DraftKings announces the immediate closure of its non-fungible token (NFT) business, instantly becoming headline news. This decision marks the end of an important intersection between digital collectibles and sports culture, an intersection that had been thriving until recent legal developments.
The decision to stop Reignmakers, DraftKings' NFT marketplace, was not made lightly. It is a response to recent legal developments, specifically a class action lawsuit accusing DraftKings' NFTs of being unregistered securities. This lawsuit was allowed to proceed by a federal judge, with the plaintiffs "reasonably" believing that DraftKings' NFTs were unregistered securities.
DraftKings entered the NFT business in mid-2021, at a time when its most loyal customers were embracing digital collectibles from NBA Top Shot and other projects. Co-founder Matt Kalish expressed his "huge" confidence in this field over the next few decades in a podcast with Ark Invest. The company hired blockchain engineers, built its technology on the Polygon network, and launched collectibles themed around Tom Brady, which sold out quickly.
In recent years, several high-profile NFT lawsuits have occurred, some of which are listed below:
The End of a Career Brought by Legal Battles
Despite a waning interest in ordinary NFTs by 2022, DraftKings continued to commit firmly to web3 through Reignmakers, relying on NFT-supported fantasy sports. Kalish stated in the Ark podcast that it combined everything DraftKings customers loved, from day trading to fantasy games. Initial momentum and internal sales data led DraftKings to expand from football to UFC and PGA.
However, this year DraftKings began facing a class action lawsuit accusing its NFT sales of violating securities laws. This is an accusation that other sports-themed NFT companies, including NBA Top Shot, have also faced.
In June this year, NBA Top Shot resolved its legal issues by paying $4 million. According to court records, the class action lawsuit against DraftKings appears to be heading to trial.
As part of the NFT shutdown, DraftKings offered a buyout plan to Reignmakers players. NFT collectors can still access and transfer their collectibles. Joel Belfer, who writes the Mint Condition blog about sports collectibles, emphasized that all companies entering the NFT and collectibles field must be legally prepared. He warned that this is not the first nor the last time we will see companies facing legal challenges and ceasing issuance due to securities law issues.
This case clearly reminds companies of the legal complexities and challenges they face when entering the NFT field. It highlights the need for companies to ensure legal compliance, especially with securities laws, to avoid potential lawsuits and other legal issues.
As the digital asset field continues to evolve, observing how companies respond to these challenges and how legal frameworks adapt to this new frontier of digital collectibles will be an interesting matter.
