Fantasy Sports Industry: Where does India stand?

By Rishi Sehgal on June 29, 2021

Fantasy sports refer to a wide range of virtual gaming contests where typically, users create their virtual teams comprising of real-life players, and compete against teams of other users. Users act as managers and score fantasy points based on the actual performance of real players in a real-life sports match coupled with other algorithm-based determinations. Users are ranked as per their fantasy points, and consequently, they may win prizes or rewards. Such virtual games allow sports enthusiasts a safe and secure platform to enhance their sporting experience while testing their sporting knowledge against fellow enthusiasts.

In India, fantasy sport contests are played for the entire duration of the sporting season with fantasy sport operators such as Dream11, MyTeam11, My11 Circle, etc., offering either a free-to-play, or a pay-to-play format where users are charged an entry fee. Recently, the fantasy sport industry has received huge traction from the general public, investors as well as government, and is amongst the fastest growing digital sectors in India. However, at the same time the industry faces certain bottlenecks that inhibit its development.

In this post, we analyse the status of fantasy sports in India from a regulatory and legal perspective. We shall also be highlighting the economic capability of the industry, the problems it currently faces, and sneak-peek at the recent developments that portray a promising picture for the industry.

1. Potential of fantasy sports industry in India

The fantasy sports industry has seen an exponential growth in a short span of time and has emerged as a ‘‘sunrise sector’’[1]. This growth is perhaps, fuelled by the increasing internet penetration combined with a younger consumer group that has shifting needs of social interaction. As per one report, the number of online fantasy sport users in India has grown at a compounded rate of 212%, increasing from 2 million users in June 2016 to 90 million users in December 2019.[2] This has resulted in India overtaking the US for having the world’s largest online fantasy sports user base. Moreover, fantasy sport operators have attracted the attention of global investors with various venture capital and private equity firms becoming the biggest sources of their funding.[3]

It is estimated that fantasy sports sector shall generate approximately 1.5 billion transactions by 2023 and attract FDI of more than INR 10,000 crore (about USD 1.35 billion)[4] over the next few years.[5] Additionally, the industry which presently employs more than 3,000 employees, is expected to provide an additional 5,000 – 7,000 jobs in the coming years. The industry is also expected to provide further 1,000 jobs indirectly through ancillary services such as research, tutoring, and analytics.[6] Thus, this makes India the ideal candidate to be the global hub for this industry.

2. Regulatory Framework

In India, there is no specialised law that regulates fantasy sports, but the sector has encountered legality debates with a pre-Independence law, the Public Gambling Act, 1867(“PGA”). The PGA criminalises activities of gambling and keeping of a common gaming house i.e., any enclosed space, in which instruments of gaming are kept or used for profit or gain. The only exception is provided under section 12. It excludes the applicability of the statute on games involving skill. Additionally, gambling and betting are subjects under the State List of the Constitution, where state legislatures have authority to frame laws on this aspect.[7] While many states have adopted PGA and created exemption for games involving skill, some states such as Assam, Orissa, and Telangana etc., have enacted their own laws which do not provide for such exception.[8]

Nevertheless, neither the PGA nor any of the state legislations address the scope and import of games of skill or that of chance. This question has been delved into by the judiciary, where the Supreme Court has adopted “predominance test” as used in the USA.  In Dr. K.R. Lakshmanan vs. State of Tamil Nadu,[9]the court observed that game of skill versus chance will require assessment and determination of what is the dominating factor for the result of the game. If the game involves user’s superior knowledge, experience and adroitness, then that amounts to a game of skill, whereas if the game is largely based on luck, then it is a game of chance.  Further, the Supreme Court has also observed that each and every game involves certain element of chance, even though it may be infinitesimally small. The determination is therefore, fact specific and if a game is mostly based on user’s skill and judgment, then the same shall be treated under PGA’s exemption, and not unlawful.

3. Legality: Fantasy sports as game of skill

The legality of fantasy sports has been the subject of several debates with questions pertaining to their classification as a game of skill or chance. This distinction is crucial as the latter falls is gambling and prohibited, while the former is exempt from PGA’s restrictions. This question was first answered by the Punjab and Haryana high court in Varun Gumber v. Union Territory of Chandigarh,[10] (“Varun Gumber case”) when it examined the fantasy sport contests offered by Dream 11.

In this case the petitioner, expended INR 50,000 (about USD 673) for playing variety of sports including cricket on Dream 11 platform. His fantasy team performed dismally and he lost money. Thereafter, the petitioner alleged that since the game did not involve any skill and was based purely on chance, it amounts to gambling under the PGA. The high court examined the modus operandi of Dream 11, and came to the conclusion that the game involved use of considerable skills and judgment by the user in drafting their team. The court said, that the user has to judge the athleticism and dexterity of the players, their strengths and weaknesses against the opposition plus account for other non-athletic factors, such as ground conditions and injuries. The court rejected the petitioner’s claim, and held that Dream11 was a game of skill.  It was further held by the high court that Dream11 was a legitimate business activity protected under Article 19(1)(g) of the Constitution. Following this, an appeal was filed against this decision. The apex court dismissed the appeal and upheld the reasoning of the high court.[11]

Thereafter, a criminal petition was filed in Gurdeep Singh Sachar v. Union of India against Dream 11 in the Bombay High Court.[12] Here, the petitioner contended that Dream 11’s offerings tantamount to illegal betting under the guise of online fantasy sport. Further, it was argued that Dream 11 was evading payment of GST by intentionally misclassifying its services, so that applicable tax is 18% instead of 28%. The high court relied on Varun Gumber case and held that games played on Dream 11 were games of skill and not betting or gambling. Accordingly, the court ruled that it would be incorrect to tax Dream 11 at 28%GST Similarly, another challenge was made in the Rajasthan High Court in Chandresh Sankhla v. State of Rajasthan [13] which once again reaffirmed the orders passed by the other high courts.

Does this mean that the dust has settled? All fantasy sport operators do not adhere to the same format offered by Dream 11. They vary considerably from each other. Since the evaluation is fact specific, each format has to be evaluated independently to determine if it meets the predominance test laid down by the Supreme Court. As a consequence, the industry continues to find itself embroiled in legalities. For instance, the Madras High Court in D Siluvai Venance v. State [14] expressed concerns  about the impact of fantasy sports on youngsters and has called for stricter regulations.

Apart from lack of specific regulations, and a binding ruling from the apex court,  states such as Telangana, Tamil Nadu and Andhra Pradesh have recently imposed bans on pay-to-play contests and online applications. Some have stretched it to remove the game of skills exception completely.[15]

4. NITI Aayog’s draft guidelines

Undoubtedly, the industry requires a national regulatory ecosystem, and a reliable legal framework to operate. Some respite came in December 2020, in the form of NITI Aayog’s Guiding Principles for the National Regulation of Online Fantasy Sports in India. The draft guidelines propose a “light-touch” self-regulatory framework for fantasy sports, under the aegis of an independent oversight board. The proposed self-regulatory organisation (SRO) shall be recognised by the government, and would have membership of all the fantasy sport operators. This would provide them a forum to deliberate with the governments at central and state levels on all policy matters pertaining to the industry. Some of the key proposals:

  • SRO shall have an independent evaluation committee whose role would be to evaluate the pay-to-play formats presented by the fantasy sport operators, ascertain and confirm whether the format is skill-predominant.
  • The evaluation committee will also have the power to set rules or recommend changes to formats that will be binding on the fantasy sport operators. Furthermore, the draft guidelines recommend the fantasy sport operators to maintain and submit periodically all the statistical data to the SRO in order to demonstrate that the contests and games are skill predominant.
  • There should be age restrictions to prevent harm to minors and misuse.
  • It also warns the fantasy sport operators against offering or advertising gambling services or games of chance on their platforms.
  • Operators should abide by advertising standards laid out by the Advertising Standards Council of India and avoid advertisements that imply or represent that the winnings on their platforms are “assured” or “guaranteed.”
  • Participation in fantasy sports should not be represented as a means of livelihood, sustenance, or even an investment opportunity.

Conclusion

The potential of the fantasy sports industry is clearly visible in terms of generating new jobs, and bringing foreign investment. While the judiciary has carefully evaluated the structure of fantasy sports contests for satisfaction of game of skill criteria, the conflicting stances at state levels stifle the potential. The industry requires a uniform policy that ensures that there no impediment in their activities. The self-regulatory proposal brought by the NITI Aayog provides optimism for the stakeholders. They provide a good starting point for the industry and government to come together and strive for uniformity in legislation. The proposals, if implemented, will accord fantasy sports a national and uniform safety net, bringing much needed certainty and legal sanctity to the businesses as well as users, thereby contributing towards a competitive and innovative ecosystem.

[1] To learn more, access https://inc42.com/features/real-money-gaming-will-vc-fuelled-fantasy-sports-apps-find-a-firm-footing-in-india/ (accessed on June 29, 2021)

[2] See: https://www.thehindu.com/business/niti-aayog-suggests-single-self-regulatory-body-for-fantasy-sports-industry/article33262785.ece (accessed on June 28, 2021)

[3] To learn more, access  https://www.livemint.com/news/india/gaming-startups-see-investments-boom-11612891663525.html (accessed on June 28, 2021)

[4] USD 1 = about INR 74

[5] The Business of Fantasy Sports (July 2020), KPMG India, available at: https://fifs.in/publication/ (accessed on June 29, 2021)

[6] See: https://niti.gov.in/sites/default/files/2020-12/FantasySports_DraftForComments.pdf (accessed on June 24, 2021)

[7] Schedule VII of the Indian Constitution, List II, Entry 34

[8] See: Assam Game and Betting Act 1970; The Orissa Prevention of Gambling Act ,1955 and Telangana Gaming Act, 1974

[9] (1996) 2 S.C.C. 226

[10]  2017 Cri. L. J. 3827

[11] See: https://main.sci.gov.in/supremecourt/2019/35191/35191_2019_5_37_17290_Order_04-Oct-2019.pdf (accessed on June 29, 2021)

[12] 2019 SCC OnLine Bom 13059

[13] 2020 SCC OnLine Raj 264

[14] 2020 SCC OnLine Mad 1546

[15] For instance, Telangana and Andhra Pradesh have gone to the extent of removing game of skill exception from their state legislations. This also prompted Google to delist apps like MPL and Dream11 from its app store in 2019

The views expressed here do not constitute legal counsel, are aimed at knowledge sharing and awareness advocacy, and are views of the contributing author.

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