Fanduel Co-founders' $120 Million Lawsuit Over Flutter Deal Reinstated in New York
The New York State Court of Appeals recently brought back a lawsuit filled by FanDuel's founders, Nigel and Lesley Eccles, against prominent group of current shareholders. This lawsuit was sparked by a 2018 merger between FanDuel and the Irish gambling company Paddy Power Betfair, which estimated FanDuel to be worth $465 million. This combined company later became known as Flutter Entertainment.
The Eccles couple, together with approximately 100 other shareholders, believe they were shortchanged in this deal. They were crucial in establishing FanDuel in Edinburgh, Scotland back in 2007 under the name Hubdub. It initially allowed users to gamble on current events. However, they pivoted to daily fantasy sports in 2009 and rebranded it as FanDuel. This shift made FanDuel primarily focused on the American market.
Nigel Eccles left FanDuel in 2017 after plans for a "merger of equals" between FanDuel and DraftKings were halted by the Federal Trade Commission due to antitrust concerns.
After PASPA, the federal law banning sports betting, was ruled unconstitutional by the US Supreme Court, FanDuel's board rapidly approved the Paddy Power Betfair merger. This move paved the way for Flutter Entertainment's future control of the US sports betting industry.
The Eccles' lawsuit claims that the merger was designed to favor the preferred shareholders and executive team, leaving common shareholders out of the deal. The plaintiffs assert, "Defendants walked away with shares worth billions and plaintiffs were left with nothing."
Shamrock Capital Advisors (SCA) and KKR, who between them held 36% of FanDuel's preferred shares, played a significant role in this alleged scheme. The lawsuit argues that these two investment firms unfairly valued FanDuel at $120 million less than its true worth.
Then, they exercised their "drag along right," forcing minority shareholders to accept the sale. SCA and KKR "deliberately undervalued FanDuel’s assets during the merger negotiations to be equivalent to the value of the preferred shares, when in reality FanDuel was worth significantly more," states the lawsuit.
The Eccles and their fellow plaintiffs first sued SCA and KKR in Scotland, but later dropped the lawsuit and resubmitted it in the New York Supreme Court, feeling their argument would hold more weight under this jurisdiction. However, the court determined that the case should proceed in New York under Scots law.
In 2020, Judge Andrea Masley ruled in favor of the plaintiffs, letting three out of five reasons against dismissal pass. But in 2022, the New York Supreme Court Appellate Division disagreed. They stated under Scots law, company directors only have fiduciary duties towards the company, not their shareholders.
On the other hand, the New York Appeals Court -- the highest legal body in New York -- overturned that decision, stating the plaintiffs had "sufficiently pleaded causes of action for breach of fiduciary duty under Scots law." They ruling allowed the case to go back to the Supreme Court.
Now, the Eccles and their associates are seeking $120 million in damages. Flutter Entertainment is not mentioned in this lawsuit.
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Source: www.casino.org
