The US Trustee overseeing the bankruptcy of the Alliance for American Football on Monday sued the defunct minor league’s former owner Tom Dundon, who also owns the NHL’s Carolina Hurricanes, for at least $184 million, alleging Dundon tanked the startup when there were financial alternatives.
In an apparent countermove, Dundon in the same bankruptcy court also on Monday sued the AAF’s founder, Charlie Ebersol, for $70 million, the amount Dundon put into the league between February and April 2019 before he threw the startup into Chapter 7 bankruptcy proceedings. In his complaint, Dundon alleges that Ebersol, the son of legendary sports TV producer Dick Ebersol, misled him about the financial state of the AAF.
“It is our belief that the complaint against Mr. Ebersol was filed for the purposes of wrongfully deflecting attention and blame away from the lawsuit filed today by the United States Chapter 7 Bankruptcy Trustee against Thomas Dundon and (his partner) John Zutter for causing damage to the AAF and to all those who were vested in its success,” Ebersol lawyer Michael Saltz wrote in an email. “The reason why the Bankruptcy Trustee is suing Thomas Dundon, and not Charlie Ebersol, for the demise of the AAF is spelled out in the Trustee’s Complaint in extensive detail, and which otherwise appears to be supported by substantial evidence against Mr. Dundon.”
The Alliance of American Football folded after eight weeks of a 10-week season. (Logan Riely/Getty Images)
Dundon’s lawyer did not reply to an inquiry seeking comment.
The AAF is long gone, with one new minor football league, the XFL, already having come and gone since. A new version of the XFL is set to launch in February, and the USFL played its first season this year and is scheduled to kick off its second in April.
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But in the story laid out in the complaint by the trustee, Randolph Osherow, the AAF would have been around for a long time had Dundon not torpedoed the league.
“Dundon and his associates dealt on their reputation and the league’s trust, which they induced, luring the league into ceding ownership and control, believing Dundon, as Dundon repeatedly told the league and the press, was committed to the League for ‘years to come. ,’” the trustee’s complaint reads. “Dundon’s ‘years to come’ lasted only 46 days. Instead of the $250 million financing commitment Dundon had promised, Dundon and his entities used the control they garnered to force the league to liquidate after investing less than $70 million and shut down with just two weeks remaining in the regular season.
The lawsuit proceeds as a normal civil suit, just within the scope of the West Texas bankruptcy court, which tries the litigation.
The trustee’s complaint reveals several details that have not been made public previously. Perhaps the most striking: The NFL had agreed to proceed with a business partnership with the AAF in exchange for warrants worth 15 percent of the startup league.
The complaint reads that on “January 30, 2019, the NFL and the AAF finalized a binding term sheet under which the AAF would spin out its technology development and products over time to a technology company that would provide the NFL access to those products and under which ESMG would issue warrants for an NFL subsidiary to acquire a 15 percent stake in ESMG.” (ESMG is Ebersol Sports Media Group, the original owner of the AAF.)
The NFL shuttered its last development league, NFL Europe, in 2007. An NFL spokesperson said via email that he would look into the claim.
Founded in 2018, the AAF reached a financing deal with former Minnesota Vikings limited partner Reggie Fowler to provide up to $200 million. Fowler in early 2019 began balking at making the payments. In April 2019, he was indicted on wire and bank fraud charges, and he pleaded guilty earlier this year.
The funding gap forced Ebersol to miss the first week of player payments, about $5 million, in early February 2019. At the time, Ebersol blamed the absence of payment on back-end processing issues, but in reality he was feverishly trying to raise capital.
Differing versions of what happened after Fowler left the scene emerge in the Dundon and Osherow complaints. According to the trustee, Ebersol had plenty of interest from investors and chose Dundon because he offered $250 million and not just short-term funding. “AAF had received significant and genuine interest from a number of potential investors, including, but not limited to, Alex Muse, Peter Levine, and the billionaire fund, Andreessen Horowitz,” the complaint said. “Furthermore, institutional investment banks, such as JP Morgan, had expressed interest in financing the AAF through their sports advisory division.”
In late March 2019, when Dundon was preparing to shut down the league, “Jeff Moorad, Ari Emanuel and Mark Shapiro were among those interested in purchasing Dundon’s position,” the trustee’s complaint said. “In addition, Jonathan Kraft of the New England Patriots coordinated calls with prospective buyers to enlighten them that, despite Dundon’s efforts to undermine the league, the league was well-positioned for success.” Moorad is the former minority owner of the Arizona Diamondbacks and San Diego Padres; Emanuel and Shapiro are top executives with Endeavor.
According to Dundon’s complaint, however, he invested based on false pretenses, and he said Ebersol induced him with falsehoods about the state of the league.
“In the end, DCP learned Ebersol had not been truthful,” the lawsuit reads (DCP is Dundon Capital Partners). “He made multiple false representations to DCP and failed to disclose important information that would have caused DCP not to invest in the AAF. More importantly, Ebersol knew DCP would not have invested if Ebersol had been honest about the AAF’s actual financial condition.”
Left fully unanswered in the Osherow complaint is if other investors were willing to step in — and the trustee’s complaint also alleges that franchise owners were ready to buy — why would Dundon not just sell?
The complaint suggests it was for tax reasons.
“Contemporaneous with Dundon’s initial funding to the AAF, Dundon began looking at the tax attributes (losses) of the AAF enterprise and began exploring potential ways he or his companies could capitalize on those losses,” the complaint read. “Dundon engaged PriceWaterhouse Coopers LLP to assist in those efforts, calling them, in part, ‘Project Football.'”
Most of the AAF bankruptcy, filed in April 2019, is settled. Only a few million dollars were in the estate, and after years of back and forth, the court agreed to distribute most of it to the players while allowing the trustee to pursue a case against Dundon. That case and Dundon’s counterclaim against Ebersol are all that remain.
One interesting note in the trustee’s complaint: NFL commissioner Roger Goodell allegedly helped persuade Dundon to buy the AAF.
“On or about February 17, 2019, Ebersol arranged for Dundon to speak with NFL Commissioner Roger Goodell about the AAF,” the complaint reads. “On information and belief, Goodell reinforced to Dundon that the AAF was a viable business and that all key metrics were going in the right direction.”
(Top photo courtesy of Tom Dundon of the Carolina Hurricanes)
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