FanDuel Co-Founder Nigel Eccles Sues Preferred Shareholders

Nigel Eccles, co-founder of FanDuel, and several others, have filled a suit against the company’s preferred shareholders. They claim the FD was deliberately undervalued in the recent Paddy Power Betfair takeover.

Did FanDuel’s value rise considerably after PASPA was repealled? That’s one of the questions that will be put before a Scottish court as they consider a lawsuit filed by Nigel Eccles – Co-founder of FanDuel – against the company’s preferred shareholders.

Paddy Power Betfair recently acquired FanDuel for $465 million, but Eccles is arguing that the valuation was too low considering the recent repeal of PASPA, which for example led to Paddy Power Betfair’s stock price rising 28% in the following weeks.

Because of a so-called ‘waterfall’ agreement, the price was too low to see Eccles and other employees get any payment from the Paddy Power Betfair/FanDuel deal.

Eccles, who helped found FanDuel back in 2009, was CEO until just six months before the acquisition, is filing the lawsuit along with his wife, Lesley Eccles (former CMO), Tom Griffiths (former CPO) and Rob Jones (corporate advisor).

They are arguing that the FanDuel board deliberately undervalued the company, with the intention of preventing himself and other employees sharing over $120 million, while making sure that large institutional investment funds got all the rewards. They aim to force the preferred shareholders to buy the founders’ ordinary shares at market value.

The petition filed with the court reads:

“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…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,”

One of the key points that will be argued is whether the repeal of PASPA, which gives all US states the opportunity to regulate sports betting, thus opening up enormous new markets, should have a bearing on the value of FanDuel, given the fact that it was not operating as a sports betting firm at the time of the PPB takeover.

The petitioners will argue that because FanDuel was involved in real money sports games and had a huge amount of date on customers who love sports and regularly engage in real money sports-related contests, its obviously became a more valuable acquisition after PASPA was repealed.

The argument does seem quite logical, especially when you consider that now, in the post-PASPA USA, FanDuel is very visible in the sports betting industry, with branded sportsbooks at locations like Meadowlands, New Jersey.

But, on the other side, the management at FanDuel insist they negotiated the best deal they could, considering the then declining fortunes of the company – driven in large part by a failed merger with DraftKings, and a host of costly legal conflicts regarding the legality of daily fantasy sports betting in several states.

In an email, a FanDuel spokesman told Recode:

“The petition is simply not rooted in facts of reality…. 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.”

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