DraftKings’ NFTs at heart of NFLPA lawsuit

On August 20, 2023, the NFL Players Association (NFLPA) initiated a legal challenge against DraftKings and its parent company, DK Crown Holdings, Inc., in the U.S. District Court for the Southern District of New York. This lawsuit arises from DraftKings’ abrupt discontinuation of the Reignmaker NFT project, which has significant implications for the intersection of sports, technology, and intellectual property rights within the gambling industry.

The NFLPA is pursuing damages for what it alleges to be an “anticipated breach of contract.” The association claims it granted DraftKings rights to utilize the intellectual property associated with NFL players for its NFT offerings. The Reignmaker NFTs were designed as collectibles for consumers, allowing them to engage in fantasy sports contests, thereby intertwining innovative digital assets with traditional sports betting.

Most of the documents related to the lawsuit remain sealed, and there is currently no indication from the court when this seal might be lifted. The NFLPA’s legal counsel has filed for permission to submit redacted versions of these documents. David Greenspan, a respected antitrust, sports, and complex-commercial litigator from the New York City law firm Winston & Strawn LLP, represents the NFLPA in this matter. Greenspan’s credentials include advocating for athletes and leading successful anti-trust class-action lawsuits against the NCAA, focusing on compensation models and Name, Image, and Likeness (NIL) rights.

DraftKings, headquartered in Boston, has established itself as a key player in the sports betting sector, partnering with the NFL to expand its offerings. The company launched its NFT marketplace in August 2021, promoting it as a unique opportunity for collectors. This platform facilitated the purchase, storage in digital wallets, and resale of NFTs on a secondary marketplace, with NFTs designed in collaboration with Autograph.

However, DraftKings is not the only technology entity fully engaged in the NFT landscape. The overall enthusiasm for NFTs swiftly peaked and diminished, and on July 30, 2023, DraftKings unexpectedly shuttered its NFT operations, citing legal challenges as the driving factor for its decision. Reports from Yahoo! Finance shed light on this abrupt halt, which raises critical questions regarding regulatory compliance and market sustainability within the NFT domain.

NFT Legal Landscape in Massachusetts

In its official statement, DraftKings remarked, “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 right course of action.” This reflects the mounting complexities and uncertainties that tech firms must navigate within the current regulatory landscape for digital assets.

Additionally, a separate legal case unfolding in Massachusetts addresses whether NFTs should be classified as securities, potentially implicating them in violations of U.S. Securities and Exchange Commission (SEC) regulations. This ongoing scrutiny highlights the evolving challenges facing companies engaged in the digital asset space, especially those intertwined with established industries like sports betting.

At the time of launching its NFT line, DraftKings held an optimistic outlook. Co-founder Matt Kalish articulated a vision of NFTs evolving into a “gigantic” business, indicating high expectations for this digital frontier within the gambling sector. Ongoing legal matters may reshape this trajectory, emphasizing the need for clarity and compliance in an industry that continuously adapts to technological advances and regulatory expectations.

In summary, the legal battle between the NFLPA and DraftKings illustrates the complex interplay between sports, intellectual property, and digital innovation. As the gambling industry navigates this new digital landscape, stakeholders must remain vigilant to understand both the opportunities and risks associated with the evolving NFT ecosystem.