DraftKings Agrees to $10 Million Settlement in NFT Marketplace Lawsuit

DraftKings, the prominent sports betting and gaming company, has reached a $10 million settlement in a class-action lawsuit concerning its non-fungible token (NFT) marketplace. The lawsuit, initiated by buyers of DraftKings NFTs, alleged that the tokens were unregistered securities, leading to significant financial losses for investors.

Key Takeaways

• DraftKings will pay $10 million to settle claims from NFT buyers.

• The lawsuit argued that DraftKings NFTs were unregistered securities under U.S. law.

• The settlement follows the closure of DraftKings' NFT marketplace amid legal challenges.

• The agreement aims to avoid prolonged litigation and associated costs.

Background of the Lawsuit

In March 2023, a class-action lawsuit was filed against DraftKings by NFT buyers who claimed that the NFTs sold through the company's marketplace constituted investment contracts. This classification would mean that they were subject to securities regulations, which DraftKings allegedly failed to comply with.

The lead plaintiff, Justin Dufoe, reported losses of approximately $14,000 from selling DraftKings NFTs at a loss and holding onto tokens that had significantly decreased in value. The lawsuit named several key figures from DraftKings, including co-founders Jason Robins and Matt Kalish, as well as Chief Transformation Officer Jason Park.

Legal Proceedings and Settlement Details

The lawsuit gained traction when a federal judge in Boston ruled that the NFTs could indeed be classified as securities, contradicting DraftKings' claims that they were not. Following this ruling, DraftKings decided to shut down its NFT marketplace, citing recent legal developments as the reason for the closure.

In February 2024, Judge Denise Casper granted a preliminary settlement motion, allowing the $10 million settlement to be distributed among the class members. The settlement also includes a request for Dufoe to receive a $50,000 award for his efforts in litigating the case, along with attorney fees that could amount to one-third of the settlement fund.

Implications of the Settlement

The settlement is seen as a significant outcome for the plaintiffs, who argued that pursuing further litigation would be costly and time-consuming. The class group described the agreement as an “outstanding result” that would prevent the depletion of resources through prolonged legal battles.

The settlement amount represents approximately 26% of the midpoint of the estimated damages, which ranged from $18 million to $58 million. This figure is considered a favorable recovery given the circumstances surrounding the case.

Conclusion

DraftKings' decision to settle the lawsuit reflects the ongoing challenges faced by companies operating in the NFT space, particularly regarding regulatory compliance and investor protection. As the NFT market continues to evolve, this case serves as a reminder of the legal complexities that can arise in the rapidly changing landscape of digital assets.

This settlement marks the second NFT-related lawsuit that DraftKings has resolved in 2024, following a previous agreement with the National Football League Players Association over the use of player likenesses in NFTs. The company’s proactive approach to settling these disputes may help mitigate further legal risks as it navigates the future of its digital offerings.

Sources

• DraftKings settles NFL players union lawsuit over NFT contract, Reuters.

• DraftKings settles class-action lawsuit over NFT marketplace for $10M, Cointelegraph.