SBTech Must To Set Aside Millions To Cover Cyberattack, DraftKings Deal Delayed

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Diamond Eagle Acquisition Corp. (DEAC) has ordered the creation of a $30 million fund to cover any claims and losses emanating from the unplanned SBTech outage last week.

According to SEC documents filed Wednesday, DEAC added a new indemnity clause to its deal to combine SBTech and DraftKings.

Now, $30 million of the $600 million price being paid to the SBTech owners will be held in escrow for two years. Those funds ($10 million in cash and $20 million in stock) will be used to “cover certain indemnification obligations of the SBTech sellers … relating to a recent cybersecurity incident.”

If $30 million is not enough to cover claims from the cyberattack, then DEAC is entitled to dip into a previously arranged $25 million cash escrow and $45 million in locked-up shares.

And, if even that isn’t enough, the post-combination business can go after the SBTech sellers for more. The SBTech owners, represented by Shalom McKenzie, agreed to the amended terms.

What claims might SBTech face?

SBTech is understood to be negotiating with operator clients about appropriate compensation for the downtime, which lasted approximately six days for global partners.

The company could offer free credits for future use, or even a better revenue-share percentage.

However, if it is unable to reach an agreement with partners, operators could take legal action, hence the new escrowed cash.

How we got here

SBTech-powered operators first went down on March 27 when a ransomware hack hit the provider. Global sites have since been restored, but US clients, including BetAmerica, Golden Nugget and Resorts, are still down.

SBTech said it needs to satisfy US regulatory controls before it can relaunch the sites.

The New Jersey Division of Gaming Enforcement said in a statement last week:

“We will review and confirm that SBTech’s operating systems satisfy all of the division’s performance standards prior to resuming operations.”

While the loss of sports revenue might be minimal thanks to the reduced schedule, customers at BetAmerica will be unable to play the online casino or even access their wallets. The company uses the entire SBTech platform, not just the sportsbook.

Is DraftKings’ deal still on track?

All told, the timing of the outage looks set to cost SBTech’s owners at least seven figures and also delay the DraftKings deal by at least a couple of weeks.

DEAC shareholders were originally meant to vote on the transaction on Thursday.

The vote was pushed back to later this month, presumably to give shareholders a chance to digest the latest changes.