NFTs
DraftKings exits NFT business due to legal issues
DraftKings Inc. (NASDAQ:DKNG) is shutting down its non-fungible token (NFT) business “effective immediately,” it announced in an email to clients. The move marks the end of a notable intersection between digital collectibles and sports culture for the sports betting giant.
The company cited recent legal developments as the primary reason for the discontinuation of Reignmakers and its NFT Marketplace. The decision, as stated in the email, follows a federal judge’s ruling allowing a class action lawsuit against DraftKings to proceed. The lawsuit claims that DraftKings’ NFTs could be considered unregistered securities, according to Westlaw.
DraftKings entered the NFT space in mid-2021, fueled by the popularity of digital collectibles among its customer base. Co-founder Matt Kalish noted in an Ark Invest podcast that the company saw significant potential in NFTs, especially after observing the success of projects like NBA Top Shot. The company built its NFT business on the Polygon network and launched a Tom Brady-themed collection that quickly sold out.
Despite a dip in interest in core NFTs in 2022, DraftKings has continued to invest in the space through Reignmakers, a fantasy sports game that utilizes NFTs. Kalish noted on the Ark podcast that the game captured elements beloved by DraftKings users, such as day trading and fantasy gaming. The initial success led the company to expand Reignmakers from football to include UFC and PGA.
This year, DraftKings has faced legal challenges, with class action lawsuits claiming its NFT sales violated securities laws. Other sports-themed NFT companies have also encountered similar issues, with NBA Top Shot settling its legal dispute with a $4 million payout in June.
The class action lawsuit against DraftKings is progressing toward a trial, according to court records. As part of the NFT shutdown, DraftKings is offering buyouts for Reignmakers players. NFT collectors will still have access and the ability to transfer their collections.
Joel Belfer, who runs the sports collectibles blog Mint Condition, commented on the situation, emphasizing the importance of legal due diligence for companies entering the NFT and collectibles space. He noted that DraftKings’ experience is a reminder of the potential legal challenges and risks associated with the market.
Featured image: Freepik