FanDuel founders' shareholder suit clears document review hurdle

Nigel Eccles helped build FanDuel into the largest sports betting operator in the United States. When the company merged with Paddy Power Betfair's US operations in 2018, he received nothing.

The merger consideration was valued at $465.5 million. The preferred shareholders' threshold sat at $559 million. Ordinary shareholders, Eccles among them, were structurally subordinated out of the proceeds. Two years later, Flutter acquired FanDuel at an implied enterprise value of $11.2 billion. The gap between those two numbers is what this litigation is about.

The New York Supreme Court dismissed an earlier suit in 2022. Eccles and more than a hundred co-plaintiffs filed again. On October 16, Special Master Alan Scheinkman ordered the defendants — KKR, Shamrock Capital, and others — to submit previously withheld legal communications for confidential review. The documents must bear on at least one of three issues: FanDuel's valuation at the time of the 2018 merger, the drag-along rights KKR and Shamrock used to compel other shareholders into the deal, or the waterfall provision that determined who received what and in what order.

Scheinkman also rejected the defendants' argument that litigation anticipation alone shields documents from disclosure. He determined that Scots law governs privilege questions in the case — a choice-of-law ruling that has real teeth, because Scots privilege doctrine is narrower than its US counterpart. Documents that would be protected under New York law may not be protected under Scottish law. That is not a procedural footnote. It is the mechanism by which plaintiffs could reach communications that would otherwise remain buried.

I have seen waterfall disputes of this structure before. The documents that matter most in these cases are rarely the valuation models themselves — those get litigated to a standstill between competing experts. The documents that move cases are the internal communications that show what the parties believed the company was worth at the time the structure was set, and whether the structure was designed to produce a particular outcome for a particular class. That is what the confidential review is reaching for.

The defendants will argue, and the confidential review may confirm, that the waterfall simply worked as written and that preferred shareholders taking precedence over ordinary shareholders is exactly what preferred shareholders are for. That argument is legally sound. What it cannot survive is contemporaneous documentation showing that the $465.5 million valuation was deliberately anchored below the $559 million threshold to ensure ordinary shareholders received nothing while a larger transaction was already in view.

Whether those documents exist is what Scheinkman's order is designed to determine. The confidential review does not give plaintiffs the documents — it gives the court visibility into whether the privilege claims hold. If they do not, the documents become discoverable. If they do, plaintiffs have lost their best factual avenue and the case narrows to expert valuation testimony, which tends to favor defendants with deeper pockets and longer timelines.