FanDuel founders resurrect lawsuit regarding 2018 sale

The co-founders of the sports betting titan are seeking compensatory and punitive damages.

In 2018, the founders of FanDuel sold their company to European gaming giant Paddy Power Betfair, now called Flutter. Since then, the sportsbook has grown exponentially. Now, the original founders are ramping up efforts to gain alleged lost equity in a transaction they claim was a breach of fiduciary duty. 

FanDuel’s co-founders Nigel Eccles, Lesley Eccles, Thomas Griffiths, Rob Jones and Chris Stafford, as well as dozens of early employees and investors, are suing the company’s two largest initial investors: KKR and Shamrock Capital. The complaint alleges that the two private equity firms colluded to squeeze initial investors out of enormous profits. 

The case originally began in Scotland, where Flutter was founded. It has worked its way across the Atlantic, where FanDuel’s headquarters are currently stationed in New York. The case was initially dismissed before a successful appeal in the New York Court of Appeals. Now, the plaintiffs have filed an amended 216-page filing in New York.

The complaint of the founders

FanDuel was originally founded as a daily fantasy sports company. The industry had encountered several issues across states as elected officials often accused the industry of being a form of betting rather than a skill-based game. However, once the Supreme Court repealed PASPA in May 2018, the potential of legalization of sports betting across the country offered an avenue to success for FanDuel.

As a result, Flutter acquired FanDuel and merged the two companies. After the merger, FanDuel shareholders received 40% equity in Flutter’s US-based companies. KKR and Shamrock Capital controlled the company’s board of directors and those shares. The old company’s bylaws stated that in the event of a merger or sale valued up to $559 million, preferred shareholders would receive all of the equity. 

In a social media post, Nigel Eccles claimed that the board settled on a phony valuation of $559 million in order to wipe out common shareholders, which included the original founders and other early employees and investors. 

Just two years after the merger, the preferred shareholders sold their stock in the company for $4.2 billion dollars. The plaintiffs are looking for a jury trial in the hopes of securing compensatory damages of more than $500,000, unspecified punitive damages, and “disgorgement of Defendants’ ill-gotten gains from having erased the interest of FanDuel ordinary shareholders,” plus any interest owed.

FanDuel has grown tremendously

Flutter was clearly correct in their original assumption that legalized sports betting would be a boon for FanDuel in the United States. 

At the time of the sale, FanDuel was a daily fantasy sports platform that had been blocked by antitrust regulators from potentially merging with DraftKings. It was also having issues selling its product as a game of skill, and was therefore banned in many states, including New York for a period of time. Notably, the company did not have the infrastructure set up to accept sports bets. 

Now, with the sports betting industry flourishing, Flutter’s U.S.-arm has been valued at more than $20 billion. FanDuel recently announced $1.53 billion in sports betting revenue earned for the second quarter of 2024. FanDuel leads the U.S. market, accounting for 51% of the sports betting gaming revenue generated for the months of April, May and June of 2024.