DraftKings Settles NFT Lawsuit for $10 Million

DraftKings, a leading fantasy sports company, has agreed to settle a class action lawsuit for $10 million, according to a federal court filing. The settlement resolves allegations that DraftKings violated federal securities laws when it sold non-fungible tokens (NFTs) on its marketplace.

The settlement, negotiated at an arm's length by both parties, will see DraftKings pay $10 million in cash to a settlement fund. This fund will cover legal fees, settlement costs, and compensation for each participating class member, defined as individuals or entities who purchased, acquired, sold, disposed of, owned, held, used, or otherwise transacted in NFTs through a DraftKings account.

The motion for preliminary approval highlighted the inherent risks and inevitable delays of continued litigation, indicating that the settlement was fair, reasonable, and in the best interest of the settlement class. The suit was originally filed in 2023 by lead plaintiff Justin Dufoe on behalf of himself and others who purchased or acquired DraftKings NFTs, seeking damages based on allegations that its NFTs were unregistered securities.

DraftKings previously attempted to dismiss the lawsuit but was denied by a U.S. District Court judge in Massachusetts. This led to the immediate shuttering of its NFT fantasy sports offering, DraftKings Reignmakers. Reignmakers allowed users to enter fantasy sports contests using collectible NFTs on the Ethereum scaling blockchain Polygon to fill out lineups of players from the PGA Tour, UFC, and NFL.

The company amassed more than $280 million in total trading volume for the product, facilitating over 10 million transactions on its marketplace. Around the time of the product closure, users were offered the opportunity to relinquish their Reignmakers NFTs for cash or move them to a self-custody wallet. Any player who accepted a cash payment for their game pieces had their NFTs burned if they did not move them to a self-custody wallet by Oct. 31, 2024.

A final approval hearing for the settlement is expected to occur later this year.