EDINBURGH tech unicorn FanDuel has handed a larger chunk of equity to its financial backers as a result of its planned merger with rival DraftKings falling apart.

The firm, which operates in the controversial US daily fantasy sports market, walked away from its merger with DraftKings last month after facing strong opposition from US consumer-protection agency the Federal Trade Commission.

This has resulted in a merger-termination clause agreed at the start of this year taking effect, with founders including Nigel and Lesley Eccles not only seeing their shareholding in the business slashed but their rights as shareholders watered down too.

Loading article content

Those who bought into the company in 2014 via a $70 million fundraising led by Los Angeles private equity house Shamrock Capital Advisors - an investment vehicle for the Disney family - have been awarded one new share for every two existing shares they held in the company.

Investors who participated in a $275m fundraising led by private equity giant Kohlberg Kravis Roberts (KKR) in 2015, meanwhile, have been awarded 2.35 new shares for every existing share.

Early FanDuel backers who invested further as part of the 2014 and 2015 fundraisings will have received additional shares in line with those allocations, but they will not be entitled to additional shares based on their original investments. Early investors included the Scottish Investment Bank, Pentech Ventures and angel investor Simon Murdoch.

While the number of shares awarded as part of a management incentive scheme has increased dramatically, with 59 new shares being issued for every one already held, the rights attached to those have been watered down, with half becoming deferred shares. This means they would rank at the back of the queue for repayment should the company’s assets ever have to be liquidated.

Similarly, the rights attached to the shares held by the company’s seed investors - thought to include Mr and Mrs Eccles and Scottish Enterprise - have halved in the same way.

As a consequence of the changes, the proportion of FanDuel’s stock that is owned by Shamrock, KKR and a range of other investors including NBC Sports Ventures, Google Capital and Time Warner Investments, has increased from 54 per cent to 71 per cent.

This is based on the company’s most recent statement of capital, dated July 8, which said a total of 4.4 million shares were in issue at that time.

The restructuring has also overridden FanDuel’s right to buy back the shares issued as part of the 2014 and 2015 rounds. Before the merger-termination clause kicked in, the company would have been able to buy out the 2014 investors at the end of June this year and the 2015 investors in January. It would have had to pay at least 150 per cent of the amount it received from those investors to do so.

A spokeswoman for the company confirmed that “we are restructuring our capital table” but declined to comment further.

The restructuring has come after FanDuel, which continues to face a series of legal challenges in the US, confirmed that it is pulling out of the UK market for the time being.

Despite being founded in Edinburgh in 2009, the firm only began offering fantasy sports games based on the English Premier League last year.