UK
The nonfungible token (NFT) marketplace and the Reignmakers fantasy sports game, which was built on those NFTs, will be shut down, according to a Tuesday announcement by DraftKings (NASDAQ: DKNG).
The announcement came as the gaming company was facing increasing legal difficulties over whether NFTs were investable securities and so subject to class action lawsuit liability. US District Judge Denise Casper decided earlier this month that a lawsuit against DraftKings may proceed since NFTs qualified as securities.
Casper concluded that the plaintiffs satisfied the requirements of the Howey Test, a Supreme Court decision that dates back more than 60 years and established precedent for financial investments, profit expectations, joint ventures, and investment performance that depends on parties other than the individual investor.
Justin Dufoe, an Illinois resident, filed the lawsuit in March 2023 in US District Court in Boston, alleging he lost $14K on NFTs he bought on DraftKings Marketplace. If the case had proceeded that far, it's unclear how the trial would have turned out, but the gaming firm promised to reimburse Reignmakers players in some way.
“We have decided to offer all holders of Reignmakers digital game pieces the opportunity to relinquish those game pieces to DraftKings in exchange for a cash payment (subject to certain conditions). The payment amount will be based on factors that include, but are not limited to, the relative size and quality of your digital game piece collection,” according to a social media post by the gaming company.
Reignmakers and the DraftKings Marketplace Bit by Unfavorable Timing
With NFT hype and prices skyrocketing, DraftKings launched its NFT marketplace in July 2021. Because the announcement included an arrangement with Autograph, an NFT collecting platform that quarterback Tom Brady, a seven-time Super Bowl champion, co-founded, there was some attention surrounding it.
In the fantasy sports game Reignmakers, players had to use real money to purchase sets of gamified NFT cards through pack drops, auctions, and secondary market trades. With their obtained NFTs, users would construct lineups in the hopes of winning fantasy games and seeing their worth increase. However, NFT prices plummeted a few months after DraftKings Marketplace and Reignmakers were introduced, reducing demand for those items on the gambling company's menu.
"After careful consideration, DraftKings has decided to discontinue Reingmakers and our NFT Marketplace, effective immediately,” according to the post. “This decision was not made lightly, and we believe it is the right course of action.”
The Polygon blockchain, which Reignmakers used to operate, is a digital currency whose value plummeted during the 2022 "crypto winter."
Closures May Be Wise Legal Decisions
Any business, regardless of industry, finds it difficult to shut down once-potentially-rich divisions, but in the instance of DraftKings Marketplace and Reignmakers, the gaming company might have made a wise legal choice.
Regulators have recently stepped up their monitoring of NFT sellers, fining some of them for selling the tokens without registering them as securities. Plaintiffs who sued operator Dapper were awarded $4 million after a US district judge last year determined that the NFTs sold on the NBA Top Shot platform qualified as securities.
In a different 2023 case, the Securities and Exchange Commission (SEC) ruled that Impact Theory's selling of NFTs was similar to securities marketing and ordered the corporation to pay $6.1 million in disgorgement, prejudgment interest, and a civil punishment.
