FanDuel founders sue company for $120m
The co-founders of FanDuel are suing the company over an alleged mis-valuation that saw the co-founders receive no payout when FanDuel was acquired by Paddy Power Betfair.
The suit has been filed in Scotland by the former FanDuel CEO, Nigel Eccles, along with Lesley Eccles, Tom Griffiths and Rob Jones.
Paddy Power Betfair acquired FanDuel earlier this year with the firm valued at $465m, with Eccles stepping down from his role as CEO six months prior. However, despite owning around 7% of the ordinary company shares, the petitioners received no money from the takeover.
This was due to a waterfall financial arrangement, which meant that early investors were paid out first, with no funds left over from the valuation to pay those with non-preferred shares.
Eccles contends that the valuation was purposefully low, especially due to the fact that FanDuel was well placed to immediately capitalise on the soon to open US sports betting market. For example, after PASPA was repealed and sports betting legalised in the US, the value of Paddy Power Betfair immediately shot up by almost 30%.
Despite this, FanDuel was not revalued and the deal was closed.
The court document demands that the firm be revalued – with Eccles believing a valuation of over $120m is more accurate – and the petitoners’ ordinary shares purchased at market value.
Not rooted in facts or reality
FanDuel has responded to the case by stating it is “simply not rooted in facts or reality”. A statement by the group read:
In preparation for this deal, an exhaustive process was undertaken with the anticipation of PASPA’s likely repeal. The deal was consummated consistent with the corporate governance rules and cap table established under the former founders’ leadership. The facts are that this was a sound business transaction that achieved the highest valuation possible for shareholders and was the right strategic move for the company’s future.– Statement, FanDuel
FanDuel certainly has a case. Prior to the acquisition by Paddy Power Betfair, the group was eyed by over 100 different investors.
According to Recode, the FanDuel business was also declining. A failed merger with DraftKings, along with several legal battles around violating US sports betting laws, had taken its toll on profits and led to consistent falls in the valuation price.