FanDuel founders receive legal boost as New York court revives lawsuit
Plaintiffs insist they were cheated out of the proceeds of the DFS giant’s 2018 sale in the wake of PASPA’s repeal
The State of New York Court of Appeals has ruled that a suit initially filed in Scotland by FanDuel founders that the company was undervalued when it was sold six years ago should proceed under Scottish law.
The crux of the lawsuit is that the individuals behind the DFS operator received nothing when, in 2018, Paddy Power Betfair (now Flutter) acquired a majority stake in FanDuel for $158m, before later increasing its interest to 95%.
FanDuel’s management in 2018 sold the company after its founders, including husband and wife duo Nigel and Leslie Eccles, had departed the business, yet the executive team at the time received millions on the back of the deal.
Preferential shareholders were paid first, which meant there was no money left for the Eccleses and other founders who had created and launched FanDuel in 2009, turning their startup into a market leader in the booming DFS space and a tech unicorn.
Two shareholders in FanDuel, Shamrock Capital Advisors and KKR, held 15% and 21% of the preferred shares, respectively.
The original lawsuit against FanDuel and Shamrock Capital Advisors and KKR – brought by FanDuel’s founders, executives and employees in a Scottish court in August 2018, just three months after PASPA’s reappeal as FanDuel expanded into sports betting – sought $120m in damages.
Four years later, in 2022, a five-judge panel at the New York Appellate Division of the Supreme Court sided with FanDuel, ruling that the plaintiffs had failed to make a valid legal claim under the law in Scotland, where the company had been incorporated.
However, yesterday, May 23, the State of New York Court of Appeals ruled that the case could proceed and reversed the 2022 judgment.
The seven-judge panel decision said the lower court should not have dismissed the lawsuit and that the plaintiffs had sufficiently argued their case.
Judge Madeline Singas said: “In the present case, the Appellate Division correctly concluded that Scots law applies to plaintiffs’ claims and appropriately took judicial notice of its content in resolving defendants’ motion to dismiss.
“We conclude, however, that plaintiffs have sufficiently pleaded causes of action for breach of fiduciary duty under Scots law. Accordingly, we reverse the Appellate Division order.”
The ‘merger,’ as the deal between Paddy Power Betfair and FanDuel was described in 2018, concluded in July of that year and FanDuel went on to dominate US online sports betting.
Earlier this month, Flutter revealed how FanDuel has a 53.4% share of the US market based on net gaming revenue (NGR) and that it was now the igaming leader with a 25.7% share of gross gaming revenue (GGR).
