The National Football League Players Association sued DraftKings on Monday, August 26, 2024, alleging that DraftKings breached its contract related to NFL player likenesses on non-fungible tokens.
DraftKings is a popular sports gambling company that offers users online sports betting, online casino games, daily fantasy sports, and other consumer products. The National Football League Players Association (“NFLPA”) is the recognized labor union for professional football players in the National Football League. DraftKings entered the NFT marketplace in 2021. In an attempt to widen its NFT offerings, DraftKings entered into an agreement with the NFLPA and the National Football League Players Incorporated, which markets and sells licenses to consumer-product manufacturers, for the name, image, and likeness rights of NFL players. DraftKings intended to use these rights in its “NFLPA Collectibles” products, which “were designed to be used in DraftKings’ fantasy sports competitions, where a player would compile a ‘team’ of NFLPA Collectibles and compete against the teams of other DraftKings users in paid contests.”
DraftKings was granted the use of aforementioned intellectual property rights until the date of the license agreement’s expiration on February 28, 2027 “unless terminated in accordance with the provisions [t]hereof.” DraftKings agreed to pay a “revenue royalty on sales in both the initial and secondary markets” and a minimum guaranteed payment “to be apportioned over five license periods.” The parties agreed that the minimum guaranteed payment would be paid “regardless of how many sales occur or how much revenue is generated.”
DraftKings released its first NFLPA Collectibles products on May 17, 2022. However, “NFT prices and trading volume dropped across the board” starting in early 2023. The complaint alleges that DraftKings “repeatedly expressed concerns about the economics of the License Agreement and, even after the NFLPA Licensors expressed a willingness to help their business partner by renegotiating certain terms, refused to provide any assurances that it would make the payments owed.” The 2021 license agreement was restructured after the first license period passed without DraftKing making the agreed-upon minimum guaranteed payment.
In March 2023, DraftKings was sued over its NFT products in the U.S. District Court for the District of Massachusetts. The court ruled in that case on a motion to dismiss and no decision was reached on the merits as a matter of law. However, “the Court simply held that, accepting all [the plaintiff’s] factual allegations as true. . . he had ‘plausibly alleged that DraftKings NFTs in the context of the Marketplace are securities.'” On July 29, 2024, DraftKings cited this ruling when invoking its termination rights under the amended license agreement. DraftKings has not paid any amounts owed since August 1, 2024.
The complaint filed by the NFLPA against DraftKings centers around the Massachusetts rulings and whether DraftKings’ proffered reasoning justifies the claimed termination rights. The complaint was filed in the U.S. District Court for the Southern District of New York. The complaint states a cause of action for anticipatory breach of contract and an alternative cause of action for breach of contract.
Additional Reading
NFL players union sues DraftKings for allegedly breaking NFT contract, Reuters (August 26, 2024)
National Football League Players Association et al v. Draftkings Inc. et al (Case No. 1:2024cv06407)
Complaint in National Football League Players Association et al v. Draftkings Inc. et al
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