DraftKings agreed to a $10 million settlement to resolve a class action lawsuit claiming the company sold unregistered securities through its Reignmakers NFT marketplace, violating federal securities laws. The case centered on whether DraftKings’ NFTs—which gave holders ownership interests in digital assets and access to a secondary marketplace—met the legal definition of investment contracts under the Howey Test, the longstanding framework courts use to determine if something qualifies as a security. Justin Dufoe, the lead plaintiff who lost more than $14,000 investing in DraftKings NFTs, brought the claim after the company shut down the entire Reignmakers operation, leaving thousands of investors holding essentially worthless tokens with no clear path to recovery.
U.S. District Judge Denise J. Casper granted final approval of the settlement on March 4, 2025, determining it was “fair, reasonable, and adequate to the settlement class members.” The settlement represents approximately 26% of the midpoint of estimated damages, which ranged between $18 million and $58 million. Over 175,000 people who purchased, held, or transacted in DraftKings NFTs during the class period from August 11, 2021, through the date of judgment became eligible for compensation—a significant acknowledgment that the company’s operations may have crossed into securities regulation territory that it failed to navigate properly.
Table of Contents
- What Made DraftKings NFTs Unregistered Securities?
- The Howey Test and Its Application to NFTs
- Settlement Breakdown and What Plaintiffs Recover
- Who Qualifies for the DraftKings NFT Settlement?
- Why DraftKings Shut Down Reignmakers
- The NFL Players Association Connection
- What This Means for the Broader NFT Market
- Conclusion
What Made DraftKings NFTs Unregistered Securities?
The core allegation in the case was that DraftKings’ Reignmakers nfts should have been registered with the Securities and Exchange Commission because they functioned as investment contracts. Under the Howey Test, an investment contract exists when there is an investment of money in a common enterprise with a reasonable expectation of profits derived from the efforts of others. The NFTs DraftKings sold gave buyers ownership stakes in digital game pieces that could be bought and sold on the Reignmakers marketplace, with prices fluctuating based on player performance and market demand. Buyers explicitly expected their NFT holdings to appreciate in value—a profit motive that distinguished these digital assets from simple collectibles or consumer goods.
The plaintiffs argued DraftKings operated both an unregistered securities exchange (where the buying and selling happened) and acted as an unregistered securities broker (by facilitating transactions and taking fees). This is not a mere technicality—operating an unregistered exchange violates Section 5 of the Securities Exchange Act, and acting as an unregistered broker violates Section 15 of the Securities Exchange Act. Think of it this way: if a company created a platform where investors could trade shares of private companies without SEC oversight, regulators would shut it down immediately. DraftKings’ Reignmakers marketplace operated in a similar gray area with digital assets rather than traditional equities, creating legal exposure the company underestimated.
The Howey Test and Its Application to NFTs
The Howey Test, established by the Supreme Court in 1946, has guided securities law for decades, but its application to NFTs represents relatively new legal territory. For an asset to qualify as a security under Howey, all four prongs must be met: (1) an investment of money, (2) in a common enterprise, (3) with a reasonable expectation of profits, (4) derived from the efforts of others. The DraftKings case clearly satisfied all four elements.
Buyers invested money in NFTs, participated in a common enterprise (the Reignmakers marketplace), expected profits from price appreciation, and those profits depended on DraftKings’ efforts—including marketing the NFTs, maintaining the marketplace, managing player data, and influencing which athletes were featured in future drops. This precedent matters because it suggests many other NFT projects with similar structures—where holders can trade on secondary markets, where project creators control supply and scarcity, where prices depend on external promotion and celebrity endorsements—likely fail to comply with securities laws. The DraftKings settlement does not establish definitive case law (since it’s a settlement, not a judgment on the merits), but it signals that NFT projects operating like equity exchanges face significant regulatory risk. Companies considering NFT launches should have legal counsel review whether their token mechanics and marketplace features trigger securities regulations, as the cost of getting it wrong can be substantial—as DraftKings discovered.
Settlement Breakdown and What Plaintiffs Recover
The $10 million settlement fund will be distributed among eligible class members after deducting approved attorney fees and expenses. The court awarded class counsel $3.33 million in attorney fees and approved $53,000 in litigation expenses, leaving approximately $6.67 million for distribution to the over 175,000 class members. The lead plaintiff, Justin Dufoe, received an additional $50,000 service award for his role in pursuing the case. For individual class members, the payout amounts will depend on how much each person lost and when they purchased NFTs, though exact per-person distributions have not yet been calculated.
Judge Casper determined the $10 million settlement represented reasonable compensation because it recovered approximately 26% of the midpoint of estimated total damages. While 26% recovery may sound low, it’s actually within the range of typical class action settlements—many plaintiffs recover 10-30% of alleged damages depending on litigation risks and uncertainty about winning at trial. The advantage of settlement is certainty: rather than face years of litigation, motions, appeals, and the possibility that the court might rule against them entirely, DraftKings’ NFT investors received guaranteed compensation on a defined timeline. This settlement closed an uncertain chapter for investors who otherwise faced holding depreciating digital assets with minimal legal recourse.
Who Qualifies for the DraftKings NFT Settlement?
The settlement class includes all persons or entities who purchased, acquired, sold, disposed of, owned, held, used, or otherwise transacted in NFTs in a DraftKings account during the class period from August 11, 2021, through the entry of final judgment. This is a very broad definition—it captures not just people who bought and lost money, but also anyone who held NFTs at any point during that window, regardless of whether they ultimately profited or lost. The class encompasses casual players who bought a single NFT, serious collectors who accumulated portfolios, and investors who actively traded on the secondary marketplace.
To claim a settlement payment, eligible class members must submit a claim form that documents their DraftKings account history and NFT transactions. Since DraftKings shut down the Reignmakers operations, the company has records of who held which NFTs and when. The claims process is designed to be relatively straightforward—claimants will likely need to verify their account ownership and transaction history rather than submit detailed receipts for each individual purchase. If you bought DraftKings NFTs and your account still exists, you should be eligible, but keep an eye on settlement administration website announcements for the exact claim deadline, as these deadlines are typically not extended.
Why DraftKings Shut Down Reignmakers
DraftKings discontinued its Reignmakers NFT marketplace and digital collectibles business in the face of regulatory scrutiny and the growing recognition that its structure didn’t comply with securities laws. Rather than attempt to navigate the complex process of registering as a securities exchange and broker—a regulatory burden that would have fundamentally changed how the platform operated—DraftKings chose to exit the market. The company offered existing NFT holders the opportunity to return their digital game pieces to DraftKings for cash compensation at predetermined rates, attempting to minimize customer losses on the way out.
This decision highlights an important limitation of the settlement: it doesn’t actually validate DraftKings’ business model or suggest that NFT projects can operate unregulated if they simply pay out when challenged. Instead, it reflects DraftKings’ calculation that settling the class action was cheaper than defending litigation, registering with the SEC, and continuing operations under greater regulatory oversight. The broader warning here is that NFT investors should be skeptical of secondary marketplace claims made for digital assets—if the marketplace is built by the issuer, if they control supply, if they benefit from trading volumes, the asset might be a security regardless of how it’s marketed.
The NFL Players Association Connection
The DraftKings NFT legal issues extended beyond consumer investors. In August 2024, the National Football League Players Association filed a separate lawsuit against DraftKings alleging that the company failed to pay required royalties to players whose likenesses appeared on Reignmakers NFTs.
The lawsuit claimed DraftKings owed players compensation for using their names, images, and likenesses on digital collectibles—a common requirement in athlete licensing agreements. In January 2025, less than a year after filing, the NFLPA and DraftKings reached a settlement resolving the royalty dispute. This parallel lawsuit underscores that DraftKings’ Reignmakers problems extended across multiple dimensions: securities law violations, customer compensation, and licensing compliance all contributed to the platform’s collapse.
What This Means for the Broader NFT Market
The DraftKings settlement serves as a cautionary tale for the entire NFT industry, signaling that marketplace structures resembling securities exchanges will attract regulatory attention and litigation risk. Several other NFT projects have faced similar scrutiny, and the SEC has become increasingly aggressive in pursuing NFT issuers it believes violated securities laws. The DraftKings case suggests that projects marketing NFTs as investment vehicles, especially those operating secondary marketplaces where holders expect price appreciation, should consult with securities counsel before launch.
Some projects may determine that the regulatory burden isn’t worth it and remain small or invite only accredited investors; others may pivot to emphasize utility or community aspects rather than investment returns. Looking forward, the distinction between collectibles and securities in the NFT space will likely become clearer through additional litigation and regulatory guidance. The DraftKings settlement doesn’t establish definitively that all NFTs with secondary marketplaces are securities—courts might distinguish between different structures, use cases, and issuer promises. However, it does make plain that regulators and courts are willing to apply traditional securities law to digital assets, and companies cannot assume that calling something a “collectible” or “utility token” exempts it from compliance obligations.
Conclusion
The DraftKings NFT class action settlement of $10 million, approved by U.S. District Judge Denise J. Casper, resolved claims that the company operated an unregistered securities exchange and broker through its Reignmakers marketplace. The settlement will compensate over 175,000 eligible class members who purchased or held DraftKings NFTs between August 11, 2021, and the date of judgment, with approximately $6.67 million available for distribution after approved attorney fees and expenses.
While individual payouts will depend on each person’s transaction history, the settlement provided certainty for investors facing the uncertainty of continued litigation and the near-certainty of losing money as the platform shut down. If you purchased DraftKings NFTs during the class period, you should watch for the official settlement website and claims deadline to ensure you submit your claim. The settlement process is the primary path to recovering any of your losses, as attempting to recover through individual lawsuits or demanding refunds from DraftKings directly will prove futile. The broader lesson is that NFT investors should scrutinize whether an NFT project’s structure—particularly secondary marketplaces controlled by the issuer—suggests the digital asset is functioning as a security, and be cautious about platforms promising investment returns backed primarily by speculative price appreciation.
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