The NFLPA, in a recently unsealed lawsuit in the Southern District of New York, accuses DraftKings of reneging on a licensing deal involving the use of NFL players’ NIL in non-fungible tokens.

As the NFLPA tells it, DraftKings has wrongly relied on a contractual clause that permits a stoppage in payment if the licensed products—NFTs—are deemed securities through a legal process.

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The NFLPA says, in essence, DraftKings has jumped the gun, using an early ruling on a motion in another case to blow up its deal with the union. It wants the court to find DraftKings has breached the deal and order the company to pay damages reflecting, among other things, unpaid sums the NFLPA insists are contractually guaranteed.

Last month U.S. District Judge Denise J. Casper denied DraftKings’ motion to dismiss a separate lawsuit in Boston, Dufoe v. DraftKings. In that case, plaintiff Justin Dufoe accuses DraftKings of selling unregistered securities in the form of NFTs.

Central to the NFLPA’s argument is that denial of a motion to dismiss, which occurs before pretrial discovery (let alone a trial), falls short of a requisite determination that the NFTs are securities.

To that point, Casper wrote in her ruling she “need not decide whether any and all NFT transactions should be considered an investment contract.”

Instead, the judge cautioned, she “only” had to weigh “whether Dufoe [had] plausibly alleged that DraftKings NFTs in the context of the Marketplace are securities.”

While Casper determined Dufoe met that threshold, a denial of a motion to dismiss is not a final judgment in a case.

As Sportico explained in a recent story on a federal lawsuit against Shaquille O’Neal and his NFT business, there is an ongoing legal debate in United States courts and government agencies about whether NFTs are securities. In general, securities are tradable financial assets like stocks and bonds. But the legal test for determining what counts as a security is multifaceted and nuanced and, in the context of NFTs, has sparked divergent viewpoints.

Classification of NFTs as securities would compel their sellers to meet numerous requirements under securities law and Securities and Exchange Commission regulations.

In 2021, DraftKings and NFLPA Licensors, which represents certain IP and NIL rights of players, agreed to a licensing agreement that granted DraftKings the right to use players’ identities for NFTs. In return DraftKings agreed to pay NFLPA Licensors a royalty on sales. DraftKings, according to the complaint, also agreed to make minimum guaranteed payments (a.k.a. a floor) “regardless of how sales occur or how much revenue is generated.”

By 2023 the popularity of NFTs had fizzled, and accompanying prices and trading volume dropped. The NFLPA says DraftKings, like other companies that gambled on NFT ventures, was “stricken with buyer’s remorse.”

The NFLPA also claims that around that time, DraftKings “threatened” to shutter its NFT platform and terminate the licensing agreement. The NFLPA argues that threat was “nonsensical” since an applicable termination provision necessitated the shuttering of either DraftKings or the NFLPA—neither of which, of course, was in the cards. A “highly profitable company’s decision to stop selling a single product” isn’t tantamount to a shuttering of a company, the NFLPA says.

Although the two sides revised their deal in 2023 to adjust the timing of payments through 2027, the amended agreement retained the same grounds for termination. One circumstance is if either party becomes insolvent, which is not applicable. Two other circumstances are arguably more relevant: (1) if “any governmental, administrative or adjudicatory body . . . determines that the Licensed Product is a security” or (2) if performance of the contract “would be in violation of any [applicable] law, rule, regulation or order.”

The NFLPA says none of these circumstances applies. That is true, the NFLPA asserts, even after DraftKings lost its motion to dismiss Dufoe. “The Court reached no decision on the merits,” the NFLPA stresses. “Rather, the Court simply held that, accepting all of Dufoe’s factual allegations as true” he had “plausibly alleged” the NFTs are securities.

DraftKings could still win Dufoe at the trial; the main significance of a case advancing past a motion to dismiss is both sides become subject to pretrial discovery, meaning they need to provide sworn testimony and turn over copies of emails and other sensitive evidence.

According to the complaint, DraftKings sent a letter to the NFLPA on July 29 saying it was discontinuing its NFT business and was invoking its termination rights based on the Dufoe ruling. The letter (as summarized by the NFLPA) said that by denying DraftKings’ motion to dismiss Dufoe, Casper had “determined that the NFTs sold on Marketplace are securities subject to federal and state registration requirements.”

The problem with that reasoning, the NFLPA insists, is that “an order denying a motion to dismiss” is not a decision on the merits of a case.

The NFLPA is represented by attorneys David Greenspan, Jeffrey Kessler and George Mastoris of Winston & Strawn. The case has been assigned to U.S. District Judge Analisa Torres.

DraftKings declined to comment to Sportico on the NFLPA’s lawsuit.

However, attorneys for the company will answer the complaint in the coming weeks and seek its dismissal. DraftKings might offer reasons for a termination that the NFLPA does not acknowledge in its complaint. The company might also cite additional authorities to contend that it is obligated to meet federal and state registration requirements.

Especially since the NFLPA-DraftKings dispute is fundamentally about money, it’s possible the two sides will eventually reach an out-of-court settlement.

Until then, their fight goes on.

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