By Nermeen Nabil TLDR
DraftKings has shut down its NFT-powered fantasy sports experience Reignmakers and associated marketplace, citing “recent legal developments.”
The closure comes after a federal judge allowed a class action lawsuit to proceed, alleging DraftKings’ NFTs were unregistered securities.
Users can receive a cash payout for relinquishing their NFTs or withdraw them to a self-custodial wallet.
DraftKings’ NFT business had generated $280 million in total sales since its launch in 2021.
The decision follows a trend of legal challenges for NFT platforms, with NBA Top Shot recently settling a similar lawsuit for $4 million.
Fantasy sports and betting giant DraftKings has abruptly ended its NFT-powered fantasy sports experience, Reignmakers, and its associated marketplace. The company cited “recent legal developments” as the reason for the immediate discontinuation in an email to users on July 30, 2024.
The closure comes just weeks after a significant legal setback for DraftKings. In early July, Judge Denise Jefferson Casper of the United States District Court for the District of Massachusetts ruled that a class action lawsuit against the company could proceed to trial.
The lawsuit, filed in March 2023, alleges that DraftKings’ NFTs were offered as unregistered securities under the Howey Test, a legal framework used to determine whether an asset qualifies as a security.
Judge Casper found that the plaintiffs “plausibly alleged that DraftKings’ NFTs satisfy three prongs of the Howey test,” including the investment of money in a common enterprise where an expectation of profit is derived from the efforts of others.
This ruling denied DraftKings’ motion to dismiss the case, paving the way for a potential landmark trial that could reshape the NFT landscape.
DraftKings launched its NFT marketplace on the Ethereum scaling network Polygon in 2021, during the height of the NFT craze.
The Reignmakers platform allowed users to compete in fantasy sports contests across football, golf, and mixed martial arts using NFTs. The value of these digital assets sometimes fluctuated based on athletes’ performances and could be resold on a dedicated marketplace.
According to data from CryptoSlam, DraftKings’ NFTs generated $280 million in total sales, including secondary market trades, since its launch. The project saw its best month in September 2023, with $21 million in total sales across 30,000 unique buyers as the NFL season kicked off.
In response to the shutdown, DraftKings is offering users two options for their NFTs. They can either receive a cash payout for relinquishing their NFTs or withdraw them to a self-custodial wallet. The company stated that NFTs and “Reignmakers digital game pieces” will remain accessible and transferable during the discontinuation process.
The decision has met with mixed reactions from users. Some expressed frustration and disappointment, with one Reddit user stating, “I will never spend another dollar at this dumpster fire.” Others raised concerns about potential financial losses, wondering if the cash payout would be less than the amount they had spent on the NFTs.
DraftKings’ legal troubles reflect a broader trend of challenges facing NFT platforms. In June 2024, Dapper Labs, the company behind NBA Top Shot, reached a $4 million settlement with disgruntled holders of its NFTs in a similar lawsuit alleging unregistered securities offerings.
The closure of DraftKings’ NFT business comes at a time when the overall NFT market is experiencing a downturn.
According to CryptoSlam’s data, July 2024 is set to see the lowest monthly sales volume for NFTs since November 2023, with only $407.8 million in sales so far, marking a 74.6% fall from March’s 2024-record of $1.6 billion.
In a statement, DraftKings emphasized its commitment to innovation and disruption in providing gameplay experiences for customers.
The company added that Reignmakers and the NFT marketplace “saw immediate success upon launch” but maintained that discontinuing the service was “the right course of action” given the current legal climate.
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Nermeen Nabil Khear