A union representing National Football League athletes sued DraftKings on Monday, accusing the sports gaming giant of denying payments related to a “losing bet” on the NFT space.
The lawsuit, submitted by the National Football League Players Association (NFLPA) in New York federal court, accusing DraftKings of violating the terms of a licensing agreement, which gave DraftKings the right to use likenesses of NFL players in its Reignmakers NFT product.
DesignKings abolished 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 alleging that DraftKings sold NFTs as unregistered securities.
While the NFLPA’s lawsuit does not explicitly state how much DraftKings is allegedly owed, it suggests the amount is nearly $65 million. Pointing to $261 million in total compensation that five DraftKings executives have received since 2021, the union argued that this amount is “approximately four times what DraftKings owes to the NFLPA licensors.”
Neither DraftKings nor the NFLPA immediately responded to a request for comment from Declutter.
DraftKings’ foray into the NFT space followed a agreement to build on the Ethereum scaling network Polygon in 2021. Using the Ethereum network, DraftKings’ Reignmakers allowed users to participate in fantasy sports competitions, backed by NFTs that could be bought and sold on a special market.
When DraftKings abruptly ended its NFT experience in July, the company said “the decision was not made lightly.” At the same time, it offered owners of Reignmakers NFTs the opportunity to “surrender” their digital assets for cash.
In its complaint, the NFLPA accused DraftKings of trying to abandon the deal because “the once red-hot market for NFTs has cooled,” adding that “buyers’ remorse” is not a sufficient reason for DraftKings to terminate the deal.
In addition to football, Reignmakers also organized fantasy sports competitions for professional golf and mixed martial arts. Over the life of Reignmakers, the project has generated a total of $287 million in NFT sales, including secondary market transactions, according to CryptoSlam facts.
One of DraftKings’ justifications for walking away is that DraftKings points to a clause in the agreement that allowed the company to terminate the deal “if a government, regulatory or judicial authority ‘determines’ that the [NFTs] constitute ‘effects’.’
If DraftKings relies on that argument, it could be difficult to win the case, said Kevin Paule, an associate at Hill Ward Henderson who focuses on commercial litigation. Declutter. He said the Massachusetts federal court ruling did not establish that DraftKings’ NFTs are unregistered securities, but rather that the case’s plaintiffs sufficiently made the claim.
“Denying a motion to dismiss does not mean the plaintiff is going to win the case,” he said. “Essentially, it’s just legal jargon that the plaintiff has done enough to file 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 one A $4 million settlement with disgruntled holders, who also claimed that Dapper’s NFTs were 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 certain last year in the Securities and Exchange Commission’s lawsuit against Ripple Labs that XRP is “not necessarily a prima facie security,” later issuance a $125 million fine for token sales that violated securities laws.
Still, the NFLPA argued that the technical nuances of non-fungible tokens do not need to be considered to resolve the dispute. All that needs to be done is to look at the terms of the agreement, the organization said.
“This case is extremely simple,” the lawsuit said. “DraftKings’ inability to profitably commercialize the intellectual property it has licensed does not excuse its performance, and DraftKings must pay what is owed.”