RUSH STREET INTERACTIVE, INC. DISCUSSION AND ANALYSIS OF THE MANAGEMENT OF THE FINANCIAL CONDITION AND THE RESULTS OF THE OPERATIONS (form 10-K)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with, and is qualified in its entirety
by, our consolidated financial statements and the related notes thereto included
elsewhere in this Annual Report. In addition to historical financial
information, the following discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. Our actual results
and timing of selected events may differ materially from those anticipated in
these forward-looking statements as a result of many factors, including those
discussed under the sections of this Annual Report captioned "Cautionary Note
Regarding Forward-Looking Statements" and "Risk Factors."

This Management's Discussion and Analysis of Financial Condition and Results of
Operations (this "MD&A") contains certain financial measures, in particular the
presentation of Adjusted EBITDA, which are not presented in accordance with
generally accepted accounting principles of the United States ("GAAP"). These
non-GAAP financial measures are being presented because they provide us and
readers of this MD&A with additional insight into our operational performance
relative to earlier periods and relative to our competitors. These non-GAAP
financial measures are not a substitute for any GAAP financial information.
Readers of this MD&A should use these non-GAAP financial measures only in
conjunction with the comparable GAAP financial measures. Reconciliations of
Adjusted EBITDA to Net Loss, the most comparable GAAP measure, are provided in
this MD&A.

Unless the context requires otherwise, all references in this management report to “Company”, “us”, “us” or “our” refer to the business of Rush Street Interactive, LP and its subsidiaries before the consummation of the Business combination i Rush Street Interactive, Inc. and its subsidiaries after the completion of the Business Combination.

Our business

We are a leading online gaming and entertainment company that focuses primarily
on online casino and online sports betting in the U.S. and Latin American
markets. Our mission is to provide our customers with the most user-friendly
online casino and online sports betting experience in the industry. In
furtherance of this mission, we strive to create an online community for our
customers where we are transparent and honest, treat our customers fairly, show
them that we value their time and loyalty, and listen to feedback. We also
endeavor to implement industry leading responsible gaming practices and provide
our customers with a cutting-edge online gaming platform and exciting,
personalized offerings that will enhance their user experience.

We provide our customers an array of leading gaming offerings such as real-money
online casino, online sports betting, and retail sports betting, as well as
social gaming, which involves free-to-play games that use virtual credits that
users can earn or purchase. We launched our first social gaming website in 2015
and began accepting real-money bets in the United States in 2016. Currently, we
offer real-money online casino, online sports betting and/or retail sports
betting in thirteen U.S. states as outlined in the table below.
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                                          Online Sports        Retail Sports
U.S. State           Online Casino           Betting              Betting
Arizona                                         ü
Colorado                                        ü
Connecticut                                     ü                    ü
Illinois                                        ü                    ü
Indiana                                         ü                    ü
Iowa                                            ü
Louisiana                                       ü
Michigan                   ü                    ü                    ü
New Jersey                 ü                    ü
New York                                        ü                    ü
Pennsylvania               ü                    ü                    ü
Virginia                                        ü
West Virginia              ü


In 2018, we also became the first U.S.-based online gaming operator to launch in
Colombia, which was an early adopting Latin American country to legalize and
regulate online casino and sports betting nationally. In addition, we launched
our social gaming offering in Canada during October 2021 and anticipate
launching real-money online casino and sports betting there in 2022. We also
expect to launch online casino and sports betting in Mexico in the second
quarter of 2022.

Our real-money online casino and online sports betting offerings are currently
provided under our BetRivers.com and PlaySugarHouse.com brands in the United
States and under our RushBet.co brand in Colombia. We operate and/or support
retail sports betting for our bricks-and-mortar partners primarily under their
respective brands. Many of our social gaming offerings are marketed under our
partners' brands, although we also offer social gaming under our own brands as
well. Our decision about what brand or brands to use is market- and
partner-specific, and is based on brand awareness, market research, marketing
efficiency and applicable gaming rules and regulations.

Impact of COVID-19

The COVID-19 pandemic has adversely impacted global commercial activity,
disrupted supply chains and contributed to significant volatility in financial
markets. Starting in 2020 and continuing through the date hereof, the COVID-19
pandemic continued to adversely impact many different industries. The ongoing
COVID-19 pandemic could have a continued material adverse impact on economic and
market conditions and trigger a period of global economic slowdown. The rapid
development and fluidity of this situation precludes any prediction as to the
extent and the duration of the impact of COVID-19. The COVID-19 pandemic
therefore presents material uncertainty and risk with respect to us and our
performance and could affect our financial results in a materially adverse way.

The COVID-19 pandemic has significantly impacted our business. The direct impact
on our business, beyond disruptions in normal business operations, is primarily
through the change in consumer habits as a result of people being ordered or
requested to stay home and restrict their traveling or otherwise voluntarily
choosing to stay at home or restrict travel. During the periods affected by
government-imposed stay-at-home orders, our business volume significantly
increased and has since continued to remain strong as many of these orders were
lifted. COVID-19 has also directly impacted sports betting due to the
rescheduling, reconfiguring, suspension, postponement and cancellation of major
sports seasons and sporting events or exclusion of certain players or teams from
sporting events. Beginning in early 2020 and continuing into the third quarter
of 2020, many sports seasons and sporting events, including the NBA regular
season and playoffs, the NCAA college basketball tournament, the MLB regular
season, the Masters golf tournament, the NHL regular season and playoffs and
domestic soccer leagues and European cup competitions, were suspended,
postponed, modified or cancelled. While most major professional sports leagues
have since resumed their activities primarily starting in the second half of
2020, the third quarter of 2021 was still impacted by the COVID-19 pandemic. For
example, the number of games in the NBA's 2020-2021 and NHL's 2021 season were
reduced and nearly every major professional sports league has experienced
postponed, rescheduled or canceled games, or players or teams being excluded
from certain games or events due to COVID-19, COVID-19 protocols or local
COVID-19 vaccine requirements.
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The return of major sports and sporting events during the second half of 2020,
as well as the unique and concentrated sports calendar, generated significant
customer interest and activity in our sports betting offerings. However, sports
seasons and calendars could be further suspended, cancelled or rescheduled due
to additional COVID-19 outbreaks.

The alteration of sports seasons and sporting events, including the postponement
or cancellation of events, throughout fiscal year 2021 reduced our customers'
use of, and spending on, our sports betting offerings and from time to time
caused us to issue refunds for canceled events. Additionally, ongoing or future
closures of bricks-and-mortar casinos and certain ongoing limitations on
visitations to such casinos due to COVID-19 may provide additional opportunities
for us to market online casino and sports betting to traditional
bricks-and-mortar casino patrons.

Our revenue varies based on sports seasons and sporting events, among other
factors, and cancellations, suspensions or alterations resulting from COVID-19
have the potential to adversely affect our revenue, possibly materially.
However, our online casino offerings do not rely on sports seasons and sporting
events, thus, they may partially offset this adverse impact on revenue.

The ultimate impact of COVID-19 and the related restrictions on consumer
behavior is currently unknown. A significant or prolonged decrease in consumer
spending on entertainment or leisure activities would likely have an adverse
effect on demand for our offerings, reducing cash flows and revenues, thus
materially harming our business, financial condition and results of operations.
In addition, a significant uptick in COVID-19 cases or an emergence of
additional variants or strains could cause other widespread or more severe
impacts depending on where infection rates are highest. As steps taken to
mitigate the spread of COVID-19 have necessitated a shift away from a
traditional office environment for many employees, we implemented business
continuity programs to help ensure that our personnel were safe and our business
continued to function with minimal disruptions to normal work operations while
personnel worked remotely. We will continue to monitor developments relating to
disruptions and uncertainties caused by COVID-19.

Our business model

We enter new markets by leveraging our proprietary online gaming platform and
our ability to provide either a full-suite service model or a customized
solution to fit a specific situation. Our business model is designed to be
nimble, innovative and customer-centric. By leveraging our dynamic proprietary
online gaming platform, we aspire to be "first to market" where real-money
online gaming has been newly legalized and where our management determines that
it is desirable to enter such market.

Our principal offerings are our real-money online casino and online sports
betting products. These products can be launched under one of our existing
brands or customized to be incorporated into a local or third-party brand. We
also provide a variety of retail sports betting solutions to service land-based
casino and other partners and leverage our social gaming offerings to increase
customer engagement and build online databases in key markets both before and
after legalization and regulation.

We currently generate revenue through two operating models: (i) B2C and (ii)
B2B. Through our B2C operations, we offer online casino, online sports betting,
retail sports betting and social gaming directly to the end customer through our
websites, apps or physical retail locations. B2C is our primary operating model,
contributing more than 99% of our total revenue for the years ended December 31,
2021 and 2020, and we expect that it will continue to be our primary operating
model into the future. We believe this is a flexible operating model that
permits us to customize our operating structure based on applicable gaming
regulations, market demands and, as applicable, our land-based partner's
operations. Through our B2B operations, we offer retail sports betting services
to land-based businesses, such as bricks-and-mortar casinos, in exchange for a
monthly commission.

Often in advance of markets legalizing online gaming, we build relationships
with local bricks-and-mortar casino operators and other potential land-based
partners who are looking for online gaming and sports betting partners. In most
U.S. jurisdictions, the applicable gaming regulations require online gaming
operators that offer real-money offerings to operate under the gaming license
of, or partner with, a land-based operator such as a bricks-and-mortar casino or
other type of local partner such as a professional sports team. Consequently, we
leverage our relationships with bricks-and-mortar casinos and vendors in the
gaming industry to find high-quality and reliable partners for online gaming
collaboration. Upon securing a partner for access to a specific market (if
required or desirable) and before we launch operations in that market, we
customize our online gaming platform to the laws and regulations of the
jurisdiction. Then, upon entering a new market, we employ a number of marketing
strategies to obtain new customers as well as leverage our partner's database
when applicable. We continuously refine our offerings and marketing strategies
based on data collected from each market. To attract, engage, retain and/or
reactivate customers, we offer a loyalty program that rewards customers in
exciting, fair
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and transparent ways. We recognize and reward customer loyalty by, among other
things, ensuring there are exciting benefits at each of the customer loyalty
levels we currently offer.

The Business Combination

On December 29, 2020, we completed the Business Combination. As a result of the
Business Combination, we are organized in an Up-C structure, in which
substantially all the assets of the combined company are held by RSILP and its
subsidiaries, and the Company's only assets are its equity interests in RSILP
(which are held indirectly through wholly owned subsidiaries of the Company -
the Special Limited Partner and RSI GP, LLC ("RSI GP")). As of the Closing, the
Company owned, indirectly through the Special Limited Partner, approximately
21.9% of the RSILP Units (which includes 100% of the earnout interests that were
earned in January 2021) and controls RSILP through RSI GP, and the Sellers owned
approximately 78.1% of the RSILP Units (which includes 100% of the earnout
interests that were earned in January 2021) and control the Company through the
ownership of the Class V Voting Stock. The Company has also entered into certain
customary agreements in connection with the Business Combination, including the
Tax Receivable Agreement, which provides for the sharing of certain tax benefits
as realized by the Company. See "Business - Business Combination" for a more
comprehensive description of the Business Combination and the agreements entered
into in connection therewith.

Trends in Key Metrics

Monthly Active Users

MAUs is the number of unique users per month who have placed at least one
real-money bet across one or more of our online casino or online sports betting
offerings. For periods longer than one month, we average the MAUs for the months
in the relevant period. We exclude users who have made a deposit but have not
yet placed a real-money bet on at least one of our online offerings. We also
exclude users who have placed a real-money bet but only with promotional
incentives. The numbers of unique users included in calculating MAUs include
U.S.-based users only.

MAUs is a key indicator of the scale of our user base and awareness of our
brands. We believe that year-over-year MAUs is also generally indicative of the
long-term revenue growth potential of our business, although MAUs in individual
periods may be less indicative of our longer-term expectations. We expect the
number of MAUs to grow as we attract, retain and re-engage users in new and
existing jurisdictions and expand our offerings to appeal to a wider audience.
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The following graph shows our average MAUs for the years ending 2021 and 2020:

                     [[Image Removed: rsi-20211231_g8.jpg]]

The year-over-year increase in MAUs was mainly due to our continued growth and
strong customer retention rates in existing markets such as Pennsylvania, New
Jersey, Illinois, Indiana, Colorado and Colombia, as well as our expansion into
new markets such as Arizona, Connecticut, Michigan, Virginia and West Virginia.
Additionally, we continue to achieve a positive response from our strategic
advertising and marketing efforts.

Average monthly revenue per active user

ARPMAU for an applicable period is average revenue divided by average MAUs. This
key metric represents our ability to drive usage and monetization of our online
offerings.
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The following graph shows our ARPMAU for the years ending in 2021 and 2020:

                     [[Image Removed: rsi-20211231_g9.jpg]]

The year-over-year increase in ARPMAU was mainly due to a favorable mix of
online casino MAUs, as casino customers generally generate more revenue per user
than sports betting customers. Additionally, as our product offerings continue
to be available in more mature markets, customer bonusing volumes have
decreased, thus resulting in higher ARPMAUs. This year-over-year increase in
ARPMAUs was partially offset by increased promotional spend related to new
market launches in jurisdictions such as Michigan, Virginia, West Virginia,
Arizona and Connecticut.

Non-GAAP information

This MD&A includes Adjusted EBITDA, which is a non-GAAP performance measure that
we use to supplement our results presented in accordance with U.S. GAAP. We
believe Adjusted EBITDA provides useful information to investors regarding our
results of operations and operating performance, as it is similar to measures
reported by our public competitors and is regularly used by security analysts,
institutional investors and other interested parties in analyzing operating
performance and prospects. Non-GAAP financial measures are not intended to be
considered in isolation or as a substitute for any GAAP financial measures and,
as calculated, may not be comparable to other similarly titled measures of
performance of other companies in other industries or within the same industry.

We define Adjusted EBITDA as net income (loss) before interest expense, income
taxes, depreciation and amortization, share-based compensation, adjustments for
certain one-time or non-recurring items and other adjustments. Adjusted EBITDA
excludes certain expenses that are required in accordance with U.S. GAAP because
certain expenses are either non-cash (for example, depreciation and
amortization, and share-based compensation) or are not related to our underlying
business performance (for example, interest income or expense).

We include Adjusted EBITDA because management uses it to evaluate our core
operating performance and trends and to make strategic decisions regarding the
distribution of capital and new investments. Management believes that Adjusted
EBITDA provides investors with useful information on our past financial and
operating performance, enable comparison of financial results from
period-to-period where certain items may vary independent of business
performance, and allow for greater transparency with respect to metrics used by
our management in operating our business. Management also believes this non-GAAP
financial measure is useful in evaluating our operating performance compared to
that of other companies in our industry, as this metric generally eliminates the
effects of certain items that may vary from company to company for reasons
unrelated to overall operating performance.
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The table below shows our adjusted EBITDA reconciled with our net loss, the nearest WE GAAP measure, for the indicated periods:

                                                            Years Ended December 31,
($ in thousands)                                              2021                2020
Net loss                                              $     (71,092)          $ (131,645)

Depreciation and amortization                                 4,245                2,082
Interest expense, net                                           187                  135
Income tax expense                                            4,688                2,919
One-time payment from Affiliated casino                           -         

(9,000)

Change in the fair value of liabilities for clearing interest 13,740

2,338

Change in fair value of warrant liabilities                 (41,802)              (7,166)
Share-based compensation                                     24,912              144,733
Adjusted EBITDA                                       $     (65,122)          $    4,396

Key factors affecting our results

Our financial position and results of operations depend to a large extent on the following factors:

Industry opportunity and competitive landscape

We operate within the global gaming and entertainment industry, which is
comprised of diverse products and offerings that compete for consumers' time and
disposable income. As we prepare to enter new jurisdictions, we expect to face
significant competition from other established industry players, some of which
may have more experience in online casino, and online and/or retail sports
betting, and have access to more resources. We believe that our proprietary
online gaming platform, our experience operating in domestic and foreign
jurisdictions, our brand and marketing strategies, which appeal to both male and
female customers, and our many unique product offerings and bonusing features
will enable us to compete with such established industry players.

Our performance may vary from jurisdiction to jurisdiction as a result of the level of jurisdiction in each jurisdiction.

Legalization, Regulation and Taxation

Our financial growth prospects depend on legalization of online casino and
sports betting across more regulated jurisdictions, with particular emphasis on
the United States, a trend that we believe is still in its early stage. Online
casino may expand further due to many factors, including that many U.S. states
are seeking ways to increase revenues. Online sports betting's prospects were
made possible after the U.S. Supreme Court struck down PASPA in May 2018. Our
strategy is to enter new jurisdictions that we believe are financially prudent
for us to enter as they are legalized. Online casino is currently authorized
only in seven states: Connecticut, Delaware, Michigan, New Jersey, Pennsylvania,
West Virginia and Nevada (although regulators have not authorized online casino
outside of physical casinos in Nevada). As of the date hereof, 32 states and the
District of Columbia have authorized sports betting. Of those 33 jurisdictions,
22 states have authorized statewide online sports betting while 11 remain
authorized for retail-only at casinos or retail locations.

The process of securing the necessary licenses or partnerships to operate in a
given jurisdiction may take longer than we anticipate. In addition, legislative
or regulatory restrictions and gaming taxes may make it less attractive or more
difficult for us to do business in a particular jurisdiction. Further, certain
jurisdictions require us to have a relationship with a bricks-and-mortar casino
or other land-based partner for online sports betting access, which tends to
increase our costs of revenue. Jurisdictions that have established state or
government-run monopolies may limit opportunities for private operators such as
us.

States and some local governments impose tax rates on online casino and sports
betting, which may vary substantially between states. We are also subject to a
federal excise tax of 0.25% on the amount of each sports bet placed. We believe
the jurisdictions that will create the most compelling levels of profitability
for us are jurisdictions with both online casino and sports betting at favorable
tax rates.
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Ability to acquire, retain and monetize customers

Our ability to effectively market is critical to operational success. Using
experience, dynamic learnings and analytics, we leverage marketing to acquire,
convert, retain and/or re-engage customers. We use a variety of earned media and
paid marketing channels, in combination with compelling offers and unique game
and site features, to attract and engage customers. Furthermore, we continuously
optimize our marketing spend using data collected from our operations. Our
marketing spend is based on a return-on-investment model that considers a
variety of factors, including the products offered in the jurisdiction, the
performance of different marketing channels, predicted lifetime value, marginal
costs and expenses and behavior of customers across various product offerings.

With respect to paid marketing, we use a broad array of advertising channels,
including television, radio, social media platforms, sponsorships, affiliates
and paid search, and other digital channels. We also use other forms of
marketing and outreach, such as our social media channels, first-party websites,
media interviews and other media spots and organic searches. These efforts are
concentrated within the specific jurisdictions where we operate or intend to
operate. We believe there is significant benefit to having a flexible approach
to advertising spending as we can quickly redirect our advertising spending
based on dynamic testing of which advertising methods and channels are working
and which ones are not.

These investments and personalized promotions are intended to increase consumer
awareness and drive engagement. While we have some data points, particularly in
New Jersey, of the effectiveness of our marketing and promotion activities, our
limited operating history and the relative novelty of the U.S. online casino and
sports betting industries make it difficult for us to predict when we will
achieve our longer-term profitability objectives.

Betting risk management

The online casino and retail and online sports betting businesses are
characterized by an element of chance. Accordingly, we employ theoretical win
rates to estimate what a certain type of online casino wager or retail or online
sports bet, on average, will win or lose in the long run. Revenue is impacted by
variations in the hold percentage (the ratio of winnings to total amount bet)
with respect to the online casino and retail and online sports betting we offer
to our customers. We use the hold percentage as an indicator of an online casino
game or retail or online sports bet's performance against its expected outcome.
Although each online casino wager or retail or online sports bet generally
performs within a defined statistical range of outcomes in the long run, actual
outcomes may vary for any given period, particularly in the short term. In the
short term, for online casino and retail and online sports betting, the element
of chance may affect win rates (hold percentages); these win rates, particularly
for retail and online sports betting, may also be affected in the short term by
factors that are largely beyond our control, such as unanticipated event
outcomes, a customer's skill, experience and behavior, the mix of games played
or bets placed, the financial resources of customers, the volume of bets placed
and the amount of time spent betting. For online casino games, it is possible a
random number generator outcome or game will malfunction and award errant
prizes. For retail and online sports betting, it is possible that our platform
erroneously posts odds or is otherwise misprogrammed to pay out odds that are
highly favorable to bettors, and bettors place bets before the odds are
corrected. Additionally, odds compilers and risk managers are capable of human
error, so even if our betting products are subject to a capped payout,
significant volatility can occur. As a result of the variability in these
factors, the actual win rates on our online casino games and retail and online
sports bets may differ from the theoretical win rates we have estimated and
could result in the winnings of our online casino or sports betting customers
exceeding those anticipated. The variability of win rates (hold rates) also has
the potential to adversely affect our business, financial condition, results of
operations, prospects and cash flows.

Combination of income according to the time period in the markets

Our profitability generally depends on how long we have been operating in each
jurisdiction. Generally, but not always, our profitability levels will increase
in a jurisdiction as we have operated there for longer.

Revenue combination of our different operating models

Because we operate using two different operating models, each of which has its
own unique range of profitability, the relative proportion of revenue that is
derived from each operating model in a given time period could impact our
overall level of profitability.
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Key components of revenue and expenditure

Income

We offer real money online casino, online sports betting and / or retail sports betting in thirteen WE states and Colombia. We also offer social games (where they allow, including Ontario, Canada), where users receive virtual credits to enjoy free games.

Our revenue is predominantly generated from our U.S. operations, with the
remaining revenue being generated from our Colombian operations. See Note 4 to
our consolidated financial statements, included elsewhere in this Annual Report.
We generate revenue primarily through the following offerings.

Online casino

Online casino offerings typically include the full suite of games available in
bricks-and-mortar casinos, such as table games (i.e., blackjack and roulette)
and slot machines. For these offerings, we function similarly to
bricks-and-mortar casinos, generating revenue through hold, or gross winnings,
as customers play against the house. Like bricks-and-mortar casinos, there is
volatility with online casino, but as the number of bets placed increases, the
revenue retained from bets placed becomes easier to predict. Our experience has
been that online casino revenue is less volatile than sports betting revenue.

Our online casino offering consists of a combination of licensed content from
leading suppliers in the industry, customized third-party games and a small
number of proprietary games that we developed in-house. Third-party content is
usually subject to standard revenue-sharing agreements specific to each
supplier, where the supplier generally receives a percentage of the net gaming
revenue generated from its casino games played on our platform. In exchange, we
receive a limited license to offer the games on our platform to customers in
jurisdictions where use is approved by the regulatory authorities. We pay much
lower fees on revenue generated through our in-house developed casino games such
as our multi-bet blackjack (with side bets: 21+3, Lucky Ladies, Lucky Lucky),
and single-deck blackjack, which primarily relate to hosting/remote gaming
server fees and certain intellectual property license fees.

Online casino revenue is generated based on total customer bets less amounts
paid to customers for winning bets, less incentives awarded to customers, plus
or minus the change in the progressive jackpot reserve.

Online sports betting

Online sports betting involves a user placing a bet on the outcome of a sporting
event, or a series of sporting events, with the chance to win a pre-determined
amount, often referred to as fixed odds. Online sports betting revenue is
generated by setting odds such that there is a built-in theoretical margin in
each sports bet offered to customers. While sporting event outcomes may result
in revenue volatility, we believe that we can achieve a long-term betting win
margin.

Integrated into our online sports betting platform is a third-party risk and
trading platform currently provided by certain subsidiaries of Kambi Group plc.
In addition to traditional fixed-odds betting, we also offer other sports
betting products including in-game betting and multi-sport and same-game parlay
betting. We have also incorporated live streaming of certain sporting events
into our online sports betting offering.

Online sports revenue is generated based on total customer bets less amounts
paid to customers for winning bets, less incentives awarded to customers, plus
or minus the change in unsettled sports bets.

Retail sports betting

We provide retail sports services to certain land-based partners in exchange for
a monthly commission that is calculated based on the land-based retail
sportsbook revenue. Services generally include ongoing management and oversight
of the retail sportsbook (i.e., within a bricks-and-mortar location), technical
support for the partner's customers, risk management, advertising and promotion,
and support for third-party sports betting equipment.

In addition, certain relationships with business partners provide us the ability
to operate the retail sportsbook at the land-based partner's facility. In this
scenario, revenue is generated based on total customer bets less amounts paid to
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customers for winning bets, less other incentives granted to customers, more or less the change of unresolved retail sports betting.

Social games

We provide social gaming (where permitted) where users are given virtual credits
to enjoy free-to-play games. Users who exhaust their credits can either purchase
additional virtual credits from the virtual cashier or wait until their virtual
credits are replenished for free. Virtual credits have no monetary value and can
only be used within our social gaming platform.

Our social gaming business has three main goals: building online databases in
key markets ahead of and post-legalization and regulation; generating revenues;
and increasing engagement and visitation to our bricks-and-mortar casino partner
properties. Our social gaming products are a marketing tool that keeps the
applicable brands present in the minds of our users and engages with users
through another channel while providing the entertainment value that users seek.
We also leverage our social gaming products to cross-sell to our real-money
offerings in jurisdictions where real-money gaming is authorized.

We recognize deferred revenue when users purchase virtual credits and revenue
when the virtual credits are redeemed. We pay a percentage of the social gaming
revenue derived from the sale and redemption of the virtual credits to content
suppliers as well as to our land-based partners.

Costs and Expenses

Costs of Revenue. Costs of revenue consist primarily of (i) revenue share and
market access fees, (ii) platform and content fees, (iii) gaming taxes, (iv)
payment processing fees and chargebacks and (v) salaries, bonuses, benefits and
share-based compensation for dedicated personnel. These costs are primarily
variable in nature and should, in large part, correlate with the change in
revenue. Revenue share and market access fees consist primarily of amounts paid
to local land-based partners that hold the applicable gaming license, providing
us the ability to offer our real-money online offerings in the respective
jurisdictions. Our platform and content fees are primarily driven by costs
associated with third-party casino content, sports betting trading services and
certain elements of our platform technology, such as geolocation and
know-your-customer. Gaming taxes primarily relate to state taxes and are
determined on a jurisdiction-by-jurisdiction basis. We incur payment processing
costs on customer deposits and occasionally chargebacks (i.e., when a payment
processor contractually disallows customer deposits in the normal course of
business).

Advertising and Promotions Costs. Advertising and promotion costs consist
primarily of costs associated with marketing our offerings via different
channels, promotional activities and the related costs incurred to acquire new
customers. These costs also include salaries, bonuses, benefits and share-based
compensation for dedicated personnel and are expensed as incurred.

Our ability to effectively market is critical to operational success. Using
experience, dynamic learnings and analytics, we leverage marketing to acquire,
convert, retain and re-engage customers. We use a variety of earned media and
paid marketing channels, in combination with compelling offers and unique game
and site features, to attract and engage customers. Furthermore, we continuously
optimize our marketing spend using data collected from our operations. Our
marketing spend is based on a return-on-investment model that considers a
variety of factors, including the products and services offered in the
jurisdiction, the performance of different marketing channels, predicted
lifetime value, marginal costs and expenses and behavior of customers across
various product offerings.

With respect to paid marketing, we use a broad array of advertising channels,
including television, radio, social media platforms, sponsorships, affiliates
and paid search, and other digital channels. We also use other forms of
marketing and outreach, such as our social media channels, first-party websites,
media interviews and other media spots and organic searches. These efforts are
primarily concentrated within the specific jurisdictions where we operate or
intend to operate. We believe there is significant benefit to having a flexible
approach to advertising spending as we can quickly redirect our advertising
spending based on dynamic testing of our advertising methods and channels.

General Administration and Other. General administration and other expenses
consist primarily of administrative personnel costs, including salaries, bonuses
and benefits, share-based compensation expense, professional fees related to
legal, compliance, audit and consulting services, rent and insurance costs.
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Depreciation and Amortization. Depreciation and amortization expense consists of
depreciation on our property and equipment and amortization of market access
licenses, gaming jurisdictional licenses, internally developed software and
finance lease right of use assets over their useful lives. See Notes 2, 5 and 6
to our consolidated financial statements, included elsewhere in this Annual
Report.

Results of operations

The following table sets forth a summary of our consolidated results of
operations for the years indicated, and the changes between periods. We have
derived this data from our consolidated financial statements included elsewhere
in this Annual Report. This information should be read in conjunction with our
consolidated financial statements and related notes included elsewhere in this
Annual Report. The results of historical periods are not necessarily indicative
of the results of operations for any future period.

Comparison of finished years December 31, 2021 and 2020

                                                   Years Ended December 31,                            Change
($ in thousands)                                   2021                   2020                 $                   %
Revenue                                    $     488,105              $  278,500          $ 209,605                  75  %
Costs of revenue                                 332,145                 190,873            141,272                  74  %
Advertising and promotions                       190,476                  56,517            133,959                 237  %
General administration and other                  55,518                 162,447           (106,929)                (66) %
Depreciation and amortization                      4,245                   2,082              2,163                 104  %
Loss from operations                             (94,279)               (133,419)            39,140                 (29) %
Interest expense, net                               (187)                   (135)               (52)                 39  %
Change in fair value of earnout interests
liability                                        (13,740)                 (2,338)           (11,402)                488  %
Change in fair value of warrant
liabilities                                       41,802                   7,166             34,636                 483  %
Loss before income taxes                         (66,404)               (128,726)            62,322                 (48) %
Income tax expense                                 4,688                   2,919              1,769                  61  %
Net loss                                   $     (71,092)             $ (131,645)         $  60,553                 (46) %


Revenue. Revenue increased by $209.6 million, or 75%, to $488.1 million in 2021
as compared to $278.5 million in 2020. The increase was mainly due to and
directly correlated with our continued growth in the majority of our existing
markets, as well as our expansion into new markets such as Michigan, West
Virginia, and Connecticut. The increase reflects higher period-over-period
online casino and sports betting revenue of $206.3 million, retail sports
betting revenue of $2.6 million, and social gaming revenue of $0.7 million.

Costs of Revenue. Costs of revenue increased by $141.3 million, or 74%, to
$332.2 million in 2021 as compared to $190.9 million in 2020. The increase was
mainly due to and directly correlated with, our expansion and continued growth
in existing and new markets. Market access costs, operating expenses, gaming
taxes and payment processing costs contributed $21.8 million, $26.5 million,
$70.2 million, and $18.5 million, respectively, to the year-over-year increase
in costs of revenue, with personnel costs contributing to the remaining $4.3
million of the year-over-year increase. Costs of revenue as a percentage of
revenue decreased to 68% in 2021 as compared to 69% in 2020.

Advertising and Promotions. Advertising and promotions expense increased by
$134.0 million, or 237%, to $190.5 million in 2021 as compared to $56.5 million
in 2020. The increase was mainly due to new and increased marketing efforts and
strategies in newly entered and existing markets to increase customer awareness
and acquisition of our offerings, such as executing strategic marketing or
sponsorship arrangements with the three-time NBA champion Detroit Pistons, hall
of famer Jerome Bettis, legendary NBA coach George Karl, nine-time First
Division/Premier League champions, Everton Football Club, the Chicago Bears,
Mike Ditka, Field of 68 Media Network, Field of 12 Media Network, Mark Schlereth
and podcast organizations. Advertising and promotions expense as a percentage of
revenue increased to 39% in 2021 as compared to 20% in 2020.

General Administration and another. Administration and other overheads are reduced by $ 106.9 millionor 66%, a $ 55.5 million in 2021 compared to
$ 162.4 million in 2020. The year-on-year decrease was mainly due to a reduction in share-based compensation expenditure $ 119.8 millionwhich was partially offset by an increase in other generals and

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administrative expenses of $ 12.9 million. General administration and other expenses as a percentage of revenue fell to 11% in 2021, compared to 58% in 2020.

Depreciation and Amortization. Depreciation and amortization expense increased
by $2.2 million, or 104%, to $4.3 million in 2021 as compared to $2.1 million in
2020. The increase was mainly due to purchases of property and equipment and the
related depreciation expense, and additional acquisition of gaming licenses,
amounts paid for internally developed software, and capitalization of certain
leases and the related amortization expense. Depreciation and amortization
expense as a percentage of revenue remained flat at 1% in 2021 and 2020.

Interest expense, net. Interest expense, net increased by $0.1 million, or 39%,
to $0.2 million in 2021 as compared to $0.1 million in 2020. The increase was
mainly attributable to the recognition of additional imputed interest associated
with the recognition of deferred royalties and the commencement of additional
leases as we continue to expand into new jurisdictions.

Change in fair value of earnout interests liability. Change in fair value of
earnout interests liability was $13.7 million in 2021 and $2.3 million in 2020.
Gains and losses are attributable to the remeasurement of the liability at fair
value and were primarily a result of changes in the underlying share price of
our Class A Common Stock. The liability was fully settled during the year ended
December 31, 2021.

Change in fair value of warrant liabilities. Change in fair value of warrant
liability was $41.8 million in 2021 and $7.2 million in 2020. Gains and losses
are attributable to the remeasurement of the liability at fair value and were
primarily a result of changes in the underlying share price of our Class A
Common Stock. The liability was fully settled during the year ended December 31,
2021.

Income tax expense. Income tax expense increased by $1.8 million, or 61%, to
$4.7 million in 2021 as compared to $2.9 million in 2020. The increase in income
tax expense is attributable to the profitability of certain of our subsidiaries.
Income tax as a percentage of revenue remained flat at 1% in 2021 and 2020.

Comparison of finished years December 31, 2020 and 2019

                                                   Years Ended December 31,                            Change
($ in thousands)                                   2020                    2019                 $                   %
Revenue                                    $      278,500              $  63,667          $  214,833                 337  %
Costs of revenue                                  190,873                 32,893             157,980                 480  %
Advertising and promotions                         56,517                 28,313              28,204                 100  %
General administration and other                  162,447                 23,649             138,798                 587  %
Depreciation and amortization                       2,082                  1,139                 943                  83  %
Loss from operations                             (133,419)               (22,327)           (111,092)                498  %
Interest expense, net                                (135)                  (123)                (12)                 10  %
Change in fair value of earnout interests
liability                                          (2,338)                     -              (2,338)                100  %
Change in fair value of warrant
liabilities                                         7,166                      -               7,166                 100  %
Loss before income taxes                         (128,726)               (22,450)           (106,276)                473  %
Income tax expense                                  2,919                      -               2,919                 100  %
Net loss                                   $     (131,645)             $ (22,450)         $ (109,195)                486  %


Revenue. Revenue increased by $214.8 million, or 337%, to $278.5 million in 2020
as compared to $63.7 million in 2019. The increase was mainly due to, and
directly correlated with, our expansion into new markets (specifically Illinois,
Colorado and Iowa), our continued growth in markets that we entered in 2019 such
as Pennsylvania and our accelerated adoption of online casino during the
COVID-19 pandemic and to a lesser extent, online sports betting once sports
seasons and events resumed toward the end of the third quarter of 2020. The
increase reflects higher period-over-period online casino and sports betting
revenue of $212.5 million, social gaming revenue of $2.2 million and retail
sports betting revenue of $0.1 million.

Costs of Revenue. Costs of revenue increased by $158.0 million, or 480%, to
$190.9 million in 2020 as compared to $32.9 million in 2019. The increase was
mainly due to and directly correlated with, our expansion and continued growth
in
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existing and new markets (specifically Illinois, Colorado and Iowa). Market
access costs, operating expenses and gaming taxes contributed $129.4 million,
$18.1 million and $5.0 million, respectively, to the year-over-year increase in
costs of revenue, with payments processing costs, personnel costs and other
costs of revenue contributing to the remaining $5.5 million of the
year-over-year increase. Costs of revenue as a percentage of revenue increased
to 69% in 2020 as compared to 52% in 2019.

Advertising and Promotions. Advertising and promotions expense increased by
$28.2 million, or 100%, to $56.5 million in 2020 as compared to $28.3 million in
2019. The increase was mainly due to new and increased marketing efforts and
strategies in newly entered and existing markets to increase customer awareness
and acquisition for our offerings, such as executing strategic marketing or
sponsorship arrangements with the three-time NBA champion Detroit Pistons, hall
of famer Jerome Bettis, legendary NBA coach George Karl and nine-time First
Division/Premier League champions, Everton Football Club. Advertising and
promotions expense as a percentage of revenue decreased to 20% in 2020 as
compared to 44% in 2019.

General Administration and Other. General administration and other expense
increased by $138.8 million, or 587%, to $162.4 million in 2020 as compared to
$23.6 million in 2019. The year-over-year increase was mainly due to $131.3
million of additional non-cash share-based compensation expense in 2020, related
to partnership interests and profits interests in RSILP that were issued before
the Business Combination. The remainder of the increase was due to increased
personnel costs resulting from headcount growth between December 31, 2019 and
2020 as well as customary merit increases. General administration and other
expense as a percentage of revenue increased to 58% for 2020 as compared to 37%
in 2019.

Depreciation and Amortization. Depreciation and amortization expense increased
by $1.0 million, or 83%, to $2.1 million in 2020 as compared to $1.1 million in
2019. The increase was mainly due to purchases and subsequent amortization of
license fees as we continue to expand into new states, such as Illinois and
Colorado. Depreciation and amortization expense as a percentage of revenue
decreased to 1% in 2020 as compared to 2% in 2019.

Interest expenses, net. Interest expenses, net $ 0.1 million the years 2020 and 2019.

Change in fair value of earnout interests liability. Change in fair value of
earnout interests liability was $2.3 million in 2020 and zero in 2019. The
change in fair value was primarily a result of changes in the underlying share
price of our Class A Common Stock.

Change in fair value of warrant liabilities. We classify the Warrants issued in
connection with our February 2020 IPO and the closing of the Business
Combination as derivative liabilities with subsequent changes in their
respective fair values recognized in our consolidated statement of operations
and comprehensive income (loss). Change in fair value of warrant liabilities was
$7.2 million in 2020 and zero in 2019. The change in fair value of warrant
liabilities was due to the increase in the estimated fair value of the Warrants,
which was primarily a result of changes in the underlying share price of our
Class A Common Stock, offset by warrant issuance costs. Subsequent to the
Business Combination, we had 11,500,000 Public Warrants, 6,600,000 Private
Placement Warrants and 75,000 Working Capital Warrants outstanding as of
December 31, 2020.

Income tax expense. The expense for income tax was $ 2.9 million in 2020 and zero in 2019.

Seasonality and other trends that affect our business

Our results of operations can and generally do fluctuate due to seasonal trends
and other factors such as level of customer engagement, online casino and sports
betting results and other factors that are outside of our control or that we
cannot reasonably predict. Our quarterly financial performance depends on our
ability to attract and retain customers. Customer engagement in our online
offerings may vary due to, among other things, customer satisfaction with our
platform, the number and timing of sporting events, the length of professional
sports seasons, our offerings and those of our competitors, our marketing
efforts, climate and weather conditions, public sentiment or an economic
downturn. As customer engagement varies, so may our quarterly financial
performance.

Our quarterly financial results may also be impacted by the number and amount of
betting losses and jackpot payouts we experience. Although our losses are
limited per stake to a maximum payout in our online casino offering, when
looking at bets across a period of time, these losses can be significant. As
part of our online casino offering, we offer progressive jackpot games. Each
time a customer plays a progressive jackpot game, we contribute a portion of the
amount bet to the
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jackpot for that game or group of games. When a progressive jackpot is won, the
jackpot is paid out and is reset to a predetermined base amount. As winning the
jackpot is determined by a random mechanism, we cannot foresee when a jackpot
will be won and we do not insure against jackpot payouts. Paying the progressive
jackpot decreases our cash position and depending upon the size of the jackpot
it may have a significant negative affect on our cash flow and financial
condition.

Our online sports betting and retail sports betting operations experience
seasonality based on the relative popularity and frequency of certain sporting
events. Although sporting events occur throughout the year, our online sports
betting customers are most active during the American football season as well as
during the NBA and NCAA basketball seasons. In addition, the suspension,
postponement or cancellation of major sports seasons and sporting events, due to
COVID-19, may adversely impact our quarterly results. See "- Impact of
COVID-19."

From a legislative perspective, we are continuing to see strong momentum to
legalize and regulate online sports betting in new U.S. jurisdictions. As
expected, in many cases these new U.S. jurisdictions are first trying to
legalize and regulate online sports betting before considering whether to
legalize and regulate online casino. However, given the tax generation success
of online casino in markets where it has been legalized, we are also continuing
to see strong momentum for online casino in several U.S. jurisdictions that are
looking for additional revenue sources to fund expanding budgets.

We operate within the global gaming and entertainment industry, which is
comprised of diverse products and offerings that compete for consumers' time and
disposable income. We face and expect to continue to face significant
competition from other industry players both within existing and new markets
including from competitors with access to more resources or experience. Customer
demands for new and innovative offerings and features require us to continue to
invest in new technologies and content to improve the customer experience. Many
jurisdictions in which we operate or intend to operate in the future have unique
regulatory and/or technological requirements, which require us to have robust,
scalable networks and infrastructure, and agile engineering and software
development capabilities. The global gaming and entertainment industry has seen
significant consolidation, regulatory change and technological development over
the last few years, and we expect this trend to continue into the foreseeable
future, which may create opportunities for us but may also create competitive
and margin pressures.

Liquidity and capital resources

We measure liquidity in terms of our ability to fund the cash requirements of
our business operations, including working capital and capital expenditure
needs, contractual obligations and other commitments, with cash flows from
operations. Our current working capital needs relate mainly to supporting our
existing businesses, the growth of these businesses in their existing markets
and their expansion into other geographic regions, as well as our employees'
compensation and benefits.

We had $281.0 million in cash and cash equivalents as of December 31, 2021
(excluding customer cash deposits, which we segregate from our operating cash
balances on behalf of our real-money customers for all jurisdictions and
products). On February 22, 2021, we announced the redemption (the "Redemption")
of all the Company's warrants to purchase Class A common stock that were issued
to third parties in connection with dMY Technology Group, Inc.'s initial public
offering (the "Public Warrants"), which were exercisable for an aggregate of
approximately 11.5 million shares of Class A Common Stock at a price of $11.50
per share. During the year ended December 31, 2021, 11,442,389 Public Warrants
were exercised at a price of $11.50 per share, resulting in cash proceeds of
approximately $131.6 million. We intend for the foreseeable future to continue
to finance our operations without third-party debt and entirely from operating
cash flows and proceeds from the Redemption.

In connection with the Business Combination, we executed the TRA, by and among
the Special Limited Partner, RSILP, the Sellers and the Sellers' representative,
which generally provides for the payment by the Special Limited Partner of 85%
of certain net tax benefits, if any, that RSI and its consolidated subsidiaries,
including the Special Limited Partner, realizes (or in certain cases is deemed
to realize) as a result of the increases in tax basis and tax benefits related
to the transactions contemplated under the Business Combination Agreement and
the exchange of Retained RSILP Units for Class A Common Stock (or cash) and tax
benefits related to entering into the TRA, including tax benefits attributable
to payments under the TRA. Although the actual timing and amount of any payments
made under the TRA will vary, such payments may be significant. Any payments
made under the TRA will generally reduce the amount of overall cash flow that
might have otherwise been available to us and, to the extent that payments
required under the TRA are unable to be made for any reason, the unpaid amounts
generally will be deferred and will accrue interest until paid. To date, no
material payments under the TRA have been made, and no payments or accrued
payments thereunder are expected in the near future
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since payments under the TRA are not due until the tax benefits generated under it are more likely to be realized.

We expect our existing cash and cash equivalents, proceeds from the Redemption
and cash flows from operations to be sufficient to fund our operating activities
and capital expenditure requirements for at least the next 12 months and
thereafter for the foreseeable future. We may, however, need additional cash
resources due to changed business conditions or other developments, including
unanticipated regulatory developments, significant acquisitions and competitive
pressures. We expect our capital expenditures and working capital requirements
to continue to increase in the immediate future to support our growth as we seek
to expand our offerings across more of the United States and worldwide, which
will require significant investment in our online gaming platform and our
personnel, in particular in product development, engineering and operations
roles. See Note 16 of our consolidated financial statements, included elsewhere
in this Annual Report for a summary of our commitments as of December 31, 2021.
We also expect to increase our marketing, advertising and promotional spend in
existing and new markets, as well as market access fees and license costs as we
continuing to enter into new market access arrangements with local partners in
new jurisdictions. In particular, we are party to several non-cancelable
contracts with vendors and licensors for marketing and other strategic
partnerships where we are obligated to make future minimum payments under the
non-cancelable terms of these contracts. To the extent that our current
resources are insufficient to satisfy our cash requirements, we may need to seek
additional equity or debt financing. If the needed financing is not available,
or if the terms of financing are less desirable than we expect, we may be forced
to decrease our level of investment in new product or service launches and
related marketing initiatives or to scale back our existing operations, which
could have an adverse impact on our business and financial prospects. See Note 1
to our consolidated financial statements, included elsewhere in this Annual
Report.

We expect our material cash requirements during the upcoming 12-month period to
include $0.8 million of lease payments, $10.0 million of license and market
access fees, and $18.4 million of non-cancellable purchase obligations with
marketing vendors. In addition, we will continue to pursue expansion into new
markets, which is expected to require significant capital investments. We have
$56.5 million of additional non-cancellable purchase obligations subsequent to
the upcoming 12-month period. Management believes our current cash holdings and
various avenues available to pursue funding in capital market will suffice to
fund these obligations.

How to December 31, 2021we had no off-balance sheet agreements.

Debt

How to December 31, 2021, we had no outstanding debt. We have a pending letter of credit $ 1.0 million in connection with our operations a Colombiafor which no amounts have been withdrawn from December 31, 2021.

Cash flows

The following table shows our cash flows from operating activities, investment activities and financing activities for the periods indicated:

                                                                  Years Ended December 31,
($ in thousands)                                         2021               2020               2019

Net cash provided for (used in) operating activities $ 48,186 $ 16,179 $ 2,459
Net cash used in investment activities

                  (37,002)            (6,243)            (5,770)
Net cash provided by financing activities              125,584            241,071             15,545
Effect of exchange rate changes on cash, cash
equivalents and restricted cash                         (2,132)               515                 (6)

Net change in cash, cash equivalents and restricted cash

                                                 $  38,264          $ 

251,522 $ 7,310


Operating activities. Net cash used in operating activities was $48.2 million
for the year ended December 31, 2021 as compared to $16.2 million provided by
operating activities for the year ended December 31, 2020. The increased use of
cash reflects a lower period-over-period net loss totaling $60.6 million, which
was more than offset by lower non-cash expenses totaling $140.7 million and a
decline in working capital changes of $15.8 million. The increase in non-cash
expenses totaling $140.7 million was driven primarily by an decrease in
share-based compensation expense of $119.8 million and the change in fair value
of warrant liabilities of $34.6 million, partially offset by the change in fair
value of earnout interests liability of $11.4 million.
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Net cash provided by operating activities was $16.2 million for the year ended
December 31, 2020 as compared to $2.5 million used in operating activities for
the year ended December 31, 2019. The increase reflects a higher
period-over-period net loss totaling $109.2 million, which was more than offset
by higher non-cash expenses totaling $127.6 million and improvement in working
capital of $0.2 million. The increase in non-cash expenses totaling $127.6
million was driven primarily by an increase in share-based compensation expense
of $131.3 million and the change in fair value of earnout interests liability of
$2.3 million, partially offset by the change in fair value of warrant
liabilities of $7.2 million.

Investing activities. Net cash used in investing activities during 2021
increased by $30.8 million to $37.0 million, as compared to $6.2 million during
2020. The increase reflects higher period-over-period costs including increased
gaming license acquisition purchases of $19.2 million, cash paid for internally
developed software costs of $4.1 million, acquisition of developed technology
intangible assets of $3.3 million, property and equipment costs of $2.0 million,
investment in equity of $1.5 million, and investments in long-term time deposits
of $0.7 million.

Net cash used in investing activities during 2020 increased by $0.4 million to
$6.2 million, as compared to $5.8 million during 2019. The increase reflects
higher period-over-period purchases of property and equipment of $1.4 million,
partially offset by lower period-over-period acquisitions of gaming licenses of
$1.0 million such as Illinois and Colorado.

Financing activities. Net cash provided by financing activities during 2021
decreased by $115.5 million to $125.6 million, as compared to $241.1 million
during 2020. The decrease primarily reflects the net proceeds from the exercise
of warrants of $131.6 million, which was more than offset by the Business
Combination and PIPE financing of $239.8 million received during 2020, increased
costs to repurchase common stock of $3.5 million, and increased principal
payments of finance lease liabilities of $2.1 million.

The net cash provided by financing activities during the year 2020 increased by one $ 225.6 million a $ 241.1 millioncompared to $ 15.5 million during 2019. The increase reflects the net income of the Business Combination and the PIPE financing of $ 239.8 million during the year 2020, partially offset by lower capital contributions from shareholders net of shareholder distributions $ 14.2 million.

Critical accounting policies

We have prepared our consolidated financial statements in accordance with GAAP.
In doing so, management is required to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses during
the reporting period. Management bases estimates on historical experience and
other assumptions it believes to be reasonable under the circumstances and
evaluates these estimates on an on-going basis. Actual results may differ from
these estimates. A discussion of our more significant estimates follows.
Management has discussed the development, selection and disclosure of these
estimates and assumptions with the Audit Committee of the Board. See Note 2 to
our consolidated financial statements, included elsewhere in this Annual Report
for further information on our critical and other significant accounting
policies.

Share-based compensation (after the business combination)

We have issued stock-based awards with service-based conditions or market-based
conditions. Our historical and outstanding share-based compensation awards are
described in Note 11 to our consolidated financial statements, included
elsewhere in this Annual Report.

Share-based compensation expense is measured based on the grant-date fair value
of the stock-based awards and is recognized over the requisite service period of
the awards. Following the Business Combination, the fair value of our Class A
Common Stock is now determined based on the quoted market price. To estimate the
fair value of stock option awards, we used the Black-Scholes model, and we used
a Monte Carlo simulation to determine the fair value of grants with market-based
conditions. Both the Black-Scholes model and the Monte Carlo simulation require
management to make a number of key assumptions, including expected volatility,
expected term, risk-free interest rate and expected dividends. The risk-free
interest rate is estimated using the rate of return on U.S. treasury notes with
a life that approximates the expected term. The expected term assumption used in
the Black-Scholes model represents the period of time that the options are
expected to be outstanding and is estimated using the midpoint between the
requisite service period and the contractual term of the option.

The assumptions underlying these assessments represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. As a result, if the expected factors or results change and our management uses significantly different assumptions or estimates, our share-based compensation expense for the future.

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periods may be materially different, including as a result of adjustments to share-based compensation expense recorded for prior periods.

Share-based compensation (before business combination)

Our historical share-based compensation awards, including the issuances of
equity awards and liability awards, are described in Note 11 to our consolidated
financial statements, included elsewhere in this Annual Report. Share-based
compensation expense recognized for the years ended December 31, 2020 and 2019
relates entirely to partnership interests in RSILP that were issued before the
Business Combination.

Share-based awards expected to be satisfied in cash are treated as liability
awards and remeasured at fair value at the end of each reporting period,
recognizing a proportionate amount of the expense for each period over the
vesting period of the award. Share-based awards expected to be satisfied in
Company common stock are treated as equity awards and recorded based on an
estimated grant date fair value and on a straight-line basis over the vesting
period of the award. We account for forfeitures as they occur. Determination of
the fair value of the awards requires judgments and estimates regarding, among
other things, the appropriate methodologies to follow in valuing the awards and
the related inputs required by those valuation methodologies.

Prior to the Business Combination, we obtained a third-party valuation at the
grant date for equity awards and at each remeasurement date for liability awards
based upon assumptions regarding risk-free rates of return, expected
volatilities, the expected term of the award and dividend yield, as applicable.
The risk-free rate was based on an extrapolated 5-year U.S. Treasury bond rate
in effect at the time of grant given the expected time to liquidity. The
expected term represented the period that our awards were expected to be
outstanding and was calculated using a permitted simplified method, which was
based on the vesting period and contractual term for each tranche of awards. The
expected volatility was based on the historical share volatility of several
comparable publicly traded companies over a period of time equal to the expected
term of the awards, as we did not have any trading history of RSILP common units
prior to the Business Combination. The comparable companies were chosen based on
their size, stage in life cycle and area of specialty. The dividend yield used
was zero because we have not paid dividends on RSILP common units nor did we
expect to pay dividends in the foreseeable future.

Prior to the Business Combination, we determined the estimated fair value of the
RSILP common units (which include preferred units, Common A-1 units, Common A-2
units and Common B-1 units) based on third party valuation reports that were
prepared in accordance with the guidance outlined in the American Institute of
Certified Public Accountants Technical Practice Aid, Valuation of
Privately-Held-Company Equity Securities Issued as Compensation.

For the year ended December 31, 2019, we determined the estimated fair value of
the RSILP common units using the Option Pricing Model ("OPM"), an allocation
method that considers the current value of equity and then allocates that equity
value to each equity class based on its corresponding rights and preferences.
The OPM treated the common units and preferred units as call options on our
total equity value, with exercise prices based on the liquidation preferences of
the preferred units. The OPM utilized the Black-Scholes model to price the call
options and considered the various terms of the unitholder agreements that would
affect the distributions to each class of equity upon a liquidity event,
including the level of seniority among the classes of equity, dividend policy,
conversion ratios and cash allocations. We applied a Market Approach (using the
Market Value of Invested Capital) to determine our total equity value. The
Market Value of Invested Capital was determined based on the performance of a
set of guideline comparable companies, known as the Guideline Publicly-Traded
Companies Method, or GPTCM, and a set of guideline comparable recent market
transactions, known as the Guideline Company Transactions Method, or GTM. Under
the GPTCM and GTM, valuation multiples were calculated from the market data and
operating metrics of the guideline companies/transactions. The selected
multiples were evaluated and adjusted based on our strengths and weaknesses
relative to the companies/transactions being analyzed. The selected multiples
were ultimately applied to our operating metrics to calculate indications of
value. A discount for lack of marketability was also then applied.

Beginning in June 2020, we determined the estimated fair value of the RSILP
common units using the Hybrid Method, which incorporated the OPM and the
Probability Weighted Expected Return Method (PWERM) Scenario-Based Method,
estimating the probability-weighted value across multiple scenarios by using the
OPM to estimate the allocation of value within one or more of those scenarios.
The Hybrid Method was utilized given there was transparency into one or more
near-term potential exits but there existed uncertainty regarding what would
occur if the near-term exit plans did not materialize. Under the PWERM, the
values of the various equity interests were estimated based upon an analysis of
future values for RSILP, assuming various potential future outcomes. Share value
was based upon the probability-weighted
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present value of expected future investment returns, considering each of the
possible future outcomes available to us, as well as the rights of each share
class. The future outcomes modeled included (1) an acquisition and (2) continued
operations as a private company until a later exit date. To estimate the total
equity value for the acquisition model, we utilized a Post-Money Value derived
from the Business Combination Agreement, and to estimate the total equity value
for the continued operations as a private company model, we utilized an average
of the values from the GPTCM and GTM analyses.

After deriving the indicated values of equity under each scenario, the common
unit per share equity allocations were calculated based on a cash exit
distribution allocation method for the acquisition model and an OPM for the
continued operations as a private company model. After calculating the per share
values in each model, we applied discounts for the time until exit and lack of
marketability, and then applied a probability estimate to each scenario
(acquisition versus continued operations as a private company), representing the
likelihood of each scenario occurring. The fair value of common units was
ultimately determined by calculating the probability weighted average of both
scenarios.

For the period ended December 29, 2020, we continued to determine the estimated
fair value of the RSILP common units using the OPM and PWERM Scenario-Based
Method. However, because the analysis was performed on December 29, 2020 (i.e.,
the effective date of the Business Combination), we only considered the
acquisition model and not the continued operations as a private company model.
We utilized a Post-Money Value derived from the Business Combination Agreement
to estimate the total equity value and calculated the common unit per share
equity allocations based on a cash exit distribution allocation method. We did
not apply any discount for time until exit, lack of marketability or probability
of executing the merger.

Our management and Board considered various objective and subjective factors to
determine the fair value of RSILP's equity price per unit of each grant date,
including the value determined by a third-party valuation firm. The factors
considered by the third-party valuation firm and our Board included the
following:

• our financial performance, capital structure and development phase;

• our management team and business strategy;

• foreign market conditions affecting our industry, including competition and the regulatory landscape;

• our financial position and expected operating results;

• the lack of an active public or private market for our holdings;

• the probability of getting a liquidity event, such as the sale of Rush Street Interactive, LP or an initial public offering of our capital units; i

• Analysis of the market performance, including the valuation of the unit price, of similar companies in our sector.

Application of these approaches involves the use of estimates, judgment and
assumptions that are highly complex and subjective, such as those regarding our
expected future revenue, expenses and future cash flows, discount rates, market
multiples, the selection of comparable companies and the probability of possible
future events. Changes in any or all of these estimates and assumptions or the
relationships between the assumptions impact our valuations as of each valuation
date and may have a material impact on the valuation of these common units.

By contemplating the business combination, the common RSILP units that existed prior to the business combination, including the profit interests described above, became RSILP Class A common units on December 29, 2020. See Note 3 to our consolidated financial statements, which is included elsewhere in this Annual Report.

Fair value measures

Fair value measurements are based on the premise that fair value is an exit
price representing the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. As
such, fair value is a market-based measurement that should be determined based
on assumptions that market participants would use
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in pricing an asset or liability. As a basis for considering such assumptions,
the following three-tier fair value hierarchy has been used in determining the
inputs used in measuring fair value:

• Level 1 – Quoted prices in active markets for assets or liabilities identical to the date of submission of the report.

•Level 2 - Pricing inputs are based on quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in markets
that are not active and model-based valuation techniques for which all
significant assumptions are observable in the market or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities.

•Level 3 - Pricing inputs are generally unobservable and include situations
where there is little, if any, market activity for the investment. The inputs
into the determination of fair value require management's judgment or estimation
of assumptions that market participants would use in pricing the assets or
liabilities. The fair values are therefore determined using factors that involve
considerable judgment and interpretations, including but not limited to private
and public comparables, third-party appraisals, discounted cash flow models, and
fund manager estimates.

Financial instruments measured at fair value are classified in their entirety
based on the lowest level of input that is significant to the fair value
measurement. Management's assessment of the significance of a particular input
to the fair value measurement in its entirety requires judgment and considers
factors specific to the asset or liability. The use of different assumptions
and/or estimation methodologies may have a material effect on estimated fair
values. Accordingly, the fair value estimates disclosed or initial amounts
recorded may not be indicative of the amount that the Company or holders of the
instruments could realize in a current market exchange. Financial liabilities
subject to fair value measurements on a recurring basis include the Earnout
Interests Liability and Warrant Liabilities.

Interest income liabilities

The earnout interests, as described in Note 9 to our consolidated financial
statements, included elsewhere in this Annual Report, are subject to certain
restrictions on transfer and voting and potential forfeiture pending the
achievement (if any) of certain earnout targets. The earnout targets include (a)
a change of control within three years of the Closing, (b) achieving certain
revenue targets for the year ended December 31, 2021, and (c) achieving certain
volume weighted average share prices ("VWAPs") within three years of the
Closing. With respect to the revenue targets for the 2021 year, the percentage
of Earnout Interests no longer subject to the restrictions, starting at 25% and
ending at 100%, is dependent on achieving revenue equal to $270 million up to
$300 million, respectively. With respect to the earnout targets related to
VWAPs, the share price must be equal to or exceed the target price for 10
trading days of any 20 consecutive trading day period. Pursuant to the Business
Combination Agreement, a VWAP of $12.00 and $14.00 would result in 50% and 100%,
respectively, of the Earnout Interests being no longer subject to the
restrictions. Certain of those earnout targets were achieved in January 2021
and, as a result, 100% of the shares and units subject to these restrictions
were deemed earned and thus were no longer subject to the restrictions.

We obtained a third-party valuation at December 29, 2020 (i.e., the Business
Combination date) and at December 31, 2020 based upon assumptions regarding
share price, maturity, volatility and risk-free rate. The share price represents
the trading price as of the valuation date. The maturity assumption represents
the time to maturity or expiration of the earnout interest, which was three
years. The volatility in the analysis was determined using the Guideline Public
Companies' daily trading activity. Daily volatilities were calculated based on
the daily trading activity using a historical lookback period commensurate with
the maturity. The selected volatility was the average of the Guideline Public
Companies' volatility for the period, which was calculated to be 54.58%. The
risk-free rate utilizes the three-year U.S. Treasury bond rate in effect at the
time of the grant.

The fair value was determined using a Monte Carlo simulation of 500,000 trials
to value the earnout interests as of the valuation date. Within each trial, the
Geometric Brownian Motion formula is used to simulate the underlying security
price through the life of the earnout interests. In each trial, the 10th largest
simulated trading price within any 20-day trading period was observed to
determine if and when the earnout interests met either of the threshold values
($12.00 and $14.00) defined in the Trigger Events. Each future value is
discounted to the appropriate valuation date at the risk-free rate to determine
the value conclusion within each trial. The average of all 500,000 trials yields
the overall valuation conclusion.

How to December 31, 2021none of the interest on earnings remained outstanding.

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Warrant responsibilities

As described in Note 8 to our consolidated financial statements, included
elsewhere in this Annual Report, we evaluated the Public Warrants, Private
Placement Warrants and Working Capital Warrants under ASC 815-40, and concluded
that they do not meet the criteria to be classified in stockholders' equity.
Specifically, the exercise of these warrants may be settled in cash upon the
occurrence of a tender offer or exchange that involves 50% or more of our
stockholders holding Class A Common Stock. Because not all of the stockholders
need to participate in such tender offer or exchange to trigger the potential
cash settlement and we do not control the occurrence of such an event, we
concluded that the Public Warrants, Private Placement Warrants and Working
Capital Warrants do not meet the conditions to be classified in equity. Because
the Public Warrants, Private Placement Warrants and Working Capital Warrants
meet the definition of a derivative under ASC 815-40, we recorded these warrants
as liabilities on our consolidated balance sheet at fair value as of each
reporting date, with subsequent changes in their respective fair values
recognized in our consolidated statement of operations and comprehensive income
(loss).

We determined the fair value of our Public Warrants based on the publicly listed
trading price of such warrants on the valuation date. We determined the fair
value of the Private Placement Warrants and Working Capital Warrants using Level
3 inputs within a Black-Scholes model. The Private Placement Warrants and
Working Capital Warrants were valued as of December 29, 2020 (i.e., the Business
Combination closing date) and December 31, 2020. The significant inputs and
assumptions in this method are the stock price, exercise price, volatility,
risk-free rate, and term or maturity. The underlying stock price input is the
closing stock price as of each valuation date and the exercise price is the
price as stated in the warrant agreement. The volatility input was determined
using the historical volatility of comparable publicly traded companies which
operate in a similar industry or are our direct competitors. Volatility for each
comparable is calculated as the annualized standard deviation of daily
continuously compounded returns. The Black-Scholes analysis is performed in a
risk-neutral framework, which requires a risk-free rate assumption based upon
constant-maturity treasury yields, which are interpolated based on the remaining
term of the Private Placement Warrants and Working Capital Warrants as of each
valuation date. The term/maturity is the duration between each valuation date
and the maturity date, which is five years following the date the Business
Combination closed, or December 29, 2025.

How to December 31, 2021none of the orders were pending.

Income taxes

We account for income taxes using the asset and liability method. Under this
method, deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are calculated by
applying existing tax laws and the rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or
settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in the year of the enacted rate change.

We regularly review our deferred tax assets, including net operating loss
carryovers, for recoverability, and a valuation allowance is provided when it is
more likely than not that some portion or all of a deferred tax asset may not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which the temporary
differences are deductible. In assessing the need for a valuation allowance, we
make estimates and assumptions regarding projected future taxable income, our
ability to carry back operating losses to prior periods, the reversal of
deferred tax liabilities and the implementation of tax planning strategies.
Based on our cumulative earnings history and forecasted future sources of
taxable income, we have determined we are not more-likely-than-not to realize
existing deferred tax assets and thus have recorded a valuation allowance. As we
reassesses these assumptions in the future, changes in forecasted taxable income
may alter this expectation and may result in an increase to the valuation
allowance and an increase in the effective tax rate.

We account for uncertainty in income taxes using a recognition and measurement
threshold for tax positions taken or expected to be taken in a tax return, which
are subject to examination by federal and state taxing authorities. The tax
benefit from an uncertain tax position is recognized when it is more likely than
not that the position will be sustained upon examination by taxing authorities
based on technical merits of the position. The amount of the tax benefit
recognized is the largest amount of the benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement. The effective tax rate
and the tax basis of assets and liabilities reflect management's estimates of
the ultimate outcome of various tax uncertainties. We recognize penalties and
interest related to uncertain tax positions within the provision (benefit) for
income taxes line in the accompanying consolidated statements of operations.
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Tax collection agreement

Pursuant to the Tax Receivable Agreement, the Special Limited Partner is
required to pay to the Sellers and/or the exchanging holders of RSILP Units, as
applicable, 85% of the net income tax savings that we and our consolidated
subsidiaries (including the Special Limited Partner) realize as a result of
increases in tax basis in RSILP's assets related to the transactions
contemplated under the Business Combination Agreement and the future exchange of
the Retained RSILP Units (for shares of Class A Common Stock (or cash) pursuant
to the RSILP A&R LPA and tax benefits related to entering into the Tax
Receivable Agreement, including tax benefits attributable to payments under the
Tax Receivable Agreement, and those payments may be substantial.

We evaluate the realizability of the deferred tax assets resulting from the
exchange of RSILP Units for Class A Common Stock. If the deferred tax assets are
determined to be realizable, we then assess whether payment of amounts under the
TRA have become probable. If so, we record a TRA liability equal to 85% of such
deferred tax assets. In subsequent periods, we assess the realizability of all
our deferred tax assets subject to the TRA. Should it be determined that a
deferred tax asset with a valuation allowance is realizable in a subsequent
period, the related valuation allowance will be released and consideration of a
corresponding TRA liability will be assessed. The realizability of deferred tax
assets, including those subject to the TRA, is dependent upon the generation of
future taxable income during the periods in which those deferred tax assets
become deductible and consideration of prudent and feasible tax-planning
strategies.

The valuation of the TRA liability is recognized as a contingent liability. Therefore, once we determine that a payment becomes probable and can be estimated, the payment estimate will be accrued.

Recently adopted and issued accounting statements

The recently issued and adopted accounting statements are described in Note 2 to our consolidated financial statements included in other parts of this Annual Report.

Choice of accounting for emerging growth companies

Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 ("JOBS
Act") exempts emerging growth companies from being required to comply with new
or revised financial accounting standards until private companies are required
to comply with the new or revised financial accounting standards. The JOBS Act
provides that a company can choose not to take advantage of the extended
transition period and comply with the requirements that apply to non-emerging
growth companies, and any such election to not take advantage of the extended
transition period is irrevocable. RSI is an "emerging growth company" as defined
in Section 2(a) of the Securities Act of 1933, as amended, and has elected to
take advantage of the benefits of this extended transition period. The Company
remains an emerging growth company and is expected to continue to take advantage
of the benefits of the extended transition period. This may make it difficult or
impossible to compare the Company financial results with the financial results
of another public company that is either not an emerging growth company or is an
emerging growth company that has chosen not to take advantage of the extended
transition period exemptions for emerging growth companies because of the
potential differences in accounting standards used.

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