FanDuel Founders Renew $120 Million Lawsuit Against Flutter Entertainment

Posted on: August 15, 2019, 03:18h. 

Last updated on: August 16, 2019, 12:28h.

Philip Conneller @casinoorgphilc Read More

Expertise: Gaming Business, Regulation, Tribal Gaming.

Former CEO of FanDuel Nigel Eccles and three of its other co-founders are about to renew legal action against their former company after its $465 million buyout in 2018 by Flutter Entertainment didn’t yield them a bean.

The founders initially filed suit against FanDuel last year in a court in Edinburgh, Scotland, where the company was founded, although that case was withdrawn for reasons that are not clear.

But current FanDuel CEO Matt King said in newly filed company accounts that he understood that a new lawsuit would be launched shortly by the plaintiffs through a new legal counsel.

Flutter, until recently known as Paddy Power Betfair, acquired FanDuel and merged it with its existing US operations in the wake of the US Supreme Court’s rejection of the federal ban on sports betting, as it prepared to assail the suddenly liberalized US markets.

Preferential Shareholders Cash Out

As ordinary shareholders, Eccles, his wife Lesley Eccles, and fellow plaintiffs Tom Griffiths and Rob Jones received nothing from the transaction. But the preferential shareholders — largely US private equity companies that had invested in FanDuel and financed growth, such as KKR and Shamrock Capital — profited handsomely.

Eccles stepped down from the board in November 2017, shortly after a proposed “merger of equals” between FanDuel and DraftKings was nixed by the FTC due to antitrust concerns.

Eccles launched esports social media platform Flick, while Leslie Eccles, who left FanDuel a month before her husband, built an app called Relish, described as a “personal trainer for relationships.”

But the Eccles’ departures left no one on the board to represent ordinary shareholders. The deal was engineered — perfectly legally — in a waterfall financial structure, so that preferential shareholders were paid first, leaving nothing for the minority shareholders, who not only founded FanDuel, but the DFS concept itself.

Valuation Off By $120 Million

But the plaintiffs believe the board messed up and should have demanded much more from Flutter for FanDuel, which would have allowed the ordinary shareholders to get paid.

They are seeking $120 million from Flutter Entertainment.

The $465 million valuation of FanDuel was made prior to SCOTUS rejection of the sports betting ban. But the sale went through after the court had delivered its judgment, which means it should have increased dramatically, the plaintiffs have argued.

Both DraftKings and FanDuel are clear leaders in the New Jersey sports betting market, the only ones in the US to have full-scale mobile wagering, largely thanks to existing brand recognition and pre-existing player databases from their DFS market dominance.

“Having elected to so utilize the ‘waterfall’ provisions, the board was then required to pick a price on which to base the conversion,” read the original filing. “The board of FanDuel considered whether the US Supreme Court ruling and its impact upon the market value of FanDuel should cause the company to be revalued. It has chosen not to do so.

The board of FanDuel elected to use the valuation obtained prior to the US Supreme Court ruling, without seeking any current and sound valuation of the company,” it continued.

“The decision of the board (whose interests are aligned with preference shareholders) not to seek and act upon a new market valuation in the face of a material event, which is likely to have significantly increased the market valuation of FanDuel, is a breach of its fiduciary duties,” it added.

King said that it was “possible” that the case would be successful. But since the company did not consider it “probable,” no accrual had been recorded in the balance sheet.