DraftKings NFT Settlement Faces New Challenge from Leading Collector

DraftKings NFT Settlement Faces New Challenge from Leading Collector

Objection Highlights Dispute Over Compensation Formula

A significant new objection has emerged against DraftKings’ proposed $10 million settlement concerning its NFT offerings, further intensifying scrutiny of the company’s approach to digital collectibles. On July 14, Brad Wyatt, a Massachusetts resident and former top 10 holder of NFL Reignmaker NFTs, submitted a detailed objection challenging the methodology used to calculate payouts for class members involved in the settlement.

Wyatt’s primary contention centers on the inclusion of “Prize Receipts” as a deduction in determining individual compensation. These Prize Receipts represent winnings from separate fantasy sports contests hosted by DraftKings. Wyatt argues that incorporating these receipts distorts the actual economic losses experienced by NFT investors, emphasizing that the settlement pertains strictly to NFT transactions rather than outcomes from fantasy sports contests. He asserts, “Including these Prize Receipts does not offset the economic harm suffered by class members.”

This objection follows two earlier formal challenges filed in May, underscoring ongoing legal tensions surrounding the case. The underlying lawsuit, initiated by plaintiff Justin Dufoe, accuses DraftKings of violating federal securities laws by offering NFTs as unregistered investment contracts. Although DraftKings denies any wrongdoing, the company agreed in April to a mediated settlement that establishes a $10 million fund for affected users. The settlement also allocates up to $50,000 for service awards and designates 25 percent of the fund for legal fees.

Dispute Over Valuation and Market Impact

Wyatt further contends that DraftKings inflated the fair market value of the Prize Receipts, which unfairly reduces the “Individual Recognised Loss” attributed to each NFT owner. He urges the court to exclude these Prize Receipts from the compensation formula, arguing that doing so would better align with securities law principles and ensure a more equitable distribution of damages.

According to DraftKings’ transaction data, Wyatt invested nearly $462,000 in acquiring NFTs but recovered only about $245,000 through resales and proceeds from the marketplace’s closure. The Prize Receipts added an additional notional value of approximately $252,000, which Wyatt insists should not be treated as cash compensation. DraftKings shuttered its NFT marketplace in March 2024, shortly after a federal court declined to dismiss the securities lawsuit—a development that Dufoe’s legal team interprets as an acknowledgment of litigation risk by the company.

The settlement faces not only legal opposition from prominent collectors like Wyatt but also broader skepticism regarding the value and future viability of NFTs. Regulatory scrutiny of digital collectibles continues to intensify, and the outcome of this case may significantly influence investor confidence across the digital asset market. Industry competitors are closely monitoring the proceedings, with some anticipated to enhance their NFT offerings or increase marketing efforts to capitalize on evolving market dynamics.

A final approval hearing for the settlement has yet to be scheduled. Objections will remain open until 21 days prior to that hearing, after which the court will determine whether the settlement is fair, reasonable, and adequate in light of the concerns raised. The resolution of this case is expected to have far-reaching implications for the NFT and digital collectibles industry.