Updated: Jul 21, 2022
Plaintiff Dr. Robert Corwin is an owner of Class A stock of Golden Nugget Online Gaming ($GNOG). Corwin brough this action in Delaware Court of Chancery pursuant to 8 Del. C. § 220 to compel inspection of books and records. Plaintiff seeks to investigate potential breaches of fiduciary duty by: (i) Tilman Fertitta, GNOG’s controlling stockholder, and (ii) the Company’s board of directors in connection with GNOG’s pending merger with DraftKings and certain related side deals between DraftKings and Fertitta-controlled entities.
This lawsuit was filed on February 1, 2022. On August 9, 2021, it was announced that DraftKings agreed to buy Golden Nugget Online Gaming in an all-stock transaction valued at 1.56 billion dollars. Under the terms of the deal, Golden Nugget shareholders would receive 0.365 DraftKings shares per each GNOG share owned. Upon the announcement, Golden Nugget shares soared 29% premarket, while DraftKings was down 2.7%.
Plaintiff Corwin alleges that Fertitta and his affiliated entities collectively controlled approximately 88% voting power of GNOG, and indicated that they alone would approve the Merger. Accordingly, GNOG’s minority stockholders would not be given an opportunity to vote on the DraftKings Merger.
In connection with the execution of the Merger Agreement, Corwin alleges, DraftKings and a Fertitta-controlled entity, Fertitta Entertainment, Inc. (“FEI”) entered into a commercial agreement and other side agreements whereby DraftKings agreed to provide expanded market access, database access, and marketing integrations across FEI’s asset portfolio, including the Houston Rockets, Golden Nugget LLC, and Landry’s LLC.
As a result of the merger, FEI agreed to designate DraftKings as the exclusive daily fantasy sports, sports betting, free-to-play and iGaming partner of the Houston Rockets, and to provide DraftKings with the right to open a sportsbook with “DraftKings” marks and logos at the Toyota Center in Houston, Texas. Corwin writes that as the owner of the Houston Rockets basketball team, Fertitta stands to be the largest beneficiary of this agreement. And, according to the complaint, since the announcement of the merger, Fertitta has boasted that the Commercial Agreement will drive revenue to his other (non-GNOG) businesses.
Plaintiff claims, because of the side deals, the merger is procedurally and substantively unfair to minority stockholders. "The Merger provides numerous non-ratable benefits to Fertitta and FEI through, among other things, the Commercial Agreement, the License Agreement, and other related side agreements that are not going to be shared with GNOG’s minority stockholders."
In addition to the foregoing, plaintiff raises additional issues with the merger. First, he claims that GNOG did not disclose all the provisions of its side agreements. Additionally, he claims that the consideration to be paid to GNOG's stockholders (in the form of receiving 0.365 DraftKings shares per each GNOG share owned) is unfair. On CNBC, Fertilla commented that DraftKings "underpaid" for GNOG and that he "woke up this morning struggling." DraftKings CEO Jason Robbins characterized the deal as "a steal."
Finally, Dr. Corwin alleges that the process undertaken to approve the merger was unfair. He writes the following in the complaint to that end: "[t]he Merger was not conditioned on the approval of GNOG’s minority stockholders. The Board that approved the Merger and related side deals was conflicted, with at least four of the six-members having extensive personal and business ties with Fertitta. The Special Committee formed by the Board was formed too late to play a meaningful role in the process. The GNOG Board’s financial advisor, Jefferies LLC, was conflicted by its longstanding business ties to Fertilla, and Jefferies and Fertilla handled substantive negotiations over the Merger despite their obvious conflicts of interest."
Plaintiff asks that the Court enter a summary order directing the company to produce for inspection all of the books and records that he has requested. As of January 6, 2022, GNOG responded to the plaintiff's demand, asserting inter alia, that it failed to state a proper purpose and was overly broad.
Did Fertitta enter into the DraftKings merger to gain personal benefits for himself and his various companies? Follow along @ConDetrimental for updates as this case advances.
Jason Morrin is a third-year law student at Hofstra Law School in New York. He is the President of Hofstra’s Sports and Entertainment Law Society. Additionally, he is a Law Clerk at Geragos & Geragos. He can be found on Twitter @Jason_Morrin.