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Law

Six Years After AAF’s Collapse, $180 Million Lawsuit Lives On

The Alliance of American Football’s death has sparked years of legal wrangling.

AAF
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Nearly six years ago, the short-lived Alliance of American Football crashed and filed for bankruptcy. At the time, it was simply yet another casualty in the quest for a viable spring football league. But a bitter legal fight has lived on and is set to go to trial early next month in a San Antonio federal bankruptcy court.

On the line: hundreds of millions of dollars and the reputation of one of the most powerful men in pro sports.

A judge will rule on claims that the league’s owner tanked it on purpose after buying it on false claims shortly after its only season kicked off.

The AAF was in dire straits shortly after its first game in February 2019 because the league’s main investor, Reggie Fowler—who had pledged $50 million plus a $120 million line of credit—largely stopped funding it. Unknown at the time, Fowler, a former minority owner of the Minnesota Vikings, was enmeshed in a crypto financing scandal that would see him sentenced to 75 months in prison.

The bankruptcy judge is presiding over two lawsuits, which were recently consolidated. One is filed by Randolph Osherow—the U.S. trustee overseeing the Chapter 7 bankruptcy—against Tom Dundon, the Carolina Hurricanes owner who controlled the AAF at the time of its collapse. He alleges Dundon—who also owns much of U.S. professional pickleball and is a major investor in TopGolf—fraudulently bought the league in February 2019 from the founder with a pledge to invest $250 million that he had no intention of spending. Instead, the trustee alleges in court filings, Dundon wanted a tax credit to offset gains elsewhere in his portfolio and bought the league to kill it.

“The motive for this transaction—according to the Trustee—was for Dundon to shift tax credits, income, and liabilities among Dundon’s many corporate holdings,” wrote the judge overseeing the case in rejecting pleas by the defendant to dismiss the lawsuit.

Dundon in turn is suing Charlie Ebersol, the AAF cofounder and son of legendary NBC executive Dick Ebersol. The AAF needed a cash infusion in February 2019 when Fowler abruptly pulled out, and Dundon claims that Ebersol fraudulently induced him to buy the floundering league and the AAF was a financial basket case.

The trustee is seeking at least $180 million, the difference between the $70 million Dundon put in and the $250 million he pledged. Dundon, in turn, is suing Ebersol for that $70 million he did spend. And the trustee could ask for the AAF’s lost enterprise value, explained Michael Saltz, Ebersol’s attorney.

“Let’s say a company is worth $500 million and you promise to give them a certain amount of money to make sure that they stay alive, and you promise to manage the company in a manner where you are always looking out for the company’s best interests,” Saltz said. “However, if you manage the company in a manner that only looks out for your own personal interests and put the company into bankruptcy instead of honoring your promise to fund, you could be liable to the investors and the company’s creditors for the value of the company you just killed.”

Dundon’s multipronged defense starts with the argument that he signed a term sheet with Ebersol pledging $70 million, not the $250 million he had publicly and privately discussed.

“Despite the $180 million discrepancy, Ebersol executed the Term Sheet, giving up 75% of ESMG’s equity and control of the board,” Dundon argued in a December 2024 court filing. (ESMG is Ebersol Sports Media Group, the company Ebersol owned the AAF through.) “Ebersol allegedly simply took Dundon at his ‘word,’ wholly ignoring that Dundon’s ‘word’ directly conflicted with the Term Sheet’s plain language.“

In a deposition comment quoted in a trustee filing, Dundon describes his widely publicized boasts as just promotional. He had said that the AAF need not worry about money and that $250 million was just a start. 

“Dundon testified that statements to the press about a potential $250 million investment were marketing,” the trustee wrote in a filing.

Saltz, Ebersol’s counsel, responded, “People, when they knowingly say false things in marketing, sometimes get sued, don’t they? Not a very good admission, in my opinion.”

What Judge Craig Gargotta has to decide: whether Dundon’s numerous comments about investing the quarter-billion dollars constitute an enforceable oral contract, or if the figure in the term sheet supersedes it. 

In November 2023, Gargotta rejected Dundon’s motion to dismiss the case, ruling the trustee offered enough to allow the suit to proceed. At the motion stage of a lawsuit, though, legal standards favor plaintiffs; judges are required to assume everything in pleadings is true.

“At this procedural juncture and viewed in a light most favorable to the Plaintiffs, the Complaint has adequately pleaded that, whether wittingly or not, Dundon made false representations that tended to deceive Plaintiffs and cause them injury,” wrote Gargotta, who has postponed his retirement in part to complete this case.

Gargotta has promised to rule on several summary judgment motions by March 3, the date of a scheduled pretrial conference. Those decisions rely on more fully formed evidence, collected through discovery and depositions, than motion to dismiss rulings. 

The AFL kicked off Feb. 9, 2019, on CBS and attracted an audience of six million. But while the AAF garnered praise for its surprisingly high ratings and quality of play, behind the scenes, Ebersol was scrambling to meet payroll.

After his first call with Ebersol on Feb. 13, 2019, Dundon agreed to wire $10 million immediately, according to a court filing. 

By the next day, Dundon and Ebersol orally agreed on the $250 million takeover, according to the Trustee’s court filing, and Ebersol stopped what he testified in his deposition were fertile efforts to raise additional funding after the Hurricanes owner convinced him one major funder was the way to go. 

“By mid-March 2019, Dundon … directed Bracewell LLP and PwC to prepare the AAF for bankruptcy, ignoring alternative proposals,” the Trustee wrote last month in a court motion. “Outside investors expressed interest, but Dundon … refused to speak to them.”

On April 2, 2019, Dundon shuttered the league; two weeks later the AAF filed Chapter 7. 

And now, 2,154 days after the bankruptcy filing, Dundon is scheduled to go on trial to determine whether closing the AAF was a mercy killing of a financially unsound enterprise. Or fraud.

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