Founders’ Lawsuit Could Force FanDuel Private Equity Investors to Reveal Internal Records

FanDuel co-founder Nigel Eccles and more than 100 co-plaintiffs scored a key procedural victory last week in their long-running lawsuit over the sports betting company’s 2018 buyout.

A New York special master ordered that select communications between FanDuel executives, board members, and their legal counsel must be disclosed to the plaintiffs.

In a 33-page discovery order, Special Master Alan Scheinkman ruled that KKR and Shamrock Capital—the private equity firms that sold FanDuel to Paddy Power Betfair in 2018—must submit select privileged communications for a confidential in camera review.

The order specifies that the requested communications will be evaluated strictly regarding FanDuel’s valuation prior to the sale, the private equity firms’ drag-along rights, and the payout structure expected to flow to Eccles and his co-founders.

When Paddy Power Betfair, which later rebranded as Flutter Entertainment (NYSE: FLUT), acquired FanDuel, the deal was valued at roughly $465.5 million in equity, or $559 million including debt and preferred shares. KKR and Shamrock held a $559 million “liquidation preference,” which effectively meant all initial proceeds went to them, leaving common shareholders—including founders and early employees—with nothing.

Important Legal Details

The details of Scheinkman’s order are important and include the notion that the jilted FanDuel shareholders’ application of Scots law has merit in this case. Eccles founded FanDuel with his wife and friends in Scotland in 2009. He resigned as chief executive officer of the company in 2017.

However, the discovery order explicitly stops short of ruling that the defendants breached their fiduciary duties under Scots law. Scheinkman also clarified that communications slated for confidential review are not automatically protected by legal privilege simply because the defendants anticipated litigation.

Conversely, he ruled that certain documents prepared specifically in anticipation of a lawsuit retain protection privileges, noting that he will determine the extent to which those documents can be viewed—if at all—by the plaintiffs’ legal team.

For the communications subject to the order, both parties must agree on a review timeline ahead of the New York Supreme Court’s Dec. 18 discovery deadline.

Plaintiffs Making Small Strides

While KKR and Shamrock are unlikely to yield easily, the plaintiffs continue to notch procedural victories. Scheinkman’s order arrives three months after the New York Supreme Court rejected the defendants’ motion to dismiss the lawsuit.

Eccles previously characterized the court’s July ruling as an “interim but important step.” While the Special Master’s discovery order is legally binding, it serves as a procedural directive rather than a final ruling on the overarching merits of the case.