Leading US betting group DraftKings has closed down its NFT Marketplace as the popularity and hype around the digital assets continues to fade into memory.
Non-fungible tokens (NFTs) were all the rage a few years ago, with 2021 and 2022 arguably the two peak years for the tech. The blockchain-recorded digital pieces, often taking the form of digital artwork, were traded in huge volumes and at very high values.
Sports, betting and NFTs – a brief love affair
DraftKings launched the Marketplace back in 2021, powered by Polygon and based on the Ethereum blockchain. This was followed by Reignmakers in March 2022, an NFT-based fantasy sports platform where users could collect and trade NFTs of athletes to use in contests.
The NFT Marketplace is now no more, however. The platform stated yesterday that it was being shuttered immediately. Customers still holding digital game pieces will be able to return them to DraftKings for cash compensation.
In a statement to SBC Americas, an Americas-facing betting industry trade publication, a DraftKings spokesperson said: “It has always been in DraftKings’ DNA to innovate and disrupt in order to provide the best possible gameplay experiences for our customers.
“Reignmakers and our NFT Marketplace saw immediate success upon launch, and we are proud of what we accomplished in such a short time. 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. NFTs and Reignmakers digital game pieces will remain accessible and transferable (subject to limited exceptions that we are diligently working through) as this transition gets underway and we will continue to update our player community. We value the trust that our customers place in us.”
When DraftKings launched its NFT Marketplace back in 2022, NFTs were all the rage. The digital assets were arguably at their peak after a flurry of investment in 2020 and 2021, and various stakeholders wanted a piece of the action.
Sports and entertainment in particular got intensively involved. Various leagues, clubs, associations and individuals signed partnerships with digital asset platforms and token providers, launching their own individually designed NFTs for trading.
Fantasy sports and bookmakers were some of the firms to take notice of this. DraftKings has a pedigree in both, originated as a daily fantasy sports (DFS) platform before entering the betting space after the 2018 repeal of PASPA – it is now the second largest operator in the US by market share after FanDuel.
NFTs took a hit in late 2022, however, which continued into 2023. The hype began to die down, and consumers started to move on to other trends. The end of COVID-19 lockdowns in 2022 may have contributed, as customers eased back into the familiarity of pre-2020 day-to-day life and lost interest in various trends.
A series of crypto scandals in 2022 won’t have helped things either. Although not a cryptocurrency, NFTs are built on blockchain and so have an association with crypto in the minds of some consumers. Confidence in crypto was rocked by scandals like Sam Barkman-Fried’s trial, for example, and the NFT market also felt this impact.
Tokens on trial
In DraftKings’ case, there is also a legal element. The firm’s decision to shut down the Marketplace place comes shortly after a Massachusetts District Court judge denied its motion to dismiss a lawsuit brought against the Marketplace.
Plaintiff Justin Dufoe alleged that the NFT Marketplace and its tokens amounted to unregistered securities. He filed the lawsuit in March 2023, taking aim not just at the company but also at CEO Jason Robins, North America President Matt Kailish and former CEO, now Chief Transformation Officer, Jason Park.
Judge Denise J Caster concluded that the charges have some merit to them. She invoked the Howey Test, a legal framework to determine if something amounts to an investment contract.
The test examines whether there has been an investment of money, if the investment is in a common enterprise and if there is an expectation of profit derived solely from the efforts of a promoter or third party.
Casper determined that the NFT Marketplace met all three criteria. The judge also concluded the closure of the Marketplace would not impact people holding DraftKings NFTs as there is no evidence holders had moved NFTs to external wallets, and the bookmaker has control of the marketplace.
Regarding investment, Casper also noted that DraftKings content has promoted the idea that investing in the firm’s NFTs goes beyond entertainment and collectibles and could be a money making opportunity. This included a podcast featuring CEO Kailish and entrepreneur and social media influencer Gary Vaynerchuk.
The class action case is not fully over, however, with the case still being heard in court. Regardless, DraftKings seems to have closed the curtains on its NFT activity, at least for now, in a move indicative of the tokens taking a back seat in the global discourse and trade around blockchain-backed products.
On the other hand, the decline of NFTs is not the first time digital assets have taken a hit and it likely won’t be the last.
Crypto was hugely impacted by the scandals and loss of confidence discussed above, but rebounded this year, particularly following the Securities and Exchange Commission’s (SEC) approval of Bitcoin ETFs – who knows if NFTs could see a similar recovery in the near future?