NFTs
DraftKings Shuts Down NFT Marketplace Amid Legal Challenges
Published on: July 30, 2024, 02:01h.
Last updated on: July 30, 2024, 02:44h.
DraftKings (NASDAQ: DKNG) announced Tuesday that it is shutting down its non-fungible token (NFT) marketplace and discontinuing the Reignmakers fantasy sports game, which was based on those NFTs.
The news comes as the gaming company faces mounting legal challenges regarding the status of NFTs as investable securities, which could have made it liable in class-action litigation. Earlier this month, U.S. District Judge Denise Casper ruled that a lawsuit against DraftKings could proceed because NFTs fit the bill as securities.
In his decision, Casper ruled that the plaintiffs met the Howey Test standarda Supreme Court decision more than six decades old that set precedents for investing money, expecting profits, common enterprise, and investment success depending on parties other than the individual investor.
O action filed in March 2023 The lawsuit, filed in U.S. District Court in Boston, was filed by Illinois resident Justin Dufoe who claimed he lost $14,000 worth of NFTs purchased on the DraftKings Marketplace. It’s unclear what the outcome of the trial would have been if the case had gone that far, but the gaming company has promised to provide some compensation to Reignmakers participants.
“We have decided to offer all holders of Reignmakers digital game pieces the opportunity to relinquish those game pieces to DraftKings in exchange for a cash payment (subject to certain conditions). The amount of the payment will be based on factors including, but not limited to, the relative size and quality of your digital game piece collection,” according to a social media post from the gaming company.
DraftKings Marketplace, Reignmakers Bitten by Bad Timing
DraftKings Launches Its NFT Marketplace in July 2021 as the hype and prices of NFTs were rising. There was some fanfare around the announcement because it included a deal with Autograph, an NFT collecting platform co-founded by seven-time Super Bowl champion quarterback Tom Brady.
Reignmakers was a fantasy sports game in which players purchased gamified NFT card collections through auctions, pack drops, and secondary market transactions, which meant real money was put on the line. Users would build lineups with their purchased NFTs in the hopes of winning fantasy games and seeing the NFTs appreciate in value. However, within months of the DraftKings Marketplace and Reignmakers being born, NFT prices plummeted, hurting demand for these components of the gaming company’s menu.
“After careful consideration, DraftKings has decided to discontinue Reingmakers and our NFT Marketplace, effective immediately,” according to the post. “This decision was not made lightly, and we believe it is the right course of action.”
The Reignmakers operated on the Polygon blockchain and Polygon is a digital currency whose prices also plummeted amid the so-called “crypto winter” of 2022.
Closures can be smart legal moves
Shutting down what were once potentially rich units isn’t easy for any company, regardless of industry, but in the case of DraftKings Marketplace and Reignmakers, the gaming company may have made a smart legal decision.
Regulators have recently increased scrutiny of NFT sellers, issuing fines to some for selling the tokens without registering them as securities. Last year, a U.S. district judge ruled that NFTs sold on the NBA Top Shot platform qualified as securities, resulting in a $4 million settlement for plaintiffs who sued the platform’s operator Dapper.
In another 2023 case, the Securities and Exchange Commission (SEC) ordered Impact Theory to pay $6.1 million in disgorgement, prejudgment interest, and a civil penalty because the commission alleged that the way the company sold NFTs was comparable to the marketing of securities.