A New York State appeal court has rejected the grounds for former FanDuel co-founders and shareholders to pursue a legal challenge to claim back proceeds from the firm’s sale to Flutter Entertainment in 2018.
The appeal, led by former FanDuel CEO and Co-founder Nigel Eccles, sought compensation from parties involved in the sale of FanDuel to Paddy Power Betfair (PPB) in 2018, executed for $465m.
Eccles had initially filed a Scottish court order against PPB, representing the interests of four of FanDuel’s enterprise co-founders including his wife Lesley Eccles (former CMO), Tom Griffiths (former CPO) and Rob Jones (corporate advisor).
At the time of PPB’s buyout, the founding team of FanDuel had departed the company to pursue individual ventures but claimed to have a ‘non-preferred share arrangement’ that would reward co-founders based on FanDuel’s future outcome.
However, a five-judge NY panel deemed that the Eccles versus Shamrock Capital Advisors appeal had failed to make a valid legal claim under Scottish law, where FanDuel had been incorporated as a business.
Of significance, appeal court judges outlined that under Scottish law “directors’ duties are to the company but not to shareholders”.
The 2018 buyout of FanDuel was a transformative deal for PPB, which would rebrand its business to Flutter Entertainment, with FanDuel as its principal growth asset, becoming US wagering’s state-by-state dominant sportsbook brand.
Seeking compensation, Eccles and co-founders stated that deal-makers Shamrock Capital Advisors and KKR had ‘artificially suppressed’ the valuation of FanDuel to ensure that certain shareholders would not be rewarded by PPB’s deal.
The Scottish court order outlined that Eccles and co-founders sought a minimum reward of $120m in compensation and a further recalculation of their shareholdings accounting for FanDuel’s growth since 2018.
Flutter defended the M&A valuation of FanDuel in 2018, arguing that it had made a $600m outlay to merge FanDuel with its Betfair TVG racing division to launch its US sportsbook division.
The initial deal saw PPB take a controlling 61% stake in FanDuel for $158m. The transaction was approved by FanDuel’s venture capital investors who had invested a total of $400m to fund the daily-fantasy-sports (DFS) operator.
Dealmakers stated that under the terms of the agreement, holders of ‘non-preferred shares’ could not be rewarded as preferential payouts had been reserved for venture capital investors of FanDuel’s DFS enterprise.
“This is a sweeping victory for our client, which confirms that the transaction was fundamentally fair and the proceeds were appropriately distributed,” said Mark Kirsch from King & Spalding who represented FanDuel.