DraftKings has shut down its NFT Marketplace and Reignmakers fantasy game due to what it terms “recent legal developments,” likely referring to the lawsuit it faces from Justin Dufoe. Earlier this month, a Massachusetts federal judge denied DraftKings’ attempt to have the case dismissed, and the company may be seeking alternatives to a trial.
Dufoe’s suit claims that the Reignmakers NFTs constitute securities, which would require oversight and approval from the Securities & Exchange Commission (SEC). Central to that claim is the fact that DraftKings not only sells the non-fungible tokens but also controls the marketplace through which users can resell them. Dufoe argues that this means users’ hopes of turning a profit are contingent on the commercial success of Reignmakers and DraftKings Marketplace.
Because the NFT blockchain is decentralized, it’s technologically possible to transfer Reignmakers NFTs off DraftKings’ servers. However, the company owns the wallets holding the NFTs, and its terms of service required users to seek permission to transfer the tokens to private wallets. Per Judge Denise J. Casper’s ruling against dismissal, there’s no evidence that any users did so in practice.
If the case proceeds, a hearing to certify it as a class action is set for May 2025. However, lawyers for both parties confirmed on July 22 and 23 that they were conferring with their clients on the cost of pursuing the trial to completion and alternative possibilities, such as mediation or arbitration. It’s unclear what alternatives DraftKings is considering, but the decision to shut down the products would, on the surface, make it seem less likely that it wants to shoulder the risk and expense of a trial to defend them.
Reignmakers Users Can Redeem or Keep NFTs
Effective immediately, DraftKings has canceled all Reignmakers fantasy contests and open offers on the Marketplace.
It has given users two options. Those wishing to keep their NFTs can freely transfer them to personal wallets, with a few exceptions. Everyone else can elect to surrender their NFT collection to DraftKings in return for a lump sum payout.
The types of Reignmakers NFTs that DraftKings says users can’t transfer to their personal wallets are:
- Autograph Collectibles: SLAM Retro Covers Vol. 1 and Man in the Arena: Tom Brady Collection
- Reignmakers Football and PGA TOUR Starter Set Digital Gamecards
- 2024 Reignmakers Football Trade-In Tokens
In the case of the Autograph Collectibles, DraftKings says it is working with its partners to arrange for those NFTs to become transferrable.
It’s unclear how much cash DraftKings intends to offer its users as compensation if they choose to surrender their tokens. All it has said is that the amount will depend on the “relative size and quality” of each user’s collection and, potentially, other factors.
DraftKings says it expects to begin making these payouts starting one week from today, July 30. In the meantime, any unopened NFT packs held by users will be opened on their behalf by DraftKings.
Are Reignmakers Users Receiving a Settlement?
At this point, Dufoe’s case is only a proposed class action. The class of affected users won’t be defined until May, and only if proceedings get that far.
That means that if DraftKings finds an alternative resolution now, such as a settlement, it would be only with Dufoe. Other Reignmakers users would not receive additional compensation as a result of the case if it ends at this stage, as they aren’t among the plaintiffs.
In that scenario, other users would retain their ability to sue or potentially propose a new class action. However, today’s moves by DraftKings might change the prospects of a subsequent case. For one thing, it can say that it has offered affected users compensation proactively. The fact that it has allowed them the option to move the NFTs into private wallets might also make it harder to re-argue some of the points from Dufoe’s case.
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