FanDuel Founders’ $120m Lawsuit Gets New Life in NY Appeals Court

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The stakes have been raised in a heated legal dispute as the New York State Court of Appeals breathed new life into a lawsuit, filed by the founders of FanDuel, challenging a powerful squadron of existing shareholders in the pioneering daily fantasy sports company.

Husband and wife duo, Nigel and Lesley Eccles, established FanDuel more than fifteen years ago in the stunning locale of Edinburgh, Scotland, originally under the moniker Hubdub. The nascent business functioned as a platform for users to place wagers on the myriad scenarios unfolding in the world, but ultimately found its destiny in 2009 when it transitioned to center on daily fantasy sports. This dramatic pivot marked FanDuel’s first foray into the US market where it would go on to trailblaze the sector.

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However, behind this entrepreneurial success story a legal storm was brewing. It culminated in 2018 when FanDuel stepped onto the dancefloor with Anglo-Irish gambling juggernaut Paddy Power Betfair for a $465 million merger deal, the repercussions of which are still being felt today. This strategic alliance saw the birth of a formidable entity, Flutter Entertainment, and also marked the onset of bitter contention amongst former allies.

Embroiled in this legal fallout are the Eccles, along with approximately 100 staunch shareholders, who assert they were egregiously shortchanged amid the merger’s financial reshuffle. This claim, which lies at the very heart of the pending lawsuit, stems from the company’s unexpected decision to bifurcate Fanduel’s stock into preferred shares and common shares– with the plaintiffs firmly holding onto about 10% of the common stock.

While giant league players collectively known as the defendants, Shamrock Capital Advisors (SCA) and KKR held onto 36% of the preferred shares in FanDuel, it’s alleged they deployed a “drag along right,” a controversial move which compelled minority shareholders to begrudgingly accept the sale. The lawsuit fires accusations that FanDuel was deliberately undervalued by a staggering $120 million, a calculation conveniently aligned to match the value of the preferred shares, thereby squeezing out common shareholders.

This intricate dance within the financial ring was first contested in Scotland. However, abandoning their home turf in 2020, the plaintiffs refiled the lawsuit in New York Supreme Court, convinced that New York law would provide a stronger foothold for their claims. Despite this strategic maneuver, the court stood firm, ordering that the Eskimo showdown proceed under Scots law.

Disenchanting initially for the plaintiffs, the New York Supreme Court Appellate Division flat-out disagreed with their filing, ruling that under Scots law the obligations of the directors were to the company, not the absent shareholders. However, Thursday brought a glimmer of hope as the New York Appeals Court — the state’s highest judicial power — reversed this decision, prompting that the plaintiffs had competently submitted claims for a breach of duty under Scots law. The implications of this reversal have now volleyed the matter back into the court of the Supreme Court.

As of now, the plaintiffs remain resolute, in pursuit of their hefty $120 million compensation dues. Interestingly, Flutter Entertainment is not, however, a named party in the lawsuit. As a result, this high-stakes drama continues to unfurl within the realm of sports betting markets.