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Fantasy Sports in India: A Report

06

OCT

2021

INTRODUCTION

Being able to recreate sports teams and enjoy what it feels to be on the ground during a real game is something that every sports fan wishes for. This is a fantasy that has been made possible by the emergence of ‘Fantasy Sport’. As the Indian Premier League (IPL) fever is about to take over the country followed by the T-20 World Cup, fans of the gentlemen’s game are all ready to hop on to their phones again and make their own virtual teams and compete with million others. Somehow, that statement doesn’t seem absurd. With Dream 11, a unicorn in the fantasy sports platform, having sponsored the biggest cricket league in the world (IPL 2020), online fantasy sports platforms have jumped tremendously in popularity and size in India in just a few years.

The term ‘Fantasy Sport’ refers to online games where people/users make virtual sports teams and then participate in contests and leagues that emulate the real-world conditions of the game. Also known as rotisserie or roto, they are played on the internet and usually comprise proxies of real players of professional sports. Most fantasy sports games involve the assembly of imaginary virtual teams from a pool of real players taking part in the games, strictly based on their knowledge, experience, perception of the players and the teams. Users making virtual teams need to adhere to a certain specific value while making their teams and enter in the contest through an entry fee. Based on the performance of the imaginary teams, the users are ranked, which ultimately forms the basis for their winnings.

The emergence of Fantasy Sports in India is hugely credited to the popularity of cricket and the fan-following of IPL which started in 2008 and since then has taken the country by storm. Cricket, in India, is more than just a sport. It is a religion, a part of our culture, where players become gods and fans become worshippers. The Indian Premier League is the most anticipated event which not only justifies the hype but goes far beyond it. So, it’s not surprising that fantasy sport to first become an obsession has been cricket, and the platform ‘Dream 11’, in particular. This fantasy sports application has grown through leaps and bounds since it was first introduced in 2008 and also went on to bag the coveted title sponsorship of IPL ‘20, heralding them to the big ‘leagues’. Demonstrably, fantasy sport is now a big game of big money and only growing. There is curiosity and there is rage. The industry is expected to be worth US$ 3.7 billion by 2024.

Legal and Regulatory Dilemma

Having emphasized the importance and popularity of Fantasy Sports in India, it is pertinent to mention that the entire market of fantasy sports stands in a regulatory grey area. There exists zero concrete legislation with respect to its legality, its boundaries with gambling and betting, or its taxation for that matter. With its sudden and humongous rise, there has also been an increased interest in the legality of Fantasy Sports as to whether the same amounts to betting/ gambling or it comes under the legally permitted ambit of “Game of Skill”. This legality issue with Fantasy Sports is owing to the fact that in most circumstances these games involve real money transactions and has been often considered to be on the lines of betting and gambling. Since 2017, there have been many Public Interest Litigations (PIL) questioning the legality of the format that these fantasy gaming platforms use. However, before discussing the PIL’s and the opinion of various courts on the legality of Fantasy Sports, it is important to understand that in India, betting and gambling fall under the 2nd list of the 7th schedule of the Indian Constitution, which means betting and gambling is a state issue and the states have the power to govern and regulate the same. There is no centralized legislation or regulatory framework for Sports in India, lest Fantasy Sports and this has caused a tremendous issue as the understanding and regulations of the same are not clear.

Prior to the promulgation of the Constitution of India, betting and gambling in India were governed by the Public Gambling Act of 1857. After Independence, betting and gambling were listed under Entry 34 of List II of the Seventh Schedule of the Indian Constitution, thus empowering the states only to legislate upon the subject. Similarly, Entry 62 of the same list empowers the states for legislation for the taxation of betting and gambling as well. As a result, most states have different sports laws on the subject, albeit primarily based upon the original 1857 Act. As per the Public Gambling Act of 1867, all forms of betting, including online betting, are illegal in India. However, the Act has also carved out an exception explicitly allowing games of “mere skill”. Game of skill and a game of chance is the most basic distinction that courts generally attempt to make when deciding on the legality of a gaming platform such as fantasy sports and to distinguish between a game and a gamble. Most gaming enactments of different states seek to exempt games of skill, whenever possible.

As it stands, every state in India, except Goa, Sikkim, and the Union Territory of Daman explicitly prohibits any sort of gambling, betting, or wagering on games of chance. The states of Assam, Andhra Pradesh, Nagaland, Odisha, Sikkim, Tamil Nadu, and Telangana have placed restrictions on games of skill as well. Hence, users/people from these states are not allowed to participate in Fantasy Sports such as Dream 11 where there is real money transaction involved.

In India, in the absence of a governmental regulatory body, it is the Federation of Indian Fantasy Sport (FIFS), a self-regulatory body, which focuses on the standard of operation and protection of the interest of the consumers dealing in fantasy sports. The renaming of the Indian Federation of Sports (IFS) to FIFS brings out the eagerness of the board to focus on e-sports along with fantasy as opposed to focusing on all skill-based games. The trend for Fantasy Sport has been in existence in the country since the past decade with several gaming applications such as FanFight, My Team 11, and Mobile Primer League (MPL). However, the obsession of this ‘fantasy’ grew more with the emergence of Dream 11 and its connection with the highly commercialized “Indian Premier League”.

GAME OF SKILL vs. GAME OF CHANCE

It is imperative to understand the distinction between a game of skill and a game of chance as fantasy sports’ status is hugely affected by these definitions.

A game of skill is when a player needs to invest their time in learning, practicing, and mastering their skill in order to win. Success in such games is dependent on how aware one is of the rules and popular practices and how efficiently one plays. Over time the player can become an expert and ensure success. Physical real-world sports are primarily games of skill and not of chance. A Game of chance is where chance predominate skill and there is a major factor of luck or chance that affects the outcome of the game. Because the deciding factors are incidental, there is no way of predicting who or what will win. In the real world, however, the divisive line is blurred and most games have an element of both skill and chance. For example, most card games are games of chance with also some element of winning by a player’s skill.

The Courts in the country have used a simple way to majorly distinguish between the two: a game of skill can be mastered over time whereas a game of chance cannot, as it depends on the happening or non-happening of a particular event. Games of Skill are allowed in most parts of the country while games of chance are completely prohibited throughout the country and are treated as immoral and illegal. Notably, in India, the only central act that criminalizes most aspects of gambling (Game of Chance) is the age-old Public Gambling Act of 1867. While it puts restrictions on gambling in the country, at the same time, the Act explicitly allows within its purview, games of “mere skill”. The Supreme Court, in State of Bombay v. R.M.D. Chamarbaugwala has interpreted the words “mere skill” to include games that are preponderantly of skill, despite having small elements of chance as well. What constitutes a game of skill was first dealt in State of Andhra Pradesh v. K. Satyanarayan wherein a game of “Rummy” was held to be a game of skill, requiring memorization and judgment skills – “it is mainly and preponderantly a game of skill” and hence, could not be criminalized under the Pubic Gambling Act. The question was again brought up in Dr. K.R. Lakshmanan v. State of Tamil Nadu, where horse racing was held to be preponderantly a game of skill. Thus, the ‘preponderant factor test’ or ‘dominant factor test’ came to be. This test identifies and recognizes that most games contain both chance and skill, however, the dominance of one factor over the other is to be treated as the deciding factor to determine whether it falls under the game of skill or chance.

Fantasy Sports – Game of Skill or Chance?

The general stance taken by various courts and other stakeholders in the fantasy sports industry, with respect to the legality of fantasy sports is that it is a Game of Skill and hence is legal. In the short while that fantasy sports have been popularized in the country, there has been a flurry of decisions of various high courts considering fantasy sports as games of mere skill. The question on the legality of fantasy games first fell on and was settled in by the High Court of Punjab and Haryana which ruled Dream 11’s games be predominantly based on skill. The Court elucidated on a number of reasons for the same. Firstly, the drafting of a virtual team involves the exercise of considerable skill as the user must first assess the relative worth of each athlete against the available selections. Secondly, the imaginary team cannot be a real-world replicate, as it is impossible to have more than 7 players from a single team. Apart from these, the user must also pick a ‘captain’ and ‘vice-captain’, constantly monitor the scores, runs, catches, wickets, and form of every player as well as the pitch and match conditions. A subsequent appeal against the order to the Supreme Court was dismissed. In another similar judgment of the Bombay High Court, the Hon’ble Court quashed a PIL and stated that fantasy online sports do not amount to gambling or betting since there is skill exercised by the users in judgment and attention of players and teams and moreover, the result is not dependent on the winning or losing of a particular team in the real game. Similarly, in another case, the Rajasthan HC also considered Dream11 to be a game of skill, relying on the Bombay and Punjab & Haryana High Courts’ judgments and also held that online fantasy gaming platforms publish games of skill, is no longer res Integra.

A stay order by the Supreme Court against the order of Bombay High Court ruling fantasy games as a game of skill, in 2020, had put the contention out in the open again. While the same is still pending, the Hon’ble Supreme Court very recently in August 2021, upheld the legality of fantasy sports format in an appeal made against the aforementioned Rajasthan High Court order. These observations by the High Court and the Apex Court are instrumental in legitimizing the business of fantasy sports and reducing the ambiguity around the industry. Moreover, it also emphasizes the dire need for a centralized regulatory framework and the need for the Central Government to collaborate with the State Governments to remove extant ambiguity and allow for the growth of the fantasy sports industry.

CURRENT CHALLENGES TO FANTASY SPORTS

Impossibility of Regulation

The laws that deal with this issue of betting and gambling and Fantasy Sports thereof has been derived from the archaic legislation of Public Gambling Act which came into force, way back in 1857, and hence evidently, did not possibly envision betting and gambling to possibly be on a national or international level – it was perceived to be in houses and clubs and casinos. Neither the states envisioned so, and nor did the Constitution. However, with the advent of the internet and rapid technological advancement, the Seventh Schedule of the Constitution itself has come of age. The Schedule does not envision what happens when a residuary subject, which comes under the Union’s legislative authority ( that of information technology), conjoins with a state subject ( that of gambling). Similar issues have arisen with the draft Data Protection Bill as well.

In such a situation, the subject of online fantasy gaming, gambling, and betting, should be left with the Centre due to the lack of states’ control over it. Today, if one wants to enter contests on Dream11 while living in Odisha (or any other state where it is prohibited), they can do so easily by just entering an incorrect address while signing up for the platform. One can even sign up for gambling websites easily, and there is no provision for any penalties for any such user in any of the state act on the subject. Laws need to be significantly overhauled in order to have any prevention of online betting and gambling, which pose increased risks due to their ease of access.

Heavy Compliance Burden For Platforms

On the other hand, the current wide disparity in state laws poses huge compliance burdens for these online fantasy sports platforms which operate at a massive scale – some even internationally. This is best seen in the case of Sikkim and Nagaland, where licenses are offered for the operation of online platforms, yet the biggest players have not jumped on board. There have also been issues as to whether various state legislations are adept at regulating online gaming and several courts throughout the country have urged state governments to look into the issue of online gaming and possibilities of regulating the same. Additionally, apart from legal compliance, differential laws further result in users having varied rights and remedies against the platforms, resulting in ambiguity and confusion for the users when it comes to dispute resolution. While the debate of whether online fantasy sports platforms host games of skill or chance has been settled to be of the former, there still exists no clear guideline as to what may constitute a game of skill. Ludo, for example, is being played online prize monies – which lies squarely in the grey area still. Without a clear guideline or test, innovation is stifled to a great extent as what may be legal and the core of one’s business today would be held to be criminal tomorrow.

PRESENT SCENARIO

Recommendations of Niti Aayog

The NITI Aayog, a public policy think tank of the Government of India, has recognized the various positive judgments on legality of fantasy sports, as well as the legislative void on the issue, noting that the platforms are “having to shelter under an undefined exception to the state gambling and public order laws”. A draft for discussion has consequently been prepared for guiding principles to the Online Fantasy Sports Platforms (OFSPs).

The draft points out the following impediments to the industry as a result of the legislative void –

  1. There is no objectively definable test to assess and determine whether a game will be characterized as a game of skill or chance. This puts the onus of assessment on the developer of the game itself. Without clarity, innovation and development may be stifled.
  2. The variance of regulation among states poses a heavy compliance burden on the platforms.
  3. Differential regulation among states also results in a burden for consumers with respect to penal compliance. For example, a user living normally in Delhi may face prosecution if using the app within Nagaland.

As a result, the NITI Aayog has currently proposed a self-regulatory organization for the industry, supervised by an independent oversight board. This proposed organization would further constitute an independent evaluation committee that would be responsible for determining the ‘skill’ level in the game. This may be coupled with a national light-touch regulatory framework. The draft has also put forth draft guiding principles, which include compliance with advertising guidelines, age limits, and communications to states for requests of immunity.

Regulations by ASCI

The Advertisement Standards Council of India (“ASCI”) had released certain guidelines in December 2020, on advertisements of fantasy sports and online gaming. Under the ASCI Guidelines, all such advertisements should contain certain mandatory disclosures and statements (whether such advertisements are in print or audio/ video format) such as; (i) the game involves financial risk and may be addictive and that the players should play at their own risk; (ii) the advertisement should not present online gaming for real money winnings as an income opportunity or an alternative employment option; (iii) the advertisement should not suggest that a person engaged in gaming activity is more successful as compared to others; and (iv) the advertisements should not depict any person below the age of 18 years or who appears to be below 18 years of age, engaged in the game of online gaming for real money winnings or suggest that such persons can play these games.

Moreover, online fantasy sports platforms are also required to follow the draft guidelines for Advertising on Digital Media (“Influencer Guidelines”) issued by the ASCI in February 2021. Considering the impact of influencers on consumers, the Influencer Guidelines suggest certain standards be followed by influencers. These standards include specific disclosures of the nature of posts by making prominent labeling of each digital media post, and also provides for the specifications of labeling or disclosures to be followed in picture posts, video posts, and audio posts. These guidelines have been prescribed so that accurate or correct information regarding the financial and other risks associated with online games are portrayed to the consumers.

Such active roles by government and regulatory bodies are no doubt a positive step in promoting and expansion of the fantasy sports industry in the country.

Madras High Court’s strikes down ban on Online Gaming

In a very recent order (Junglee Games & Ors. Vs. State of Tamil Nadu) of August 2021, the Hon’ble Madras High Court completely struck down a Tamil Nadu Government law that put a blanket ban on all forms of online gaming, including games of skill. The Court was of the view that imposing a blanket ban fell afoul of Article 19(1) (g) of the Constitution of India and hence, completely quashed the amendment that brought about the ban on all forms of the online game. The Court also specifically pointed out that Games of skill are no more res Integra and that the ban was ultra vires the constitution as it imposed a restriction on right to practice any profession, trade, or business. The Court also mentioned and focused on the requirement that it is necessary to regulate online gaming rather than prohibiting it altogether.

New Norms for Fantasy Sports in Telangana

The Telangana Government has recently made its intention in coming up with new rules for online fantasy sports, which will encourage self-regulation and fantasy sports development in the state. It is important to note that Telangana is one of the states which has a prohibition on games of skill as well. However, the state government has shown its willingness in bringing about a progressive piece of legislation and being a role model for other states. This clearly shows that with each passing day the states are ready to accept the impact of fantasy sports in the economy and regulate the same since it also has a huge potential to generate revenue for the states.

India closing in on becoming Fantasy Sports Hub

The Federation of Indian Fantasy Sports (FIFS) in the absence of a governmental regulatory body, is the first and only self-regulatory body and focuses on the standard of operation and protection of the interest of the consumers dealing in fantasy sports. FIFS regularly conducts panel discussions through its flagship event “GamePlan” wherein work in the fantasy sports domain is recognized. The recent event that happened in August 2021 emphasized the need to build a system of continuous and constructive engagement with all the state governments, which is an ongoing dynamic exercise to make India the hub of Fantasy Sports. Such a proactive approach in educating and recognizing the fantasy sports industry in India will provide substantial confidence amongst the developers and investors and at the same time provide an adequate framework for dissemination of adequate information and risks to the users/players. As there is a huge potential for a positive impact on the economy, it is expected that the Government shall also undertake active steps to promote the growth of this industry in India and make India the hub of Fantasy Sports.

Way Ahead for Fantasy Sports in India

As it stands, the subject is under intense litigation, legislation, and discussion from a host of different areas with courts from all parts of the country frequently involved in various issues around the fantasy sports industry. Evidently, there has been a considerable shift in the judicial approach vis-à-vis regulating the online gaming space, where courts have been nudging state governments to regulate the virtual gaming landscape. Various High Courts have urged the state governments to possibly regulate online gaming. Further, certain states have also brought legislation seeking to ban/regulate online gaming.

The Indian gaming industry severely requires a robust regulatory revamp as it has been governed by various archaic legislations. A comprehensive regulatory make-over will serve a dual purpose; it will curb illegal activities and regulate the online gaming industry. Additionally, this move could come to benefit various stakeholders including the potential users, owners of such platforms, and the respective governments. Firstly, the regulation of online gaming will protect the children from getting corrupted, as stressed upon by various high courts. Secondly, the owners of such platforms will benefit from such a decision as it will augment investment and revenue in the online gaming industry. Further, the potential professional players would also profit from increased investment and revenue. Lastly, the state governments would also be able to curb illegal activities on such platforms.

On the flip side, a regulated online gaming industry would lead to greater taxes being levied by the state governments, which could prove to be worrisome for such platforms. However, such a formal structure would allow such platforms to consult and assist the state governments in making laws that govern the gaming industry. Thus, while the intention behind the move is correct, the state government’s actions should be based on consultation, discussions, and dialogue with the stakeholders.

29 states – prohibited in 4, restricted in 2, confusing in all. It wouldn’t be a surprise to know that a Bill is tabled in the next Parliament session – it is the need of the hour anyway.

Conclusion

The issue with legalizing online fantasy gaming platforms ultimately falls on the concept of what one may consider a chance and to what degree it can be allowed within the purview of the Public Gambling Act. The SC had already given the green light, barring the appeal from the Bombay High Court, where the issue is more to do with taxability aspects rather than legality per se. It is the need of the hour to deem the age-old Public Gambling Act nugatory – which is what even the 276th Law Commission had recommended doing. The Law Commission report mentions a clear need for legislative interference in the issue rather than prohibiting the same altogether. Without clear guidelines as to what constitutes a game of skill or a game of chance, innovation in the field is seriously stifled. Unicorns Dream11, though growing strong, are still left to the mercy of judicial interpretation, without strong precedents. Moreover, platforms Paytm and MPL (Mobile Premier League) have recently involved prize monies and contests in fantasy sports, as well as iconic board games Ludo – which are yet to test the boundaries of chance and skill.

The author believes that since self-regulation has proved to be very effective in the past for various industries, and the same could be applied to Fantasy Sports until governmental legislation comes into play. It ensures the constant growth of the industry and creates a fair and safe environment for both the producers and the customers. The online fantasy sports industry is growing and evolving by the second. Self-regulation can also help overcome market failure and prevent harms such as those to the consumer, the environment, the organizations, and any other stakeholders in the industry. Therefore, self-regulation could be the way ahead for the online fantasy sports industry. In this context, a body such as the FIFS taking up the task of industry self-regulation has the potential to benefit the fantasy sports industry and its various stakeholders in numerous ways, as further described above. The author also strongly agrees with the stance of the NITI Aayog that an independent body needs to be set up to monitor every such game and prepare strong guidelines as to the classification of skill-based and chance-based games. The sooner, the better!

Author: Sudhanshu Sahoo – Legal Associate at Khurana & Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at sudhanshu@khuranaandkhurana.com.

About the Firm

Khurana And Khurana, Advocates and IP Attorneys
Address E-13, UPSIDC, Site-IV, Behind-Grand Venice, Kasna Road, Greater Noida - 201310, UP, National Capital Region, India.
Tel 91-120-4296878, 91-120-4909201, 91-120-4516201
Fax 91-120-4516201
Email info@khuranaandkhurana.com
Link www.khuranaandkhurana.com

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