NFTs, Sports Betting, and Player Likeness: Legal Challenges in Light of the NFL & DraftKings Settlement

[1]

The rapid evolution of digital assets has sparked a fascinating convergence of non-fungible tokens (NFTs), sports betting, and player likeness rights, creating a legal landscape filled with uncertainty and high stakes.[2] At the heart of this intersection is a recent settlement between DraftKings and the National Football LNFLeague Players Association (NFLPA), a dispute that underscores the growing complexities of these emerging technologies in professional sports.[3]

Background of the DraftKings & NFLPA Dispute

In 2021, DraftKings entered into a licensing agreement with the NFLPA to feature player likenesses in an NFT-based fantasy football game known as “Reignmakers”.[4] This innovative partnership allowed DraftKings to create digital collectibles representing real NFL players, giving fans the opportunity to buy, sell, and utilize these NFTs in gameplay—essentially blending traditional fantasy sports with blockchain-based ownership.[5]

At the time, NFTs were experiencing a meteoric rise, and the agreement seemed like a win-win.[6] DraftKings gained access to valuable player imagery, and the NFLPA secured what appeared to be a lucrative revenue stream for its players.[7] However, as the NFT market cooled significantly in the following years, the financial optimism surrounding the deal waned.[8]

By mid-2023, tensions escalated when DraftKings allegedly ceased making payments to the NFLPA, citing concerns that NFTs could be classified as securities under federal law.[9][10] This was no minor technicality—if deemed securities, these digital assets would fall under the regulatory purview of the Securities and Exchange Commission (SEC), introducing compliance challenges and potential legal liabilities.[11] The NFLPA, however, saw things differently. In August 2024, the union filed a lawsuit against DraftKings, arguing that the company had breached its contractual obligations by continuing to use player likenesses without proper compensation. [12]

Settlement and Its Implications

Fast forward to January 2025, and the two parties reached a settlement in principle, requesting a 60-day stay in court to finalize the terms.[13] While the exact details remain confidential, the resolution spares both sides from what could have been a lengthy, costly, and reputation-damaging litigation battle.[14]

Beyond the immediate resolution, this settlement sheds light on several pivotal legal issues at the intersection of NFTs and professional sports.

1. NFTs and Securities Law – A Regulatory Gray Area

One of DraftKings' key defenses in the lawsuit was that the NFTs in question might fall under the category of unregistered securities.[15] This wasn’t just a theoretical argument—DraftKings was already facing a separate class-action lawsuit that raised the same issue.[16] A federal judge overseeing that case suggested that certain NFT offerings might indeed meet the legal definition of securities, which, if confirmed, could set a precedent with wide-ranging implications.[17]

If NFTs tied to fantasy sports or other digital collectibles are classified as securities, they would become subject to stringent SEC regulations, dramatically altering how companies issue, trade, and market these assets.[18] Fantasy sports platforms that integrate NFTs would need to rethink their entire business models, ensuring compliance with securities laws and financial reporting requirements.[19] The potential for increased regulatory scrutiny may also discourage some companies from entering the NFT space altogether.[20]

2. Intellectual Property and Player Likeness Rights – Athletes Taking Control

At the heart of the dispute was the fundamental issue of player likeness rights in the digital era.[21] Traditionally, professional athletes and their unions have licensed their names, images, and likenesses (NIL) for use in video games, merchandise, and advertisements.[22] However, the rise of NFTs introduces a new layer of complexity, as digital collectibles blur the lines between ownership, licensing, and resale rights.[23]

The lawsuit against DraftKings highlights a growing trend: athletes and their unions are becoming increasingly vigilant about protecting their digital identities.[24] Clear and enforceable contractual language around licensing fees, exclusivity, and payment structures is now more critical than ever.[25]

3. The Volatility of the NFT Market – A Cautionary Tale

The DraftKings-NFLPA saga also serves as a stark reminder of the risks associated with long-term commitments in a highly volatile market. When DraftKings entered into its agreement with the NFLPA in 2021, NFTs were at their peak, with sky-high valuations and booming demand.[26]

However, as the crypto market experienced a downturn, NFT prices plummeted, leaving companies that had heavily invested in the space scrambling for solutions.[27]

Moving forward, companies engaging in NFT-related partnerships will need to build flexibility into their contracts—incorporating market-adjusted pricing mechanisms, termination clauses, and contingency plans to mitigate financial risks if the market shifts unfavorably.[28]

What’s Next for NFTs in Sports?

Although the DraftKings settlement resolves this particular dispute, the broader legal landscape surrounding NFTs, sports betting, and player likeness rights remains uncertain. [29] Other sports leagues and gaming companies continue to explore NFT integrations, raising similar regulatory and contractual challenges. [30] Will NFTs be officially classified as securities? [31] Will athletes push for even stronger protections of their digital likeness? How will the industry adapt to fluctuating market conditions?

One thing is clear: companies operating at the intersection of digital assets and professional sports must stay ahead of the curve. [32] Ensuring compliance with securities regulations, drafting airtight licensing agreements, and remaining adaptable to market changes will be crucial in navigating this evolving space. [33]

The DraftKings-NFLPA settlement serves as both a cautionary tale and a learning opportunity—one that highlights the delicate balance between innovation and legal compliance in the ever-changing world of digital sports entertainment. [34]

Lili Trigilio (contributing editor) is a 2L from Greensboro, NC. Prior to law school, she attended NC State University and she remains a lifelong Wolfpack sports fan.  After law school, Lili hopes to work in corporate law, international law, or sports business.

References:

[1] Hopman, M. (2021, January 30). Photo by Maxim Hopman on unsplash. Unsplash. https://unsplash.com/photos/red-and-blue-light-streaks-fiXLQXAhCfk

[2] NFL Players Union Sues DraftKings for Allegedly Breaking NFT Contract, Reuters (Aug. 26, 2024), https://www.reuters.com/legal/government/nfl-players-union-sues-draftkings-allegedly-breaking-nft-contract-2024-08-26.

[3] Id.

[4] DraftKings Resolves Licensing Lawsuit with NFL Players Association, World Casino News (Jan. 31, 2025), https://news.worldcasinodirectory.com/draftkings-resolves-licensing-lawsuit-with-nfl-players-association-116990.

[5] The NFLPA and DraftKings Unveil Plans for Gamified NFT Collaboration, DraftKings (Dec. 9, 2021), https://www.draftkings.com/news-2021-12-the-nflpa-and-draftkings-unveil-plans-for-gamified-nft-collaboration.

[6] Margaret Fleming, NFLPA Blasts DraftKings in $65 Million NFT Lawsuit, Front Off. Sports (Aug. 28, 2024), https://frontofficesports.com/nflpa-blasts-draftkings-65-million-nft-lawsuit.

[7]The NFLPA and DraftKings Unveil Plans for Gamified NFT Collaboration, DraftKings (Dec. 9, 2021), https://www.draftkings.com/news-2021-12-the-nflpa-and-draftkings-unveil-plans-for-gamified-nft-collaboration.

[8] NFT Market Crash: Why Are NFTs Losing Their Value?, Supra Academy (Oct. 10, 2023), https://supra.com/academy/nft-market-crash/.

[9] SEC Finds NFT to Be a Security in Landmark Action, Ballard Spahr, LLP (Aug. 30, 2023), https://www.ballardspahr.com/insights/alerts-and-articles/2023/08/sec-finds-nft-to-be-a-security-in-landmark-action.

[10] NFL Players Union Sues DraftKings for Allegedly Breaking NFT Contract, Reuters (Aug. 26, 2024), https://www.reuters.com/legal/government/nfl-players-union-sues-draftkings-allegedly-breaking-nft-contract-2024-08-26.

[11] SEC Finds NFT to Be a Security in Landmark Action, Ballard Spahr, LLP (Aug. 30, 2023), https://www.ballardspahr.com/insights/alerts-and-articles/2023/08/sec-finds-nft-to-be-a-security-in-landmark-action.

[12] NFL Players Union Sues DraftKings for Allegedly Breaking NFT Contract, Reuters (Aug. 26, 2024), https://www.reuters.com/legal/government/nfl-players-union-sues-draftkings-allegedly-breaking-nft-contract-2024-08-26.

[13] DraftKings Resolves Licensing Lawsuit with NFL Players Association, World Casino News (Jan. 31, 2025), https://news.worldcasinodirectory.com/draftkings-resolves-licensing-lawsuit-with-nfl-players-association-116990.

[14] Id.

[15] Alex Drylewski, Are Sales of Nonfungible Tokens Investment Contracts Subject to Regulation Under U.S. Securities Law?, Reuters (Oct. 23, 2024), https://www.reuters.com/legal/legalindustry/are-sales-nonfungible-tokens-investment-contracts-subject-regulation-under-2024-10-23.

[16] Skadden, Arps, Slate, Meagher & Flom LLP, Court Declines to Dismiss Securities Class Action Against DraftKings Over NFTs, Skadden (July 2024), https://www.skadden.com/insights/publications/2024/07/court-declines-to-dismiss-securities-class-action.

[17] Id.

[18] Alex Drylewski, Are Sales of Nonfungible Tokens Investment Contracts Subject to Regulation Under U.S. Securities Law?, Reuters (Oct. 23, 2024), https://www.reuters.com/legal/legalindustry/are-sales-nonfungible-tokens-investment-contracts-subject-regulation-under-2024-10-23.

[19] UK House of Commons Digital, Culture, Media and Sport Committee, NFTs and the Blockchain: The Risks to Sports and Entertainment, HC 598 (2023), https://publications.parliament.uk/pa/cm5803/cmselect/cmcumeds/598/report.html.

[20] Id.

[21] JC Tretter, NFL Players Have Ownership in the Business of Football, NFLPA (Feb. 9, 2022), https://nflpa.com/posts/nfl-players-have-ownership-in-the-business-of-football.

[22] Id.

[23] Michael Murray, Copyrights and NFT Purchasers: What Do You Actually Own?, Stan. J.L. Bus. & Pol’y (2023), https://stanford-jblp.pubpub.org/pub/copyrights-nft-purchasers/release/1

[25] Blake Brittain, DraftKings Settles NFL Players Union Lawsuit Over NFT Contract, Reuters (Jan. 27, 2025), https://www.reuters.com/legal/litigation/draftkings-settles-nfl-players-union-lawsuit-over-nft-contract-2025-01-27.

[26] Stacey Smith, NFT Market Crashes, Leaving Many Digital Assets Worthless, Marketplace (Dec. 22, 2023), https://www.marketplace.org/2023/12/22/nft-market-crashes-value-worthless/.

[27] Id.

[28] EY Americas, Five Legal Considerations for Businesses Taking a Lead on NFTs, EY (Feb. 1, 2023), https://www.ey.com/en_us/insights/tax/five-legal-considerations-for-businesses-taking-a-lead-on-nfts.

[29] Id.

[30] Karim Zidan, NBA Players Are Making a Fortune from NFTs. UFC Fighters May Not Be So Lucky, The Guardian (May 11, 2021), https://www.theguardian.com/sport/2021/may/11/nba-players-are-making-a-fortune-from-nfts-ufc-fighters-may-not-be-so-lucky.

[31] SEC Finds NFT to Be a Security in Landmark Action, Ballard Spahr, LLP (Aug. 30, 2023), https://www.ballardspahr.com/insights/alerts-and-articles/2023/08/sec-finds-nft-to-be-a-security-in-landmark-action.

[32] Id.

[33] Id.

[34] Id.