The cofounders of FanDuel are escalating their legal battle to reclaim what they assert is lost equity from the company’s 2018 acquisition by European bookmaker Paddy Power Betfair, now known as Flutter Entertainment.

In a revised lawsuit filed in New York state, cofounders Nigel Eccles, Lesley Eccles, Thomas Griffiths, Robat Jones, and Chris Stafford, joined by numerous early investors and former employees, argue that board members influenced by private equity firms KKR and Shamrock Capital managed to secure “100% of FanDuel’s equity in the new merged company” for themselves and other preferred shareholders, sidelining the original shareholders from the significant financial growth the company has experienced since the merger.

Origins and Implications of the 2018 Sale

The contentious sale transferred 61% ownership of FanDuel to Paddy Power, pegging FanDuel’s stake in the merged entity at $559 million. Today, the company’s valuation has soared above $20 billion, marking it as a giant in U.S. sports gambling. Plaintiffs contend that the 2018 valuation was deliberately understated to minimize payouts to early shareholders.

They claim that despite being promised a 40% stake in the merged FanDuel Group, an unfair valuation meant that KKR and Shamrock, as preferred shareholders, benefited exclusively from the merger terms defined in the company’s bylaws, effectively wiping out the stakes of early shareholders.

Legal Journey and Current Developments

Originally brought before a Scottish court, the lawsuit has been active across both sides of the Atlantic, facing various legal hurdles. It was only recently, in May, that the New York Court of Appeals allowed the lawsuit to continue, overturning a previous dismissal. The expanded allegations now include detailed accusations of fiduciary breaches, fraud, conspiracy, and bribery under Scots law, as articulated by Nigel Eccles.

The cofounders and their co-plaintiffs are now pushing for a jury trial, aiming to obtain compensatory damages in excess of $500,000, alongside punitive damages and the disgorgement of what they describe as “ill-gotten gains” from the defendants.

While KKR has declined to comment when asked by Front Office Sports about the ongoing legal proceedings, Shamrock has not responded at all. A joint statement from 2020 saw both entities defending their actions, asserting that the claims were baseless and highlighting their support of the company during its financially precarious periods before 2018.

The legal proceedings unfold as FanDuel’s business thrives post-PASPA repeal, with the company recently reporting robust earnings that surpassed expectations. This lawsuit marks a significant chapter in the company’s history, underscoring the complexities and conflicts that can emerge in high-stakes mergers and acquisitions in the rapidly evolving sports betting industry.