Item
1A. Risk Factors.
On
April 1, 2020, fuboTV Inc. (formerly known as FaceBank Group, Inc.) acquired fuboTV Media Inc. (formerly known as fuboTV Inc.),
which we refer to as the “Merger.” Unless the context otherwise requires, “we,” “us,” “our,”
and the “Company” refers to the combined company post-Merger – fuboTV Inc., or fuboTV, and its subsidiaries,
including fuboTV Sub. “FaceBank Pre-Merger” refers to FaceBank Group, Inc. prior to the Merger, and “fuboTV
Pre-Merger” refers to fuboTV Media Inc.(“fuboTV Sub”) and its subsidiaries prior to the Merger.
You
should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual
Report on Form 10-K, including our consolidated financial statements and related notes and the section titled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” Our business, financial condition, results of
operations, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not
believe are material. If any of the risks actually occur, our business, financial condition, results of operations, and prospects
could be adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all
of your investment.
Risk
Factors Summary
Material
risks that may affect our business, operating results and financial condition include, but are not limited to, the following:
|
●
|
Our
actual operating results may differ significantly from our guidance.
|
|
●
|
We
may require additional capital to meet our financial obligations and support planned
business growth, and this capital might not be available on acceptable terms or at all.
|
|
●
|
We
have incurred operating losses in the past, expect to incur operating losses in the future
and may never achieve or maintain profitability.
|
|
●
|
Our
revenue and gross profit are subject to seasonality, and if subscriber behavior during
certain seasons falls below our expectations, our business may be harmed.
|
|
●
|
Our
operating results may fluctuate, which makes our results difficult to predict.
|
|
●
|
If
our efforts to attract and retain subscribers are not successful, our business will be
adversely affected. Our agreements with distribution partners contain parity obligations
which limit our ability to pursue unique partnerships.
|
|
●
|
If
content providers refuse to license streaming content or other rights upon terms acceptable
to us, our business could be adversely affected.
|
|
●
|
Our
content providers impose a number of restrictions on how we distribute and market our
products and services, which can adversely affect our business.
|
|
●
|
We
rely upon Google Cloud Platform and Amazon Web Services to operate certain aspects of
our service, and any disruption of or interference with our use of Google Cloud Platform
and/or Amazon Web Services would impact our operations and our business would be adversely
impacted.
|
|
●
|
If
we fail to comply with the reporting obligations of the Exchange Act, our business, financial
condition, and results of operations, and investors’ confidence in us, could be
materially and adversely affected.
|
|
●
|
Our
key metrics and other estimates are subject to inherent challenges in measurement, and
real or perceived inaccuracies in those metrics may seriously harm and negatively affect
our reputation and our business.
|
|
●
|
TV
streaming is highly competitive and many companies, including large technology and entertainment
companies, TV brands, and service operators, are actively focusing on this industry.
If we fail to differentiate ourselves and compete successfully with these companies,
it will be difficult for us to attract or retain subscribers and our business will be
harmed.
|
|
●
|
The
gaming industry is heavily regulated and our failure to obtain or maintain applicable
licensure or approvals, or otherwise comply with applicable requirements, could be disruptive
to our business and could adversely affect our operations.
|
|
●
|
Our
products and services related to sports betting will cause our business to become subject
to a variety of related U.S. and foreign laws, many of which are unsettled and still
developing, and which could subject us to claims or otherwise harm our business.
The violation of any such laws, any adverse change in any such laws or their interpretation,
or the regulatory climate applicable to these contemplated products and services, or
changes in tax rules and regulations or interpretation thereof related to these contemplated
products and services, could adversely impact our ability to operate our business as
we seek to operate in the future, and could have a material adverse effect on our financial
condition and results of operations.
|
|
●
|
Our
anticipated participation in the sports betting industry may expose us to risks to which
we have not previously been exposed, including risks related to trading, liability management,
pricing risk, payment processing, palpable errors, and reliance on third-party sports
data providers for real-time and accurate data for sporting events, among others. We
may experience lower than expected profitability and potentially significant losses as
a result of a failure to determine accurately the odds in relation to any particular
event and/or any failure of its sports risk management processes.
|
|
●
|
If
the technology we use in operating our business fails, is unavailable, or does not operate
to expectations, our business and results of operation could be adversely impacted.
|
|
●
|
Our
shareholders will be subject to extensive governmental oversight, and if a shareholder
is found unsuitable by a gaming authority, that shareholder may not be able to beneficially
own, directly or indirectly, certain of our securities.
|
|
●
|
If
government regulations relating to the Internet or other areas of our business change,
we may need to alter the manner in which we conduct our business and we may incur greater
operating expenses.
|
|
●
|
We
are subject to a number of legal requirements and other obligations regarding privacy,
security, and data protection, and any actual or perceived failure to comply with these
requirements or obligations could have an adverse effect on our reputation, business,
financial condition and operating results. Any significant interruptions, delays or discontinuations
in service or disruptions in or unauthorized access to our computer systems or those
of third parties that we utilize in our operations, including those relating to cybersecurity
or arising from cyber-attacks, could result in a loss or degradation of service, unauthorized
disclosure of data, including subscriber and corporate information, or theft of intellectual
property, including digital content assets, which could adversely impact our business.
|
|
●
|
We
are subject to taxation-related risks in multiple jurisdictions.
|
|
●
|
We
could be subject to claims or have liability based on defects with respect to certain
historical corporate transactions that were not properly authorized or documented.
|
|
●
|
Legal
proceedings could cause us to incur unforeseen expenses and could occupy a significant
amount of our management’s time and attention.
|
|
●
|
The
impact of worldwide economic conditions may adversely affect our business, operating
results, and financial condition.
|
Risks
Related to Our Financial Position and Capital Needs
We
have incurred operating losses in the past, expect to incur operating losses in the future and may never achieve or maintain profitability.
We
have incurred losses since inception. Our net loss for the year ended December 31, 2020 was $599.4 million. If our revenue and
gross profit do not grow at a greater rate than our operating expenses, we will not be able to achieve and maintain profitability.
A number of our operating expenses, including expenses related to streaming content obligations, are fixed. If we are not able
to either reduce these fixed obligations or other expenses or maintain or grow our revenue, our near-term operating losses may
increase. Additionally, we may encounter unforeseen operating or legal expenses, difficulties, complications, delays and other
factors that may result in losses in future periods. If our expenses exceed our revenue, we may never achieve or maintain profitability
and our business may be harmed.
We
may require additional capital to meet our financial obligations and support planned business growth, and this capital might not
be available on acceptable terms or at all.
We
intend to continue to make significant investments to support planned business growth and may require additional funds to respond
to business challenges, including the need to enhance our platform, improve our operating infrastructure or acquire complementary
businesses, personnel and technologies. Accordingly, we may need to secure additional funds. If we raise additional funds through
future issuances of equity or convertible debt securities, our then existing shareholders could suffer significant dilution, and
any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.
Any debt financing we secure could involve restrictive covenants relating to our capital raising activities and other financial
and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities,
including potential acquisitions. If we were to violate the restrictive covenants, we could incur penalties, increased expenses
and an acceleration of the payment terms of our outstanding debt, which could in turn harm our business.
We
may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing
or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond
to business challenges could be significantly impaired, and our business may be harmed.
Our
revenue and gross profit are subject to seasonality, and if subscriber behavior during certain seasons falls below our expectations,
our business may be harmed.
Seasonal
variations in subscriber and marketing behavior significantly affect our business. We have previously experienced, and expect
to continue to experience, effects of seasonal trends in subscriber behavior due to the seasonal nature of sports. Additionally,
increased Internet usage and sales of streaming service subscriptions during the fourth quarter of each calendar year affect our
business. We also may experience higher advertising sales during the fourth quarter of each calendar year due to greater advertiser
demand during the holiday season, but also incur greater marketing expenses as we attempt to attract new subscribers to our platform.
In addition, expenditures by advertisers tend to be cyclical and are often discretionary in nature, reflecting overall economic
conditions, the economic prospects of specific advertisers or industries, budgeting constraints and buying patterns, and a variety
of other factors, many of which are outside our control.
Given
the seasonal nature of our subscriptions, accurate forecasting is critical to our operations. We anticipate that this seasonal
impact on revenue and gross profit is likely to continue, and any shortfall in expected revenue, due to macroeconomic conditions,
a decline in the effectiveness of our promotional activities, actions by our competitors, or for any other reason, would cause
our results of operations to suffer significantly. A substantial portion of our expenses are personnel-related and include salaries,
stock-based compensation and benefits that are not seasonal in nature. Accordingly, in the event of a revenue shortfall, we would
be unable to mitigate the negative impact on margins, at least in the short term, and our business would be harmed.
We
might not be able to utilize a significant portion of our net operating loss carryforwards.
As
of December 31, 2019, fuboTV Pre-Merger had federal net operating loss carryforwards of approximately $375.8 million, a
portion of which will, if not used, expire at various dates. Under legislation enacted in 2017, informally titled the Tax Cuts
and Jobs Act, as modified by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, federal net operating
losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating
losses in tax years beginning after December 31, 2020 is limited. Other limitations may apply for state tax purposes.
In
addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), and corresponding provisions
of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change,
by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating
loss carryforwards to offset its post-change income may be limited. We have experienced ownership changes in the past, and therefore
a portion of our net operating loss carryforwards are subject to an annual limitation under Section 382 of the Code. In addition,
we may experience ownership changes in the future as a result of subsequent changes in our stock ownership, including as a result
of conversions of the 2026 Notes, some of which may be outside of our control. A past or future ownership change that materially
limits our ability to use our historical net operating loss and tax credit carryforwards may harm our future operating results
by effectively increasing our future tax obligations.
Our
financial condition and results of operations could be adversely affected if we do not effectively manage our current or future
debt.
As
of December 31, 2020, we had $29.2 million of outstanding indebtedness on a consolidated basis which included approximately $20.0
million of indebtedness to AMC Networks Ventures LLC, which is secured by a lien on substantially all of the assets of fuboTV
Sub; $4.7 million principal outstanding under the Payment Protection Program Loan (the “PPP Loan”) with JPMorgan Chase
Bank, N.A., and other notes outstanding with an aggregate principal of approximately $4.5 million. In the first quarter of 2021,
the PPP Loan was paid off in full.
Our
outstanding indebtedness, which could adversely affect our ability to take advantage of corporate opportunities and could adversely
affect our business, financial condition, and results of operations. For example:
|
●
|
our
ability to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements,
or other purposes may be limited, or financing may be unavailable;
|
|
●
|
a
substantial portion of our cash flows must be dedicated to the payment of principal and interest on our indebtedness and other
obligations and will not be available for use in our business;
|
|
●
|
lack
of liquidity could limit our flexibility in planning for, or reacting to, changes in our business and the markets in which
we operate;
|
|
|
|
|
●
|
our
debt obligations will make us more vulnerable to changes in general economic conditions and/or a downturn in our business,
thereby making it more difficult for us to satisfy our obligations; and
|
|
|
|
|
●
|
if
we fail to make required debt payments or to comply with other covenants in our debt agreements, we would be in default under
the terms of these agreements, which could permit our creditors to accelerate repayment of the debt and could cause cross-defaults
under other debt agreements.
|
If
we incur any additional debt, the related risks that we and our subsidiaries face could intensify.
Finally,
we may be in non-compliance with the terms of certain of our other debt instruments. To the extent we are in non-compliance with
the terms of such debt instruments, we may be required to make payments to the holders of such instruments, those holders may
be entitled to the issuance of stock by us, and the holders of such stock may be entitled to registration or other investor rights.
Servicing
our indebtedness will require a significant amount of cash, and we may not have sufficient cash flow from our business to pay
our substantial indebtedness.
Our
ability to make scheduled payments of the principal and interest when due, or to refinance our borrowings under our debt agreements,
will depend on our future performance and our ability to raise further equity financing, which is subject to economic, financial,
competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future
sufficient to both (i) satisfy our existing and future obligations to our creditors and (ii) allow us to make necessary capital
expenditures. If we are unable to generate such cash flow or raise further equity financing, we may be required to adopt one or
more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining
additional equity capital on terms that may be onerous or highly dilutive. We may need or desire to refinance our existing indebtedness,
and there can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms, if at
all. Our ability to refinance the term loans or existing or future indebtedness will depend on the capital markets and our financial
condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms,
which could result in a default on our current or future debt agreements.
Our
operating results may fluctuate, which makes our results difficult to predict.
Our
revenue and operating results could vary significantly from quarter-to-quarter and year-to-year because of a variety of factors,
many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be
meaningful. In addition to other risk factors discussed herein, factors that may contribute to the variability of our quarterly
and annual results include:
|
●
|
our
ability to retain our current subscriber base and increase our number of subscribers;
|
|
|
|
|
●
|
our
ability to enter into new content deals or negotiate renewals with our content providers on terms that are favorable to us,
or at all;
|
|
|
|
|
●
|
our
ability to effectively manage our growth;
|
|
|
|
|
●
|
our
ability to attract and retain existing advertisers;
|
|
|
|
|
●
|
the
effects of increased competition in our business;
|
|
|
|
|
●
|
our
ability to keep pace with changes in technology and our competitors;
|
|
|
|
|
●
|
interruptions
in service, whether or not we are responsible for such interruptions, and any related impact on our reputation;
|
|
|
|
|
●
|
our
ability to pursue and appropriately time our entry into new geographic or content markets and, if pursued, our management
of this expansion;
|
|
|
|
|
●
|
costs
associated with defending any litigation, including intellectual property infringement litigation;
|
|
|
|
|
●
|
the
impact of general economic conditions on our revenue and expenses; and
|
|
|
|
|
●
|
changes
in regulations affecting our business.
|
This
variability makes it difficult to forecast our future results with precision and to assess accurately whether increases or decreases
are likely to cause quarterly or annual results to exceed or fall short of previously issued guidance. While we assess our quarterly
and annual guidance and update such guidance when we think it is appropriate, unanticipated future volatility can cause actual
results to vary significantly from our guidance, even where that guidance reflects a range of possible results.
Risks
Related to Our Relationships with Content Providers, Customers and Other Third Parties
The
long-term nature of certain of our content commitments may limit our operating flexibility and could adversely affect our liquidity
and results of operations.
In
connection with licensing streaming content, we typically enter into multi-year agreements with content providers. These agreements
have sometimes required us to pay minimum license fees for content that are not tied to subscriber usage or the size of our subscriber
base. Given the multiple-year duration and sometimes fixed cost nature of content commitments, if subscriber acquisition and retention
do not meet our expectations, our margins may be adversely impacted, and we may not be in a position to make the minimum guarantee
payments required under certain content licenses. We have already failed to make minimum guarantee payments to certain key programmers
and may not be in a position to make similar payments in the future. If we do not make these payments, then we may lose access
to such content, which in turn may further depress subscriber acquisition or retention, cause other programmers to exercise termination
rights due to the content mix available through our service, or impact our ability to obtain content from other programmers. Payment
terms for certain content commitments, such as content we directly produce, will typically require more up-front cash payments
than other content licenses or arrangements whereby we do not fund the production of such content.
To
the extent subscriber and/or revenue growth do not meet our expectations, our liquidity and results of operations could be adversely
affected as a result of content commitments and payment requirements of certain agreements. In addition, the long-term and fixed
cost nature of certain of our commitments may limit our flexibility in planning for, or reacting to changes in our business and
the market segments in which we operate. If we license and/or produce content that is not favorably received by consumers in a
territory, or is unable to be shown in a territory, acquisition and retention may be adversely impacted and given the long-term
and fixed cost nature of certain of our content commitments, we may not be able to adjust our content offering quickly and our
results of operations may be adversely impacted.
If
we fail to obtain or maintain popular content, we may fail to retain existing subscribers and attract new subscribers.
We
have invested a significant amount of time to cultivate relationships with our content providers; however, such relationships
may not continue to grow or yield further financial results. We must continuously maintain existing relationships and identify
and establish new relationships with content providers to provide popular content. In order to remain competitive, we must consistently
meet user demand for popular streaming channels and content. If we are not successful in maintaining channels on our platform
that attract and retain a significant number of subscribers, or if we are not able to do so in a cost-effective manner, our business
will be harmed.
If
our efforts to attract and retain subscribers are not successful, our business will be adversely affected.
We
have experienced significant subscriber growth over the past several years. Our ability to continue to attract subscribers will
depend in part on our ability to consistently provide our subscribers with compelling content choices and effectively market our
platform. Furthermore, the relative service levels, content offerings, pricing and related features of our competitors may adversely
impact our ability to attract and retain subscribers. In addition, many of our subscribers re-join our platform or originate from
word-of-mouth referrals from existing subscribers. If our efforts to satisfy our existing subscribers are not successful, we may
not be able to attract subscribers, and as a result, our ability to maintain and/or grow our business will be adversely affected.
If consumers perceive a reduction in the value of our platform because, for example, we introduce new or adjust existing features,
adjust pricing or platform offerings, or change the mix of content in a manner that is not favorably received by them, we may
not be able to attract and retain subscribers. Subscribers cancel their subscription for many reasons, including due to a perception
that they do not use the platform sufficiently, the need to cut household expenses, availability of content is unsatisfactory,
competitive services provide a better value or experience and customer service issues are not satisfactorily resolved. We must
continually add new subscriptions both to replace cancelled subscriptions and to grow our business beyond our current subscription
base. While we permit multiple subscribers within the same household to share a single account for non-commercial purposes, if
account sharing is abused, our ability to add new subscribers may be hindered and our results of operations may be adversely impacted.
If we do not grow as expected, given, in particular, that our content costs are largely fixed in nature and contracted over several
years, we may not be able to adjust our expenditures or increase our (per subscriber) revenues commensurate with the lowered growth
rate such that our margins, liquidity and results of operations may be adversely impacted. If we are unable to successfully compete
with current and new competitors in both retaining our existing subscribers and attracting new subscribers, our business will
be adversely affected. Further, if excessive numbers of subscribers cancel our service, we may be required to incur significantly
higher marketing expenditures than we currently anticipate replacing these subscribers with new subscribers.
Our
agreements with distribution partners contain parity obligations which limit our ability to pursue unique partnerships.
Our
agreements with certain distribution partners contain obligations which require us to offer them the same technical features,
content, pricing and packages that we make available to our other distribution partners and also require us to provide parity
in the marketing of the availability of our application across our distribution partners. These parity obligations may limit our
ability to pursue technological innovation or partnerships with individual distribution partners and may limit our capacity to
negotiate favorable transactions with different partners or otherwise provide improved products and services. As our technical
feature developments progress at varying speeds and at different times with different distribution partners, we currently offer
some enhanced technical features on distribution platforms that we do not make available on other distribution platforms, which
limits the quality and uniformity of our offering to all consumers across our distribution platforms. In addition, delays in technical
developments across our distribution partners puts us at risk of breaching our parity obligations with such distribution platforms,
which threatens the certainty of our agreements with distribution partners.
If
we are unable to maintain an adequate supply of ad inventory on our platform, our business may be harmed.
We
may fail to attract content providers that generate sufficient ad content hours on our platform and continue to grow our video
ad inventory. Our business model depends on our ability to grow video ad inventory on our platform and sell it to advertisers.
We grow ad inventory by adding and retaining content providers on our platform with ad-supported channels that we can monetize.
If we are unable to grow and maintain a sufficient supply of quality video advertising inventory at reasonable costs to keep up
with demand, our business may be harmed.
We
operate in a highly competitive industry and we compete for advertising revenue with other Internet streaming platforms and services,
as well as traditional media, such as radio, broadcast, cable and satellite TV and satellite and Internet radio. We may not be
successful in maintaining or improving our fill-rates or cost per thousand (“CPMs”).
Our
competitors offer content and other advertising mediums that may be more attractive to advertisers than our TV streaming platform.
These competitors are often very large and have more advertising experience and financial resources than we do, which may adversely
affect our ability to compete for advertisers and may result in lower revenue and gross profit from advertising. If we are unable
to increase our advertising revenue by, among other things, continuing to improve our platform’s data capabilities to further
optimize and measure advertisers’ campaigns, increase our advertising inventory and expand our advertising sales team and
programmatic capabilities, our business and our growth prospects may be harmed. We may not be able to compete effectively or adapt
to any such changes or trends, which would harm our ability to grow our advertising revenue and harm our business.
If
content providers refuse to license streaming content or other rights upon terms acceptable to us, our business could be adversely
affected.
Our
ability to provide our subscribers with content they can watch depends on content providers and other rights holders licensing
rights, including distribution rights, to such content and certain related elements thereof, such as the public performance of
music contained within the content we distribute. The license periods and the terms and conditions of such licenses vary, and
we may be operating outside the terms of some of our current licenses. As content providers develop their own streaming services,
they may be unwilling to provide us with access to certain content, including popular series or movies. If the content providers
and other rights holders are not or are no longer willing or able to license us content upon terms acceptable to us, our ability
to stream content to our subscribers may be adversely affected and/or our costs could increase. Because of these provisions as
well as other actions we may take, content available through our service can be withdrawn on short notice. As competition increases,
we see the cost of certain programming increase.
Further,
if we do not maintain a compelling mix of content, our subscriber acquisition and retention may be adversely affected.
Our
content providers impose a number of restrictions on how we distribute and market our products and services, which can adversely
affect our business.
A
number of our major content partners impose significant restrictions on how we can distribute and market our products and services.
For example, our content partners may prevent us from partnering with third party distributors and manufacturers to exploit new
market opportunities or prevent us from bundling or reselling our products with third party products and services, or otherwise
restrict how we might brand or market our products and services. Our content partners also impose restrictions on the content
and composition of the packages we can make available to our customers and restrictions on how we might make some or all of our
content available to customers (such as on a standalone basis, length of free trials or access modified or shorter form content).
These restrictions may prevent us from responding dynamically to changing customer expectations or market demands or exploiting
lucrative partnership opportunities. Content providers may also restrict the advertising that may be made available in connection
with their content, including restrictions on the content and timing of such advertising, and restrictions on how advertising
may be sold (such as a limit to sale on an aggregated, non-content specific basis only), which limits our opportunity to exploit
potentially lucrative revenue streams.
Content
providers may also only provide their content on a service that includes a minimum number of channels from other providers, or
require that we only provide their content in specific service tiers that include a specific mix of programming. Certain provisions
in these agreements could become a challenge to comply with if we were to lose rights under agreements with key programmers.
In
addition, our content partners generally impose requirements on us to treat them at least as favorably as other major providers
in various ways, such as equal treatment with respect to content recommendations, displays on user interfaces, the marketing and
promotion of content and streaming quality standards. This may materially restrict the functionality and performance of our technology,
particularly our proprietary recommendation engine. This may also prevent us from offering commercial benefits to certain content
providers, limiting our capacity to negotiate favorable transactions and overall limiting our ability to provide improved products
and services.
Our
agreements with content providers are complex, with various rights restrictions and favorability obligations which impose onerous
compliance obligations.
The
content rights granted to us are complex and multi-layered and differ substantially across different content and content providers.
We may be able to make certain content available on a video-on-demand basis or on certain devices but may be restricted from doing
the same with other content, sometimes even with the same content provider. We are often not able to make certain content available
at certain times or in certain geographical regions. In addition, our obligations to provide equality in the treatment between
certain content providers require us to continuously monitor and assess treatment of content providers and content across our
products and services.
These
complex restrictions and requirements impose a significant compliance burden which is costly and challenging to maintain. A failure
to maintain these obligations places us at risk of breaching our agreements with content providers, which could lead to loss of
content and damages claims, which would have a negative impact on our products and service and our financial position.
If
our efforts to build a strong brand and to maintain customer satisfaction and loyalty are not successful, we may not be able to
attract or retain subscribers, and our business may be harmed.
Building
and maintaining a strong brand is important to our ability to attract and retain subscribers, as potential subscribers have a
number of TV streaming choices. Successfully building a brand is a time-consuming and comprehensive endeavor and can be positively
and negatively impacted by any number of factors. Some of these factors, such as the quality or pricing of our platform or our
customer service, are within our control. Other factors, such as the quality of the content that our content publishers provide,
may be out of our control, yet subscribers may nonetheless attribute those factors to us. Our competitors may be able to achieve
and maintain brand awareness and market share more quickly and effectively than we can. Many of our competitors are larger companies
and promote their brands through traditional forms of advertising, such as print media and TV commercials, and have substantial
resources to devote to such efforts. Our competitors may also have greater resources to utilize Internet advertising or website
product placement more effectively than we can. If we are unable to execute on building a strong brand, it may be difficult to
differentiate our business and platform from our competitors in the marketplace; therefore, our ability to attract and retain
subscribers may be adversely affected and our business may be harmed.
We
rely upon a number of partners to make our service available on their devices.
We
currently offer subscribers the ability to receive streaming content through a host of Internet-connected screens, including TVs,
digital video players, television set-top boxes and mobile devices. Some of our agreements with key distribution partners give
distribution partners the ability to terminate their carriage of our service at any time. If we are not successful in maintaining
existing and creating new relationships, or if we encounter technological, content licensing, regulatory, business or other impediments
to delivering our streaming content to our subscribers via these devices, our ability to retain subscribers and grow our business
could be adversely impacted.
Our
business could be adversely affected if a number of our partners do not continue to provide access to our service or are unwilling
to do so on terms acceptable to us, which terms may include the degree of accessibility and prominence of our service. Furthermore,
devices are manufactured and sold by entities other than fuboTV, and while these entities should be responsible for the devices’
performance, the connection between these devices and fuboTV may nonetheless result in consumer dissatisfaction toward fuboTV
and such dissatisfaction could result in claims against us or otherwise adversely impact our business. In addition, technology
changes to our streaming functionality may require that partners update their devices, or may lead us to stop supporting the delivery
of our service on certain legacy devices. If partners do not update or otherwise modify their devices, or if we discontinue support
for certain devices, our service and our subscribers’ use and enjoyment could be negatively impacted.
We
rely upon Google Cloud Platform and Amazon Web Services to operate certain aspects of our service, and any disruption of or interference
with our use of Google Cloud Platform and/or Amazon Web Services would impact our operations and our business would be adversely
impacted.
Each
of Google Cloud Platform, or GCP, and Amazon Web Services, or AWS, provides a distributed computing infrastructure platform for
business operations, or what is commonly referred to as a “cloud” computing service. We have architected our software
and computer systems so as to utilize data processing, storage capabilities and other services provided by both GCP and AWS. Currently,
we run the vast majority of our computing on GCP with some key components running on AWS. Given this, along with the fact that
we cannot easily switch what is specifically running now on GCP and/or AWS to another cloud provider, any disruption of or interference
with our use of GCP and/or AWS would impact our operations, and our business would be adversely impacted. While Google (through
YouTube TV) and, to a lesser extent, Amazon (through Amazon Prime) compete with us, we do not believe that Google or Amazon will
use GCP or AWS in such a manner as to gain competitive advantage against our service, although if either Google or Amazon were
to do so, it could harm our business.
Risks
Related to Our Financial Reporting and Disclosure
We
identified material weaknesses in our internal control over financial reporting in 2019 and while we have taken steps in 2020
to address the internal control deficiencies that contributed to the material weaknesses, a material weakness in our internal
control over financial reporting still exists as it relates to non-routine transactions. We may identify material weaknesses in
the future or otherwise fail to maintain an effective system of internal controls, which could lead investors to lose confidence
in the accuracy and completeness of our financial reports.
As
a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses
in such internal control. Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and determine the effectiveness
of our internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by
our management in our internal control over financial reporting. Our independent registered public accounting firm will not be
required to attest to the effectiveness of our internal control over financial reporting until our first annual report required
to be filed with the SEC following the later of the date we are deemed to be an “accelerated filer” or a “large
accelerated filer,” each as defined in the Exchange Act. A material weakness is a deficiency, or a combination of deficiencies,
in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual
or interim financial statements will not be prevented or detected on a timely basis.
During
2020, we identified the following material weaknesses in our internal control over financial reporting:
|
●
|
We
did not have appropriately designed internal controls in place at the time the Merger
was consummated on April 1, 2020 with respect to the accounting for the business combination
and the allocation of consideration to the acquired assets and assumed liabilities, including
deferred income taxes; and
|
|
●
|
Our
internal controls over the review of accounting considerations for non-routine transactions
and events were not appropriately designed with respect to the timing and consistency
of performance.
|
During
2020, we began taking steps to address the internal control deficiencies that contributed to the material weaknesses, including
the following:
|
●
|
Transitioned
responsibility over the accounting function to the finance personnel of fuboTV Pre-Merger,
including individuals with prior experience working for finance departments of public
companies;
|
|
●
|
Hired
additional experienced finance and accounting personnel with technical accounting experience,
supplemented by third-party resources;
|
|
●
|
Documented
and formally assess our accounting and financial reporting policies and procedures, and
implemented segregation of duties in key functions;
|
|
●
|
Assessed
significant accounting transactions and other technical accounting and financial reporting
issues, prepared accounting memoranda addressing these issues and maintained these memoranda
in our corporate records timely;
|
|
●
|
Improved
the compilation processes, documentation, and monitoring of our critical accounting estimates;
and
|
|
●
|
Implemented
processes for creating an effective and timely close process.
|
|
●
|
Engaged
a third-party provider to perform internal audit services, including assessing and improving
our internal controls for compliance with the Sarbanes-Oxley Act.
|
We,
with the oversight from the Audit Committee of the Board of Directors, continue to implement the remediation plans for the aforementioned
material weaknesses in internal control over financial reporting as follows:
|
●
|
We
will continue to hire additional accounting personnel with appropriate GAAP technical
accounting expertise, as necessary.
|
|
●
|
We
are designing additional controls around identification, documentation, and application
of technical accounting guidance with particular emphasis on complex and non-routine
transactions. These controls are expected to include the implementation of additional
supervision and review activities by qualified personnel, and the adoption of additional
policies and procedures related to accounting and financial reporting.
|
|
●
|
We
are implementing specific procedures in the review of tax accounting, designed to enhance
our income tax controls.
|
|
●
|
We
will continue to work with the third-party provider to strengthen our internal controls
for compliance with the Sarbanes-Oxley Act.
|
While
we believe that these efforts will improve our internal control over financial reporting, the implementation of these measures
is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained
period of financial reporting cycles. We cannot assure you that the measures we have taken to date, and are continuing to implement,
will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses. If the
steps we take do not correct the material weaknesses in a timely manner, we will be unable to conclude that we maintain effective
internal controls over financial reporting. Accordingly, there could continue to be a reasonable possibility that these deficiencies
or others could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our financial
statements that would not be prevented or detected on a timely basis.
The
process of designing and implementing internal control over financial reporting required to comply with Section 404 of the Sarbanes-Oxley
Act is time consuming, costly, and complicated. If during the evaluation and testing process we identify one or more other material
weaknesses in our internal control over financial reporting or determine that existing material weaknesses have not been remediated,
our management will be unable to assert that our internal control over financial reporting is effective. Even if our management
concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may
conclude that there are material weaknesses with respect to our internal controls or the level at which our internal controls
are documented, designed, implemented, or reviewed. If we are unable to assert that our internal control over financial reporting
is effective, or when required in the future, if our independent registered public accounting firm is unable to express an opinion
as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness
of our financial reports, the market price of our common stock could be adversely affected and we could become subject to litigation
or investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could
require additional financial and management resources.
Our
actual operating results may differ significantly from our guidance.
From
time to time, we may release guidance regarding our future performance. Such guidance is based upon a number of assumptions and
estimates that, although presented with numerical specificity, are inherently subject to business, economic and competitive uncertainties
and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business
decisions, some of which will change. The principal reason that we release this data is to provide a basis for our management
to discuss our business outlook with analysts and investors. We do not accept any responsibility for any projections or reports
published by any third parties.
Guidance
is necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the guidance furnished
by us will not materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what
management believes is realizable as of the date of this prospectus. Any failure to successfully implement our operating strategy
or the occurrence of any of the risks or uncertainties set forth in this prospectus could result in actual results being different
than the guidance, and such differences may be adverse and material. In light of the foregoing, investors are urged to put the
guidance in context and not to place undue reliance on it.
If
we fail to comply with the reporting obligations of the Exchange Act, our business, financial condition, and results of operations,
and investors’ confidence in us, could be materially and adversely affected.
As
a public company, we are required to comply with the periodic reporting obligations of the Exchange Act, including preparing annual
reports, quarterly reports, and current reports. In the past, we have failed to prepare and disclose this information in a timely
manner. Our failure to prepare and disclose this information in a timely manner and meet our reporting obligations in their entirety
could subject us to penalties under federal securities laws and regulations of the exchange we are listed on, expose us to lawsuits,
and restrict our ability to access financing on favorable terms, or at all.
Prior
to the Merger, fuboTV Pre-Merger was not a public company and FaceBank Pre-Merger had limited resources. Our management has faced
significant challenges in consolidating the functions of fuboTV Pre-Merger and FaceBank Pre-Merger and their subsidiaries, including
integrating their technologies, organizations, procedures, policies and operations. In connection with the Merger, we have been
working to integrate certain operations of fuboTV Pre-Merger and FaceBank Pre-Merger, including, among other things, back-office
operations, information technology and regulatory compliance.
We
expect to experience significant growth in the number of our employees and the scope of our operations. Prior to such expansion,
as a result of previously maintaining a limited staff, we may later determine that certain related party transactions were not
properly identified, reviewed and approved prior to us entering into them with such related parties.
As
we seek to increase staffing levels to manage our anticipated future growth, we must continue to implement and improve our managerial,
operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due
to our limited financial resources and our limited experience in managing such anticipated growth, we may not be able to effectively
manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may
lead to significant costs and may divert or stretch our management and business development resources in a way that we may not
anticipate. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
Additionally,
for certain of our recent Exchange Act filings, we have relied on an order (the “Order”) issued by the SEC pursuant
to Section 36 of the Exchange Act (Release No. 34-88465), permitting filing extensions to certain public companies based on the
COVID-19 pandemic. We relied upon this permissible extension in good faith after analyzing, among other things, the fact that
our books and records were not easily accessible, which resulted in delays in preparation and completion of our financial statements,
and that the various governmental mandatory closures of businesses have precluded our personnel, particularly our senior accounting
staff, from obtaining access to our subsidiaries’ books and records necessary to prepare our financial statements. Following
this analysis, we believe that we satisfied all eligibility criteria to take advantage of these extensions. If it is later determined
that we were ineligible to rely upon the Order for such extensions, our filings could be deemed to be late, which could have a
material adverse effect on our ability to raise capital, which could have a material adverse effect on our business, results of
operations, and financial condition.
We
will need to improve our operational and financial systems to support our expected growth, increasingly complex business arrangements,
and rules governing revenue and expense recognition, and any inability to do so could adversely affect our billing services and
financial reporting.
We
have increasingly complex business arrangements with our content publishers and licensees, and the rules that govern revenue and
expense recognition in our business are increasingly complex. To manage the expected growth of our operations and increasing complexity,
we will need to improve our operational and financial systems, procedures and controls and continue to increase systems automation
to reduce reliance on manual operations. Any inability to do so will negatively affect our billing services and financial reporting.
Our current and planned systems, procedures and controls may not be adequate to support our complex arrangements and the rules
governing revenue and expense recognition for our future operations and expected growth. Delays or problems associated with any
improvement or expansion of our operational and financial systems and controls could adversely affect our relationships with our
subscribers, content publishers or licensees; cause harm to our reputation and brand; and could also result in errors in our financial
and other reporting.
Our
key metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those
metrics may seriously harm and negatively affect our reputation and our business.
We
regularly review key metrics related to the operation of our business, including, but not limited to Content Hours, Monthly Active
Users (“MAU”), Monthly Content Hours Watched per MAU, ARPU, and number of subscribers, to evaluate growth trends,
measure our performance, and make strategic decisions. These metrics are calculated using internal company data and have not been validated
by an independent third party. While these numbers are based on what we believe to be reasonable estimates of our subscriber base for
the applicable period of measurement, there are inherent challenges in measuring how our platform is used across large populations.
Errors
or inaccuracies in our metrics or data could result in incorrect business decisions and inefficiencies. For instance, if a significant
understatement or overstatement of MAUs were to occur, we may expend resources to implement unnecessary business measures or fail
to take required actions to attract a sufficient number of subscribers to satisfy our growth strategies.
In
addition, advertisers generally rely on third-party measurement services to calculate our metrics, and these third-party measurement
services may not reflect our true audience. If advertisers, partners, or investors do not perceive our subscriber, geographic,
or other demographic metrics to be accurate representations of our subscriber base, or if we discover material inaccuracies in
our subscriber, geographic, or other demographic metrics, our reputation may be seriously harmed, and our business and operating
results could be materially and adversely affected.
Preparing
and forecasting our financial results requires us to make judgments and estimates which may differ materially from actual results,
and if our operating and financial performance does not meet the guidance that we provide to the public, the market price of our
common stock may decline.
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported
periods. We base such estimates on historical experience and on various other assumptions that we believe to be reasonable under
the circumstances, but actual results may differ from these estimates. Using such estimates has the potential to negatively impact
the results we report which could negatively impact our stock price.
In
addition, we may, but are not obligated to, provide public guidance on our expected operating and financial results for future
periods. Any such guidance will be comprised of forward-looking statements subject to the risks and uncertainties described in
this prospectus and in our other public filings and public statements. Our actual results may not always be in line with or exceed
any guidance we have provided, especially in times of economic uncertainty. If, in the future, our operating or financial results
for a particular period do not meet any guidance we provide or the expectations of investment analysts, or if we reduce our guidance
for future periods, the market price of our common stock may decline.
Risks
Related to Our Products and Technologies
TV
streaming is highly competitive and many companies, including large technology and entertainment companies, TV brands, and service
operators, are actively focusing on this industry. If we fail to differentiate ourselves and compete successfully with these companies,
it will be difficult for us to attract or retain subscribers and our business will be harmed.
TV
streaming is increasingly competitive and global. Our success depends in part on attracting and retaining subscribers on, and
effective monetization of, our platform. To attract and retain subscribers, we need to be able to respond efficiently to changes
in consumer tastes and preferences and continue to increase the type and number of content offerings. Effective monetization requires
us to continue to update the features and functionality of our streaming platform for subscribers and advertisers.
Companies
such as AT&T, Comcast, Cablevision, Cox and Altice, along with vMVPDs, such as YouTube TV, Hulu Live and Sling TV offer TV
streaming products that compete with our platform. In many cases, these competitors have the financial resources to subsidize
the cost of their streaming devices in order to promote their other products and services making it harder for us to acquire new
subscribers and increase hours streamed. Similarly, some service operators, such as Comcast and Cablevision, offer TV streaming
applications as part of their cable service plans and can leverage their existing consumer bases, installation networks, broadband
delivery networks and name recognition to gain traction in the TV streaming market. Some of these companies also promote their
brands through traditional forms of advertising, such as TV commercials, as well as Internet advertising or website product placement,
and have greater resources than us to devote to such efforts.
In
addition, many TV brands, such as LG, Samsung Electronics Co., Ltd. and VIZIO, Inc., offer their own TV streaming solutions within
their TVs. Other devices, such as Microsoft’s Xbox and Sony’s PlayStation game consoles and many DVD and Blu-ray players,
also incorporate TV streaming functionality.
We
expect competition in TV streaming from the large technology companies and service operators described above, as well as new and
growing companies, to increase in the future. This increased competition could result in pricing pressure, lower revenue and gross
profit or the failure of our platform to gain or maintain broad market acceptance. To remain competitive, we need to continuously
invest in product development and marketing. We may not have sufficient resources to continue to make the investments needed to
maintain our competitive position. In addition, many of our competitors have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial, technical, sales, marketing and other resources than us, which provide
them with advantages in developing, marketing or servicing new products and offerings. As a result, they may be able to respond
more quickly to market demand, devote greater resources to the development, promotion and sales of their products or the distribution
of their content, and influence market acceptance of their products better than we can. These competitors may also be able to
adapt more quickly to new or emerging technologies or standards and may be able to deliver products and services at a lower cost.
New entrants may enter the TV streaming market with unique service offerings or approaches to providing video. In addition, our
competitors may enter into business combinations or alliances that strengthen their competitive positions. Increased competition
could reduce our market share, revenue and operating margins, increase our operating costs, harm our competitive position and
otherwise harm our business.
If
the advertisements on our platform are not relevant or not engaging to our subscribers, our growth in active accounts and hours
streamed may be adversely impacted.
We
have made, and are continuing to make, investments to enable advertisers to deliver relevant advertising content to subscribers
on our platform. Existing and prospective advertisers may not be successful in serving ads that lead to and maintain user engagement.
Those ads may seem irrelevant, repetitive or overly targeted and intrusive. We are continuously seeking to balance the objectives
of our subscribers and advertisers with our desire to provide an optimal user experience, but we may not be successful in achieving
a balance that continues to attract and retain subscribers and advertisers. If we do not introduce relevant advertisements or
such advertisements are overly intrusive and impede the use of our TV streaming platform, our subscribers may stop using our platform
which will harm our business.
We
may not be successful at expanding our content to areas outside our current content offering and even if we are able to expand
into other content areas and sustain such expansion, we may not be successful in overcoming our reputation as primarily a live
sports streaming service.
We
currently have a reputation as primarily a live sports streaming service. We are making efforts to expand our content offerings
outside live sports streaming, and currently offer a wide selection of news and entertainment content. However, we may not be
successful at expanding our content to areas outside our current content offering, or maintaining content from our current content
offering, and even if we are able to expand into other content areas and sustain such expansion, we may not be successful in overcoming
our reputation as primarily a live sports streaming service.
If
TV streaming develops more slowly than we expect, our operating results and growth prospects could be harmed. In addition, our
future growth depends in part on the growth of TV streaming advertising.
TV
streaming is a relatively new and rapidly evolving industry, making our business and prospects difficult to evaluate. The growth
and profitability of this industry and the level of demand and market acceptance for our platform are subject to a high degree
of uncertainty.
We
believe that the continued growth of streaming as an entertainment alternative will depend on the availability and growth of cost-effective
broadband Internet service, the quality of broadband content delivery, the quality and reliability of new devices and technology,
the cost for subscribers relative to other sources of content, as well as the quality and breadth of content that is delivered
across streaming platforms. These technologies, products and content offerings continue to emerge and evolve. Subscribers, content
publishers or advertisers may find TV streaming platforms to be less attractive than traditional TV, which would harm our business.
In addition, many advertisers continue to devote a substantial portion of their advertising budgets to traditional advertising,
such as TV, radio and print. The future growth of our business depends in part on the growth of TV streaming advertising, and
on advertisers increasing spend on such advertising. We cannot be certain that they will do so. If advertisers do not perceive
meaningful benefits of TV streaming advertising, then this market may develop more slowly than we expect, which could adversely
impact our operating results and our ability to grow our business.
Changes
in competitive offerings for entertainment video, including the potential rapid adoption of piracy-based video offerings, could
adversely impact our business.
The
market for entertainment video is intensely competitive and subject to rapid change. Through new and existing distribution channels,
consumers have increasing options to access entertainment video. The various economic models underlying these channels include
subscription, transactional, ad-supported, and piracy-based models. All of these have the potential to capture meaningful segments
of the entertainment video market. Piracy in particular, threatens to damage our business, as its fundamental proposition to consumers
is so compelling and difficult to compete against: virtually all content for free. Furthermore, in light of the compelling consumer
proposition, piracy services are subject to rapid global growth. Traditional providers of entertainment video, including broadcasters
and cable network operators, as well as Internet based e-commerce or entertainment video providers are increasing their streaming
video offerings.
Several
of these competitors have long operating histories, large customer bases, strong brand recognition, exclusive rights to certain
content and significant financial, marketing and other resources. They may secure better terms from suppliers, adopt more aggressive
pricing and devote more resources to product development, technology, infrastructure, content acquisitions and marketing. New
entrants may enter the market or existing providers may adjust their services with unique offerings or approaches to providing
entertainment video. Companies also may enter into business combinations or alliances that strengthen their competitive positions.
If we are unable to successfully compete with current and new competitors, our business will be adversely affected, and we may
not be able to increase or maintain market share or revenues.
Our
products and services related to sports betting will cause our business to become subject to a variety of related U.S. and foreign
laws, many of which are unsettled and still developing and which could subject us to claims or otherwise harm our business. The
violation of any such laws, any adverse change in any such laws or their interpretation, or the regulatory climate applicable
to these contemplated products and services, or changes in tax rules and regulations or interpretation thereof related to these
contemplated products and services, could adversely impact our ability to operate our business as we seek to operate in the future,
and could have a material adverse effect on our financial condition and results of operations.
The
intended expansion of our business into sports betting will generally subject to laws and regulations of the jurisdictions in
which we will conduct our business or in some circumstances, of those jurisdictions in which our services are offered or are available,
as well as the general laws and regulations that apply to all e-commerce businesses, such as those related to privacy and personal
information, tax and consumer protection. These laws and regulations vary from one jurisdiction to another and future legislative
and regulatory action, court decisions or other governmental action, which may be affected by, among other things, political pressures,
attitudes and climates, as well as personal biases, may (along with existing laws and regulations) have a material adverse impact
on our operations and financial results, or may prevent us from expanding into such businesses entirely. In particular, some jurisdictions
have introduced regulations attempting to restrict or prohibit online gaming, while others have taken the position that online
gaming should be licensed and regulated and have adopted or are in the process of considering legislation and regulations to enable
that to happen. There is also risk that the federal government of the U.S. will enact new legislation relating to gaming, online
gaming or sports wagering, or alter its interpretation of existing federal law as related to gaming, online gaming or sports wagering,
which would have the effect of the limiting, delaying or halting the expansion of online gaming or sports wagering throughout
the U.S.
Our
growth prospects may also depend on the legal status of real-money gaming in various jurisdictions, predominantly within the U.S.,
which is an initial area of focus, and legalization may not occur in as many states as we expect or may occur at a slower pace
than we anticipate. Additionally, even if jurisdictions legalize real money gaming, this may be accompanied by legislative or
regulatory restrictions and/or taxes that make it impracticable or less attractive to operate in those jurisdictions, or the process
of implementing regulations or securing the necessary licenses to operate in a particular jurisdiction may take longer than we
anticipate, which could adversely affect our future results of operations and make it more difficult to meet our expectations
for financial performance.
In
connection with the foregoing, future legislative and regulatory action, and court decisions or other governmental action, may
have a material adverse impact on our operations and financial results. Governmental authorities could view us as having violated
applicable laws, despite efforts to obtain all applicable licenses or approvals and otherwise comply with such laws. There is
also a risk that civil and criminal proceedings, including class actions brought by or on behalf of prosecutors or public entities
or incumbent monopoly providers, or private individuals, could be initiated against us, Internet service providers, credit card
and other payment processors, advertisers and others involved in the sports betting industry who partner with, service or work
with or for us. Such potential proceedings could involve substantial litigation expense, penalties, fines, seizure of assets,
injunctions or other restrictions being imposed upon us or our licensees or other business partners, while diverting the attention
of key executives. Such proceedings could have a material adverse effect on our business, financial condition, results of operations,
and prospects, as well as impact our reputation.
Furthermore,
there can be no assurance that legally enforceable legislation will not be proposed and passed in jurisdictions relevant or potentially
relevant to our business to prohibit, legislate or regulate various aspects of the sports betting industry (or that existing laws
in those jurisdictions will not be interpreted negatively). Compliance with any such legislation may have a material adverse effect
on our business, financial condition and results of operations, either as a result of our determination not to offer products
or services in a jurisdiction or to cease doing so, or because a local license or approval may be costly for us or our business
partners to obtain and/or such licenses or approvals may contain other commercially undesirable conditions.
Our
anticipated participation in the sports betting industry may expose us to risks to which we have not previously been exposed,
including risks related to trading, liability management, pricing risk, payment processing, palpable errors, and reliance on third-party
sports data providers for real-time and accurate data for sporting events, among others. We may experience lower than expected
profitability and potentially significant losses as a result of a failure to determine accurately the odds in relation to any
particular event and/or any failure of its sports risk management processes.
Participation
in the sports, sports betting industry will expose our business to new risks that we have limited experience in handling. The
nature and extent of such risks may be difficult to anticipate at this time, and therefore we may be relatively unprepared to
manage these risks or may obtain inadequate insurance to cover potential claims resulting from these risks.
Examples
of these risks include:
|
●
|
There
can be significant variation in gross win percentage event-by-event and day-by-day, and odds compilers and risk managers are
capable of human error; thus even allowing for the fact that a number of betting products are subject to capped pay-outs,
significant volatility can occur. In addition, it is possible that there may be such a high volume of trading during any particular
period that even automated systems would be unable to address and eradicate all risks.
|
|
●
|
In
some cases, the odds offered on a website constitute an obvious error, such as inverted lines between teams, or odds that
are significantly different from the true odds of the outcome in a way that all reasonable persons would agree is an error.
It is commonplace virtually worldwide for operators to void bets associated with such palpable errors, and in most mature
jurisdictions these bets can be voided without regulatory approval at operator discretion, but in the U.S., it is unclear
long term if state regulators will consistently approve voids or re-setting odds to correct odds on such bets, and in some
cases, we may require regulatory approval to void palpable errors ahead of time. If regulators were to not allow voiding of
bets associated with large obvious errors in odds making, we could be subject to covering significant liabilities.
|
|
|
|
|
●
|
We
may need to rely on other third-party sports data providers for real-time and accurate data for sporting events, and if such
third parties do not perform adequately or terminate their relationships with us, our costs may increase and our business,
financial condition and results of operations could be adversely affected.
|
|
|
|
|
●
|
Our
ability to offer products and services related to sports wagering will be dependent on the occurrence of a wide-variety of
professional, collegiate and amateur sporting events upon which wagers may be offered, subject to the laws and regulations
of the jurisdictions in which we operate. The cancellation or postponement of such sporting events due to pandemic, government
action or labor dispute could consequently limit our ability to offer our sports wagering products or services.
|
Any
of the foregoing risks, or other risks we fail to anticipate as we expand our business into the sports betting industry, could
expose us to significant liability or have a material adverse effect on our business, financial condition and results of operations.
Our
future sports betting business depends on our ability to gain market access in states as such states legalize sports wagering
activities, the inability to gain such market access could have negative impacts on our future growth.
The
prevailing trend in the U.S. is for states to require sports wagering to be conducted by or through an existing licensed casino
or racetrack. In such states where mobile or internet-based sports wagering is legal, each casino or racetrack often is permitted
to offer sports wagering through a limited number of branded websites, known as skins. The number of skins each casino or racetrack
is permitted to offer varies by state and is dictated by law, regulation, or policy. Casinos and racetracks have, accordingly,
begun to enter into agreements to allow third-party sports wagering operators to operate skins through the casino’s or racetrack’s
license. Further, certain of these agreements provide for a sports wagering operator to obtain “second skin” or “third
skin” access, meaning that another operator has the right to operate the first, and potentially the second, skin of a casino,
to the extent permitted by law. Consequently, if a state does not permit casinos or racetracks to have more than one skin (or
more than two skins as the case may be), an operator’s right to utilize a second (or third skin as the case may be) is rendered
meaningless in such state. We may enter into agreements allowing us market access via the right to operate specific skins. Certain
of these agreements may contemplate us receiving second or third skins. Accordingly, should states not permit our future casino
or racetrack partners to offer sports wagering through an adequate number of skins, we would not have access to such markets (unless
we enter into additional agreements for market access). Our inability to gain access to offer mobile and internet sports wagering
in states as such states legalize sports wagering could have a material adverse effect on our business.
Our
business depends on the ongoing support of payment processors, the quality and cost of which may be variable in certain jurisdictions.
Our
sports wagering business will depend on payment processing providers to facilitate the movement of funds between our sportsbook
and our customer base. Anything that could interfere with or otherwise harm the relationships with payment service providers could
have a material adverse effect on our businesses. Our ability to accept payments from our customers or facilitate withdrawals
by them may be restricted by any introduction of legislation or regulations restricting financial transactions with online or
mobile sports wagering operators or prohibiting the use of credit cards and other banking instruments for online or mobile sports
wagering transactions, or by any other increase in the stringency of regulation of financial transactions, whether in general
or in relation to the gambling industry in particular.
Stricter
money laundering regulations may also affect the quickness and accessibility of payment processing systems, resulting in added
inconvenience to customers. Card issuers and acquirers may dictate how transactions and products need to be coded and treated
which could also make an impact on acceptance rates. Card issuers, acquirers, payment processors and banks may also cease to process
transactions relating to the online or mobile sports wagering industry as a whole or as to certain operators. This would be due
to reputational and/or regulatory reasons or in light of increased compliance standards of such third parties that seek to limit
their business relationships with certain industry sectors considered as “high risk” sectors. It may also result in
customers being dissuaded from accessing our product offerings if they cannot use a preferred payment option or the quality or
the speed of the supply is not suitable or accessible. Any such developments may have a material and adverse effect on our future
financial position.
Our
sports betting business may experience significant losses with respect to individual events or betting outcomes.
Our
sports betting fixed-odds betting products will involve betting where winnings are paid on the basis of the stake placed and the
odds quoted. Odds are determined with the objective of providing an average return to the bookmaker over a large number of events
and therefore, over the long term. In contrast, there can be significant variation in gross win percentage event-by-event and
day-by-day. We will have systems and controls seeking to reduce the risk of daily losses occurring on a gross-win basis, but there
can be no assurance that these will be effective in reducing their exposure, and consequently, our exposure to this potential
risk in the future. As a result, in the short term, there is less certainty of generating a positive gross win, and we may experience
significant losses with regard to individual events or betting outcomes, specifically if large, individual bets are placed on
an event or betting outcome or series of events or betting outcomes. Odds compilers and risk managers are capable of human error,
thus even noting that a number of betting products are subject to capped pay-outs, significant volatility can occur. Furthermore,
there may be such a volume of trading during any particular period that even automated systems would be unable to address and
eradicate all risks. Any significant losses on a gross-win basis could have a material adverse effect on our business and its
cash flows. This can result in a material adverse effect on its business, financial condition, and results of operations.
Our
betting operations can fluctuate due to seasonal trends and other factors. Our operations (and thus their financial performance)
are also dependent on the seasonal variations dictated by various sports calendars, which will have an effect on our financial
performance of such operations.
Although
we will implement systems and controls to monitor and manage such risk stated above, there can be no assurance that these systems
and controls will be effective in reducing the exposure to this risk. The effect of future fluctuations and single event losses
could have a material adverse effect on our cash flows. This would create material adverse effect on our business, results of
operations, financial condition and prospects.
The
online and mobile sports wagering industries are intensely competitive and our potential inability to compete successfully could
have a significant adverse impact.
There
is heightened competition among online and mobile sports wagering providers. The online and mobile sports wagering industries
are shaped by increasing consumer demand and technological advances in the industry. These advances create greater and stronger
competition for us. A number of established, well-financed companies producing online and mobile sports wagering products and
services compete with our proposed product and service offerings. These competitors may spend more money and time on developing
and testing products and services, undertake more extensive marketing campaigns, adopt more aggressive pricing or promotional
policies, or otherwise develop more commercially successful products or services than us, which could negatively impact our business.
We
must continually introduce and successfully market new and innovative technologies, product offerings and product enhancements
to remain competitive and effectively procure customer demand, acceptance, and engagement as a result of the intense industry
competition, along with other factors. The process of developing new product offerings and systems is unclear and complex, and
new product offerings may not be well received by customers. Although we intend to continue investing in research and development,
there can be no assurance that such investments will lead to successful new technologies or timely new product offerings or enhanced
existing product offerings with product life cycles long enough to be successful. We may not recover the often substantial up-front
costs of developing and marketing new technologies and product offerings, or recover the opportunity cost of diverting management
and financial resources away from other technologies and product offerings.
If
the technology we use in operating our business fails, is unavailable, or does not operate to expectations, our business and results
of operation could be adversely impacted.
We
utilize a combination of proprietary and third-party technology to operate our business. This includes the technology that we
have developed to recommend and merchandise content to our consumers as well as enable fast and efficient delivery of content
to our subscribers and their various consumer electronic devices. For example, as part of the content delivery systems, we use
third-party CDNs. To the extent Internet Service Providers (“ISPs”) do not interconnect with our CDN or charge us
to access their networks, or if we experience difficulties in our CDN’s operation, our ability to efficiently and effectively
deliver our streaming content to our subscribers could be adversely impacted and our business and results of operation could be
adversely affected.
Likewise,
our system for predicting subscriber content preferences is based on advanced data analytics systems and our proprietary algorithms.
We have invested, and will continue to invest, significant resources in refining these technologies; however, we cannot assure
you that such investments will yield an attractive return or that such refinements will be effective. The effectiveness of our
ability to predict subscriber content preferences depends in part on our ability to gather and effectively analyze large amounts
of subscriber data. Our ability to predict content that our subscribers enjoy is critical to the perceived value of our platform
among subscribers and failure to make accurate predictions could materially adversely affect our ability to adequately attract
and retain subscribers and sell advertising to meet investor expectations for growth or to generate revenue. We also utilize third-party
technology to help market our service, process payments, and otherwise manage the daily operations of our business. If our technology
or that of third-parties we utilize in our operations fails or otherwise operates improperly, including as a result of “bugs”
in our development and deployment of software, our ability to operate our service, retain existing subscribers and add new subscribers
may be impaired. Any harm to our subscribers’ personal computers or other devices caused by software used in our operations
could have an adverse effect on our business, results of operations and financial condition.
Risks
Related to Regulation
The
gaming industry is heavily regulated and our failure to obtain or maintain applicable licensure or approvals, or otherwise comply
with applicable requirements, could be disruptive to our business and could adversely affect our operations.
We
and our officers, directors, major shareholders, key employees, and business partners will generally be subject to the laws and
regulations relating to sports wagering of the jurisdictions in which we will conduct such business.
The
jurisdictions where we will operate have, or will have, their own regulatory framework, more often than not these frameworks will
require us to receive a license. Each jurisdiction will normally require us to make detailed and extensive disclosures as to their
beneficial ownership, their source of funds, the suitability and integrity of certain persons associated with the applicant, the
applicant’s management competence, structure, and business plans, the applicant’s proposed geographical territories
of operation, and the applicant’s ability to operate a gaming business in a socially responsible manner in compliance with
regulation. Such jurisdictions will also impose ongoing reporting and disclosure obligations, both on a periodic and ad hoc basis
in response to material issues affecting the business.
Our
gaming-related technology will also be subject to testing and certification, generally designed to confirm matters such as the
fairness of the gaming products offered by the business, their ability to accurately generate settlement instructions, and recover
from outages.
Any
gaming license may be revoked, suspended, or conditioned at any time. The loss of a gaming license in one jurisdiction, or failure
to comply with regulatory requirements in a particular jurisdiction, could prompt the loss of a gaming license or affect our eligibility
for such a license in another jurisdiction, could impact our ability to comply with licensing and regulatory requirements in other
jurisdictions, or could cause the rejection of license applications or cancelation of existing licenses in other jurisdictions,
or could cause payment processors or other third parties to stop providing services to us which we may rely upon to deliver or
promote our services. These potential losses could cause us to cease offering some or all of its product offerings in the impacted
jurisdictions. We may be unable to obtain or maintain all necessary registrations, licenses, permits or approvals, and could incur
fines or experience delays related to the licensing process, which could adversely affect its operations. The process of determining
suitability may be expensive and time-consuming. Our delay or failure to obtain gaming licenses in any jurisdiction may prevent
us from offering its products in such jurisdiction, increasing our customer base and/or generating revenues. A gaming regulatory
body may refuse to issue or renew a gaming license if we, or one of its directors, officers, employees, major shareholders or
business partners: (i) is considered to be a detriment to the integrity or lawful conduct or management of gaming, (ii) no longer
meets a licensing or registration requirement, (iii) has breached or is in breach of a condition of licensure or registration
or an operational agreement with a regulatory authority, (iv) has made a material misrepresentation, omission or misstatement
in an application for licensure or registration or in reply to an inquiry by a person conducting an audit, investigation or inspection
for a gaming regulatory authority, (v) has been refused a similar gaming license in another jurisdiction, (vi) has held a similar
gaming license in that state or another jurisdiction which has been suspended, revoked or cancelled, or (vii) has been convicted
of an offence, inside or outside of the U.S. that calls into question the honesty or integrity of us or any of our directors,
officers, employees or associates.
Furthermore,
our product offerings must be approved in most regulated jurisdictions in which they are offered; this process cannot be assured
or guaranteed. It is a prolonged, potentially costly process to obtain these approvals. A developer and provider of online or
mobile sports wagering products may pursue corporate regulatory approval with regulators of a particular jurisdiction while it
pursues technical regulatory approval for its product offerings by that same jurisdiction. It is also possible that after incurring
significant expenses and dedicating substantial time and effort towards such regulatory approvals, we may not obtain either of
them. In the event we fail to obtain the necessary gaming license in a given jurisdiction, we would likely be prohibited from
operating in that particular jurisdiction altogether. If we fail to seek, do not receive, or receive a suspension or revocation
of a license in a particular jurisdiction for our product offerings (including any related technology and software), then we cannot
operate in that jurisdiction and our gaming licenses in other jurisdictions may be impacted. We may not be able to obtain all
necessary gaming licenses in a timely manner, or at all. These delays in regulatory approvals or failure to obtain such approvals
may also serve as a barrier to entry to the market for our product offerings. Our operations and future prospects will be affected
if we are unable to overcome these barriers to entry.
To
the extent new sports wagering jurisdictions are established or expanded, we cannot guarantee we will be successful in penetrating
such new jurisdictions or expanding our business or customer base in line with the growth of existing jurisdictions. As we directly
or indirectly enter into new markets, we may encounter legal, regulatory, and political challenges that are difficult or impossible
to foresee and which could result in an unforeseen adverse impact on planned revenues or costs associated with the new market
opportunity. In the event we are unable to effectively develop and operate directly or indirectly within these new markets or
if our competitors are able to successfully penetrate geographic markets that we cannot access or where we face other restrictions,
then our business, operating results, and financial condition could be impaired. Our failure to obtain or maintain the necessary
regulatory approvals in jurisdictions, whether individually or collectively, would have a material adverse effect on our business.
We may need to be licensed, obtain approvals of our products and/or seek licensure of our officers, directors, major shareholders,
key employees or business partners to expand into new jurisdictions. This is a costly and time-consuming process. Any delays in
obtaining or difficulty in maintaining regulatory approvals needed for expansion within existing markets or into new jurisdictions
can negatively affect our opportunities for growth. This includes the growth of our customer base, or delay in our ability to
recognize revenue from our product offerings in any such jurisdictions.
Future
legislative and regulatory action, and court decisions or other governmental action, may have a material impact on our operations
and financial results. There can be no assurance that legally enforceable and prohibiting legislation will not be proposed and
passed in jurisdictions relevant or potentially relevant to our business to prohibit, legislate, or regulate various aspects of
the Internet, e-commerce, payment processing, or the online and mobile wagering and interactive entertainment industries (or that
existing laws in those jurisdictions will not be interpreted negatively). Moreover, legislation may require us to pay certain
fees in order to operate a sports wagering-related business. Such fees include integrity fees paid to sports leagues and/or fees
required to obtain official sports-wagering related data. Compliance with any such legislation may have a material adverse effect
on our business, financial condition and results of operations. We will strive to comply with all applicable laws and regulations
relating to our business, However, it is possible that any requirements may be interpreted and applied in a manner that is inconsistent
from one jurisdiction to another and may conflict with other rules. Non-compliance with any such law or regulations could expose
us to claims, proceedings, litigation and investigations by private parties and regulatory authorities, as well as substantial
fines and negative publicity, each of which may have a material adverse effect on our business, financial condition, and results
of operations.
We
will be subject to regulatory investigations, which could cause us to incur substantial costs or require us to change our business
practices in a materially adverse manner.
We
expect to receive formal and informal inquiries from government authorities and regulators from time to time, including securities
authorities, tax authorities and gaming regulators, regarding its compliance with laws and other matters. We expect to continue
to be the subject of investigations and audits in the future as we continue to grow and expand our operations. Violation of existing
or future regulatory orders or consent decrees could subject us to substantial monetary fines and other penalties providing a
negative effect on our financial condition and results of operations. In addition, there is a possibility that future orders issued
by, or inquiries or enforcement actions initiated by, government or regulatory authorities may cause us to incur substantial costs,
expose us to unanticipated civil and criminal liability or penalties, or require us to change our business practices that may
have materially adverse effects to our business.
We
may not be able to capitalize on the expansion of sports wagering, including due to laws and regulations governing this industry.
We
intend to capitalize on the expansion of legalized sports wagering throughout the U.S. The success of online and mobile sports
wagering and our product offerings may be affected by future developments in social networks, mobile platforms, regulatory developments,
payment processing laws, data and information privacy laws, and other factors that we are unable to predict and are beyond our
control. Following these unpredictable issues, our future operating results relating to our sports wagering products are difficult
to anticipate, and we cannot provide assurance that our product offerings will grow as expected or with success in the long term.
Additionally,
our ability to successfully pursue our sports wagering strategy depends on the laws and regulations relating to wagering through
interactive channels. There is considerable debate over online and interactive real-money gaming and opposition to it as well.
There can be no assurance that this opposition will not succeed in preventing the legalization of online and mobile sports wagering
in jurisdictions where it is presently prohibited, prohibiting, or limiting the expansion of such activities where it is currently
permitted or causing the repeal of legalized online or mobile sports wagering in any jurisdiction. Any successful effort to limit
the expansion of, or prohibit legalized online or mobile sports wagering could have an adverse effect on our results of operations,
cash flows and financial condition. Combatting such efforts to curtail expansion of, or limit or prohibit, legalized online and
mobile sports wagering can again be time-consuming and can be extremely costly.
If
we fail to comply with any existing or future laws or requirements, regulators may take action against us. This action could include
fines, the conditioning, suspension or revocation of approvals, registrations, permits or licenses, and other disciplinary action.
If we fail to adequately adjust to any such potential changes, its business, results of operations or financial condition could
also be harmed.
Our
shareholders will be subject to extensive governmental oversight, and if a shareholder is found unsuitable by a gaming authority,
that shareholder may not be able to beneficially own, directly or indirectly, certain of our securities.
A
number of jurisdictions’ gaming laws may require any of our shareholders to file an application, be investigated, and qualify
or have his, her, or its suitability determined by gaming authorities. Gaming authorities have very broad discretion when ruling
on whether an applicant should be deemed suitable or not. Subject to certain administrative proceeding requirements, the gaming
authorities have the authority to deny any application or limit, condition, revoke or suspend any gaming license, or fine any
person licensed, registered or found suitable or approved, for any cause deemed reasonable by the gaming authorities.
Any
person found unsuitable by a gaming authority may not hold directly or indirectly ownership of any voting security or the beneficial
or record ownership of any nonvoting security or any debt security of any company that is licensed with the relevant gaming authority
beyond the time prescribed by the relevant gaming authority. A finding of unsuitability by a particular gaming authority impacts
that person’s ability to associate or affiliate with gaming licensees in that specific jurisdiction and could impact the
person’s ability to associate or affiliate with gaming license holders in other jurisdictions.
Many
jurisdictions also require any person who obtains a beneficial ownership of more than a certain percentage, most normally 5%,
of voting securities of a publicly-traded gaming company or parent company thereof and, in some jurisdictions, non-voting securities
to report the acquisition to gaming authorities. Gaming authorities may require such holders to apply for qualification or a finding
of suitability, subject to limited exceptions for “institutional investors” that hold a company’s voting securities
for investment purposes only. Other jurisdictions may also limit the number of gaming licenses with which a person may be associated.
As
a result, we intend to seek shareholder approval to adopt certain amendments to our articles of incorporation to facilitate compliance
with applicable gaming regulations. These amendments, if approved, would provide us with the right, subject to certain conditions
set forth in our articles of incorporation, to redeem shares held by an unsuitable person. Such redemption may be made at the
per share purchase price of the lesser of then fair market value and the price at which the stockholder acquired the shares. Such
redemption rights may negatively affect the trading price and/or liquidity of our shares. The utilization of such redemption rights
may also negatively impact our cash flows and financial condition.
If
government regulations relating to the Internet or other areas of our business change, we may need to alter the manner in which
we conduct our business and we may incur greater operating expenses.
We
are subject to general business regulations and laws, as well as regulations and laws specific to the Internet, which may include
laws and regulations related to user privacy, data protection, information security, consumer protection, payment processing,
taxation, intellectual property, electronic contracts, Internet access and content restrictions. We cannot guarantee that we have
been or will be fully compliant in every jurisdiction. Litigation and regulatory proceedings are inherently uncertain, and the
laws and regulations governing issues such as privacy, payment processing, taxation and consumer protection related to the Internet
continue to develop. For example, laws relating to the liability of providers of online services for activities of their subscribers
and other third parties have been tested by a number of claims, including actions based on invasion of privacy and other torts,
unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials
searched, the advertisements posted or the content provided by subscribers. In some instances, we have certain protections against
claims related to such subscriber generated content, including or defamatory content. Specifically, Section 230 of the Communications
Decency Act (CDA) provides immunity from liability for providers of an interactive computer service who publish defamatory information
provided by users of the service. Immunity under the CDA has been well-established through case law. On a regular basis, however,
challenges to both laws seek to limit immunity. For example, a recent executive order and a letter from several senators to the
Federal Communications Commission (FCC) have renewed calls for the protections of Section 230 to be scaled back. Any such changes
could affect our ability to claim protection under the CDA.
Moreover,
as Internet commerce and advertising continues to evolve, increasing regulation by federal, state and foreign regulatory authorities
becomes more likely. For example, California’s Automatic Renewal Law requires companies to adhere to enhanced disclosure
requirements when entering into automatically renewing contracts with consumers. Other states have enacted similar laws in recent
years. As a result, a wave of consumer class action lawsuits has been brought against companies that offer online products and
services on a subscription or recurring basis, and we have received a letter alleging that we may have violated such a law. Any
failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation,
lost business, and proceedings or actions against us by governmental entities or others, which could impact our operating results.
As we improve our TV streaming platform, we may also be subject to new laws and regulations specific to such technologies.
We
are subject to payment processing risk.
Acceptance
and processing of payments are subject to certain rules and regulations, including additional authentication and security requirements
for certain payment methods, and require payment of interchange and other fees. To the extent there are increases in payment processing
fees, material changes in the payment ecosystem, such as large re-issuances of payment cards, delays in receiving payments from
payment processors, changes to rules or regulations concerning payments, loss of payment partners and/or disruptions or failures
in the operations or security of our payment processing systems, partner systems or payment products, including products we use
to update payment information, our revenue, operating expenses and results of operation could be adversely impacted.
We
may be subject to fines or other penalties imposed by the Internal Revenue Service and other tax authorities.
Certain
of our subsidiaries are currently delinquent in filing annual tax returns with the Internal Revenue Service and several states.
We are in the process of working with our subsidiaries to remedy this issue by filing these delinquent tax returns. We may be
subject to penalties and interest with the tax authorities because of the late tax returns. There can be no assurance that we
will remedy our delinquent filings sufficiently, and we may face penalties and fees which would adversely affect our operating
results and investors’ confidence in our internal operations.
We
could be required to collect additional sales and other similar taxes or be subject to other tax liabilities that may increase
the costs our customers would have to pay for our subscriptions and adversely affect our operating results.
Sales
and use, value-added, goods and services, and similar tax laws and rates are complicated and vary greatly by jurisdiction. There
is significant uncertainty as to what constitutes sufficient nexus for a state or local jurisdiction to levy taxes, fees, and
surcharges for sales made over the internet, as well as whether our subscriptions are subject to tax in various jurisdictions.
The vast majority of states have considered or adopted laws that impose collection obligations on out-of-state companies for such
taxes. Additionally, the Supreme Court of the U.S. ruled in South Dakota v. Wayfair, Inc. et. al. (Wayfair) that online sellers
can be required to collect sales and use tax despite not having a physical presence in the buyer’s state. In response to
Wayfair, or otherwise, states or local governments may enforce laws requiring us to calculate, collect, and remit taxes on sales
in their jurisdictions. We have not always collected sales and other similar taxes in all jurisdictions in which we are required
to. We may be obligated to collect and remit sales tax in jurisdictions in which we have not previously collected and remitted
sales tax. A successful assertion by one or more states requiring us to collect taxes where we historically have not or presently
do not do so could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The
imposition by state governments or local governments of sales tax collection obligations on out-of-state sellers could also create
additional administrative burdens for us and decrease our future sales, which could adversely affect our business and operating
results.
We
are subject to taxation-related risks in multiple jurisdictions.
We
are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Judgment is required in
determining our global provision for income taxes, value added and other similar taxes, deferred tax assets or liabilities and
in evaluating our tax positions on a worldwide basis. It is possible that our tax positions may be challenged by jurisdictional
tax authorities, which may have a significant impact on our global provision for income taxes.
Tax
laws are being re-examined and evaluated globally. New laws and interpretations of the law are taken into account for financial
statement purposes in the quarter or year that they become applicable. Tax authorities are increasingly scrutinizing the tax positions
of multinational companies. If U.S. or other foreign tax authorities change applicable tax laws, our overall liability could increase,
and our business, financial condition or results of operations may be adversely impacted.
Social
responsibility concerns and public opinion can significantly influence the regulation of sports wagering and impact responsible
gaming requirements, each of which could impact our business and could adversely affect our operations.
Public
opinion can meaningfully affect sports wagering regulation. A negative shift in sports wagering perception by the public, by politicians
or by others could impact future legislation or regulation in different jurisdictions. Moreover, such a shift could cause jurisdictions
to abandon proposals to legalize sports wagering, thereby limiting the number of new jurisdictions into which we could expand.
Negative public perception also can lead to new, harsher restrictions on sports wagering. It also could promote prohibition of
sports wagering in jurisdictions where sports wagering is presently legal.
Concerns
with responsible betting and gaming could lead to negative publicity, resulting in increased regulatory attention, which may result
in restrictions on our operations. If we had to restrict our marketing or product offerings or incur increased compliance costs,
a material adverse effect on its business, results of operations, financial condition and prospects could result.
Risks
Related to Our Operations
The
COVID-19 pandemic and the global attempt to contain it may harm our industry, business, results of operations and ability to raise
additional capital.
The
global spread of COVID-19 and the various attempts to contain it created significant volatility, uncertainty and economic disruption.
In response to government mandates, health care advisories and employee concerns, we have altered certain aspects of our operations.
Travel has been curtailed, and numerous professional and college sports leagues have cancelled or altered seasons and events.
As a result, our broadcasting partners had and are having to substitute other content in the place of previously scheduled live
sporting events. While professional sports are returning in the United States, there is no guarantee that those seasons continue
uninterrupted or at all. The potential further delay or cancellation of professional and college sports may cause us to temporarily
have less popular content available on our platform, which could negatively impact consumer demand for and subscription retention
to our platform and our number of paid subscribers.
The
full extent to which the COVID-19 pandemic and the various responses to it impacts our business, operations and financial results
will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the
pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic;
the actions of professional and college sports leagues; the availability and cost to access the capital markets; the effect on
our subscribers and subscriber demand for and ability to pay for our platform; disruptions or restrictions on our employees’
ability to work and travel; and interruptions or restrictions related to the provision of streaming services over the internet,
including impacts on content delivery networks and streaming quality. During the COVID-19 pandemic, we may not be able to provide
the same level of customer service that our subscribers are used to, which could negatively impact their perception of our platform
resulting in an increase in cancellations. There can be no assurance that financing may be available on attractive terms, if at
all. Our workforce has had to spend a significant amount of time working from home, which may impact their productivity. Such
limitations caused by the pandemic have also resulted in us seeking extensions for our current and periodic filings with the SEC.
We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our business
operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests
of our employees, subscribers and shareholders. It is not clear what the potential effects any such alterations or modifications
may have on our business, including the effects on our subscribers, or on our financial results.
We
could be subject to claims or have liability based on defects with respect to certain historical corporate transactions that were
not properly authorized or documented.
We
have determined that there have been defects with respect to certain historical corporate transactions, including transactions
that were not or may not have been properly approved by our board of directors, transactions that may have breached our organizational
documents, or transactions that may not have been adequately documented.
While
we have attempted to narrow potential future claims by taking certain remedial corporate actions, the scope of liability with
respect to such defects is uncertain and we cannot be sure that these actions will entirely remediate these defects or that we
will not receive claims in the future from other persons asserting rights to shares of our capital stock, to stock options, or
to amounts owed under other equity or debt instruments or investment contracts. To the extent any such claims are successful,
the claims could result in dilution to existing shareholders, payments by us to note holders or security holders, us having to
comply with registration or other investor rights, which could have a material adverse effect on our business, financial condition
and results of operations.
Legal
proceedings could cause us to incur unforeseen expenses and could occupy a significant amount of our management’s time and
attention.
From
time to time, we may be subject to litigation or claims that could negatively affect our business operations and financial position.
We may face allegations or litigation related to our acquisitions, securities issuances or business practices. Litigation disputes
could cause us to incur unforeseen expenses, result in content unavailability, and otherwise occupy a significant amount of our
management’s time and attention, any of which could negatively affect our business operations and financial position. While
the ultimate outcome of investigations, inquiries, information requests and related legal proceedings is difficult to predict,
such matters can be expensive, time-consuming and distracting, and adverse resolutions or settlements of those matters may result
in, among other things, modification of our business practices, reputational harm or costs and significant payments, any of which
could negatively affect our business operations and financial position.
The
quality of our customer support is important to our subscribers, and if we fail to provide adequate levels of customer support,
we could lose subscribers, which would harm our business.
Our
subscribers depend on our customer support organization to resolve any issues relating to our platform. A high level of support
is critical for the successful marketing of our platform. Providing high-level support is further challenging during the COVID-19
pandemic and resulting remote work environment. If we do not effectively train, update and manage our customer support organization
that assists our subscribers in using our platform, and if that support organization does not succeed in helping them quickly
resolve any issues or provide effective ongoing support, it could adversely affect our ability to sell subscriptions to our platform
and harm our reputation with potential new subscribers.
We
could be subject to economic, political, regulatory and other risks arising from our international operations.
Operating
in international markets requires significant resources and management attention and subjects us to economic, political, regulatory
and other risks that may be different from or incremental to those in the U.S. In addition to the risks that we face in the U.S.,
our international operations involve risks that could adversely affect our business, including:
|
●
|
the
need to adapt our content and user interfaces for specific cultural and language differences;
|
|
|
|
|
●
|
difficulties
and costs associated with staffing and managing foreign operations;
|
|
|
|
|
●
|
political
or social unrest and economic instability;
|
|
|
|
|
●
|
compliance
with laws such as the Foreign Corrupt Practices Act, UK Bribery Act and other anti-corruption laws, export controls and economic
sanctions, and local laws prohibiting corrupt payments to government officials;
|
|
|
|
|
●
|
difficulties
in understanding and complying with local laws, regulations and customs in foreign jurisdictions, including local ownership
requirements for streaming content providers and laws and regulations relating to privacy, data protection and information
security, and the risks and costs of non-compliance with such laws, regulations and customs;
|
|
|
|
|
●
|
regulatory
requirements or government action against our service, whether in response to enforcement of actual or purported legal and
regulatory requirements or otherwise, that results in disruption or non-availability of our service or particular content
in the applicable jurisdiction;
|
|
|
|
|
●
|
adverse
tax consequences such as those related to changes in tax laws or tax rates or their interpretations, and the related application
of judgment in determining our global provision for income taxes, deferred tax assets or liabilities or other tax liabilities
given the ultimate tax determination is uncertain;
|
|
|
|
|
●
|
fluctuations
in currency exchange rates;
|
|
|
|
|
●
|
profit
repatriation and other restrictions on the transfer of funds;
|
|
|
|
|
●
|
differing
payment processing systems;
|
|
|
|
|
●
|
new
and different sources of competition; and
|
|
|
|
|
●
|
different
and more stringent user protection, data protection, privacy and other laws, including data localization and/or restrictions
on data export, and local ownership requirements.
|
Our
failure to manage any of these risks successfully could harm our international operations and our overall business and results
of our operations.
We
depend on highly skilled key personnel to operate our business, and if we are unable to attract, retain, and motivate qualified
personnel, our ability to develop and successfully grow our business could be harmed.
We
believe that our future success is highly dependent on the talents and contributions of Edgar Bronfman, our Executive Chairman,
David Gandler, our Co-Founder and Chief Executive Officer, other members of our executive team, and other key employees, such
as engineering, finance, legal, research and development, marketing, and sales personnel. Our future success depends on our continuing
ability to attract, develop, motivate, and retain highly qualified and skilled employees. All of our employees, including our
senior management, are free to terminate their employment relationship with us at any time, and their knowledge of our business
and industry may be difficult to replace. Qualified individuals are in high demand, particularly in the digital media industry,
and we may incur significant costs to attract them. We use equity awards to attract talented employees, but if the value of our
common stock declines significantly and remains depressed, that may prevent us from recruiting and retaining qualified employees.
If we are unable to attract and retain our senior management and key employees, we may not be able to achieve our strategic objectives,
and our business could be harmed. In addition, we believe that our key executives have developed highly successful and effective
working relationships. We cannot ensure that we will be able to retain the services of any members of our senior management or
other key employees. If one or more of these individuals leave, we may not be able to fully integrate new executives or replicate
the current dynamic and working relationships that have developed among our senior management and other key personnel, and our
operations could suffer.
The
impact of worldwide economic conditions may adversely affect our business, operating results, and financial condition.
Our
financial performance is subject to worldwide economic conditions and their impact on levels of advertising spending. Expenditures
by advertisers generally tend to reflect overall economic conditions, and to the extent that the economy continues to stagnate,
reductions in spending by advertisers could have a material adverse impact on our business. Historically, economic downturns have
resulted in overall reductions in advertising spending. Economic conditions may adversely impact levels of consumer spending,
which could adversely impact our number of subscribers.
Consumer
purchases of discretionary items generally decline during recessionary periods and other periods in which disposable income is
adversely affected. To the extent that overall economic conditions reduce spending on discretionary activities, our ability to
retain current and obtain new subscribers could be hindered, which could reduce our subscription revenue and negatively impact
our business.
Changes
in how we market our service could adversely affect our marketing expenses and subscription levels may be adversely affected.
We
utilize a broad mix of marketing and public relations programs, including social media sites, to promote our service and content
to existing and potential new subscribers. We may limit or discontinue use or support of certain marketing sources or activities
if advertising rates increase or if we become concerned that subscribers or potential subscribers deem certain marketing platforms
or practices intrusive or damaging to our brand. If the available marketing channels are curtailed, our ability to engage subscribers
and attract new subscribers may be adversely affected.
Companies
that promote our service may decide that we negatively impact their business or may make business decisions that in turn negatively
impact us. For example, if they decide that they want to compete more directly with us, enter a similar business or exclusively
support our competitors, we may no longer have access to their marketing channels. We also acquire a number of subscribers who
re-join our service having previously canceled their subscription. If we are unable to maintain or replace our sources of subscribers
with similarly effective sources, or if the cost of our existing sources increases, our subscription levels and marketing expenses
may be adversely affected.
We
utilize marketing to promote our content, drive conversation about our content and service, and drive viewing by our subscribers.
To the extent we promote our content inefficiently or ineffectively, we may not obtain the expected acquisition and retention
benefits and our business may be adversely affected.
We
continue to purse and may in the future engage in acquisitions, which involve a number of risks, and if we are unable to address
and resolve these risks successfully, such acquisitions could harm our business.
We
continue to purse and may in the future acquire businesses, products or technologies to expand our offerings and capabilities,
subscriber base and business. The entities acquired in such acquisitions may not be profitable and may have significant liabilities.
We have evaluated, and expect to continue to evaluate, a wide array of potential strategic transactions. Any acquisition could
be material to our financial condition and results of operations. Also, any anticipated benefits from a given acquisition, including,
but not limited to, the acquisition of Vigtory, Inc. in February 2021, may never materialize. In addition, the process of integrating
any businesses, products or technologies acquired by us may create unforeseen operating difficulties and expenditures and we may
have difficulties retaining key employees. Any acquisitions in international markets would involve additional risks, including
those related to integration of operations across different cultures and languages, currency risks and the particular economic,
political and regulatory risks associated with specific countries. We may not be able to address these risks successfully, or
at all, without incurring significant costs, delays or other operational problems, and if we were unable to address such risks
successfully, our business could be harmed.
Risks
Related to Privacy and Cybersecurity
We
are subject to a number of legal requirements and other obligations regarding privacy, security, and data protection, and any
actual or perceived failure to comply with these requirements or obligations could have an adverse effect on our reputation, business,
financial condition and operating results.
Various
international, federal, and state laws and regulations govern the processing of personal information, including the collection,
use, retention, transfer, sharing and security of the data we receive from and about our subscribers and other individuals. The
regulatory environment for the collection and processing of data relating to individuals, including subscriber and other consumer
data, by online service providers, content distributors, advertisers and publishers is unsettled in the U.S. and internationally.
Privacy groups and government bodies, including the Federal Trade Commission, increasingly have scrutinized issues relating to
the use, collection, storage, disclosure, and other processing of data, including data that is associated with personal identities
or devices, and we expect such scrutiny to continue to increase. Various federal, state and foreign government bodies and agencies
have adopted or are considering adopting laws and regulations limiting, or laws and regulations covering the processing, collection,
distribution, use, disclosure, storage, transfer and security of certain types of information. In addition to government regulation,
self-regulatory standards and other industry standards may legally or contractually apply to us, be argued to apply to us, or
we may elect to comply with such standards or facilitate compliance by content publishers, advertisers, or others with such standards.
For
example, the California Consumer Privacy Act, or CCPA, became operative on January 1, 2020. The CCPA requires covered businesses
to provide new disclosures to California consumers, and to afford such consumers the ability to access and delete their personal
information, opt out of certain personal information activities, and receive details about how their personal information is used.
The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected
to increase data breach litigation. California voters also approved a modification of the CCPA, the California Privacy Rights
Act, or CPRA, in the November 2020 election. The CPRA significantly expands the rights under the CCPA. The CCPA and CPRA may increase
our compliance costs and exposure to liability. Similarly, Virginia recently adopted the Virginia Consumer Data Protection Act,
or VCDPA, which will go into effect on January 1, 2023. The VCDPA will grant Virginia residents certain rights with respect to
their personal data, has notice obligations, requires consent in some circumstances, among other things. While there is no private
right of action, the VCDPA empowers the Attorney General to enforce the law. As with the CCPA and the CPRA, the VCDPA may increase
our compliance costs and exposure to liability. Other U.S. states are considering adopting similar laws.
Additionally,
our use of subscriber data to deliver relevant advertising on our platform places us and our content publishers at risk for claims
under a number of other unsettled laws, including the Video Privacy Protection Act, or VPPA. Some content publishers have been
engaged in litigation over alleged violations of the VPPA relating to activities on online platforms in connection with advertising
provided by unrelated third parties. The Federal Trade Commission has also revised its rules implementing the Children’s
Online Privacy Protection Act, or COPPA Rules, broadening the applicability of the COPPA Rules, including by expanding the types
of information that are subject to these regulations. The COPPA Rules could effectively apply to limit the information that we
and, our content publishers and advertisers collect and use, the content of advertisements and certain channel partner content.
We and our content publishers and advertisers could be at risk for violation or alleged violation of these and other laws, regulations,
and other standards and contractual obligations relating to privacy, data protection, and information security.
In
the European Union, or EU, and its member states, there are laws and regulations that in some circumstances require informed consent
for the placement of cookies or other tracking technologies and the delivery of relevant advertisements. More generally, the EU
General Data Protection Regulation 2016/679, or the GDPR, which has been in effect since May 25, 2018, imposes stringent obligations
relating to data protection and security and authorizes fines up to 4% of global annual revenue or €20 million, whichever
is greater, for certain violations.
Further,
the departure of the United Kingdom, or UK, from the EU has created uncertainty with regard to data protection regulation in the
UK. In particular, while the UK has implemented the UK General Data Protection Regulation, and the UK Data Protection Act of 2018,
which implements and complements the UK GDPR are still in force, it is unclear whether the UK will receive an adequacy decision
from the European Commission that would allow the lawful transfer of data from the European Economic Area, or EEA, to the UK under
that adequacy decision. Should the UK not be deemed adequate, transfers of data between the UK and the EEA will need to be pursuant
to a different transfer mechanism, such as the entry of Standard Contractual Clauses approved by the European Commission. Failure
to comply with these obligations could subject us to liability. Additionally, we may incur expenses, costs, and other operational
losses under the GDPR and the privacy laws of applicable EU Member States and the UK in connection with any measures we take to
comply with such laws.
Although
certain legal mechanisms have been designed to allow for the transfer of personal data from the UK, EEA and Switzerland to the
U.S., uncertainty about compliance with such data protection laws remains and such mechanisms may not be available or applicable
with respect to the personal data processing activities necessary to research, develop and market our products. For example, legal
challenges in Europe to the mechanisms allowing companies to transfer personal data from the EEA to the U.S. have resulted in
further limitations on the ability to transfer personal data across borders. In particular, certain governments have been unable
to reach agreement on or maintain existing mechanisms designed to support cross-border data transfers, such as the EU-U.S. and
Swiss-U.S. Privacy Shield Frameworks. Specifically, on July 16, 2020, the Court of Justice of the European Union invalidated Decision
2016/1250 on the adequacy of the protection provided by the EU-U.S. Privacy Shield Framework. To the extent that we have relied
on the EU-U.S. Privacy Shield Framework in the past, we will not be able to do so in the future, which could increase our costs
and limit our ability to process personal data from the EEA. The same decision also challenged the ability to use one of the primary
alternatives to the Privacy Shield, namely, the European Commission’s Standard Contractual Clauses, to lawfully transfer
personal data from the EEA to the U.S. and most other countries without additional measures or assurances.
Complying
with the GDPR, CCPA, VCDPA, and other laws, regulations, and other obligations relating to privacy, data protection, data localization
or security may cause us to incur substantial operational costs or require us to modify our data handling practices. We also expect
that there will continue to be new proposed laws and regulations concerning privacy, data protection and information security,
and we cannot yet determine the impact such future laws, regulations and standards, or amendments to, expansions of or re-interpretations
of, existing laws and regulations, industry standards, or other obligations may have on our business. New laws and regulations,
amendments to, expansions of or re-interpretations of existing laws and regulations, industry standards, and contractual and other
obligations may require us to incur additional costs and restrict our business operations.
Furthermore,
the interpretation and application of laws, regulations, standards, contractual obligations and other obligations relating to
privacy, data processing and protection, and information security are uncertain, and these laws, standards, and contractual and
other obligations (including, without limitation, the Payment Card Industry Data Security Standard) may be interpreted and applied
in a manner that is, or is alleged to be, inconsistent with our data management and processing practices, our policies or procedures,
or the features of our platform. We may face claims or allegations that we are in violation of these laws, regulations, standards,
or contractual or other obligations. We could be required to fundamentally change our business activities and practices or modify
our platform or practices to address laws, regulations, or other obligations relating to privacy, data protection, or information
security, or claims or allegations that we have failed to comply with any of the foregoing, which could have an adverse effect
on our business. We may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our
ability to develop new features could be limited.
Increased
regulation of data collection, use and distribution practices, including self-regulation and industry standards, changes in existing
laws and regulations, enactment of new laws and regulations, increased enforcement activity, and changes in interpretation of
laws and regulations, all could increase our cost of compliance and operation, limit our ability to grow our business or otherwise
harm our business. Additionally, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies
that are applicable to the businesses of content publishers and advertisers may limit their use and adoption of, and reduce the
overall demand for, our platform and advertising on our platform, and content publishers and advertisers may be at risk for violation
or alleged violation of laws, regulations, and other standards relating to privacy, data protection, and information security
relating to their activities on our platform. More generally, privacy, data protection, and information security concerns, whether
or not valid, may inhibit market adoption of our platform, particularly in certain countries.
Any
actual or perceived inability to adequately address privacy, data protection or security-related concerns, even if unfounded,
or to successfully negotiate privacy, data protection or security-related contractual terms with content publishers, card associations,
advertisers, or others, or to comply with applicable laws, regulations and other obligations relating to privacy, data protection,
and security, could result in additional cost and liability to us. We may face regulatory investigations and proceedings, claims
and litigation by governmental entities and private parties, damages for contract breach, damage to our reputation, restrictions
on the use of our platform by advertisers and sales of subscriptions to our platform, and additional liabilities as a result,
all of which could harm our business, reputation, financial condition, and results of operations.
Any
significant interruptions, delays or discontinuations in service or disruptions in or unauthorized access to our computer systems
or those of third parties that we utilize in our operations, including those relating to cybersecurity or arising from cyber-attacks,
could result in a loss or degradation of service, unauthorized disclosure of data, including subscriber and corporate information,
or theft of intellectual property, including digital content assets, which could adversely impact our business.
Our
reputation and ability to attract, retain and serve our subscribers is dependent upon the reliable performance and security of
our computer systems and those of third parties that we utilize in our operations. These systems may be subject to damage or interruption
from, among other things, earthquakes, adverse weather conditions, other natural disasters, terrorist attacks, rogue employees,
employees who are inattentive or careless and cause security vulnerabilities, power loss, telecommunications failures, and cybersecurity
risks. Interruptions in these systems, or with the Internet in general, could make our service unavailable or degraded or otherwise
hinder our ability to deliver our service. Service interruptions, errors in our software or the unavailability of computer systems
used in our operations could diminish the overall attractiveness of our subscription to existing and potential subscribers.
Our
computer systems and those of third parties we use in our operations are subject to cybersecurity threats, including cyber-attacks
such as computer viruses, denial of service attacks, physical or electronic break-ins and similar disruptions. These systems periodically
experience directed attacks intended to lead to interruptions and delays in our service and operations as well as loss, misuse
or theft of personal information and other data, content, confidential information, trade secrets or intellectual property. Additionally,
outside parties may attempt to induce employees or subscribers to disclose sensitive or confidential information in order to gain
access to data. Any attempt by hackers to obtain our data (including subscriber and corporate information) or intellectual property
(including digital content assets), disrupt our service, or otherwise access our systems, or those of third parties we use, if
successful, could harm our business, be expensive to remedy and damage our reputation.
We
use third-party cloud computing services in connection with our business operations. We also use third-party content delivery
networks to help us stream content to our subscribers over the Internet. Problems faced by us or our third-party cloud computing
or other network providers, including technological or business-related disruptions, as well as cybersecurity threats and regulatory
interference, could adversely impact the experience of our users.
We
have implemented certain systems and processes designed to thwart hackers and protect our data and systems, but the techniques
used to gain unauthorized access to data, systems, and software are constantly evolving, and we may be unable to anticipate or
prevent unauthorized access, and we may be delayed in detecting unauthorized access or other security breaches and other incidents.
There is no assurance that hackers may not have a material impact on our service or systems in the future or that security breaches
or other incidents may not occur due to these or other causes. Efforts and technologies to prevent disruptions to our service
and unauthorized access to our systems are expensive to develop, implement and maintain. These efforts require ongoing monitoring
and updating as technologies change and efforts to overcome security measures become more sophisticated and may limit the functionality
of or otherwise negatively impact our service offering and systems. Additionally, disruption to our service and data security
breaches and other incidents may occur as a result of employee or contractor error. Any significant disruption to our service
or access to our systems or any data that we or those who provide services for us maintain or otherwise process, or the perception
that any of these have occurred, could result in a loss of subscriptions, harm to our reputation, and adversely affect our business
and results of operations. Further, a penetration of our systems or a third-party’s systems on which we depend or any loss
of or unauthorized access to, use, alteration, destruction, or disclosure of personal information or other data could subject
us to business, regulatory, contractual, litigation and reputation risk, which could have a negative effect on our business, financial
condition and results of operations. With the increase in remote work during the current COVID-19 pandemic, we and the third parties
we use in our operations face increased risks to the security of infrastructure and data, and we cannot guarantee that our or
their security measures will prevent security breaches. We also may face increased costs relating to maintaining and securing
our infrastructure and data that we maintain and otherwise process.
Additionally,
we cannot be certain that our insurance coverage will be adequate for data security liabilities actually incurred, will cover
any indemnification claims against us relating to any incident, that insurance will continue to be available to us on economically
reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one
or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies,
including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse
effect on our business, including our financial condition, operating results, and reputation.
Risks
Related to Our Intellectual Property
We
could become subject to litigation regarding intellectual property rights that could be costly and harm our business.
Third
parties have previously asserted, and may in the future assert, that we have infringed, misappropriated, or otherwise violated
their intellectual property rights. Plaintiffs that have no relevant product revenue may not be deterred by our own issued patents
and pending patent applications in bringing intellectual property rights claims against us. The cost of patent litigation or other
proceedings, even if resolved in our favor, could be substantial. Some of our competitors may be better able to sustain the costs
of such litigation or proceedings because of their substantially greater financial resources. Patent litigation and other proceedings
may also require significant management time and divert management from our business. Uncertainties resulting from the initiation
and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace. The occurrence
of any of the foregoing risks could harm our business.
As
a result of intellectual property infringement claims, or to avoid potential claims, we have previously chosen to, and may in
the future choose or be required to, seek licenses from third parties. These licenses may not be available on commercially reasonable
terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties
or both, and the rights granted to us might be nonexclusive, with the potential for our competitors to gain access to the same
intellectual property. In addition, the rights that we secure under intellectual property licenses may not include rights to all
of the intellectual property owned or controlled by the licensor, and the scope of the licenses granted to us may not include
rights covering all of the products and services provided by us and our licensees. Furthermore, an adverse outcome of a dispute
may require us to pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully
infringed a party’s intellectual property; cease making, licensing or using technologies that are alleged to infringe or
misappropriate the intellectual property of others; expend additional development resources to redesign our solutions; enter into
potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies, content or materials;
and to indemnify our partners and other third parties. In addition, any lawsuits regarding intellectual property rights, regardless
of their success, could be expensive to resolve and would divert the time and attention of our management and technical personnel.
Historically,
we have acquired certain intellectual property from third parties pursuant to asset purchase agreements or similar agreements
in connection with corporate acquisitions and bankruptcy proceedings. We also generally enter into confidentiality and invention
assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom
we have strategic relationships and business alliances. However, these agreements may not have been properly entered into on every
occasion with the applicable counterparty, and such agreements may not always have been effective when entered into in granting
ownership of, controlling access to and distribution of our proprietary information. Further, these agreements do not prevent
our competitors or partners from independently developing technologies that are substantially equivalent or superior to our platform.
An
inability to obtain music licenses could be costly and harm our business.
The
Company relies on its content suppliers to secure the rights of public performance or communication to the public for musical
works and sound recordings embodied in any programming provided to or through the Company’s platform. If our content suppliers
have not secured public performance or communication to the public licenses on a through to the viewer basis, then the Company
could have liability to copyright owners or their agents for such performances or communications. If our content suppliers are
unable to secure such rights from copyright owners, then the Company may have to secure public performance and communication to
the public licenses in its own name. The Company may not be able to obtain such licenses on favorable economic terms, and music
licensors may assert that we have infringed their intellectual property rights in the absence of a license. The occurrence of
any of the foregoing risks could harm our business.
If
our technology, trademarks and other proprietary rights are not adequately protected to prevent use or appropriation by our competitors,
the value of our brand and other intangible assets may be diminished, and our business may be adversely affected.
We
rely and expect to continue to rely on a combination of confidentiality and license agreements with our employees, consultants
and third parties with whom we have relationships, as well as trademark, copyright, patent and trade secret protection laws, to
protect our technology and proprietary rights. We may also seek to enforce our proprietary rights through court proceedings or
other legal actions. We have filed and we expect to file from time to time for trademark and patent applications. Nevertheless,
these applications may not be approved, third parties may challenge any copyrights, patents or trademarks issued to or held by
us, third parties may knowingly or unknowingly infringe our intellectual property rights, and we may not be able to prevent infringement
or misappropriation without substantial expense to us. If the protection of our intellectual property rights is inadequate to
prevent use or misappropriation by third parties, the value of our brand, content, and other intangible assets may be diminished.
Failure
to protect our domain names could also adversely affect our reputation and brand and make it more difficult for subscribers to
find our website and our service. We may be unable, without significant cost or at all, to prevent third parties from acquiring
domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights.
Our
use of open source software could impose limitations on our ability to commercialize our platform.
We
incorporate open source software in our platform. From time to time, companies that incorporate open source software into their
products have faced claims challenging the ownership of open source software and/or compliance with open source license terms.
Therefore, we could be subject to suits by parties claiming ownership of what we believe to be open source software or non-compliance
with open source licensing terms. Although we monitor our use of open source software, the terms of many open source software
licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that
could impose unanticipated conditions or restrictions on our ability to sell subscriptions to our platform. In such event, we
could be required to make our proprietary software generally available to third parties, including competitors, at no cost, to
seek licenses from third parties in order to continue offering our platform, to re-engineer our platform or to discontinue our
platform in the event re-engineering cannot be accomplished on a timely basis or at all, any of which could harm our business.
If
we are unable to obtain necessary or desirable third-party technology licenses, our ability to develop platform enhancements may
be impaired.
We
utilize commercially available off-the-shelf technology in the development of our platform. As we continue to introduce new features
or improvements to our platform, we may be required to license additional technologies from third parties. These third-party licenses
may be unavailable to us on commercially reasonable terms, if at all. If we are unable to obtain necessary third-party licenses,
we may be required to obtain substitute technologies with lower quality or performance standards, or at a greater cost, any of
which could harm the competitiveness of our platform and our business.
Risks
Related to the 2026 Notes
We
may not have the ability to raise the funds necessary to settle conversions of the 2026 Notes in cash or to repurchase the 2026
Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase
of the 2026 Notes.
Holders
of the 2026 Notes will have the right to require us to repurchase all or a portion of the 2026 Notes upon the occurrence of a
fundamental change before the maturity date at a repurchase price equal to 100% of the principal amount of the 2026 Notes to be
repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion of the 2026 Notes, unless we elect to deliver
solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share),
we will be required to make cash payments in respect of the notes being converted. Moreover, we will be required to repay the
2026 Notes in cash at their maturity unless earlier converted, redeemed, or repurchased. However, we may not have enough available
cash or be able to obtain financing at the time we are required to make repurchases of all or a portion of the 2026 Notes surrendered
therefor or pay cash with respect to notes being converted or at their maturity.
In
addition, our ability to repurchase the 2026 Notes or to pay cash upon conversions of all or a portion of the 2026 Notes or at
their maturity may be limited by law, regulatory authority or agreements governing our future indebtedness. Our failure to repurchase
all or a portion of the 2026 Notes at a time when the repurchase is required by the indenture or to pay cash upon conversions
of all or a portion of the 2026 Notes or at their maturity as required by the indenture would constitute a default under the indenture.
A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our future
indebtedness. Moreover, the occurrence of a fundamental change under the indenture could constitute an event of default under
any such agreement. A default under the indenture or the fundamental change itself could also lead to a default under agreements
governing our existing or future indebtedness. If the payment of the related indebtedness were to be accelerated after any applicable
notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the notes or make cash payments
upon conversions thereof.
The
conditional conversion feature of all or a portion of the 2026 Notes, if triggered, may adversely affect our financial condition
and operating results.
In
the event the conditional conversion feature of any or all of the 2026 Notes is triggered, holders of the 2026 Notes will be entitled
to convert their 2026 Notes at any time during specified periods at their option. If one or more holders elect to convert 2026
Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying
cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation
in cash, which could adversely affect our liquidity. In addition, even if holders of the 2026 Notes do not elect to convert their
2026 Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal
of the 2026 Notes as a current rather than long-term liability, which would result in a material reduction of our net working
capital.
The
accounting method for convertible debt securities that may be settled in cash, such as the 2026 Notes, could have a material effect
on our reported financial results.
Under
Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an entity
must separately account for the liability and equity components of convertible debt instruments (such as the 2026 Notes) that
may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost.
The effect of ASC 470-20 on the accounting for the 2026 Notes is that the equity component is required to be included in the additional
paid-in capital section of stockholders’ equity on our consolidated balance sheet at the issuance date and the value of
the equity component would be treated as debt discount for purposes of accounting for the liability component of the 2026 Notes.
As a result, we will be required to record a greater amount of non-cash interest expense as a result of the accretion to the carrying
value of the 2026 Notes to their face amount over the term of the 2026 Notes. We will report larger net losses (or lower net income)
in our financial results because ASC 470-20 will require interest to include both the amortization of the debt discount and the
instrument’s nonconvertible coupon interest rate, which could adversely affect our reported or future financial results,
the trading price of our common stock and the trading price of the 2026 Notes.
In
addition, under certain circumstances, convertible debt instruments (such as the 2026 Notes) that may be settled entirely or partly
in cash may be accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion
of such notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value
of such notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction
is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle
such excess in shares, are issued. If we are unable or otherwise elect not to use the treasury stock method in accounting for
the shares issuable upon conversion of the 2026 Notes, then our diluted earnings per share could be adversely affected.
In
August 2020, the FASB published an Accounting Standards Update (“ASU”) 2020-06, which amends these accounting standards
by reducing the number of accounting models for convertible instruments and limiting instances of separate accounting for the
debt and equity or a derivative component of the convertible debt instruments. ASU 2020-06 also will no longer allow the use of
the treasury stock method for convertible instruments and instead require application of the “if-converted” method.
Under that method, diluted earnings per share will generally be calculated assuming that all the 2026 Notes were converted solely
into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive, which could adversely
affect our diluted earnings per share. These amendments will be effective for public companies for fiscal years beginning after
December 15, 2021, with early adoption permitted, but no earlier than fiscal years beginning after December 15, 2020.
Provisions
in the indenture for the 2026 Notes may deter or prevent a business combination that may be favorable to you.
If
a fundamental change occurs prior to the maturity date of the 2026 Notes, holders of the 2026 Notes will have the right, at their
option, to require us to repurchase all or a portion of their 2026 Notes. In addition, if a make-whole fundamental change occurs
prior the maturity date, we will in some cases be required to increase the conversion rate for a holder that elects to convert
all or a portion of their 2026 Notes in connection with such make-whole fundamental change. Furthermore, the indenture for the
2026 Notes will prohibit us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity
assumes our obligations under the 2026 Notes. These and other provisions in the indenture could deter or prevent a third party
from acquiring us even when the acquisition may be favorable to you.
Risks
Related to Ownership of our Common Stock
Our
stock price is volatile.
The
market price of our common stock is subject to wide price fluctuations in response to various factors, many of which are beyond
our control. The factors include:
|
●
|
The
impact on global and regional economies as a result of the COVID-19 pandemic;
|
|
|
|
|
●
|
variations
in our operating results;
|
|
|
|
|
●
|
variations
between our actual operating results and the expectations of securities analysts, investors and the financial community;
|
|
|
|
|
●
|
announcements
of developments affecting our business, systems or expansion plans by us or others;
|
|
|
|
|
●
|
technical
factors in the public trading market for our stock that may produce price movements that may or may not comport with macro,
industry or company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as
it may be expressed on financial trading and other social media sites), the amount and status of short interest in our securities,
access to margin debt, trading in options and other derivatives on our common stock, fractional share trading, and other technical
trading factors or strategies;
|
|
|
|
|
●
|
competition,
including the introduction of new competitors, their pricing strategies and services;
|
|
|
|
|
●
|
Announcements
regarding stock repurchases and sales of our equity and debt securities;
|
|
|
|
|
●
|
market
volatility in general;
|
|
|
|
|
●
|
the
level of demand for our stock, including the amount of short interest in our stock; and
|
|
|
|
|
●
|
the
operating results of our competitors.
|
In
addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad
market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual
operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of
a particular company’s securities, securities class action litigation has often been instituted against these companies.
This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention
and resources.
We
have no plans to declare any cash dividends on our common stock in the foreseeable future.
We
do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors
may need to rely on sales of their common stock after price appreciation, which may never occur to realize future gains on their
investment.
Future
sales and issuances of our capital stock could reduce our stock price and any additional capital raised by us through the sale
of equity or convertible securities may dilute your ownership in us.
We
may issue additional shares of capital stock in the future, including shares issuable pursuant to securities that are convertible
into or exchangeable for, or that represent a right to receive, capital stock. We may sell common stock, convertible securities
and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time, which
could result in substantial dilution to our existing shareholders. New investors in such future transactions could gain rights,
preferences and privileges senior to those of holders of our common stock.
If
a substantial number of shares become available for sale and are sold in a short period of time, the market price of our common
stock could decline.
If
our existing shareholders sell substantial amounts of our common stock in the public market, the market price of our common stock
could decrease significantly. The perception in the public market that our existing shareholders might sell shares of common stock
could also depress our market price. Our executive officers and directors and certain of our shareholders were in the past subject
to certain lock-up agreements and the Rule 144 holding period requirements that have expired as of the date of this Annual Report
on Form 10-K. Now that these lock-up periods have expired, the holding periods have elapsed, additional shares are eligible for
sale in the public market. The market price of shares of our common stock may drop significantly if our existing holders sell
substantial amounts of our common stock in the public market. A decline in the price of shares of our common stock might impede
our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.
We
also filed a registration statement to register shares reserved for future issuance under our equity compensation plans. As a
result, subject to the satisfaction of applicable exercise periods, the shares issued upon exercise of outstanding stock options
will be available for immediate resale in the U.S. in the open market.
Additionally,
certain of our employees, executive officers, and directors have already entered into, or may in the future enter into Rule 10b5-1
trading plans providing for sales of shares of our common stock from time to time. Under a Rule 10b5-1 trading plan, a broker
executes trades pursuant to parameters established by the employee, director, or officer when entering into the plan, without
further direction from the employee, officer, or director. A Rule 10b5-1 trading plan may be amended or terminated in some circumstances.
Our employees, executive officers, and directors also may buy or sell additional shares outside of a Rule 10b5-1 trading plan
when they are not in possession of material, nonpublic information, subject to the expiration of the lock-up agreements and Rule
144 requirements referred to above.
If
few securities or industry analysts publish research or reports, or if they publish adverse or misleading research or reports,
regarding us, our business or our market, our stock price and trading volume could decline.
The
trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish
about us, our business or our market. If few securities or industry analysts commence coverage of us, the stock price would be
negatively impacted. Additionally, if any of the analysts who currently cover us or initiate coverage on us in the future issue
adverse or misleading research or reports regarding us, our business model, our intellectual property, our stock performance or
our market, or if our operating results fail to meet the expectations of analysts, our stock price would likely decline. If one
or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial
markets, which in turn could cause our stock price or trading volume to decline.