NFLPA alleges DraftKings could owe $65m over NFT marketplace dispute
Operator accused of failing to pay National Football League Players Association for intellectual property rights agreement as NFT frenzy fizzled out
The National Football League Players Association (NFLPA) is seeking damages totalling $65.3m (£49.4m) in a lawsuit filed against DraftKings in relation to the operator’s now-shuttered NFT marketplace.
The legal action is centred around DraftKings’ decision to close its NFT marketplace as well as Reignmakers, an initiative designed to allow users to group NFTs of one specific athlete and enter into fantasy sports.
For DraftKings to mint these player-specific NFTs, the operator needed the right to use the name, image and likeness (NIL) of NFL players and guaranteed payments to the NFLPA to pursue this aim.
The NFLPA’s complaint states DraftKings told the representative body on 30 July that it “would no longer abide by its payment obligations” after closing the NFT marketplace on 29 July.
In its claim, the NFLPA noted: “The impetus for DraftKings’ decision to repudiate its licence agreement with Plaintiffs is simple: the once white-hot market for NFTs has cooled down.
“DraftKings is also facing a civil lawsuit and regulatory inquiries into its product. Buyers’ remorse, however, is not a basis to terminate a contract.
“Here, DraftKings – a sophisticated and amply resourced gaming behemoth – assumed the risks inherent in its product save for carefully negotiated and narrow termination grounds.”
Those termination grounds, according to the NFLPA, are based on DraftKings’ ability to terminate a partnership if “a government, regulatory or adjudicatory body ‘determines’ that the ‘licensed products’ constitute ‘securities’”.
It is important to note that at no point in the legal document is the $65.3m figure confirmed but, instead, attorneys for the plaintiffs address the amount DraftKings has paid five key executives since 2021, including co-founder and CEO Jason Robins.
The claim notes the total compensation paid to the five prominent DraftKings’ figures since 2021, when the deal between the two parties was signed, amounts to “approximately quadruple” of what the operator owes the NFLPA.
The agreement was structured in a way that meant the licensing periods were split into five, the first of which stemmed from 2021-23, with the next four each lasting a year.
Each period would also see DraftKings pay a “minimum guarantee” to the NFLPA that would be paid “regardless of how many sales occur or how much revenue is generated”, according to terms of the deal.
In April 2023, when the first payment was due, the NFLPA claims that DraftKings harboured concerns over the declining popularity of the product, which had waned significantly from its peak, where certain NFTs were being secured for $10,000.
In light of the market’s decline, the NFLPA argues it renegotiated some terms of the deal despite being under no legal obligation to do so as the complaint suggests DraftKings was “stricken with buyer’s remorse”.
Despite this, when the next payment was due in April of this year, DraftKings did not part ways with any cash and instead is alleged to have threatened to shutter Reignmakers rather than continue the licensing deal.
The complaint reads: “At the end of the day, and despite DraftKings’ best efforts to muddy the waters, this case is extraordinarily simple. DraftKings’ inability to profitably commercialise the intellectual property it licensed does not excuse performance, and DraftKings must pay what is due.”
In March 2023, plaintiff Justin Dufoe brought a punitive class action against DraftKings in which he claimed the NFTs constituted securities and that DraftKings had denied investors information in regard to the product’s risk.
DraftKings moved to dismiss the lawsuit in September 2023 before the US District Court for the District of Massachusetts, which denied the request.
The court reached “no decision on the merits”, meaning that by default it agreed the plaintiff had “plausibly alleged” the NFTs could constitute securities.
According to the NFLPA, DraftKings then attempted to use this ruling to allow it to terminate the agreement with the body as part of the operator’s government, regulatory or adjudicatory body determination claims.
The complaint states: “DraftKings’ attempt to use the Dufoe preliminary ruling as a basis for termination under any the provisions delineated … is meritless and brazenly pretextual.”