The sports gambling company faces a class action lawsuit alleging its NFTs are securities.

Updated Jul 30, 2024, 4:52 p.m. Published Jul 30, 2024, 3:52 p.m.

Sports gambling company Draftkings is shutting down its non-fungible token (NFT) business "effective immediately," the company said in an email to customers, ending a high-flying crossover between digital collectibles and sports culture.

"After careful consideration, DraftKings has decided to discontinue Reignmakers and our NFT Marketplace, effective immediately, due to recent legal developments. This decision was not made lightly, and we believe it is the right course of action," the email said.

Weeks ago, a federal judge allowed a class action lawsuit against DraftKings to proceed after finding plaintiffs "plausibly pled" DraftKings' NFTs were unregistered securities, according to Westlaw.

DraftKings entered the NFT business in mid-2021 after noticing its "golden" customers were embracing digital collectibles from NBA Top Shot and other projects, co-founder Matt Kalish said last year in a podcast from Ark Invest.

Built around an in-house marketplace, DraftKings' NFT business "let us play in this space that could become, in the next couple of decades, gigantic," Kalish said on the podcast. The company hired blockchain engineers, built its tech atop Polygon network, and started with a Tom Brady-themed collection that quickly sold out.

Though collectors' appetite for plain Jane NFTs had fizzled by 2022, DraftKings stuck with web3 via Reignmakers: a fantasy sports game powered by NFTs. On the Ark podcast Kalish said it captured all the things DraftKings customers loved, from day-trading to fantasy gaming.

"We were really looking to build the best utility-driven, NFT product out there, and we saw some really great momentum" in the first few months, Kalish said on the podcast. Its internal sales figures convinced DraftKings to expand from Football to UFC and PGA.

This year, DraftKings started getting hit with class action lawsuits alleging its NFT sales violated securities laws, a charge other sports-themed NFT companies had also grappled with. In June, NBA Top Shot settled its own legal snafu with a $4 million payout.

The class action against DraftKings appears to be headed to trial, according to court records.

As part of the NFT shutdown DraftKings is offering buyouts to Reignmakers players, the email said. NFT collectors will still be able to access and transfer their collections.

"It's important for all companies wading into the NFT and collectibles space to be buttoned up legally or else you risk an outcome like DraftKings," said Joel Belfer, who runs the Mint Condition blog on sports collectibles. "It's not the first or last time we’ll see a company face legal challenges and halt an offering due to running up against securities laws."

UPDATE (July 30, 16:46 UTC): Updates story with additional context.