A union representing the National Football League’s athletes sued DraftKings on Monday, accusing the sports gaming giant of reneging payments tied to a “losing bet” on the NFT space.
The lawsuit, filed by the National Football League Players Association (NFLPA) in New York federal court, accuses DraftKings of violating the terms of a licensing agreement, which provided DraftKings the rights to use NFL players’ likenesses in its Reignmakers NFT product.
DraftKings axed its NFT-powered gaming experience last month, citing “recent legal developments.” The move followed a denial of DraftKings’ motion to dismiss a class action lawsuit filed in Massachusetts federal court, which claimed that DraftKings sold NFTs as unregistered securities.
While the NFLPA’s lawsuit does not explicitly say how much DraftKings allegedly owes, it suggests that figure is close to $65 million. Referencing $261 million in total compensation that five DraftKings executives have received since 2021, the union argued that the figure is “approximately quadruple of what DraftKings owes to the NFLPA licensors.”
DraftKings nor the NFLPA immediately responded to a request for comment from Decrypt.
DraftKings’ foray into the NFT space followed an agreement to build on Ethereum scaling network Polygon in 2021. Leveraging the Ethereum network, DraftKings’ Reignmakers enabled users to compete in fantasy sports contests underpinned by NFTs that could be bought and sold on a dedicated market.
When DraftKings shuttered its NFT experience abruptly in July, the company said that “decision was not made lightly.” At the same time, it offered owners of Reignmakers NFTs the opportunity to “relinquish” their digital assets for a cash payment.
In its complaint, the NFLPA accused DraftKings of trying to abandon its deal because “the once white-hot market for NFTs has cooled down,” adding that “buyers’ remorse” isn’t sufficient grounds for DraftKings to terminate the deal.
Reignmakers hosted fantasy sports contests for professional golf and mixed martial arts, in addition to football. Over the course of Reignmakers’ lifetime, the project notched $287 million in total NFT sales, including secondary market transactions, according to CryptoSlam data.
Among DraftKings’ justifications for walking away, the lawsuit states that DraftKings points to a clause in its agreement that allowed the firm to terminate the deal “if a government, regulatory or adjudicatory body ‘determines’ that the [NFTs] constitute ‘securities.’"
If DraftKings leans into that argument, it could have a difficult time trying to win the case, Kevin Paule, an associate at Hill Ward Henderson who focuses on commercial litigation, told Decrypt. He said that the ruling in Massachusetts federal court didn’t find that DraftKings' NFTs are unregistered securities, but rather that the case’s plaintiffs sufficiently made the allegation.
“Denying a motion to dismiss is not a finding that the plaintiff is going to win the case,” he said. “Essentially, it’s just legal jargon that the plaintiff has done enough to state a claim and continue to pursue it in court.”
Dapper Labs, the company behind NBA Top Shot, has faced legal pressure over its sports-themed NFTs. In June, the company reached a $4 million settlement with disgruntled holders, who similarly alleged that Dapper’s NFTs constituted unregistered securities.
The NFLPA’s lawsuit was assigned to U.S. District Judge Analisa Torres, who is no stranger to cases involving digital assets. The judge determined last year in the Securities and Exchange Commission’s lawsuit against Ripple Labs that XRP is “not necessarily a security on its face,” later issuing a $125 million fine over some token sales that violated securities laws.
Still, the NFLPA argued that the technical nuances of non-fungible tokens need not be considered to resolve the dispute. It only needs to look at the agreement’s terms, the organization said.
“This case is extraordinarily simple,” the lawsuit states. “DraftKings' inability to profitably commercialize the intellectual property it licensed does not excuse performance, and DraftKings must pay what is due.”