NFTs
DraftKings rules out NFT deal, citing legal developments
Sports betting company Draftkings is closing its doors non-fungible token (NFT) “effective immediately,” the company said in an email to customers, ending a high-profile crossover between digital collectibles and sports culture.
“After careful consideration, DraftKings has decided to discontinue Reignmakers and our NFT Marketplace, effective immediately, due to recent legal developments. This decision was not made lightly, and we believe it is the correct course of action,” the email read.
Weeks ago, a federal judge allowed a class action lawsuit against DraftKings to proceed after finding that the plaintiffs “plausibly alleged” that DraftKings’ NFTs were unregistered securities, according to Western Law.
DraftKings entered the NFT business in mid-2021 after noticing that its “golden” customers were embracing digital collectibles from NBA Top Shot and other projects, co-founder Matt Kalish said last year in a podcast from Ark Invest.
Built around an internal marketplace, DraftKings’ NFT business “let us play in this space that could become, in the next few decades, massive,” Kalish said on the podcast. The company hired blockchain engineers, built its technology on top of the Polygon network and started with a Tom Brady-themed collection that quickly sold out.
While collectors’ appetite for simple NFTs has waned in 2022, DraftKings has continued to push the Web3 envelope with Reignmakers: an NFT-powered fantasy sports game. On the Ark podcast, Kalish said it captured all the things DraftKings customers love, from day-trading to fantasy gaming.
“We were really looking to build the best utility-focused NFT product on the market, and we saw a lot of momentum” in the first few months, Kalish said on the podcast. His internal sales numbers convinced DraftKings to expand from soccer to the UFC and PGA.
This year, DraftKings began getting hit with class action lawsuits alleging that its NFT sales violated securities lawsa charge that other sports-themed NFT companies have also grappled with. In June, NBA Top Shot settled its own legal issue with a $4 million payout.
The class action lawsuit against DraftKings appears to be headed toward trial, according to court records.
As part of the NFT shutdown, DraftKings is offering buyouts for Reignmakers players, the email said. NFT collectors will still be able to access and transfer their collections.
“It’s important that all companies entering the NFT and collectibles space are legally buttoned up or else you risk an outcome like DraftKings,” said Joel Belfer, who runs the Mint Condition blog about sports collectibles. “This isn’t the first or last time we’ll see a company face legal challenges and halt an offering due to collisions with securities laws.”
UPDATE (July 30, 16:46 UTC): Updates the story with additional context.