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FAIR VALUE MEASUREMENTS | 6 Months Ended
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Jun. 30, 2022
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS The Company categorizes financial assets and liabilities based on the following fair value hierarchy: Level 1: Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: Inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly; Level 3: Unobservable inputs in which little or no market data exists requiring an entity to develop its own assumptions. The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
|  |  | June 30, 2022
(in thousands) | Balance Sheet Location |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |
Other current assets | Prepaid expenses and other current assets |  | $ | 25 |  |  | $ | — |  |  | $ | — |
Convertible loans | Prepaid expenses and other current assets |  | 5,205 |  |  | — |  |  | — |
Convertible loans | Other assets |  | — |  |  | — |  |  | 2,486 |
Investments in equity securities | Other assets |  | 2,523 |  |  | — |  |  | — |
Total |  |  | $ | 7,753 |  |  | $ | — |  |  | $ | 2,486 |
Liabilities: |  |  |  |  |  |  |
Sinclair Performance Warrants | Naming rights liabilities |  | $ | — |  |  | $ | — |  |  | $ | 36,153 |
Contingent consideration | Contingent consideration payable |  | — |  |  | — |  |  | 8,701 |
Total |  |  | $ | — |  |  | $ | — |  |  | $ | 44,854 |
|  |  | December 31, 2021
(in thousands) | Balance Sheet Location |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |
Other current assets | Prepaid expenses and other current assets |  | $ | 176 |  |  | $ | — |  |  | $ | — |
Convertible loans | Other assets |  | 5,905 |  |  | — |  |  | 2,025 |
Total |  |  | $ | 6,081 |  |  | $ | — |  |  | $ | 2,025 |
Liabilities: |  |  |  |  |  |  |
Sinclair Performance Warrants | Naming rights liabilities |  | $ | — |  |  | $ | — |  |  | $ | 69,564 |
Contingent consideration | Contingent consideration payable |  | — |  |  | — |  |  | 34,931 |
Total |  |  | $ | — |  |  | $ | — |  |  | $ | 104,495 |
The following table summarizes the changes in fair value of the Company’s Level 3 assets and liabilities:
(in thousands) | Sinclair Performance Warrants |  | Contingent Consideration |  | Convertible Loans |  | Total
Beginning as of December 31, 2021 | $ | 69,564 |  |  | $ | 34,931 |  |  | $ | 2,025 |  |  | $ | 106,520 |
Additions in the period (acquisition fair value) | — |  |  | — |  |  | 667 |  |  | 667 |
Reductions in the period | — |  |  | (15,862) |  |  | — |  |  | (15,862) |
Change in fair value | (33,411) |  |  | (10,368) |  |  | (206) |  |  | (43,985) |
Ending as of June 30, 2022 | $ | 36,153 |  |  | $ | 8,701 |  |  | $ | 2,486 |  |  | $ | 47,340 |
(in thousands) | Sinclair Performance Warrants |  | Contingent Consideration |  |  |  | Total
Beginning as of December 31, 2020 | $ | 88,119 |  |  | $ | — |  |  |  |  | $ | 88,119 |
Additions in the period (acquisition fair value) | — |  |  | 58,623 |  |  |  |  | 58,623 |
Change in fair value | 6,810 |  |  | (11,703) |  |  |  |  | (4,893) |
Ending as of June 30, 2021 | $ | 94,929 |  |  | $ | 46,920 |  |  |  |  | $ | 141,849 |
The gains (losses) recognized in the condensed consolidated statement of operations for derivatives not designated as hedging instruments during the three and six months ended June 30, 2022 and 2021 are as follows:
| Condensed Consolidated Statements of Operations Location |  | Three Months Ended June 30, |  | Six Months Ended June 30,
(in thousands) |  | 2022 |  | 2021 |  | 2022 |  | 2021
Foreign exchange forward contracts | Other, net |  | $ | — |  |  | $ | (14,773) |  |  | $ | — |  |  | $ | (14,773) |
Sinclair Performance Warrants | Change in value of naming rights liabilities |  | $ | 20,032 |  |  | $ | 19,070 |  |  | $ | 33,411 |  |  | $ | (6,810) |
Sinclair Options | Change in value of naming rights liabilities |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (1,526) |
Sinclair Performance Warrants Sinclair Performance Warrants are accounted for as a derivative instrument classified as a liability within Level 3 of the hierarchy as the warrants are not traded in active markets and are subject to certain assumptions and estimates made by management related to the probability of meeting performance milestones. These assumptions and the probability of meeting performance targets may have a significant impact on the value of the warrant. The Performance Warrants are valued using an option pricing model, considering the Company’s estimated probabilities of achieving the performance milestones for each tranche. Inputs to this valuation approach include volatility of 63%, risk free rates between 1.02% and 1.24%, the Company’s common stock price for each period and expected terms between 3.4 and 4.9 years. Sinclair Options As of December 31, 2020, the Options were accounted for as a derivative liability because the Options could have been required to be settled in cash, outside the Company’s control, prior to formal stockholder approval. Upon stockholder approval on January 27, 2021, the Options met the criteria to be classified as equity, at which point, the Options were adjusted to fair value of $59.7 million and were reclassified from “Naming rights liabilities” to “Additional paid-in-capital” in the consolidated balance sheet. The increase in fair value of the Options from $58.2 million as of December 31, 2020, through January 27, 2021 was $1.5 million and resulted in a mark to market loss in the first quarter of 2021, reported within “Change in value of naming rights liabilities” in the consolidated statements of operations. The fair value was based on a Black-Scholes model using Level 2 inputs, including volatility rates, risk free rates, the Company’s common stock price and expected term. Upon stockholder approval on January 27, 2021, the Options met the criteria to be classified as equity. Contingent consideration Contingent consideration related to acquisitions is recorded at fair value as a liability on the acquisition date and is remeasured at each reporting date, based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. In connection with the acquisitions of SportCaller and MKF on February 5, 2021 and March 23, 2021, respectively, the Company recorded contingent consideration at fair value of $58.6 million as of the acquisition dates. After the acquisition dates and until the contingencies are resolved, the fair value of contingent consideration payable is adjusted each reporting period based primarily on the expected probability of achievement of the contingency targets which are subject to management’s estimate and the Company’s stock price. These changes in fair value are recognized within “Other, net” of the condensed consolidated statements of operations. During the first quarter of 2022, the Company settled contingent consideration of $15.9 million comprised of 393,778 immediately exercisable penny warrants to MKF and 107,832 shares of Bally’s Corporation common stock and $0.1 million in cash to SportCaller in satisfaction of contingencies related to the respective acquisition agreements (as described in Note 5 “Acquisitions”). Other current assets The Company has agreements with certain third-party sports betting operators for online sports betting and related iGaming market access. Pursuant to one of these agreements, the Company has a present right to payment for a fixed number of equity securities in exchange for market access. The Company recorded these securities as a stock receivable at their fair value based on quoted prices in active markets and classified within Level 1 of the hierarchy with changes to fair value included within “Other, net” of the condensed consolidated statements of operations. Convertible loans The Company has certain agreements with vendors to provide a portfolio of games to its customers. Pursuant to these agreements, the Company has issued loans to its vendors and has an option to convert the loans to shares of the vendors’ equity, exercisable within a specified time period. The Company recorded the short-term portion of the instruments within “Prepaid expenses and other current assets” and the long-term portion of the instruments within “Other assets” at their fair value. The fair value of the loans to vendors with share prices quoted on active markets are classified within Level 1 of the hierarchy and the fair value of the loans to vendors with share values based on unobservable inputs are classified within Level 3 of the hierarchy. Investments in equity securities The Company has a long term investment in an unconsolidated entity which it accounts for under the equity method of accounting. The Company has elected the fair value option allowed by ASC 825, Financial Instruments, with respect to this investment. Under the fair value option, the investment is remeasured at fair value at each reporting period through earnings. The Company measures fair value using quoted prices in active markets that are classified within Level 1 of the hierarchy, with changes to fair value included within “Other, net” of the condensed consolidated statements of operations. Long-term debt The fair values of the Company’s Term Loan Facility and senior notes are estimated based on quoted prices in active markets and are classified as a Level 1 measurements. The fair value of the Revolving Credit Facility approximates its carrying amount as it is revolving, variable rate debt, and is also classified as a Level 1 measurement. In the table below, the carrying amount of the Company’s long-term debt is net of debt issuance costs and debt discounts. Refer to Note 12 “Long-Term Debt” for further information.
| June 30, 2022 |  | December 31, 2021
(in thousands) | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Term Loan Facility | $ | 1,890,506 |  |  | $ | 1,935,275 |  |  | $ | 1,897,030 |  |  | $ | 1,945,000 |
5.625% Senior Notes due 2029 | 733,443 |  |  | 534,041 |  |  | 732,660 |  |  | 746,250 |
5.875% Senior Notes due 2031 | 732,118 |  |  | 519,693 |  |  | 731,537 |  |  | 754,223 |

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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 -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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