DraftKings has agreed, pending court approval, to pay $10 million in cash to settle an 18-month-long legal battle over the shutdown of its Reignmaker NFT marketplace. The lengthy class action lawsuit pitted the gambling company against buyers of the non-fungible tokens (NFTs) it sold through the now-defunct platform. The suit claimed that the digital trading cards were effectively unregistered securities and that customers had suffered losses as a result of their purchases.
On Feb. 28, Boston-based federal Judge Denise Casper granted lead plaintiff Justin Dufoe’s motion for the preliminary approval of a class action settlement. The motion, filed two days earlier by Dufoe, settles all class claims for a $10 million cash payment.
As detailed in the motion, the $10 million cash settlement will be split equally among action members. However, deductions for taxes, administration, and other fees will reduce the payout amount. Among these is a $50,000 service award for Dufoe as the lead plaintiff, plus lawyer fees of up to one-third of the settlement amount.
According to the motion, the parties reached the “outstanding result” only after a thorough investigation, which included “rigorous and extensive negotiations.” An approved settlement, it added, would “avoid continued and costly litigation that would deplete resources.”
Settlement ends extended NFT-focused back-and-forth
Once finalized, the settlement will end the lawsuit, which also named DraftKings co-founders Jason Robins and Matt Kalish, along with executive Jason Park.
Initially filed in March 2023, the suit claimed that under US law, DraftKings’ NFTs were investment contracts and unregistered securities.
From the amended complaint:
Defendants had actual knowledge of facts indicating that the NFTs they promoted and sold were ‘securities’ under federal and state securities laws and further that they had failed to register their NFTs as securities.
Defendants reaped, or will reap, hundreds of millions of dollars in profits from their unregistered securities sales.
Dufoe reported losing close to $14,000 by selling or holding DraftKings NFTs on the Reignmaker platform after they lost value.
In a motion to dismiss filed in September 2023, DraftKings argued its NFTs were not investment contracts, as Dufoe’s suit claimed. However, in July 2024, the case survived the motion when Judge Casper ruled in Dufoe’s favor. DraftKings shuttered its Reginmaker marketplace soon after “due to recent legal developments.”
Per Dufoe’s motion, DraftKings’ Reignmaker closure and offer to pay some investors “a fraction of what they had invested” rendered the NFTs “worthless.”
Agreement could see over 175K class members benefit
According to the latest filing, settlement discussions began after DraftKings shut the Reignmakers platform down.
The motion estimates the “realistic and supportable damages” range from $18 million to $58 million. It adds that the $10 million cash payout, equaling 26% of half of the potentially recoverable damages, is “an excellent recovery under the circumstances.”
Based on the discovery already produced, Dufoe’s lawyers estimate the class could include “over 175,000 Settlement Class Members.”
The motion defines the settlement class as:
All persons or entities who purchased, acquired, sold, disposed of, owned, held, used, or otherwise transacted in NFTs in a DraftKings account during the class period, including, without limitation, marketplace NFTs.
The class period runs from Aug. 11, 2021, through the date of judgment.
Unfortunately for DraftKings, Dufoe’s lawsuit suit is the second NFT-related case it has opted to settle this year.
In January, the company settled a claim by the National Football League Players Association (NFLPA) for an undisclosed amount. In that case, the NFLPA accused DraftKings of not paying to use NFL player likenesses in its NFT offerings.
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