DraftKings Reaches $10 Million Settlement in NFT Class-Action Lawsuit

DraftKings, the prominent sports betting and gaming company, has agreed to 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 claimed 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

The class-action lawsuit was filed in March 2023 by lead plaintiff Justin Dufoe, who claimed to have incurred losses of approximately $14,000 from trading DraftKings NFTs. The suit argued that the NFTs sold by DraftKings constituted investment contracts, thus falling under the definition of securities as per U.S. law.

In September 2023, DraftKings attempted to dismiss the lawsuit, asserting that the NFTs did not meet the criteria for investment contracts. However, U.S. District Judge Denise Casper ruled that the NFTs could indeed be classified as securities, allowing the case to proceed.

Settlement Details

The preliminary settlement, approved by Judge Casper, will distribute the $10 million among the class members. Additionally, Dufoe is expected to request 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.

The settlement was reached after extensive negotiations, which included mediation with a neutral third party. The class group expressed satisfaction with the outcome, stating that it would prevent costly litigation that could deplete resources.

Implications for DraftKings

This settlement marks the second NFT-related legal resolution for DraftKings in 2024. Earlier in January, the company settled a lawsuit with the National Football League Players Association (NFLPA) over the unauthorized use of NFL player likenesses in its NFT offerings. The NFLPA had accused DraftKings of failing to compensate players for their likenesses used in the NFTs, leading to a restructuring of their contract.

The closure of the NFT marketplace was attributed to recent legal developments, which significantly impacted the value of the NFTs sold. The class-action lawsuit highlighted that the marketplace's shutdown rendered many NFTs worthless, further complicating the situation for investors.

Conclusion

The $10 million settlement reflects DraftKings' efforts to resolve ongoing legal challenges related to its NFT marketplace. As the company navigates the evolving landscape of digital assets and regulatory scrutiny, this resolution may help restore investor confidence and allow DraftKings to refocus on its core business operations. The outcome of this case serves as a reminder of the complexities surrounding NFTs and their classification under securities law, a topic that continues to evolve in the digital age.

Sources

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

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