Former FanDuel CEO files lawsuit against Paddy Power Betfair for 120 million USD.
Nigel Eccles, a founding member and ex-CEO of FanDuel, a well-known daily fantasy sports (DFS) platform based in the US, has filed a lawsuit against the British gambling company Paddy Power Betfair (PPB), demanding a staggering €105 million. The lawsuit alleges that he, along with three other co-founders - Lesley Eccles, Tom Griffiths, and Rob Jones - were unfairly disadvantaged during the acquisition of FanDuel by PPB.
Previous to the acquisition that took place in May via a 61% majority stake, FanDuel was valued at $465 million. These valuations have been contested by the four co-founders, who state that the company was undervalued purposely to exclude less significant shareholders from redemption.
The distribution plan enforced by PPB was done under the "waterfall principle." This principle prioritizes the payment of dividends to high-quality or risky shareholders first, and if there's enough money left over, the distribution is then passed onto the lower-ranked shareholders. Eccles and his colleagues allege that they were deliberately excluded from the payouts using this strategy.
With a hypothetical total distribution of $558 million sans their shares, all these "regular employees," who held reasonably small shares and were active in FanDuel up until at least the second half of 2017, would've seen nothing. In contrast, the new CEO of FanDuel, Matt King, the current CFO, Andy Giancamilli, and the CTO, Robin Spira, would've each walked away with millions.
Based on his own calculations, Mr. Eccles estimated that the entire core team from 2009 would be entitled to a combined $120 million of payouts. These would need to be paid out either as termination payments or through a settlement, and it would be the responsibility of the venture capital firms KKR and Shamrock Capital to make these payments to the founders.
A key argument for the revaluation of FanDuel is that the legalization of US-wide sports betting was not factored into the acquisition price. FanDuel isn't classified as a bookmaker, but the US sports betting market is brimming with potential for the provider, as players can win real money. Thus, the complaint states that:
"A major market development that would significantly increase the value of FanDuel has not been taken into account."
If this requested revaluation is not granted, it would be considered a breach of fiduciary duties, as per Eccles.
The situation becomes more relevant given that PPB plans to invest $158 million into FanDuel and reduce its debts by $76 million. Additionally, PPB intends to put in another $400 million for FanDuel's marketing department. Through a specific clause, PPB's shareholding in FanDuel will automatically increase to 80% after three years and reach 100% after five years.
PPB has already responded to Eccles' claims, stating that they are "not rooted in facts and reality." The company has indicated that they conducted a thorough analysis prior to the deal taking place, factoring in the anticipated overturning of PASPA. As such, the transaction is said to be "in line with corporate governance rules" - a universal code of conduct for corporates. Overall, PPB's statement reads:
"It was a sound business transaction that granted the maximum possible valuation for the shareholders and made the optimal strategic move for the company's future."
However, Eccles' legal team is now requesting the court's permission to access "all protocols, resolutions, and additional documents." The ultimate conclusion of this case depends on the Scottish judiciary's decision on the ex-management team's alleged entitlements.
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Source: www.onlinecasinosdeutschland.com
