• Legal issues and a class action lawsuit claiming NFTs as unregistered securities have caused the DraftKings NFT platform to stop operating.

• The case stresses the need for NFT companies to follow securities regulations.

• DraftKings’s legal problems probably will cause the NFT market to grow more wary.

The sports gambling company faces a class action lawsuit alleging its NFTs are securities.

DraftKings, a prominent name in sports gambling, is shutting down its non-fungible token (NFT) business “effective immediately,” as announced in an email to customers. This move ends a high-flying crossover between digital collectibles and sports culture that DraftKings had hoped would be a significant revenue stream.

“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,” the email stated.

DraftKings NFT Dumps Business Amid Legal Troubles

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

DraftKings entered the NFT business in mid-2021 after noticing its “golden” customers were embracing digital collectibles from NBA Top Shot and other projects, co-founder Matt Kalish said last year in a podcast from Ark Invest.

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Built around an in-house marketplace, DraftKings’ NFT business “let us play in this space that could become gigantic in the next couple of decades,” Kalish mentioned on the podcast. The company hired blockchain engineers, built its tech atop the Polygon network, and started with a Tom Brady-themed collection that quickly sold out.

Despite the initial excitement, collectors’ appetite for plain Jane NFTs had fizzled by 2022. However, DraftKings stuck with web3 via Reignmakers, a fantasy sports game powered by NFTs. Kalish noted on the Ark podcast that this game captured all the things DraftKings customers loved, from day trading to fantasy gaming.

“We were looking to build the best utility-driven, NFT product out there, and we saw some great momentum” in the first few months, Kalish said. Internal sales figures convinced DraftKings to expand from Football to UFC and PGA.

Navigating NFT Legalities

This year, DraftKings started facing class action lawsuits alleging that its NFT sales violated securities laws—a challenge other sports-themed NFT companies had also grappled with. In June, NBA Top Shot settled its legal snafu with a $4 million payout.

According to court records, the class action against DraftKings appears to be headed to trial. The company’s decision to shut down its NFT marketplace is a stark reminder of the complex legal landscape surrounding NFT securities laws.

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As part of the NFT marketplace shutdown, DraftKings offers buyouts to Reignmakers players, as mentioned in the email. NFT collectors will still be able to access and transfer their collections.

“It’s important for all companies wading into the NFT and collectibles space to be buttoned up legally, or else you risk an outcome like DraftKings,” said Joel Belfer, who runs the Mint Condition blog on sports collectibles. “It’s not the first or last time we’ll see a company face legal challenges and halt an offering due to running up against securities laws.“

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Impact of Class Action on the NFT Market

The ongoing class action lawsuit against DraftKings highlights significant NFT legal issues and underscores the importance of compliance with NFT securities law. The lawsuit’s outcome could have far-reaching implications for the broader NFT market.

DraftKings’ sudden shutdown of its NFT marketplace has sent shockwaves through the industry. It is a cautionary tale for other companies operating in the NFT space, emphasizing the necessity of thorough legal vetting before launching new digital collectible offerings.

Experts predict that the NFT marketplace shutdown and the legal battles surrounding NFT securities law will make companies more cautious. There’s a growing consensus that businesses must prioritize legal compliance to avoid similar pitfalls.

Ultimately, DraftKings’ experience is a valuable lesson for the entire NFT ecosystem. Companies must stay vigilant about legal issues to thrive in this rapidly evolving space. If nothing else, the DraftKings NFT saga underscores the need for robust legal frameworks to govern the burgeoning NFT market.

Conclusion

The shutdown of DraftKings’ NFT business due to legal challenges is a stark reminder of the complexities of navigating NFT securities law. The impact of the class action lawsuit on the NFT market cannot be overstated. It is a wake-up call for businesses to ensure they are legally compliant to avoid similar pitfalls.

Understanding and addressing NFT legal issues will be crucial for those looking to stay ahead in the digital collectible space. If you want to learn more or need assistance navigating these complex waters, consider signing up for expert consultations on NFT legalities.