DraftKings Settles Lawsuit Over NFT Marketplace for $10M

The Roots of the Lawsuit

The legal battle started in March 2023 when Justin Dufoe filed a lawsuit against DraftKings in the U.S. District Court of Massachusetts. Dufoe, who alleged he lost $14,000 trading NFTs, argued the DK Marketplace, launched in August 2021, functioned as an unregistered securities exchange.

His complaint emphasized that the marketplace featured NFTs tied to big-name athletes like Tom Brady, and gamified items for the Reignmakers fantasy game. Dufoe claimed DraftKings profited from NFT “drops” and a 5% commission on secondary sales, while failing to register with the SEC.

Dufoe argued that the NFTs met the Howey Test – a legal standard used to determine securities. The test defines securities as investments made with the expectation of profits driven by the issuer’s efforts. In response, DraftKings, co-founders Jason Robins and Matt Kalish, and Chief Transformation Officer Jason Park sought dismissal in September 2023, claiming the NFTs were unique assets with consumptive value.

However, in July 2024, Judge Casper rejected this defense, ruling that Dufoe had a strong case, meaning a trial was possible.

A Sudden Shutdown and Settlement

The July 2024 ruling pushed DraftKings to act quickly. On July 30, 2024, the company shut down its NFT Marketplace and Reignmakers platform, citing “recent legal developments.”

This left NFT holders in turmoil – some received partial buyouts, while others saw their investments become worthless.

The closure also created friction with the NFLPA, which filed a lawsuit in August 2024 over up to $65 million in unpaid royalties. This dispute was resolved separately in January 2025.

On February 26, 2025, DraftKings and Dufoe’s class reached a $10 million settlement after a full day of mediation. The fund will compensate around 175,000 class members who traded DraftKings NFTs between August 11, 2021, and the final judgment. It will also cover legal fees and provide Dufoe with a proposed $50,000 award.

Plaintiff attorneys called the settlement “outstanding,” as it recovers 26% of damages, estimated between $18 million and $58 million.

Ripple Effects for NFTs and Beyond

The DraftKings case comes as NFTs face growing scrutiny across the U.S. Courts, and the SEC is grappling with whether these digital assets should be classified as securities. In early 2024, NBA Top Shot settled a lawsuit for $4 million, while platforms like OpenSea have also faced legal challenges.

DraftKings’ decision to exit the NFT market amplifies the issue. “This is a wake-up call,” said Sarah Flohr – a plaintiffs’ attorney. “Companies diving into NFTs need airtight compliance, or they’ll face hefty consequences.”

Though the $10 million settlement is substantial, it’s a small figure compared to DraftKings’ sports betting operations. The company has shifted its focus back to its core business and shows no interest in relaunching its NFT platform. However, its legal troubles continue, with a December 2024 lawsuit accusing it of withholding user funds after account closures.

Despite this, the settlement allows DraftKings to move past a contentious chapter, with a final approval hearing set for later in 2025.

Moving Forward: A New Era

DraftKings’ settlement has broader implications, tying into Trump’s vision for digital assets. His focus on a Strategic Bitcoin Reserve and relaxed crypto regulations contrasts with Biden’s more cautious approach, potentially opening doors for NFTs while still ensuring necessary oversight.

The resolution may not mark the end but a transformation – one where innovation thrives within a regulatory environment that is lighter yet clearer.