Nigel Eccles and three other co-founders of U.S. daily fantasy sports giant FanDuel are suing Paddy Power Betfair charging the gaming giant undervalued their former company when it acquired FanDuel last month for $465 million.
The report comes from tech news source Recode and said Eccles representatives have filed a Scottish court order against Paddy Power representing four of FanDuel’s enterprise co-founders; Nigel Eccles, wife Lesley Eccles (former CMO), Tom Griffiths (former CPO) and Rob Jones (corporate advisor).
The group is seeking about $120 million in compensation for the sale. Recode reported that Eccles did not see any money from the sale under a “waterfall” financial arrangement in which some of the company’s early investors were paid out first.
FanDuel’s $465 million valuation wasn’t large enough that people who owned non-preferred shares—including Eccles and the other founders—to receive money. Eccles and the company’s founding team left FanDuel about six months before the deal was announced, but maintained a substantial ‘non-preferred’ share arrangement, attached to FanDuel’s future outcome, the report said.
The group maintain that the sale was purposely undervalued and did not consider changes in the U.S. market brought about by the U.S. Supreme Court striking down a federal ban on sports betting. The ruling should have increased FanDuel’s valuation, they argue.
“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,” the petition reads.
Paddy Power Betfair moved to acquire FanDuel after the high court’s decision and formed the FanDuel Group in the U.S. The group has already partnered with the Meadowlands Racetrack in New Jersey in opening a live sports book and is expected to also offer online betting in the state. The company has also said it is pursuing sports betting deals in other states.
Under the acquisition, Paddy Power retained a majority 61 percent controlling stake in FanDuel Group. FanDuel’s investors approved the deal. However, the transaction’s make-up meant holders of non-preferred shares would not be rewarded for the sale of FanDuel, as certain venture investors would receive preferential pay-outs, Recode’s report said.
In the Scottish court filing, Eccles representatives demand that FanDuel’s enterprise valuation be recalculated, the report said.
