Sports betting technology provider SBTech has been told to set aside $30 million in cash and stock that would be used to cover any legal expenses, should clients of the company institute legal action relating to a recent major cybersecurity incident.
On March 27, SBTech was hit by a sophisticated cyber attack that forced it to power down all its data centers around the globe. As a result, more than 50 sportsbooks powered by the provider’s technology went offline.
Most sportsbooks remained offline for an entire weekend, while others are yet to resume operations following the attempted hack. Churchill Downs’ BetAmerica sportsbooks in Indiana, New Jersey, and Pennsylvania are among the operations that are still offline.
SBTech said that no data was compromised during the cyber attack, but it was still powerful enough to knock out the sportsbooks that it powers.
Changed Merger Terms
Following last month’s cyber attack, Diamond Eagle Acquisition Corp., the special vehicle through which SBTech will merge with US sports betting and daily fantasy sports operator DraftKings, amended the tie-up agreement to require SBTech’s sellers to set aside $30 million to pay any potential settlements with affected clients.
According to a filing with the US Securities and Exchange Commission, the amended agreement will see $10 million of the $600 million in cash consideration that is to be paid to SBTech’s sellers placed in escrow for two years following the deal’s closure.
Shares worth $20 million in the combined company will be subject to a two-year lock-up period.
The money would be used to cover any potential legal settlements with SBTech clients that were affected by the cyber attack. None of the betting technology provider’s operator partners have said they would instigate legal action yet.
According to the amended merger terms, if the $30 million in cash and stock fail to cover legal settlements, another $25 million in escrowed cash and $45 million in locked-up shares would be released for the purpose of reaching settlements.
If that money, too, fails to cover legal expenses, SBTech’s sellers, including founder and majority shareholder Shalom McKenzie, will have to pay for the settlements. The technology provider’s sellers have agreed to the amended terms.
Merger Still On Track Despite Incident
It also emerged that Diamond Eagle has pushed back the meeting during which the proposed combination of DraftKings and SBTech was to be voted on. The meeting was slated to take place on Thursday, April 9, but was rescheduled for April 23.
Diamond Eagle said that the merger remains “on track to close in April”, despite the challenging and dynamic business environment.
DraftKing’s merger with SBTech was announced last year. The combined entity would be valued at $3.3 billion and is estimated to have $500 million of unrestricted cash on hand as it seeks to expand and cement its position in the rapidly growing US sports betting field.
The merger will create the only “vertically-integrated sports betting and online gaming company based in the United States.”
The combined entity, which will assume the name DraftKings once the deal closes, will go public as Diamond Eagle is a publicly traded company.