent consideration |  |  | — |  |  |  | — |  |  |  | 20 |  |  |  | 20 |
Total |  |  | — |  |  |  | 178 |  |  |  | 420 |  |  |  | 598 |
Redeemable non-controlling interests at fair value |  | $ | — |  |  | $ | — |  |  | $ | 1,100 |  |  | $ | 1,100 |
Pokerstars trademark held and used 1 |  | $ | — |  |  | $ | — |  |  | $ | 368 |  |  | $ | 368 |
Total nonrecurring fair value measurement |  | $ | — |  |  | $ | — |  |  | $ | 368 |  |  | $ | 368 |
1 | In accordance with subtopic 360-10, Pokerstars trademark held and used with a carrying amount of $1,093 million was written down to its fair value of $368 million, in the fourth quarter of 2023 resulting in an impairment of $725 million, which was included in sales and marketing expenses. The Group utilized the relief from royalty method under the income approach to estimate the fair value. Assumptions inherent in estimating the fair value included revenue forecast, royalty rate of 5.0%, income tax rate of 12.5%, and discount rate of 12.5%. The Group selected the assumptions used in the financial forecasts of cash flows specific to the remaining useful life of the trademark using historical data, supplemented by current and anticipated market conditions and estimated growth rates. Financial forecasts beyond the period covered by the plans were estimated by extrapolating the forecasts based on the plans using a steady growth in line with the long-term average growth for the countries in which the trademark is used. As the fair value measurements were based on significant inputs not observable in the market, they represented Level 3 measurements within the fair value hierarchy.
There were no transfers between levels of the fair value hierarchy during the three months ended March 31, 2024, and December 31, 2023. Valuation of Level 2 financial instruments Available for sale – Player deposits – investments The Group has determined that the fair value of available for sale – player deposits – investments is determined by using observable quoted prices or observable input parameters derived from comparable bonds/markets. Although the Group has determined that a number of the bonds fall within Level 1 of the fair value hierarchy, there are a class of bonds which have been classified as Level 2 due to the existence of relatively inactive trading markets for those bonds. Derivative financial assets and liabilities – Swap agreements The Group uses derivative financial instruments to manage its interest rate and foreign currency risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis of the expected cash flows of each derivative and incorporates credit valuation adjustments. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, such as yield curves, spot and forward FX rates. As of March 31, 2024, the Group assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions, determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Group determined that its valuations of its derivatives in their entirety are classified in Level 2 of the fair value hierarchy. Valuation of Level 3 financial instruments Equity securities The Group determined the fair value of investments in equity securities that do not have a readily available market value amounting to $7 million at March 31, 2024 (December 31, 2023: $9 million) using the Market Comparable Companies Approach. The EBITDA multiple used to develop the level 3 fair value measured was 6.21 for the three months ended March 31, 2024 (December 31, 2023: 8.08), which was based on the guideline public company method. An increase in the input would result in an increase in the investments in equity securities valuation; a decrease in the input would result in a decrease in the investments in equity securities valuation. The total unrealized loss of $2 million for the three months ended March 31, 2024 (March 31, 2023: $0 million) is recognized with other expense, net in the Condensed Consolidated Statements of Comprehensive (Loss) / Income. Non-derivative financial instruments Fox Option The fair value of the Fox Option amounts t o $580 million at March 31, 2024 and $400 million at December 31, 2023 which was determined using an option pricing model. As of March 31, 2024, and December 31, 2023, the option price was $4.4 billion and $4.3 billion, respectively. The significant unobservable inputs were the enterprise value of FanDuel, the discount for lack of marketability (“DLOM”), the discount for lack of control (“DLOC”), implied volatility and probability of Fox getting licensed. The enterprise value of FanDuel was determined using an equal weight to the value indications of the discounted cash flow analysis and the guideline public company analysis. The discount rate used in the discounted cash flow analysis was 20.5% and 19.0% for the three months ended March 31, 2024 and year ended December 31, 2023, respectively. Additionally, management applied a combined 35% discount for lack of marketability and lack of control as of March 31, 2024, and year ended December 31, 2023. A range of DLOMs obtained using these approaches was 13.2 % to 20.4 % . DLOC was estimated at 18.4% and 18% using implied discounts in previous observable transactions involving FanDuel’s equity ownership and data based on Mergerstat studies for the three months ended March 31, 2024, and the year ended December 31, 2023 respectively. Management selected a discount rate of 35%, which is on the higher end of the third quartile based on the ranges considered by management. The volatility was 36% and 36% for the three months ended March 31, 2024 and year ended December 31, 2023, which was within the range of selected comparable companies. In developing the fair value measurement, the probability of a market participant submitting to and obtaining a license was estimated at 75 % for the three months ended March 31, 2024, and the year ended December 31, 2023. Changes in discount rates, revenue multiples, DLOM, DLOC, implied volatility and probability of Fox getting licensed, each in isolation, may change the fair value of certain of the Fox Option. Generally, an increase in discount rates and DLOM, DLOC or decrease in revenue multiples, implied volatility and probability of Fox getting licensed may result in a decrease in the fair value of the Fox Option. Due to the inherent uncertainty of determining the fair value of the Fox Option, the fair value of the Fox Option may fluctuate from period to period. Additionally, the fair value of the Fox Option may differ significantly from the value that would have been used had a readily available market existed for FanDuel Group LLC. In addition, changes in the market environment and other events that may occur over the life of the Fox Option may cause the losses ultimately realized on the Fox Option to be different than the unrealized losses reflected in the valuations currently assigned. Redeemable non-controlling interests at fair value The terms of symmetrical call and put options agreed between the Group and Boyd require exercise price to be calculated at fair market value without giving effect to DLOM and DLOC. FanDuel’s pre-discount enterprise value determined in the same manner as discussed earlier for March 31, 2024 and December 31, 2023 is considered in measuring the fair value of redeemable non-controlling interests owned by Boyd. Contingent c o nsideration The contingent consideration payable is primarily determined with reference to forecast performance for the acquired businesses during the relevant time periods and the amounts to be paid in such scenarios. The fair value was estimated by assigning probabilities to the potential payout scenarios. The significant unobservable inputs are forecast performance for the acquired businesses. The fair value of contingent consideration is primarily dependent on forecast performance for the acquired businesses in excess of a predetermined base target. An increase and decrease of 10% in the excess over the predetermined base target during the relevant time periods would increase and decrease the value of contingent consideration at March 31, 2024 by $2 million and $2 million, respectively (December 31, 2023: $2 million and $2 million). Movements in the three months period in respect of Level 3 financial instruments carried at fair value The movements in respect of the financial assets and liabilities carried at fair value are as follows:
($ in millions) |  | Contingent consideration |  |  | Equity securities |  |  | Fox Option liability |  |  | Total |  |  | Redeemable non- controlling interest at fair value |
Balance at December 31, 2023 |  | $ | (20 | ) |  | $ | 9 |  |  | $ | (400 | ) |  | $ | (411 | ) |  | $ | (1,100 | )
Total gains or losses for the period: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings |  |  | — |  |  |  | (2 | ) |  |  | (184 | ) |  |  | (186 | ) |  |  | — |
Included in other comprehensive income |  |  | 1 |  |  |  | — |  |  |  | 4 |  |  |  | 5 |  |  |  | — |
Attribution of net loss and other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss attributable to redeemable non-controlling interest |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1 |
Other comprehensive income attributable to redeemable non-controlling interest |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 11 |
Adjustment of redeemable non-controlling interest to redemption at fair value |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (216 | )
Balance at March 31, 2024 |  |  | (19 | ) |  |  | 7 |  |  |  | (580 | ) |  |  | (592 | ) |  |  | (1,304 | )
Change in unrealized gains or losses for the period included in earnings |  |  | — |  |  |  | (2 | ) |  |  | (184 | ) |  |  | (186 | ) |  |  | — |
Change in unrealized gains or losses for the period included in other comprehensive income |  | $ | — |  |  | $ | — |  |  | $ | 4 |  |  | $ | 4 |  |  | $ | — |
($ in millions) |  | Contingent consideration |  |  | Equity securities |  |  | Fox Option liability |  |  | Total |  |  | Redeemable non- controlling interest at fair value |
Balance at December 31, 2022 |  | $ | (22 | ) |  | $ | 11 |  |  | $ | (220 | ) |  | $ | (231 | ) |  | $ | (781 | )
Total gains or losses for the period: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings |  |  | — |  |  |  | — |  |  |  | (64 | ) |  |  | (64 | ) |  |  | — |
Included in other comprehensive income |  |  | 2 |  |  |  | — |  |  |  | (6 | ) |  |  | (4 | ) |  |  | — |
Attribution of net loss and other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss attributable to redeemable non-controlling interest |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 4 |
Other comprehensive income attributable to redeemable non-controlling interest |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (17 | )
Adjustment of redeemable non-controlling interest to redemption at fair value |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (125 | )
Balance at March 31, 2023 |  |  | (20 | ) |  |  | 11 |  |  |  | (290 | ) |  |  | (299 | ) |  |  | (919 | )
Change in unrealized gains or losses for the period included in earnings |  |  | — |  |  |  | — |  |  |  | (64 | ) |  |  | (64 | ) |  |  | — |
Change in unrealized gains or losses for the period included in other comprehensive income |  | $ | — |  |  | $ | — |  |  | $ | (6 | ) |  | $ | (6 | ) |  | $ | — |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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