New York Court Rules in Favor of FanDuel in $1B Founders Suit
Posted on: October 13, 2022, 05:34h.
Last updated on: October 13, 2022, 06:35h.
The New York Supreme Court today ruled in favor of FanDuel, dismissing a $1 billion suit brought by founders of the gaming company. They argued they were not adequately compensated when the sportsbook operator was acquired by Paddy Power Betfair in 2018.
FanDuel founders Nigel and Leslie Eccles and Thomas Griffiths and 134 early stage employees were among the plaintiffs in the case. They claimed that the private equity firms KKR and Shamrock Capital pressured conflicted board members of the daily fantasy sports (DFS) company to accept a $559 million takeover offer from Paddy Power Betfair. That deal enriched KKR and Shamrock while essentially leaving common equity investors out in the cold.
In 2018, a Scottish court tossed a suit brought by FanDuel founders attempting to stop the sale of the company to Ireland-based Paddy Power. Eccles and his fellow founders would later sue KKR and Shamrock for $120 million, claiming those entities received preferential treatment not afforded to common equity investors. The plaintiffs wanted Scots law applied in the New York case, but the court ruled against that effort.
As to the merits, plaintiffs have failed to state a claim for breach of fiduciary duty under Scots law, as Scots law states that directors generally owe fiduciary duties only to their company, not to its shareholders. While a director may owe a fiduciary duty to a shareholder in special circumstances, such circumstances are not present here,” according to the ruling.
FanDuel is now the largest online sportsbook operator in the US and is 95% owned by Flutter Entertainment. Boyd Gaming controls the other 5%.
‘Sweeping Victory’ for FanDuel
Today, FanDuel holds dominant market share in the fast-growing US online sports wagering market — nearly as much as its next closest competitors, BetMGM and DraftKings, combined. The company is also one of the biggest operators of internet casinos in the US, and recently reported the first profitable quarter in US online sports betting corporate history.
All of that is to say the gaming company is living up to the potential its founders envisioned — potential they argue wasn’t reflected in the offer price for the company. As such, in the suit, they claimed breach of fiduciary duty by the acquirers. But the New York Supreme Court didn’t concur.
Rather, the court states in its ruling, “The cause of action alleging aiding and abetting a breach of fiduciary nonetheless fails because there is no underlying breach of fiduciary duty.”
“This is a sweeping victory for our client which confirms that the transaction was fundamentally fair and the proceeds were appropriately distributed,” said Mark Kirsch, a partner at King & Spalding, who is representing FanDuel and its board of directors.
Matthew Biben, another partner at that firm and longtime counsel to the gaming company, also represented the operator in this case.
It remains to be seen if the plaintiffs have grounds for an appeal, or will attempt another form of litigation.
As for FanDuel, parent company Flutter is still in the midst of arbitration with Fox Corp. regarding pricing for the media giant’s rights to acquire 18.6% of the gaming operator.
There’s some expectation that rift could be resolved in the coming months, potentially setting the stage for Flutter to spin-off a portion FanDuel to public investors.
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