DraftKings has abruptly closed down Reignmakers, its NFT business, effective immediately. The sports betting platform mentioned recent “legal developments” as the reason for this in an email to its users. The NFT business’ X account has also been deleted.
About a month ago, a federal court rejected a motion to dismiss a class action lawsuit that claimed DraftKings-issued NFTs were unregistered securities.
The community reacts
“Another NFT rug pull?” wrote the X user Bitcoin Motorist, setting the tone for several subsequent tweets. “What is this, 2021? This time, it’s DraftKings Reignmakers. Can you imagine losing money on this obvious scam in 2024?”
Another NFT rugpull? What is this 2021?
This time, it's DraftKings Reignmakers.
Can you imagine losing money on this obvious scam in 2024? pic.twitter.com/RT7nXXUfb7
— Motorist (@BitcoinMotorist) July 30, 2024
Fair Play Initiative, a government organization researching sports betting and fantasy sports policy in the US, shared the unfortunate story of a Reignmakers user. They reported that the user had listed 3,000 NFTs for $422 million and uploaded a snapshot.
The organization added that Reignmakers is dead, and these assets are now worthless, just two years after launch.
Moreover, an apparent Reignmakers NFT holder asked:
“DraftKings up and canceled Reignmakers. How much am I owed for spending two years in a game they promised had value?”
Another user wrote:
“What does this withdraw button actually mean? I’m afraid to click anything in the Reignmakers section right now. I collected 1,150 cards—oh, what a joy to see them all turn to dust.”
However, it gets more interesting after the user “The Duke” summarized the history of the NFT project as follows:
- Sell packs to all states
- Rug certain states right before the first contests
- No refund
- Continue to sell packs and ignore questions
- Rug more states mid-season because it never got approval from the gaming board
- Tiny compensation
- Rug everyone
- Thanks for the cash.
The legal issue
Justin Dufoe led a class action lawsuit against DraftKings, alleging that certain NFT trading cards DraftKings were selling were securities under US laws. Therefore, the company had committed securities fraud.
DraftKings filed a motion to dismiss the case, but it was denied on July 2. The court found that the DraftKings NFTs were investment contracts. They were securities under the frequently cited Howey test, established by the US Supreme Court in SEC v WJ Howey Co.
DraftKings argued that they had never claimed users could expect profits from the non-fungible tokens (NFTs). They claimed third parties were the source of communications regarding the profitability of the NFTs.
People could win prizes in Reignmakers competitions, which is different from profiting from an investment. However, the court decided the plaintiffs had been led to expect profits from DraftKings NFT purchases.
