References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Sports Entertainment Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to Sports Entertainment Acquisition Holdings
LLC. The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the financial
statements and the notes thereto contained elsewhere in this Quarterly Report.
Certain information contained in the discussion and analysis set forth below
includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Exchange Act that are not historical facts, and involve
risks and uncertainties that could cause actual results to differ materially
from those expected and projected. All statements, other than statements of
historical fact included in this Quarterly Report including, without limitation,
statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding the Company's financial position, business
strategy and the plans and objectives of management for future operations, are
forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to the Risk Factors section of the
Company's Annual Report on Form 10-K/A for the year ended December 31, 2020
filed with the U.S. Securities and Exchange Commission (the "SEC") on June 22,
2021. The Company's filings pursuant to the Securities Act and the Exchange Act
can be accessed on the EDGAR section of the SEC's website at www.sec.gov. Except
as expressly required by applicable securities law, the Company disclaims any
intention or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise.
Overview
We are a blank check company formed under the laws of the State of Delaware on
July 30, 2020 for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or other similar business
combination with one or more businesses (the "Business Combination"). We intend
to effectuate our Business Combination using cash from the proceeds of the
Initial Public Offering and the sale of the Private Placement Warrants (as
defined below), our capital stock, debt or a combination of cash, stock and
debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
Recent Developments
On April 23, 2021, we entered into the Business Combination Agreement with the
Target Companies and the Sponsor.
Pursuant to the Business Combination Agreement, subject to the terms and
conditions therein, prior to the Closing, SGHC Limited will undergo the
Reorganization wherein all existing shares of SGHC Limited will be exchanged for
NewCo Common Shares. Following the Reorganization, the Pre-Closing Holders will
hold that number of NewCo Common Shares equal to the quotient obtained by
dividing (i) 4,750,000,000, plus the amount by which the cash and cash
equivalent balance of the Target Companies exceeds $300,000,000 (but in no event
in excess of $4,850,000,000), less the amount by which the cash and cash
equivalent balance of the Target Companies is less than $300,000,000, by (ii)
$10.00 (the "Aggregate Stock Consideration Shares").
In addition, the Pre-Closing Holders will be entitled to a right to receive
additional contingent consideration based on the number of shares held after
taking into account those shares sold pursuant to Repurchase Agreements in the
form of three potential earn-out payments.
The Business Combination Agreement contains customary representations,
warranties and covenants by the parties thereto and the Closing is subject to
certain conditions as further described in the Business Combination Agreement.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from July 30, 2020 (inception) through September 30, 2021
were organizational activities and those necessary to prepare for the Initial
Public Offering, described below, identifying a target company for a Business
Combination and activities pursuant to the proposed Business Combination
Agreement. We do not expect to generate any operating revenues until after the
completion of our Business Combination. We generate non-operating income in the
form of interest income on marketable securities held in the Trust Account. We
incur expenses as a result of being a public company (for legal, financial
reporting, accounting and auditing compliance), as well as for due diligence
expenses.
For the three months ended September 30, 2021, we had net loss of $8,102,872,
which consisted of operating costs of $1,743,664 and change in fair value of
warrant liability of $6,365,000, offset by interest earned on investments held
in Trust Account of $5,792.
For the nine months ended September 30, 2021, we had net loss of $40,593,393,
which consisted of operating costs of $6,478,621 and change in fair value of
warrant liability of $34,170,000, offset by interest earned on investments held
in Trust Account of $55,228.
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For the period from July 30, 2020 (inception) through September 30, 2020, we had
net loss of $1,000, which consisted of operating costs.
Liquidity and Capital Resources
On October 6, 2020, we consummated the Initial Public Offering of 45,000,000
Units, which includes the partial exercise by the underwriters of their
over-allotment option in the amount of 5,000,000 Units, at a price of $10.00 per
Unit, generating gross proceeds of $450,000,000. Simultaneously with the closing
of the Initial Public Offering, we consummated the sale of 11,000,000 Private
Placement Warrants at a price of $1.00 per Private Placement Warrant in a
private placement to our Sponsor and an affiliate of PJT Partners LP, generating
gross proceeds of $11,000,000.
Following the Initial Public Offering, the partial exercise of the
over-allotment option, and the sale of the Private Placement Warrants, a total
of $450,000,000 was placed in the Trust Account. We incurred $25,318,504 in
transaction costs, including $9,000,000 of underwriting fees, $15,750,000 of
deferred underwriting fees and $568,504 of other offering costs.
For the nine months ended September 30, 2021, cash used in operating activities
was $2,021,835. Net loss of $40,593,393 was affected by a change in fair value
of warrant liabilities of $34,170,000 and an interest earned on investments held
in the Trust Account of $55,228. Changes in operating assets and liabilities
provided $4,456,786 of cash for operating activities.
As of September 30, 2021, we had cash and investments held in the Trust Account
of $450,122,927. We intend to use substantially all of the funds held in the
Trust Account, including any amounts representing interest earned on the Trust
Account, to complete our Business Combination. We may withdraw interest to pay
franchise and income taxes. During the three and nine months ended September 30,
2021, we did not withdraw any interest earned on the Trust Account. To the
extent that our capital stock or debt is used, in whole or in part, as
consideration to complete our Business Combination, the remaining proceeds held
in the Trust Account will be used as working capital to finance the operations
of the target business or businesses, make other acquisitions and pursue our
growth strategies.
As of September 30, 2021, we had cash of $49,561 outside of the Trust Account.
We intend to use the funds held outside the Trust Account primarily to identify
and evaluate target businesses, perform business due diligence on prospective
target businesses, travel to and from the offices, plants or similar locations
of prospective target businesses or their representatives or owners, review
corporate documents and material agreements of prospective target businesses,
and structure, negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, our Sponsor or an affiliate of our
Sponsor or certain of our officers and directors may, but are not obligated to,
loan us funds as may be required. If we complete a Business Combination, we may
repay such loaned amounts out of the proceeds of the Trust Account released to
us. In the event that a Business Combination does not close, we may use a
portion of the working capital held outside the Trust Account to repay such
loaned amounts, but no proceeds from our Trust Account would be used for such
repayment. Up to $2,000,000 of such loans may be convertible into warrants, at a
price of $1.00 per warrant, at the option of the lender. The warrants would be
identical to the Private Placement Warrants.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimate of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating a Business Combination are less than the actual amount necessary
to do so, we may have insufficient funds available to operate our business prior
to our Business Combination. Moreover, we may need to obtain additional
financing either to complete our Business Combination or because we become
obligated to redeem a significant number of our public shares upon consummation
of our Business Combination, in which case we may issue additional securities or
incur debt in connection with such Business Combination. Subject to compliance
with applicable securities laws, we would only complete such financing
simultaneously with the completion of our Business Combination. If we are unable
to complete our Business Combination because we do not have sufficient funds
available to us, we will be forced to cease operations and liquidate the Trust
Account. In addition, following our Business Combination, if cash on hand is
insufficient, we may need to obtain additional financing in order to meet our
obligations.
As of September 30, 2021 we entered into an unsecured non-interest bearing
Promissory Note with the Sponsor. (See Note 6)
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2021. We do not participate
in transactions that create relationships with unconsolidated entities or
financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet
arrangements. We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities, guaranteed any debt or
commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay the Sponsor
a monthly fee of $10,000 for office space, secretarial and administrative
support services provided to the Company. We began incurring these fees on
October 1, 2020 and will continue to incur these fees monthly until the earlier
of the completion of a Business Combination and the Company's liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or
$15,750,000 in the aggregate. The deferred fee will become payable to the
underwriters from the amounts held in the Trust Account solely in the event that
we complete a Business Combination, subject to the terms of the underwriting
agreement.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
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Warrant Liabilities
We account for the Warrants in accordance with the guidance contained in ASC
815-40 under which the Warrants do not meet the criteria for equity treatment
and must be recorded as liabilities. Accordingly, we classify the Warrants as
liabilities at their fair value and adjust the Warrants to fair value at each
reporting period. This liability is subject to re-measurement at each balance
sheet date until exercised, and any change in fair value is recognized in our
statements of operations. The Private Placement Warrants and the Public Warrants
for periods where no observable traded price was available are valued using a
Monte Carlo simulation. For periods subsequent to the detachment of the Public
Warrants from the Units, the Public Warrant quoted market price was used as the
fair value as of each relevant date.
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Shares of Class A common stock
subject to mandatory redemption are classified as liability instruments and are
measured at fair value. Conditionally redeemable common stock (including common
stock that feature redemption rights that is either within the control of the
holder or subject to redemption upon the occurrence of uncertain events not
solely within our control) is classified as temporary equity. At all other
times, common stock is classified as stockholders' equity. Our Class A common
stock features certain redemption rights that are considered to be outside of
our control and subject to occurrence of uncertain future events. Accordingly,
shares of Class A common stock subject to possible redemption are presented as
temporary equity, outside of the stockholders' deficit section of our balance
sheets.
Net Income (Loss) per Common Share
Net income (loss) per common stock is computed by dividing net income (loss)
by the weighted average number of common stock outstanding for the period. The
Company applies the two-class method in calculating earnings per share.
Accretion associated with the redeemable shares of Class A common stock is
excluded from earnings per share as the redemption value approximates fair
value.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06") to simplify accounting for
certain financial instruments. ASU 2020-06 eliminates the current models that
require separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity's own equity. The
new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own
equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments.
ASU 2020-06 is effective January 1, 2022 and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on January
1, 2021. We adopted ASU 2020-06 effective January 1, 2021. The adoption of ASU
2020-06 did not have an impact on our financial statements.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our condensed financial statements.
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