Genius Sports Limited (GENI) Risk Analysis

Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller's interest for the price of the security to decline, some short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short seller attacks have, in the past, driven selling of shares in other market participants. We may in the future be the subject of unfavorable allegations made by short sellers. Any such allegations may be followed by periods of instability in the market price of our ordinary shares and negative publicity. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we could have to expend significant amounts of resources to investigate such allegations and/or defend ourselves. While we may defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller by principles of freedom of speech, applicable federal or state law, or issues of commercial confidentiality. Such a situation could be costly and time-consuming and could distract our management from growing our business. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact our business operations, reputation, and shareholder's equity, and the value of any of our investments could be greatly reduced or rendered worthless.

The majority of Genius directors and executive officers are not residents of the US, and the majority of Genius's assets and the assets of these persons are located outside the US. As a result, it is difficult or may be impossible for investors to effect service of process upon Genius within the US or other jurisdictions, including judgments predicated upon the civil liability provisions of the federal securities laws of the US. Additionally, it is difficult to assert US securities law claims in actions originally instituted outside of the US. Foreign courts may refuse to hear a US securities law claim, because foreign courts may not be the most appropriate forum in which to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the law of the jurisdiction in which the foreign court resides, and not US law, is applicable to the claim. Further, if US law is found to be applicable, the content of applicable US law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would still be governed by the law of the jurisdiction in which the foreign court resides.

Certain of our pre-Listing holders, the NFL Enterprises and PIPE Investors have been granted certain rights, pursuant to the Amended and Restated Investor Rights Agreement and Subscription Agreements, respectively, to require Genius to register, in certain circumstances, the resale under the Securities Act of their Genius ordinary shares or warrants held by them, subject to certain conditions, and to certain demand, piggy-back and shelf registration rights. We have filed a registration statement on Form F-1 (the "Resale F-1") to register such ordinary shares for resale, which was declared effective on June 1, 2021. Further, certain holders who have been issued Genius ordinary shares in connection with the FanHub Acquisition and the Second Spectrum Acquisition have certain registration rights under the respective agreements to such transactions. We have filed a registration statement on Form F-1 (the "Acquisitions Resale F-1") to register such ordinary shares for resale, which was declared effective on September 30, 2021. Pursuant to Rule 429 under the Securities Act, such ordinary shares registered on the Resale F-1 and Acquisitions Resale F-1 were then included on a shelf registration statement on Form F-3, which was declared effective on June 17, 2022. The sale or possibility of sale of these Genius ordinary shares and/or warrants could have the effect of increasing the volatility in Genius ordinary share price or putting significant downward pressure on the price of Genius ordinary shares and/or warrants. Additionally, a significant portion of Genius's ordinary shares will be subject to a lock-up and restricted from immediate resale, however, upon expiration of their respective lock-up periods, the sale of shares of Genius's ordinary shares or the perception that such sales may occur, could cause the market price of Genius's ordinary shares to drop significantly.

As a result of the Business Combination, certain shareholders have been granted the right to appoint directors to our Board, pursuant to the Amended and Restated Investor Rights Agreement. This may make it difficult for our shareholders to propose changes to our Board composition while the Amended and Restated Investor Rights Agreement remains applicable.

Genius has, within the past year issued additional ordinary shares and other equity securities in connection with mergers, acquisitions and employee and director equity plans. Genius may do so again in the future, and intends to consider the issuance of shares for an employee and director equity plan on an annual basis. Genius may also issue additional ordinary shares in connection with, among other things, future capital raising and transactions and future acquisitions, or pursuant to agreements in connection with past acquisitions, without your approval in many circumstances. Genius's issuance of additional Genius ordinary shares or other equity securities would have the following effects: -   Genius's existing shareholders' proportionate ownership interest in Genius may decrease;-   the amount of cash available per share, including for payment of dividends in the future, may decrease;-   the relative voting strength of each previously outstanding Genius ordinary share may be diminished; and -   the market price of Genius ordinary shares may decline.

Our governing documents contain provisions that may discourage unsolicited takeover proposals that shareholders may consider to be in their best interests. These provisions include that the Genius Board will be classified into three classes of directors. As a result, in most circumstances, a person can gain control of the board only by successfully engaging in a proxy contest at two or more annual general meetings. Genius may issue additional shares without shareholder approval and such additional shares could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions, and employee benefit plans. Genius has previously utilized this right to issue additional shares for acquisitions and to raise capital without requiring a shareholder vote, and may do so again in the future. The ability for Genius to issue additional shares could render hostile takeovers more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise that could involve the payment of a premium over prevailing market prices for Genius ordinary shares.

If a US Holder is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of Genius ordinary shares, such US Holder may be treated as a "United States shareholder" with respect to Genius, or to any of our subsidiaries, if Genius or such subsidiary constitutes a "controlled foreign corporation" (in each case, as such terms are defined under the US Tax Code). Certain United States shareholders of a controlled foreign corporation may be required to annually report and include in their US taxable income, as ordinary income, their pro rata share of "Subpart F income", "global intangible low-taxed income" and certain investments in US property by controlled foreign corporations, whether or not such controlled foreign corporation make any distributions to such United States shareholder. A failure by a United States shareholder to comply with its reporting obligations may subject the United States shareholder to significant monetary penalties and other adverse tax consequences, and may extend the statute of limitations with respect to the United States shareholder's US federal income tax return for the year for which such reporting was due. Genius cannot provide any assurances that it will assist investors in determining whether Genius or any of its non-US subsidiaries are treated as controlled foreign corporations or whether any investor is a United States shareholder with respect to any such controlled foreign corporations. Genius also cannot guarantee that it will furnish to any United States shareholders information that may be necessary for them to comply with the aforementioned obligations. United States investors should consult their own advisors regarding the potential application of these rules to their investments in Genius. The risk of being subject to increased taxation may deter our current shareholders from increasing their investment in us and others from investing in us, which could impact the demand for, and value of, Genius ordinary shares.

Genius is an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"). Genius will remain an "emerging growth company" until the earliest to occur of: (i) the last day of the fiscal year (a) following August 18, 2025, (b) in which Genius has total annual gross revenue of at least $1.2 billion, or (c) in which Genius is deemed to be a large accelerated filer, which means the market value of our Genius ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, and (ii) the date on which Genius has issued more than $1.0 billion in non-convertible debt during the prior three-year period. Genius intends to take advantage of exemptions from various reporting requirements that are applicable to most other public companies, whether or not they are classified as "emerging growth companies," including, but not limited to, an exemption from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring Genius's independent registered public accounting firm provide an attestation report on the effectiveness of its internal control over financial reporting, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. The JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in the Securities Act for complying with new or revised accounting standards. Genius has not chosen to "opt out" of this extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, Genius, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of Genius' financial statements with another public company, which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period, difficult or impossible because of the potential differences in accountant standards used. Genius cannot predict if investors will find Genius ordinary shares less attractive because Genius intends to rely on certain of these exemptions and benefits under the JOBS Act. If some investors find Genius ordinary shares less attractive as a result, there may be a less active, liquid and/or orderly trading market for Genius ordinary shares and the market price and trading volume of Genius ordinary shares may be more volatile and decline significantly. We will lose our Emerging Growth Company status no later than in the 2026 year and may lose it sooner, which could result in significant additional cost and expense.

Genius is a limited company incorporated under the laws of Guernsey. As a result, it may be difficult for investors to effect service of process within the United States upon Genius's directors or officers, or enforce judgments obtained in the United States courts against Genius's directors or officers. We have been advised that there is doubt as to the enforceability in Guernsey of judgments of the US courts of civil liabilities predicated solely upon the laws of the US, including the federal securities laws. As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a corporation incorporated in the United States.

We are a company incorporated in Guernsey, and our ordinary shares are listed on the NYSE. NYSE market rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in Guernsey, which is our home country, differ, and in some cases significantly differ, from NYSE corporate governance listing standards. Among others, we are not required to: (a) have a majority of the members of our board of directors who are independent;(b) hold regular meetings of our non-executive directors without the executive directors;(c) have a nominating and/or corporate governance committee composed of entirely independent directors;(d) have a remuneration/compensation committee composed of entirely independent directors;(e) adopt a code of business conduct and ethics;(f) seek shareholder approval of stock option plans and other equity compensation arrangements available to officers, directors or employees and any material amendments thereto;(g) seek shareholder approval of certain equity issuances, including, but not limited to, the issuance of more than 1% of our outstanding ordinary shares or 1% of the voting power outstanding to a related party;(h) comply with certain rules and regulations under the Exchange Act and the NYSE related to the content of proxy statements that apply to domestic issuers;(i) have an audit committee or another independent body of the board of directors conduct a reasonable prior review and oversight of certain related party transactions that foreign private issuers are not required to disclose;(j) disclose specifics relating to employee compensation or human capital management;(k) comply with proxy disclosure requirements of the Exchange Act; and (l) provide notice to shareholders if the date of the annual meeting is changed by more than 30 calendar days from the date of the previous years' meeting as required by Schedule 14N of the Exchange Act. We currently follow and intend to continue to follow some of NYSE corporate governance requirements from which foreign private issuers are exempt. For example, we have adopted a Code of Conduct, and our Board and Board Committees regularly meet without the executive directors. We may in the future, however, decide to use foreign private issuer exemptions with respect to some or all of such NYSE corporate governance requirements. Also, we currently utilize and intend to continue to utilize exemptions from many of NYSE corporate governance requirements. Following our home country governance practices may provide less protection than is accorded to investors under the NYSE corporate governance requirements applicable to domestic issuers.

As a service provider to the gambling industry, Genius is required, in certain jurisdictions, to obtain licenses to provide its products and services. In each jurisdiction where licenses are held, Genius is subject to continuing reporting obligations. Under Genius' reporting obligations each relevant regulatory authority is provided with information on our shareholders owning at least 5% of Genius ordinary shares. Certain relevant regulatory authorities may require these investors to obtain suitability approval as a result of the ownerships interests in Genius. If an investor fails to comply with the requirements the relevant regulatory authority could restrict, condition, suspend revocation of Genius' license in that jurisdiction which could have a material adverse effect on our business, financial condition, or results of operations.

As a public company, we will incur significant legal, accounting, insurance and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements. We have incurred and will incur costs associated with the Sarbanes-Oxley Act and related rules implemented by the SEC. The expenses incurred by public companies for reporting and corporate governance purposes generally have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. In estimating these costs, we considered expenses related to investor relations, insurance, legal, accounting and compliance activities, as well as other expenses not currently incurred. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on our board committees, or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to the delisting of our common stock, fines, penalties sanctions and other regulatory action, public relations risks and potentially civil litigation.