Former Golden Nugget Online Gaming (GNOG) investors have agreed to a $22 million class action settlement, ending their challenge to the online casino platform’s 2022 $1.56 billion all-stock sale to DraftKings. This outcome means that almost everyone who owned GNOG stock at the time of the sale will receive some compensation.
Delaware Chancery Court’s Vice Chancellor J. Travis Laster approved the payout during a public settlement hearing on Tuesday. As part of the agreement, the Court awarded $4 million in fees and expenses to class counsel. Additionally, lead plaintiff Steven Eschbach will receive a $5000 incentive award from the attorney fees.
The remaining $18 million (minus $300,000 in notice costs) will be divided up among all former GNOG shareholders based on the number of shares owned. The only shareholders excluded are the defendants in the case. However, further tax deductions and additional administrative fees may affect the final settlement amount.
The exact payout per share is unknown. However, over 80 million shares of GNOG were outstanding at the time of the sale, converted into around 30 million DraftKings shares. As a defendant, Tilman Fertitta owned nearly half of those and won’t receive any of the settlement. Back-of-the-envelope math suggests the payout might be within 40-50 cents per GNOG share for those eligible.
Class members are not required to submit a claim to receive payment from the Golden Nugget Online Gaming settlement fund. If you owned GNOG shares that were exchanged for DKNG shares, you will receive a portion of the settlement fund through your financial institution or broker. No action is required for this to happen.
The Road to Settlement
On August 9, 2021, GNOG and DraftKings announced DraftKings would purchase GNOG in an all-stock transaction at an implied equity value of about $1.56 billion. As part of the transaction, GNOG stockholders received 0.365 shares of new DraftKings Class A common stock for each GNOG stock owned.
Following the deal announcement, Eschbach and Anthony Franchi instigated separate books-and-records demands to GNOG in the ensuing months. A few months later, in May of 2022, GNOG and DraftKings finalized the sale.
On September 9, 2022, the lead plaintiffs filed their Verified Class Action Complaint (VCAC) in Delaware Chancery Court, challenging the terms of the sale. On the same day, another alleged GNOG stockholder filed a separate VCAC in the same court. However, the judge consolidated the two cases into one that October.
After ongoing legal maneuvering, which produced nearly 50,000 exhibits and over 458,000 pages of documentation, the parties entered mediation in January 2024. The mediation resulted in an agreement in principle to settle for $22 million in cash, subject to the Court’s approval.
As noted above, Judge Laster approved and finalized the settlement this week.
No Admission of Wrongdoing, Lack of Merit
Despite the settlement, the defendants deny any wrongdoing, fault, liability, or damage to the plaintiffs. Further, they maintain that their conduct was “at all times in the best interests of GNOG and its stockholders.”
From the Stipulation and Agreement of Settlement, Compromise, and Release:
The Settling Defendant Parties are entering into the Settlement and Stipulation solely to avoid the substantial burden, expense, inconvenience and distraction of continued litigation and to resolve each of the Released Plaintiffs’ Claims as against the Released Defendant Parties.
Additionally, per the Order and Final Judgment, the settlement does not concede that the plaintiffs’ claims were without merit. Instead, the lead plaintiffs agreed to settle on behalf of the class after considering multiple factors. Ultimately, they feel the settlement substantially benefits the lead plaintiffs and other Class members.
Based upon their investigation and prosecution of the Action, Lead Plaintiffs and Class Counsel have concluded that the terms and conditions of the Settlement and the Stipulation are fair, reasonable, and adequate to the members of the Class, and in their best interests.
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