The cofounders of FanDuel have intensified their legal battle against the board members who facilitated the company’s sale to Flutter Entertainment. The lawsuit, which has been amended and refiled in New York state, alleges that private equity investors KKR and Shamrock manipulated the sale to benefit themselves and other preferred shareholders, leaving the founders and early investors with nothing. This legal dispute centers around the 2018 acquisition of FanDuel by Paddy Power Betfair, which later rebranded as Flutter Entertainment.
The Origins of the Dispute
The roots of this legal battle trace back to 2018 when FanDuel merged with Paddy Power Betfair. The merger, valued at $559 million, was supposed to be a significant milestone for FanDuel. However, the founders and early investors claim that the deal was structured in a way that unfairly favored the preferred shareholders. They argue that the board members, controlled by KKR and Shamrock, secured 100% of FanDuel’s equity in the new merged company for themselves, leaving the common shareholders with nothing.
The cofounders, including Nigel Eccles, Lesley Eccles, Thomas Griffiths, Robat Jones, and Chris Stafford, along with dozens of early investors and employees, have filed an amended complaint in New York state. They allege that the board members breached their fiduciary duties by undervaluing FanDuel’s assets during the merger negotiations. This undervaluation, they claim, was a deliberate attempt to benefit the preferred shareholders at the expense of the common shareholders.
Legal Proceedings and Allegations
The legal proceedings have been ongoing since the initial lawsuit was filed in Scotland, where FanDuel was originally incorporated. However, the plaintiffs decided to refile the lawsuit in New York, believing that their claims would be stronger under New York law. The New York State Court of Appeals has since revived the lawsuit, allowing the cofounders and early investors to pursue their claims against the board members and private equity investors.
The plaintiffs argue that the board members and private equity investors deliberately undervalued FanDuel’s assets to justify the sale to Paddy Power Betfair. They claim that the true value of FanDuel was significantly higher than the $559 million valuation used in the merger. By undervaluing the company, the board members and private equity investors were able to secure a massive return for themselves while leaving the common shareholders with nothing.
The lawsuit also alleges that the board members and private equity investors used their control over FanDuel to manipulate the sale process. They are accused of breaching their fiduciary duties by prioritizing their own interests over those of the common shareholders. The plaintiffs are seeking to recoup the value of their lost equity and hold the board members and private equity investors accountable for their actions.
Implications for the Future
The outcome of this lawsuit could have significant implications for the future of FanDuel and its shareholders. If the plaintiffs are successful, it could set a precedent for other shareholders who feel they have been wronged by similar mergers and acquisitions. It could also lead to increased scrutiny of the actions of board members and private equity investors in future deals.
For FanDuel, the lawsuit represents a significant challenge as it continues to navigate the competitive landscape of the sports betting industry. The company has grown rapidly since its merger with Paddy Power Betfair, becoming a dominant player in the US sports betting market. However, the ongoing legal battle could create uncertainty for the company’s future and potentially impact its ability to attract new investors.
The cofounders and early investors remain determined to pursue their claims and seek justice for what they believe was an unfair and manipulative sale. As the legal proceedings continue, the outcome of this lawsuit will be closely watched by industry observers and shareholders alike.
