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The New York Appeals Court sided yesterday (23 May) with the founders of FanDuel in their lawsuit that claimed the firm’s 2018 acquisition by Paddy Power Betfair was undervalued.

The decision is the latest twist in the years-long dispute involving FanDuel’s former founders, executives and early investors.

The plaintiffs argued they lost out on $120m when FanDuel was acquired by Paddy Power Betfair in the aftermath of the US Supreme Court’s 2018 PASPA repeal.

This verdict paved the way for the state-by-state legalisation of sports betting, with FanDuel subsequently becoming the number one operator nationwide by market share.

Yesterday the court ruled the suit, which was initially filed in Scotland, could proceed as legitimate breach of contract claims were raised.  

The court said: “The Appellate Division correctly concluded that Scots law applies to plaintiffs’ claims and appropriately took judicial notice of its content in resolving defendants’ motion to dismiss.

“We conclude, however, that plaintiffs have sufficiently pleaded causes of action for breach of fiduciary duty under Scots law. Accordingly, we reverse the Appellate Division order.”

It comes following a 2022 decision by a five-judge panel in New York Appellate court that dismissed the case, arguing the FanDuel founders had failed to make a valid claim under Scottish law.

The background: towards acqusition

FanDuel’s predecessor Hubdub Ltd was founded in 2007 in Scotland by Nigel Eccles, Lesley Eccles and Tom Griffiths.

While initially offering bets on real world events, the company soon turned its hand to daily fantasy sports, launching in the US in 2009.

By 2015, FanDuel was engaged in an expensive marketing war with its main competitor, DraftKings.

The two opted to engage in a $3.3bn “merger of equals” in 2016, however the deal was eventually blocked by US competition authorities.

Following the collapse of the deal, the board simplified FanDuel’s share structure into two kinds of stock: “Preferred Shares” and “New Ordinary Shares”.

Two FanDuel shareholders, Shamrock Capital Advisors and KKR, held 15% and 21% respectively of the total Preferred Shares and were collectively designated “dragging shareholders”.

This gave them the power to compel the remaining shareholders to accept an acquisition or merger offer.

In 2018, FanDuel’s board of directors began exploring financing options and engaged financial advisory firm Moelis & Company to assist.

Among the options raised was a merger with Irish betting conglomerate Paddy Power Betfair, which has subsequently rebranded to Flutter Entertainment.

The negotiations ran concurrently with the US Supreme Court case Murphy v. NCAA, which would ultimately lead to the repeal of PASPA.

The case: FanDuel founders file lawsuit

After initially filing the case in Scotland, FanDuel’s former founders, executives and over 100 shareholders, collectively representing 10% of share capital, filed a challenge to the merger in New York.

The plaintiffs argued the defendants had engaged in a scheme to ensure that the Preferred Shareholders would exclusively benefit from the merger.

This involved, they claimed, a deliberate attempt to undervalue FanDuel’s assets in the negotiations, despite the company being worth considerably more in the aftermath of Murphy.

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