DraftKings Dumps NFT Business, Citing Legal Developments

Sports betting company Draftkings announced in an email to customers that it will shut down its non-fungible token (NFT) business “effective immediately,” ending a rapidly evolving crossover between digital collectibles and sports culture.

“After careful consideration, DraftKings has decided to discontinue Reignmakers and our NFT Marketplace effective immediately due to recent regulatory developments. This decision was not made lightly and we believe it is the right course of action,” he said in an email.

Weeks ago, a federal judge allowed a class-action lawsuit against DraftKings to proceed after finding that the plaintiffs “plausibly alleged” that DraftKings’ NFTs were unregistered securities, according to Westlaw.

DraftKings co-founder Matt Kalish said in a podcast on Ark Invest last year that the company got into the NFT business in mid-2021 after noticing its “gold” customers embracing digital collectibles from NBA Top Shot and other projects.

DraftKings’ NFT business, built around an in-house marketplace, “allowed us to play in this space that could become huge over the next few decades,” Kalish said on the podcast. The company hired blockchain engineers, built its technology on top of the Polygon network and launched with a Tom Brady-themed collectible that quickly sold out.

While collectors’ appetite for plain-Jane NFTs may have faded in 2022, DraftKings has remained on the web3 via Reignmakers, a fantasy sports game powered by NFTs. On the Ark podcast, Kalish said it captures everything DraftKings customers love, from day trading to fantasy gaming.

“We really wanted to build the best utility-focused NFT product on the market, and we’ve seen really great momentum in the first few months,” Kalish said on the podcast. Internal sales numbers convinced DraftKings to expand from Football to UFC and PGA.

This year, DraftKings began facing class-action lawsuits alleging that its NFT sales violated securities laws, an accusation that other sports-themed NFT companies have also grappled with. In June, NBA Top Shot settled its own legal mess with a $4 million settlement.

A class-action lawsuit against DraftKings appears to be heading to trial, according to court records.

As part of the NFT closure, DraftKings is offering buyouts to Reignmakers players, the email said. NFT collectors will be able to access and transfer their collections.

“It’s important for any company entering the NFT and collectibles space to be legally buttoned up, otherwise you risk an outcome like DraftKings,” said Joel Belfer, who runs the sports collectibles blog Mint Condition. “This wouldn’t be the first or last time a company has faced legal challenges and had an offering shut down because it ran afoul of securities laws.”

UPDATE (July 30, 16:46 UTC): Updates the story with additional context.