DraftKings closes NFT marketplace following lawsuit
DraftKings is making headlines by announcing the immediate shutdown of its non-fungible token (NFT) business. This decision marks the end of a significant intersection between digital collectibles and sports culture, a crossover that had been soaring high until recent legal developments.
The decision to discontinue Reignmakers, DraftKings’ NFT Marketplace, was not taken lightly. It was a calculated move in response to recent legal developments, particularly a class action lawsuit alleging that DraftKings’ NFTs were unregistered securities. This lawsuit, allowed to proceed by a federal judge, claimed that plaintiffs had “plausibly pled” that DraftKings’ NFTs were unregistered securities.
DraftKings ventured into the NFT business in mid-2021, noticing that its most loyal customers were embracing digital collectibles from NBA Top Shot and other projects. Co-founder Matt Kalish, in a podcast from Ark Invest, expressed his belief that this space could become “gigantic” in the next couple of decades. The company hired blockchain engineers, built its tech atop the Polygon network, and launched with a Tom Brady-themed collection that quickly sold out.
Over the last few years, there have been several high -profile NFT lawsuits, some of which are listed below:
Source: SiGMA Cases of legal complexities in NFT applications
Legal battle brings an end to the venture
Despite the waning interest in plain Jane NFTs by 2022, DraftKings remained committed to web3 via Reignmakers, a fantasy sports game powered by NFTs. Kalish stated on the Ark podcast that it encapsulated all the things DraftKings customers loved, from day-trading to fantasy gaming. The initial momentum and internal sales figures convinced DraftKings to expand from Football to UFC and PGA.
However, this year, DraftKings started facing class action lawsuits alleging that its NFT sales violated securities laws. This is a charge that other sports-themed NFT companies, including NBA Top Shot, had also grappled with. In June, NBA Top Shot settled its own legal issues with a $4 million payout. The class action against DraftKings appears to be headed to trial, according to court records.
As part of the NFT shutdown, DraftKings is offering buyouts to Reignmakers players. NFT collectors will still be able to access and transfer their collections. Joel Belfer, who runs the Mint Condition blog on sports collectibles, emphasized the importance for all companies venturing into the NFT and collectibles space to be legally prepared. He warned that this is not the first or last time we’ll see a company face legal challenges and halt an offering due to running up against securities laws.
This case serves as a stark reminder of the legal complexities and challenges that companies face when venturing into the NFT space. It underscores the need for companies to ensure they are legally compliant, particularly with securities laws, to avoid potential lawsuits and other legal complications. As the digital asset landscape continues to evolve, it will be interesting to see how companies navigate these challenges and how legal frameworks adapt to accommodate this new frontier of digital collectibles.
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