This is a developing story and will be updated.
Rumors of such a lawsuit — led by former CEO Nigel Eccles — had swirled for months but came more than a month after the PPB deal went through.
Founders vs. FanDuel
You can see the full lawsuit here (addresses of plaintiffs have been redacted):Petition – Nigel Eccles and others re FanDuel Limited (1)
The case is being brought in court in Scotland.
Eccles and company are asking for money, and a lot of it:
The Petitioners are under the necessity of applying to your Lordships for relief. In all of the circumstances, it is appropriate that (i) the company be ordered to purchase the Petitioners’ ordinary shares at market value, reasonably estimated as 120,105,408 USD, as at the date of the presentation of the Petition or such other date as the Court may determine, or (ii) compensate the Petitioners for the loss of their shares as at the date of the presentation of the Petition or such other date as the Court may determine, or (iii) such other remedy as the Court thinks fit.
The other petitioners are Lesley Eccles, Tom Griffiths and Rob Jones, who were all founders and executives of the company up until the second half of 2017.
Why they are suing
When FanDuel’s management sold the company to PPB — after the departure of Eccles and company — no money went to the company’s founders or to any ordinary shareholder.
Meanwhile, current CEO Matt King and the rest of the executive team made millions on the transaction. That’s because preferential shareholders in the deal were to be paid first, leaving no money for Eccles, the founders or employees who had bought into the company.
The lawsuit outlines the difference:
Following several rounds of funding and investment in the growth of FanDuel, the company has two main classes of issued shares: preferential and ordinary. The Petitioners’ shares are, in the main, ordinary shares. In addition, all current employees of FanDuel hold options to acquire ordinary shares in the company. Finally, certain current and former employees hold ordinary shares purchased at their own expense through the exercise of options.
The other class, being preferential shares, are held, in the vast majority, by institutional investors. The four investor directors on the board represent institutions whose weight of interest is disproportionately in the preference class of shares. One of the directors, Carl Vogel, is an advisor to KKR and new CEO, Matt King, is a former KKR employee. In addition, the new CEO, Matt King, is in line to receive around 1.835% of the value of the preference class of shares in golden parachute payments in any transaction.
Eccles et al go on to note that FanDuel’s board of directors had no representation for common shareholders.
FanDuel’s majority shareholders used their “drag along right” (document here) to force minority shareholders to accept the deal. The dragging shareholders here were late-stage investors KKR and Shamrock Capital, who led two of FanDuel’s biggest rounds of investment.
So why would FanDuel’s founders be due any money?
The brief for Eccles et al says that FanDuel’s valuation should have drastically increased in the wake of a US Supreme Court decision that ended the prohibition on sports wagering outside of Nevada. While FanDuel did not have a position in sports betting, its operations in DFS arguably gave it a solid footing in the space moving forward; that’s why PPB bought it, after all.
The valuation was based on the circumstances before the Supreme Court ruling, according to the petition:
Having elected to so utilise the “waterfall” provisions, the board was then required to pick a price on which to base the conversion. The board of FanDuel considered whether the US Supreme Court ruling and its impact upon the market value of FanDuel should cause the company to be revalued. It has chosen not to do so. The board of FanDuel elected to use the valuation obtained prior to the US Supreme Court ruling, without seeking any current and sound valuation of the company.
The board of directors, which is de facto controlled by institutional investors, who stand to benefit from the purported share transaction as a result of their large holdings of preferential shares, has acted unfairly and has caused prejudice to the Petitioners. The decision of the board (whose interests are aligned with preference shareholders), not to seek and act upon a new market valuation in the face of a material event, which is likely to have significantly increased the market valuation of FanDuel, is a breach of its fiduciary duties.
Will that argument be persuasive to the court? That remains to be seen.
Petitioners go on to “ask FanDuel to produce any and all minutes, resolutions and ancillary documents informing their decision making not to obtain a revaluation of FanDuel and to propose changes to FanDuel’s Articles of Association.”
FanDuel since the sale
Each half of the combined group has been active in the time since announcing the transaction, lining up partnerships before the ink was dry on the contract.
PPB established the footprint first, partnering with Meadowlands Racetrack in New Jersey and Tioga Downs in New York. The group ultimately confirmed it would use the FanDuel brand for its US operations, and Meadowlands confirmed it would do the same for its retail branding, too.
Prior to closure of the acquisition, FanDuel struck its own deal with The Greenbrier in West Virginia. It will supply WV sports betting across both retail and online channels at the private resort casino.
The new FanDuel Group was founded upon closure in July, and the company is charting a purposeful course toward expansion. Earlier this month, it announced a substantial alliance with Boyd Gaming, which will open access into as many as 15 US states.
An online/mobile version of FanDuel Sportsbook is reportedly in development, too.