FanDuel Founders and Investors Fight to Keep Sale Lawsuit Alive

The founders of FanDuel, plus over 100 early investors and workers, are trying to keep their lawsuit going in the New York Supreme Court. 

Lawsuit Claims Private Equity Firms Exploited FanDuel Sale

They are suing private equity firms Shamrock Capital Advisors and KKR. The case is about the $559 million sale of FanDuel to Paddy Power Betfair in 2018. The people suing say this deal was not fair because it left them out of the profits while making a lot of money for big investors with special shares. 

The merger happened just before PASPA was canceled. PASPA was a law that did not allow sports betting in most US states. The plaintiffs think this timing let the big shareholders make a lot of money as FanDuel became a leader in the legal sports betting business.

The plaintiffs say the company’s value was lowered during the sale leaving common shareholders with no payout. This lower valuation, they claim aimed to give all the equity to preferred shareholders. They say private equity firms Shamrock and KKR gained too much, with KKR making $250 million and Shamrock $100 million in the years after the sale. By 2020, FanDuel was worth over $20 billion, which backs up the plaintiffs’ belief that the merger was meant to exclude them from the company’s success after PASPA.

Court Allows FanDuel Merger Claims to Proceed

In May, New York’s Court of Appeals decided that the plaintiffs had alleged enough to show a breach of fiduciary duties under Scots law, which controls the dispute.

The plaintiffs filed a Second Amended Complaint backed up by more evidence they had obtained during the discovery. They say that the defendants’ Motion to Dismiss — which they filed earlier this year — does not bring up any new arguments and just goes over points the court already turned down.

The defendants claim the sale was needed to rescue FanDuel from going broke saying the company struggled under its founder Nigel Eccles’ leadership.

They say the plaintiffs twist facts and papers to make the merger look like a planned betrayal of regular shareholders. Lawyers for the defendants say the plaintiffs’ claims are guesswork without proof calling the lawsuit an attempt to change the past.If the plaintiffs stop the case from being thrown out, it will go to trial.

This would lead to a full examination of one of the gambling world’s most disputed mergers. The trial could affect many people, not just those involved, but also how companies handle mergers and buyouts in general.