FanDuel founders escalate legal battle over 2018 acquisition valuation

The founders of FanDuel are ramping up their legal battle to reclaim equity they allege was unfairly stripped away during the company's 2018 sale to Paddy Power Betfair, now known as Flutter Entertainment. The dispute, which involves claims of undervaluation and breaches of fiduciary duty, has been revived in a New York court with an amended complaint.

The group of plaintiffs, led by FanDuel co-founders Nigel Eccles, Lesley Eccles, Thomas Griffiths, Robat Jones, and Chris Stafford, argues that the 2018 sale of a majority stake in FanDuel to Paddy Power Betfair grossly undervalued the company. 

According to the lawsuit, the $559 million valuation at the time of the sale was artificially low, a move they claim was orchestrated by board members controlled by private equity firms KKR and Shamrock Capital. This low valuation, the founders allege, allowed preferred shareholders to gain full control of FanDuel’s equity in the merged entity, leaving the early investors and employees with nothing.

In the years since the acquisition, FanDuel has seen its value skyrocket, with the company now being worth over $20 billion, making it one of the most prominent players in the U.S. sports betting market. The founders and other early stakeholders argue that the initial valuation did not reflect the company’s true worth, and as a result, they were unfairly excluded from the significant financial gains that have occurred post-merger.

The lawsuit, which has traveled across legal jurisdictions, originally began in Scotland but has since found its way to the U.S. court system. The New York Court of Appeals ruled in May 2023 that the case could proceed, providing the plaintiffs with an opportunity to pursue their claims in court. 

Nigel Eccles, commenting on the legal battle, stated: "The amended complaint for the first time publicly details the defendants’ various breaches of fiduciary duties, as well as outlines the defendants’ fraud, conspiracy, and bribery under Scots law."

The plaintiffs are demanding a jury trial, seeking over $500,000 in compensatory damages, unspecified punitive damages, and the disgorgement of what they describe as "ill-gotten gains" from the defendants. They argue that these gains were secured at the expense of FanDuel's original shareholders, who were effectively "wiped out" by the undervaluation of the company during the merger.

While KKR and Shamrock have yet to respond to the new development, the companies did issue a joint statement in 2020, defending their actions: "KKR and Shamrock stood by and supported the company during difficult times. We are confident that the facts will demonstrate that the allegations in this lawsuit are completely baseless."

The "difficult times" referenced in the statement likely refer to FanDuel's financial challenges in 2018, when the company was reportedly close to bankruptcy. Despite these struggles, FanDuel has since rebounded, reporting better-than-expected earnings in the most recent quarter, further fueling the founders' claims that the company was undervalued during the sale.

FanDuel, which was founded in 2009 as a fantasy sports platform, has grown into a leading player in the sports betting industry, particularly following the 2018 repeal of the Professional and Amateur Sports Protection Act (PASPA). This legal change opened the door for legalized sports betting across the United States, leading to a surge in FanDuel's market presence and making it an attractive acquisition target for Flutter Entertainment.