NFTs
Class action lawsuit prompts DraftKings to shut down NFT platform
Summary
- DraftKings has shut down its NFT-powered fantasy sports experience, Reignmakers, and associated marketplace, citing “recent legal developments.”
- The closure came after a federal judge allowed a class action lawsuit to proceed, alleging that DraftKings’ NFTs were unregistered securities.
- Users can receive a cash payout when relinquishing their NFTs or withdraw them to a self-custodial wallet.
- DraftKings’ NFT business has generated $280 million in total sales since its launch in 2021.
- The decision follows a trend of legal challenges to NFT platforms, with NBA Top Shot recently settling a similar lawsuit for $4 million.
Fantasy sports and betting giant DraftKings abruptly ended its NFT-powered fantasy sports experimentReignmakers and its associated marketplace. The company cited “recent legal developments” as the reason for the immediate discontinuation in an email to users on July 30, 2024.
The closure comes just weeks after a significant legal setback for DraftKings. In early July, Judge Denise Jefferson Casper of the U.S. District Court for the District of Massachusetts ruled that a class action lawsuit against the company could proceed to trial.
The lawsuit, filed in March 2023, alleges that DraftKings’ NFTs were offered as unregistered securities under the Howey Test, a legal framework used to determine whether an asset qualifies as a security.
Judge Casper concluded that the plaintiffs “plausibly alleged that DraftKings’ NFTs satisfy three aspects of the Howey test,” including investing money in a common enterprise where the expectation of profit is derived from the efforts of others.
That ruling denied DraftKings’ request to dismiss the case, paving the way for a potentially landmark trial that could reshape the NFT landscape.
DraftKings Launches Its NFT Marketplace on the Ethereum Polygon scaling network in 2021, during the height of the NFT craze.
The Reignmakers platform allowed users to compete in fantasy sports competitions in football, golf, and mixed martial arts using NFTs. The value of these digital assets sometimes fluctuated based on the athletes’ performances and could be resold on a dedicated marketplace.
According to data from CryptoSlamDraftKings’ NFTs have generated $280 million in total sales, including secondary market trades, since their launch. The project saw its best month in September 2023, with $21 million in total sales among 30,000 unique buyers when the NFL season began.
In response to the shutdown, DraftKings is offering users two options for their NFTs. They can either receive a cash payment for giving up their NFTs or withdraw them to a self-custodial wallet. The company stated that NFTs and “Reignmakers digital game pieces” will remain accessible and transferable during the shutdown process.
The decision was met with mixed reactions from users. Some expressed frustration and disappointment, with one Reddit user stating, “I will never spend another dollar on this garbage fire again.” Others raised concerns about potential financial losses, wondering if the cash payout would be less than the amount they spent on the NFTs.
DraftKings’ legal troubles reflect a broader trend of challenges facing NFT platforms. In June 2024, Dapper Labs, the company behind NBA Top Shot, reached a $4 million settlement with disgruntled holders of its NFTs in a similar lawsuit alleging unregistered securities offerings.
The closure of DraftKings’ NFT business comes at a time when the overall NFT market is experiencing a downturn.
According to data from CryptoSlam, July 2024 is expected to see the lowest monthly NFT sales volume since November 2023, with just $407.8 million in sales so far, marking a 74.6% drop from March 2024’s record of $1.6 billion.
In a statement, Draft Kings emphasized its commitment to innovation and disruption in delivering gaming experiences to customers.
The company added that Reignmakers and the NFT marketplace “experienced immediate success upon launch,” but said discontinuing the service was “the correct course of action” given the current legal climate.