NFLPA Alleges DraftKings Owes it $65 Million in NFT Case

Posted on: August 26, 2024, 08:18h. 

Last updated on: August 27, 2024, 09:25h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

In newly unsealed court documents, the NFL Players Association (NFLPA), the labor union representing the league’s athletes, claimed DraftKings (NASDAQ: DKNG) owes it approximately $65 million stemming from the recent shuttering of the sportsbook operator’s nonfungible tokens (NFTs) marketplace.

NFLPA
The NFL Players Association (NFLPA) logo. The union may be seeking as much as $65 million in a suit against DraftKings. (Image: Beckett)

When news of the NFLPA’s suit against the gaming company broke last week, related documents were sealed by the court, but there was speculation DraftKings could owe the union $32.39 million because that was the amount listed in the accounts receivable section of the NFLPA’s 2023 annual report. The union listed that figure as attributable to OneTeam Partners, the marketing agency that brokered the initial deal between DraftKings and the NFLPA.

In the legal document, counsel for the players’ union doesn’t specifically state that $65 million is what the organization is owed. Rather, attorneys for the plaintiffs highlight compensation for five DraftKings executives, including co-founders Jason Robins (currently chief executive officer), Matt Kalish, and Paul Liberman, since 2021, noting the amount owed to the union is four times what was paid to the quintet of executives.

All told, the compensation of just these five aforementioned officers since 2021 is approximately quadruple of what DraftKings owes to the NFLPA licensors,” according to the legal filing.

In addition to Kalish, Liberman, and Robins, the other executives mentioned by the NFLPA are former CFO Jason Park and Chief Legal Officer R. Stanton Dodge. In all five cases, the bulk of their compensation overe the past several years was derived from sales of the company’s common stock, a theme that continues to this day.

NFT Class Action Could Have Implications in DraftKings/NFLPA Rift

In late July, the online sportsbook operator announced the closure of DraftKings Marketplace and the halting of Reignmakers fantasy sports game that was based on the NFTs sold in the marketplace. It’s widely believed the decision was made because US District Judge Denise Casper last month ruled that a class-action suit against the gaming company stemming from issues with the NFT marketplace can move forward.

That litigation was filed in March 2023 in US District Court in Boston with lead plaintiff Justin Dufoe claiming he lost $14K transacting in NFTs on DraftKings Marketplace. The NFLPA asserted that the gaming company is attempting to leverage Casper’s ruling as satisfaction of a termination clause in its agreement with the union, but the labor group disagrees.

The NFLPA said “buyer’s remorse” isn’t a valid reason to end a contract and that the gaming company knew the NFT deal wasn’t a risk-free accord.

“At the end of the day, and despite DraftKings’ best efforts to muddy the waters, this case is extraordinarily simple. DraftKings’ inability to profitably commercialize the intellectual property it licensed does not excuse performance, and DraftKings must pay what is due,” according to the union’s legal document. Counsel for the players union added the group renegotiated terms of the pact with DraftKings although it was under no legal obligation to do that.

Reignmakers Started Hot, Pinched by NFT Collapse

DraftKings launched its NFT marketplace and Reignmakers at the height of the NFT craze in 2021. Reignmakers participants would purchase digital NFLPA-licensed collectibles for use in the fantasy game that functioned akin to traditional fantasy sports.

The purchase acted as an entry fee of sorts and the plan was successful for a while, but following the “cryptocurrency winter” of 2022, NFT prices plunged in early 2023, discouraging players from shelling out cash for Reignmakers. As NFT prices wilted and liquidity in the market evaporated, the NFLPA said DraftKings expressed concern about the economics of the licensing agreement and that the gaming company didn’t make a related payment to the union in April 2023. The amount of that payment was redacted in the court filing.

Counsel for the union claim that DraftKings’ decision to abandon the NFT business has no bearing on its financial obligations to the NFLPA and that since the start of this month, the union has received no payments from the gaming company.

The NFLPA is asking the US Federal Court in the Southern District of New York to compel DraftKings to pay all unpaid sums, which are redacted in the filing, due under the amended licensing agreement and to compensate the union for court costs and legal fees.