SBTech Ordered to Create $30m Fund to Cover Cyberattack Claims

  • SBTech must set aside $30m of the $600m it received as part of its DraftKings merger
  • $20m will be stock and $10m in cash will be held in escrow for two years
  • A DEAC shareholder meeting to vote on this merger has been postponed
  • 50+ online gambling platforms were affected by SBTech servers being down for six days
hacker at work with graphic user interface around
Diamond Eagle Acquisition Corp (DEAC) has ordered the creation of a $30 million fund to cover claims and losses incurred by an SBTech outage last week. [Image: Shutterstock.com]

Fund must be created

Diamond Eagle Acquisition Group (DEAC) has ordered SBTech to set aside $30m to cover any losses and claims that arise from its outage last week.

The creation of this $30m fund is part of a deal that will see SBTech merge with DraftKings. This new fund was added to the merger agreement as an indemnity clause, as per SEC documents.

fund comprises $10m in cash and $20m in stock

SBTech is set to receive $600m as a result of the merger, with the $30m cyberattack fund being taken from this total. It will be held in escrow for a two-year period. The fund comprises $10m in cash and $20m in stock. 

Extensive coverage

The SEC filing states that these funds will be held in escrow to “cover certain indemnification obligations of the SBTech sellers…relating to a recent cybersecurity incident.”

If claims resulting from the cyberattack surpass $30m, there is another fund of $25m in cash being held in escrow and $45m worth of locked-up stock that will be used. If this still is not enough, then SBTech owners will have to pay the balance. The owners of SBTech have agreed to these terms.

It is likely that the planned merger with DraftKings will now be delayed for a few weeks. The original plan was for DEAC shareholders to vote on the deal on April 9. This vote has now been moved to the end of the month to allow shareholders to familiarize themselves with details of the cyberattack. These security concerns will need to be addressed.

Potential claims

It is understood that SBTech is in negotiations with clients that were affected by the outage last week. Discussions are being held to negotiate how much compensation affected parties will receive. It took about six days for the SBTech servers to be live once again.

An improved revenue share agreement might be negotiated by operators or they may receive free credits that they can use against future payments.

An improved revenue share agreement might be negotiated by operators

If no compromise is reached, legal action will likely be taken by the operators. While sports betting operations were not really affected due to the ongoing coronavirus pandemic, a lot of online gambling platforms are now heavily relying on online casinos and poker revenue.

This six-day outage will have significantly hurt the revenues and player retention of these platforms. 

The incident in question

It was on March 27 that online gambling platforms using SBTech software went down. This was due to a ransomware attack on SBTech. The company’s global servers were quickly shut down to stop the attack.

Some of the operators in the United States that were affected include Resorts, Golden Nugget, and BetAmerica. In total, more than 50 operators from around the globe were affected by the incident.

Before SBTech was able to relaunch its servers, the company has to receive permission from all of the relevant regulatory bodies.