Acquisitions

9 Months Ended

Sep. 30, 2022

Business Combination and Asset Acquisition [Abstract]

Acquisitions

2. Acquisitions

2022 Acquisitions

Athlon Holdings, Inc. – On April 1, 2022, the Company acquired 100% of the issued and outstanding capital stock of Athlon Holdings, Inc., a Tennessee corporation (“Athlon”), for a preliminary purchase price of $16,175, as adjusted for the estimated working capital adjustment as of the closing date of the transaction. The purchase price is pending finalization of a working capital adjustment and deferred taxes and could be subject to further revision if additional information related to the fair value of the identifiable net assets become available. As a part of the closing consideration, the Company also acquired cash of $1,840, that was further adjusted post-closing for the working capital adjustment. The preliminary purchase price of $16,175, as discounted, is comprised of (i) a cash portion of $13,162, with $11,840 paid at closing and $1,322 estimated to be paid post-closing (as further described below) and (ii) the issuance of 314,103 shares of the Company’s common stock with a fair market value of $3,141. The number of shares of the Company’s common stock issued was determined based on a $3,000 value using the common stock trading price for the 10 trading days preceding the April 1, 2022 closing date. Certain of Athlon’s key employees entered into either advisory agreements or employment agreements with the Company. Athlon operates in the United States.

The amount estimated to be paid post-closing of $1,322 will be or was paid as follows: (i) $1,077 will be paid on the nine-month anniversary of the closing date, or January 1, 2023 (consisting of $3,000 for the deferred cash payments, as discounted, less a $1,923 cash adjustment); and (ii) $245 was paid within two business days from the date the Company received proceeds of $2,450 from the sale of the equity investment in Just Like Falling Off a Bike, LLC that was held by Athlon as of the closing date (paid on April 7, 2022).

After the condensed consolidated financial statements for the quarterly period ended June 30, 2022 were issued, the Company received an updated valuation report from a third-party valuation firm. After considering the results of that valuation report, the Company estimated that the purchase consideration decreased by $940. The decrease in the purchase price was related to a decrease in the working capital adjustment of $180, an increase in fixed assets of $46, a decrease in identifiable assets of $477 (digital content increased $355, advertiser relationships decreased $498, and trade names decreased $334), a decrease in deferred tax liabilities of $533, and a decrease in goodwill of $862.

The composition of the preliminary purchase price is as follows:

Cash	$	12,085
Common stock		3,141
Deferred cash payments, as discounted		949
Total purchase consideration	$	16,175

The Company incurred $200 in transaction costs related to the acquisition, which primarily consisted of legal and accounting expenses. The acquisition-related expenses were recorded within general and administrative expense on the consolidated statements of operations.

The preliminary purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed at the closing date of the acquisition based upon their respective fair values as summarized below:

Cash	$	2,604
Accounts receivable		10,855
Other current assets		1,337
Equity investment		2,450
Fixed assets		108
Digital content		355
Advertiser relationships		6,132
Trade names		2,277
Goodwill		2,935
Accounts payable		(7,416	)
Accrued expenses and other		(2,440	)
Unearned revenue		(1,203	)
Other long-term liabilities		(543	)
Deferred tax liabilities		(1,276	)
Net assets acquired	$	16,175

The Company utilized an independent appraisal firm to assist in the determination of the fair values of the assets acquired and liabilities assumed, which required certain significant management assumptions and estimates. The fair value of the digital content was determined using a cost approach. The fair values of the advertiser relationships were determined by projecting the acquired entity’s cash flows, deducting notional contributory asset charges on supporting assets (working capital, tangible assets, trade names, and the assembled workforce) to compute the excess cash flows associated with the advertiser relationships. The fair values of the trade names were determined by projecting revenue associated with each trade name and applying a royalty rate to compute the amount of the royalty payments the company is relieved from paying due to its ownership of the trade names. The estimated weighted average useful life is two years (2.00 years) for digital content, eight point seventy-five years (8.75 years) for advertiser relationships, and fourteen point five years (14.50 years) for trade names.

The excess-of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents goodwill from the acquisition. Goodwill is recorded as a non-current asset that is not amortized but is subject to an annual review for impairment. No portion of the goodwill will be deductible for tax purposes.

Supplemental Pro forma Information

The following table summarizes the results of operations of the Athlon acquisition from the acquisition date included in the condensed consolidated results of operations and the unaudited pro forma results of operations of the combined entity had the date of the acquisition been January 1, 2021:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Athlon from acquisition date of April 1, 2022 (unaudited):
Revenue	$	15,370		$	-		$	32,887		$	-
Net income		81			-			2,521			-
Combined entity supplemental pro forma information had the acquisition date been January 1, 2021 (unaudited):
Revenue:
Athlon	$	15,370		$	15,966		$	48,797		$	51,458
Arena		51,336			59,575			147,137			127,936
Total supplemental pro forma revenue	$	66,706		$	75,541		$	195,934		$	179,394
Net income (loss):
Athlon	$	81		$	1,030		$	1,945		$	3,644
Arena		(16,586	)		(24,707	)		(58,682	)		(70,827	)
Adjustments		533			(306	)		(1,310	)		158
Total supplemental pro forma net loss	$	(15,972	)	$	(23,983	)	$	(59,047	)	$	(67,025	)

The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisition had occurred as of the beginning of the Company’s reporting period.

The adjustments for the three months ended September 2022 and 2021 of $533 and ($306), respectively, represents adjustments: (1) to record depreciation and amortization expense related to the fixed and intangible assets acquired from the acquisition of $0 and ($306); and (2) to record the deferred tax (benefit) provision related to the acquisition $533 and $0, respectively. The adjustments for the nine months ended September 2022 and 2021 of ($1,310) and $158, respectively, represents adjustments (1) to record depreciation and amortization expense related to the fixed and intangible assets acquired from the acquisition of ($234) and ($918); (2) to record (reverse) the nonrecurring transaction cost related to the acquisition of $200 and ($200); and (3) to record the deferred tax (benefit) provision related to the acquisition of ($1,276) and $1,276, respectively.

Further details are provided under the heading Athlon Acquisition in Note 17.

Buffalo Groupe, LLC – On September 27, 2022, the Company entered into an asset purchase agreement with Buffalo Groupe, LLC, doing business as Morning Read, a Virginia limited liability company, where it purchased certain intellectual properties (including all media properties, trademarks, service marks, domain names, trade names corporate names and other identifiers of goodwill), certain assumed contracts, and other certain rights related to the intellectual properties (collectively, the “Morning Read Purchased Assets”) and assumed certain liabilities related to the Morning Read Purchased Assets. The purchase consideration consisted of a cash payment of $850 at closing.

The Company accounted for the asset acquisition in accordance with ASC 805-50, as substantially all of the fair value of the gross assets acquired by the Company is concentrated in a group of similar identifiable assets.

The purchase consideration totaled $850, which was assigned to the brand name acquired on the closing date of the acquisition. The useful life for the brand name is ten years (10.0 years).

2021 Acquisitions

College Spun Media Incorporated – On June 4, 2021, the Company acquired all of the issued and outstanding shares of capital stock of College Spun Media Incorporated, a New Jersey corporation (“The Spun”), for an aggregate of $11,830 in cash and the issuance of an aggregate of 194,806 restricted shares of the Company’s common stock, with one-half of the shares vesting on the first anniversary of the closing date and the remaining one-half of the shares vesting on the second anniversary of the closing date, subject to a customary working capital adjustment based on cash and accounts receivable as of the closing date. The cash payment consists of: (i) $10,830 paid at closing (of the cash paid at closing, $830 represents adjusted cash pursuant to the working capital adjustments), and (ii) $500 to be paid on the first anniversary of the closing and $500 to be paid on the second anniversary date of the closing. The vesting of shares of the Company’s common stock is subject to the continued employment of certain selling employees. The Spun operates in the United States.

The composition of the purchase price is as follows:

Cash	$	10,830
Deferred cash payments, as discounted		905
Total purchase consideration	$	11,735

The Company incurred $128 in transaction costs related to the acquisition, which primarily consisted of legal and accounting expenses. The acquisition related expenses were recorded in general and administrative expense in the condensed consolidated statements of operations.

After the June 30, 2021 condensed consolidated financial statements were issued, the Company received a final valuation report from a third-party valuation firm. After considering the results of that valuation report, the Company estimated the fair values for the brand name of $5,175, along with a decrease for working capital accounts of $1,932 (consisting of adjusted amounts for cash, accounts receivable, accrued expenses and deferred tax liabilities) resulting in a corresponding decrease to goodwill of $3,977.

The purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed at the closing date of the acquisition based upon their respective fair values as summarized below:

Cash	$	3,214
Accounts receivable		1,772
Other current assets		5
Brand name		5,175
Goodwill		3,479
Accrued expenses and other		(85)
Deferred tax liabilities		(1,825)
Net assets acquired	$	11,735

The Company utilized an independent appraisal firm to assist in the determination of the fair values of the assets acquired and liabilities assumed, which required certain significant management assumptions and estimates. The fair value of the brand name was determined by projecting the acquired entity’s cash flows, deducting notional contributory asset charges on supporting assets (working capital and the assembled workforce) to compute the excess cash flows associated with the brand with a useful life of ten years (10.0 years).

The excess-of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents goodwill from the acquisition. Goodwill is recorded as a non-current asset that is not amortized but is subject to an annual review for impairment. No portion of the goodwill will be deductible for tax purposes.

Fulltime Fantasy Sports, LLC – On July 15, 2021, the Company entered into an asset purchase agreement with Fulltime Fantasy Sports, LLC, a Delaware limited liability company (“Fulltime Fantasy”), where it purchased certain intellectual properties (including databases, documents and certain rights related to the intellectual properties), subscriber and customer records, and other certain rights related to the intellectual properties (collectively the “Fulltime Fantasy Purchased Assets”) and assumed certain liabilities related to the Fulltime Fantasy Purchased Assets. The purchase price consisted of: (1) a cash payment of $335 (paid in advance), including transaction related costs of $35, (2) 34,092 restricted shares the Company’s common stock (subject to certain vesting earn-out provisions and certain buy-back rights), with 11,364 shares vested at closing and another 11,364 shares vested on December 31, 2021, and (3) a cash earn-out payment of $225 (paid in January 2022). The remaining consideration of a cash earn-out payment of $225 was paid on June 30, 2022 and the remaining 11,364 restricted shares of the Company’s common stock vested on June 30, 2022.

The Company accounted for the asset acquisition in accordance with ASC 805-50, as substantially all of the fair value of the gross assets acquired by the Company is concentrated in a group of similar identifiable assets. Transaction-related costs of $35 were assigned to the identifiable asset and recorded as part of the consideration transferred.

The composition of the purchase price is as follows:

Cash (including $35,000 of transaction related costs)	$	335
Restricted stock		168
Deferred cash payments		419
Deferred restricted stock		335
Total purchase consideration	$	1,257

The purchase consideration totaled $1,257 (including $35 of transaction related costs), which was assigned to a database acquired on the closing date of the acquisition. The useful life for the database is three years (3.0 years).