FanDuel Founders’ Suit Against KKR Survives Dismissal

A New York court has refused to throw out the lawsuit that FanDuel‘s founders and earliest employees filed against the private-equity firms that bankrolled the company, keeping alive claims that a 2018 deal routed the entire payout to preferred investors and left the people who built the business with nothing.

The New York Supreme Court — the state’s trial-level court — largely denied a motion to dismiss brought by KKR and Shamrock Capital, the two firms that co-founder Nigel Eccles and roughly 100 other shareholders accuse of engineering a lowball valuation of FanDuel. Claims for breach of fiduciary duty, fraud, conspiracy and bribery all remain in the case, along with a separate claim over how the two firms forced the sale through.

The waterfall that wiped out the founders

The dispute traces back to FanDuel’s 2018 merger with the US arm of Paddy Power Betfair, the Anglo-Irish operator now known as Flutter Entertainment. FanDuel’s shareholders received roughly 40% of the combined company, and FanDuel’s board valued that stake at about $465.5 million — a figure that is the whole fight.

Under FanDuel’s share structure, preferred investors were entitled to be paid first, up to a combined total of roughly $559 million, before common shareholders collected anything. KKR held about 21% of those preferred shares and Shamrock about 15%, and the two firms were also the investors empowered to force a sale. Because the board pegged the 40% stake below the $559 million threshold, the preferred holders swept up the entire stake. The common shareholders got nothing. The founders, early employees and investors who went on to sue held about 10% of that common stock between them.

The plaintiffs argue the timing gives them away. FanDuel’s board approved the deal on a valuation fixed before the US Supreme Court struck down the federal ban on sports betting in May 2018 — a decision that landed days before the vote and reset the economics of every US sportsbook. The board never ordered a fresh, independent valuation, even though its own advisers had projected FanDuel could earn more than $1.1 billion in annual revenue within five years if US betting were legalized. Two years earlier, a proposed merger of equals with rival DraftKings had valued FanDuel at a fully diluted $1.2 billion.

The stakes became clear fast. In 2020, the same preferred investors sold that 40% stake for $4.2 billion. FanDuel is now the largest online sportsbook in the US and is about 95% owned by Flutter.

Why the case is still standing

This is not the first time the suit has been tested. FanDuel is incorporated in Scotland, and the case hinges on whether Scottish law lets shareholders sue directors directly. A New York appeals court dismissed the claims in 2022 on the grounds that Scottish directors owe duties to the company, not to individual shareholders. In May 2024, the New York Court of Appeals — the state’s highest court — reversed that and sent the case back, finding the founders had done enough to allege a breach.

The high court held that FanDuel’s directors “at least owed limited fiduciary duties” to common shareholders because, once handed the power to negotiate the merger and value what shareholders received, they took on a duty not to undermine those shareholders’ interests for their own gain. The latest ruling applies that standard and lets the rebuilt complaint proceed.

Also surviving is the plaintiffs’ challenge to the firms’ drag-along rights — a common clause that lets majority investors force minority holders to sell into a deal. KKR and Shamrock used those rights to push the merger through without a shareholder vote, even though the company’s own rules required any forced sale to be on arm’s-length terms. The court found that whether the firms exercised that power unfairly is a factual question that cannot be resolved before trial.

What comes next

The defendants reject the allegations. In their filings they argue the merger rescued a company that was floundering after Eccles left, and that they held more common shares than the plaintiffs did — undercutting, they say, any motive to shortchange common holders. The firms have separately argued that Eccles violated a 2017 agreement struck when he stepped down as chief executive by bringing the suit at all.

With the motion largely denied and discovery largely complete, the case now moves toward a possible trial. The plaintiffs are seeking about $120 million. Eccles cast the decision as an interim but important step toward putting the evidence in front of a court.

The outcome will be watched well beyond FanDuel. New York has become a busy venue for gambling-industry disputes, and cases that test what private-equity sponsors owe common shareholders in a waterfall-and-drag-along squeeze are rare. For the founders and employees who built one company into the market leader and walked away with nothing, the fight is now about whether a court agrees the math was rigged.