A case in New York brought against sports betting and fantasy sports operator FanDuel by its co-founder and first CEO Nigel Eccles, early investors and employees was dismissed Thursday, reported Bloomberg.
‘Sweeping Victory’ for FanDuel and Its Board
The New York State Supreme Court, Appellate Division dismissed Eccles v. Shamrock Capital Advisors LLC, ruling that the FanDuel shareholders led by Eccles failed to make a valid legal claim under the law of Scotland where FanDuel, which is owned by Flutter Entertainment, is incorporated.
The ruling was hailed as a “sweeping victory” for FanDuel by Mark Kirsch, a partner with the firm King & Spalding that represents the interests of FanDuel and its board of directors, who stated that the court ruling confirmed that “the transaction was fundamentally fair and the proceeds were appropriately distributed.”
Eccles and the group of early investors in FanDuel claimed they were cheated out of the proceeds of FanDuel’s merger with Flutter Entertainment in 2018 but a five-judge panel of the court stated that directors have fiduciary duties to the company under Scottish law, not to the shareholders.
Eccles and the other shareholders claimed in their complaint that FanDuel’s valuation was artificially lowered by private equity firms Shamrock Capital Advisors LLC and KKR & Co. Inc. to avoid paying shareholders from the company’s merger with Paddy Power Betfair, which paved the way for the creation of Flutter Entertainment. Eccles initially filed a lawsuit over the merger in Scotland in 2018 but later dropped it.
Artificial Lower Valuation Scammed Investors
The group had stated in their complaint that in 2017, FanDuel received a valuation of $1.2 billion as part of a proposal to merge with DraftKings, yet for the merger with Paddy Power Betfair the board of directors kept the value of the business below $559 million to avoid having to pay them.
At that time FanDuel offered fantasy sports only but just eight days before the FanDuel board had approved the merger, the company’s valuation jumped significantly after the US Supreme Court ruling struck down PASPA in May 2018 and opened the door for the states to legalize sports betting.
Eccles and the others believed they were left with nothing while “defendants walked away with shares worth billions,” while FanDeul claimed the company was in a poor financial condition at the time of the deal and hence, the lower valuation for the merger.
FanDuel is still to become profitable despite having grown revenue in the second quarter by 159% to $906 million and having acquired 2.2 million customers since launching sports betting but according to the company’s latest report, those figures should lead to profitability by 2023, assuming that nine other states launch sports betting.
