Fair Value Measurements

9 Months Ended

Sep. 30, 2022

Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value and nonrecurring fair value measurements are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value as of September 30, 2022 and December 31, 2021 based on the three-tier fair value hierarchy:


	September 30, 2022
	Level 1			Level 2			Level 3			Total
Assets
Cash equivalents:
Money market funds	$	201,560	(1)	$	—		$	—		$	201,560
Other current assets:
Digital assets held for users	—			47,951		(2)	—			47,951
Other non-current assets:
Derivative instruments	—			—			46,833		(5)	46,833
Equity securities	19,150		(3)	13,533		(4)	—			32,683
Total	$	220,710		$	61,484		$	46,833		$	329,027

Liabilities
Other current liabilities:
Digital assets held for users	$	—		$	47,951	(2)	$	—		$	47,951
Warrant liabilities	—			19,877		(6)	—			19,877
Total	$	—		$	67,828		$	—		$	67,828


	December 31, 2021
	Level 1			Level 2			Level 3			Total
Assets
Cash equivalents:
Money market funds	$	550,169	(1)	$	—		$	—		$	550,169
Other non-current assets:
Derivative instruments	—			—			3,850		(5)	3,850
Equity securities	27,200		(3)	—			—			27,200

Total	$	577,369		$	—		$	3,850		$	581,219

Liabilities
Warrant liabilities	$	—		$	26,911	(6)	$	—		$	26,911
Total	$	—		$	26,911		$	—		$	26,911

(1)Represents the Company’s money market funds, which are classified as Level 1 because the Company measures these assets to fair value using quoted market prices.

(2)Represents the asset and liability balance for the digital assets held by the Company for its users, which are classified as Level 2 because the Company measures these digital assets to fair value using observable inputs for similar transactions.

(3)Represents the Company’s marketable equity securities, which are classified as Level 1 because the Company measures these assets to fair value using quoted market prices.

(4)Represents the Company’s non-marketable equity securities, which are classified as Level 2 because the Company measures these assets to fair value using observable inputs for similar investments of the same issuer. The Company has elected the remeasurement alternative for these assets.

(5)Represents the Company’s derivative instruments held in other public and privately held entities. The Company measures these derivative instruments to fair value using option pricing models and, accordingly, classifies these assets as Level 3. During the nine months ended September 30, 2022, the Company did not purchase or issue a significant amount of new derivative instruments. The table below includes a range and an average weighted by relative fair value of the significant unobservable inputs used to measure these Level 3 derivative instruments to fair value. A change in these significant unobservable inputs might result in a significantly higher or lower fair value measurement at the reporting date.


	September 30, 2022	December 31, 2021
Significant Unobservable Input	Range (Weighted Average)
Underlying stock price	$7.66 - $39.22 ($34.26)	$	10.88
Volatility	65.0% - 75.0% (72.8%)	60.0		%
Risk-free rate	1.3% - 3.8% (1.7%)	0.3		%

(6)The Company measures its Private Warrants and the GNOG Private Warrants to fair value using a binomial lattice model or a Black-Scholes model, where appropriate, with the significant assumptions being observable inputs and, accordingly, classifies these liabilities as Level 2.

During the three months ended September 30, 2022, the Company recorded $0.5 million and $0.2 million of unrealized gains for its Level 1 and Level 3 financial assets, respectively. During the nine months ended September 30, 2022, the Company recorded $8.0 million of unrealized losses and $40.5 million of unrealized gains for its Level 1 and Level 3 financial assets, respectively. Those unrealized gains and losses are included within other income, net in the Company’s condensed consolidated statements of operations. During the three and nine months ended September 30, 2021, no such gains or losses were recorded.

- 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.

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