The Indian government has recently imposed a 28% GST on the entry fee for all casino, horse racing, and online gaming. This is a major blow to the gaming industry, which is expected to lose billions of rupees in revenue as a result.

The impact of the GST will be felt most by small- to medium-sized gaming operators. These operators typically have lower margins, and they will struggle to absorb the additional costs associated with the GST. The GST will also have a negative impact on the gaming industry's growth potential. The high tax rate will make it more difficult for new gaming operators to enter the market, and it will discourage existing operators from investing in new products and services.

This change in taxation has sparked discussions about how games with small pools, such as Rummy, Poker, and Ludo, would be affected compared to fantasy sports, which boasts a larger player base. Let's delve into the implications and examine why fantasy sports may offer a more appealing risk/reward ratio for players amidst the new taxation regime.

The Impact on Games with Small Pools

The 28% GST on gaming in India will have a particularly negative impact on games with small pools. These games typically have a limited number of players, which means that the GST will represent a significant number vs potential winnings. Games like Rummy, Ludo, and Poker are played with relatively small player pools (4-8 players).

As an example, consider a 4-player Rummy contest where each player pays an entry fee of Rs. 1,000.

With the new 28% GST tax on the entry fee

• GST amount (28% of Rs. 1,000): Rs. 280
• Total entry cost for players: Rs. 1,000 + Rs. 280 = Rs. 1,280

Assumptions

• Entry fee per player: Rs. 1,000
• Total pool amount: 4 players * Rs. 1,000 = Rs. 4,000
• Operator commission (15%): Rs. 600
• Remaining prize pool: Rs. 4,000 - Rs. 600 = Rs. 3,400
• Winner's share (60% of prize pool): Rs. 2,040 on an entry fee of 1,280
• Second position share (40% of prize pool): Rs. 1,360 on an entry fee of 1,280

TDS

• Now if we reduce TDS at 31.2% the amount of Rs 325 further gets reduced from winning. The winner would get 1,715 on an investment of 1,280 even after winning it against 3 other players

The increase in entry cost has adversely affected the risk/reward ratio for players in games with small pools. Players now face a higher financial risk with a limited potential reward, making these games less appealing to those seeking significant returns on their investment.

The Advantage of Fantasy Sports with Large Player Pools

In contrast, fantasy sports with its large player pools offers a more attractive risk/reward proposition, even with the 28% GST tax on the entry fee. Let's examine a fantasy sports contest example with a Rs. 50 entry fee and a pool of 100,000 users.

With the new 28% GST tax on the entry fee:

• GST amount (28% of Rs. 50): Rs. 14
• Total entry cost for players: Rs. 50 + Rs. 14 = Rs. 64

Assumptions

• Entry fee per player: Rs. 50
• Total pool amount: 100,000 players * Rs. 50 = Rs. 50,00,000 (Rs. 50 lakhs)
• Operator commission (10%): Rs. 500,000 (Rs. 5 lakhs)
• Remaining prize pool: Rs. 5,000,000 - Rs. 500,000 = Rs. 45,00,000 (Rs. 45 lakhs)

Distribution of prize pool

• Winner's share (10% of prize pool): Rs. 450,000 (Rs. 4.5 lakhs) on an entry fee of Rs 64
• Second position share (8% of prize pool): Rs. 360,000 (Rs. 3.6 lakhs) on an entry fee of Rs 64
• Third to Tenth position share (4% each of prize pool): Rs. 180,000 (Rs. 1.8 lakhs) each on an entry fee of Rs 64

TDS

• Now if we reduce TDS at 31.2% the amount of Rs 1.40 Lakhs further gets reduced from winning. The winner would get around 3.10 Lakhs

Even after accounting for the 28% GST and TDS, the winner's share in fantasy sports remains substantial. With a relatively low entry fee and a vast number of participants, players stand a chance to earn significant returns on their investment, making fantasy sports a more appealing gaming option.

Conclusion

The introduction of a 28% GST tax on gaming entry fees in India has had varying impacts on games with small pools compared to fantasy sports with larger player bases. Games like Rummy, Poker, and Ludo with limited player pools now offer a less favorable risk/reward ratio for players, making them less appealing. On the other hand, fantasy sports continue to offer a significant winning potential despite the tax burden and operator commission, thanks to its vast player pool and low entry fee.

Players seeking a chance at substantial returns and multiplied investment are likely to find fantasy sports more attractive, even with increased competition. The choice between games with small and large player pools in the new taxation landscape would ultimately depend on players' risk appetite and the allure of potentially life-changing winnings.