By
Lisa Spencer
Senior Editor Updated: 26 October 2022
Lisa Spencer Senior Editor
As a Senior Editor at Betting.US, Lisa Spencer is a valuable member of our expert team. With a Master’s degree in Applied Mathematics, Lisa is adept in gambling theory and analyzing odds. She contributes by writing online sportsbook reviews and finding competitive markets to help our readers make an informed choice.
The New York State appeal court has ruled in favor of FanDuel, the largest online sportsbook operator in the US. The court dismissed the case brought by the gaming company’s founders and early investors. The plaintiffs claimed that they hadn’t been properly compensated during the 2018 merger with Paddy Power Betfair, after which it became Flutter Entertainment.
Co-founders Nigel and Lesley Eccles along with Thomas Griffiths, former CPO, more than 100 employees, plus early-stage investors, were the plaintiffs in the case, claiming that KKR and Shamrock Capital put pressure on board members to accept a $559 million offer from Paddy Power Betfair.
They claimed that FanDuel’s valuation was artificially lowered to avoid paying certain shareholders a fair amount, therefore enriching KKR and Shamrock while cheating common equity investors out of their share of the proceeds.
Nigel Eccles had initially filed a petition in Scotland in 2018, demanding a revaluation. The petition read:
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.
FanDuel claims that the company was in a poor position financially at the time of the deal, hence the lower valuation. But the plaintiffs argue that the company’s valuation had jumped significantly just before the merger, thanks to a ruling by the US Supreme Court that opened the door for states to make their own laws on sports betting.
Claims that KKR and Shamrock received preferential treatment compared to FanDuel’s common equity investors formed the basis for this new lawsuit in which the founders sought $1 billion in damages. The plaintiffs, led by former FanDuel CEO Nigel Eccles, argued for a breach of fiduciary duty.
However, the five-judge panel of the court found that the plaintiffs failed to make a valid legal claim under Scots law. Scottish law dictates that directors of a company have fiduciary duties to the company but not to shareholders.
Mark Kirsch, a partner at King & Spalding which is representing FanDuel, had this to say about the ruling: “This is a sweeping victory for our client which confirms that the transaction was fundamentally fair and the proceeds were appropriately distributed.”
The plaintiffs may still have grounds for an appeal or may attempt another form of litigation.
FanDuel was established in 2009 in Edinburgh. It held its first FanDuel Fantasy Football Championship in 2010. By 2015, it was valued at over a billion dollars. This was followed by a series of acquisitions and an attempt to merge with DraftKings in 2016 that was blocked by the Federal Trade commission.
CEO Nigel Eccles left in 2017 and co-founder Tom Griffiths left shortly afterwards. Following the merger with Paddy Power Betfair, FanDuel is now owned by holding company Flutter Entertainment, a bookkeeper based in Dublin and valued at $20.12 billion.
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