Indian laws on fantasy sports business you need to know

The Fantasy Sports sphere is rapidly flourishing in India. Recording over 16,500 crores in revenue in 2020 alone, no other business has witnessed a persistently ascending profit scale like the one experienced by the OFSP sector. Calling it revolutionary would be an understatement.

It is quite unfortunate that such a promising industry has found itself at constant odds with Indian regulatory bodies. Most gaming apps find themselves unwittingly earning the ire of our archaic legal system. For e.g., just recently the Kerala High Court sent notices to many popular celebrities for endorsing these apps. Big names like the sitting BCCI chief Saurav Ganguly and the current Indian Cricket Team Captain Virat Kohli were also not spared. So why such hostility towards a sector deemed by many experts as salvation for an economy running on the ventilator? Most of these regulations have to do with the Indian Government’s concerns with inadvertently exposing its public, especially minors, to gambling via gaming apps.

So, it is quite unfortunate that such a promising industry has found itself at constant odds with Indian regulatory bodies. Most gaming apps find themselves unwittingly earning the ire of our archaic legal system. For e.g., just recently the Kerala High Court sent notices to many popular celebrities for endorsing these apps. Big names like the sitting BCCI chief Saurav Ganguly and the current Indian Cricket Team Captain Virat Kohli were also not spared.

So why such hostility towards a sector deemed by many experts as salvation for an economy running on the ventilator? Most of these regulations have to do with the Indian Government’s concerns with inadvertently exposing its public, especially minors, to gambling via gaming apps.

Well, to understand this phenomenon, we need to get some clarity on the rules and regulations that a Fantasy Sports Company must abide by to operate legally in the country.

The Legal Situation of Fantasy Sports in India

Fantasy gaming is not mentioned as a subject in Schedule VII of the Indian Constitution. However, the Constitution recognises gambling and betting as legislative issues and has included them in List II, Entry 34 of the Seventh Schedule, giving the State the authority to legislate on the subject.

The Public Gambling Act of 1867

Prior to the adoption of the Constitution, gambling laws were introduced into the Public Gambling Act. Until today, many states' gambling laws are regulated by this act. However, after the adoption of the Constitution, betting and gambling came solely under the jurisdiction of state legislatures, and as a result, many states also prohibited betting and gambling.

The legitimacy of a Fantasy Sports app in India ultimately comes down to whether the game can qualify as a ‘game of skill’ or ‘game of chance’. Games that require a significant amount of mathematical ability (more than 50 percent) are considered a “game of skill” and are legal in India by state gambling rules. As games of chance fall under the category of ‘Gambling’, it is restricted by gambling laws subject to different states. Upon inspection by court, Dream 11 was considered to harbor the configuration of ‘game of skill’ and therefore was deemed legitimate.

In the two famous court cases of Varun Gumber v. Union Territory of Chandigarh and Gurdeep Singh Sachar v. Union of India challenged before the Punjab and Haryana High Court, and later before the Bombay High Court, established that Dream11 and the fantasy sports services it provided fall under the definition of a “game of skill.”

With the notable exception of Assam, Sikkim, Nagaland, Andra Pradesh, Odisha, and Telangana, Fantasy Sports is permitted all over India as per Indian Law. Recently, new laws were passed in the southern state of Tamil Nadu, which bans the residents of the state to indulge in any pay-to-play contests on any online gaming sites/applications. Sikkim and Orissa have outlawed all forms of gaming, and as for Nagaland and Sikkim, companies have to obtain licenses from the respective state governments.

There is still a lot of confusion surrounding this glaring distinction between the two categories, one legal while the other being deemed illegal. To bring some clarity to this extremely lucrative business sector, the government think-tank Nit Aayog went ahead and published a paper discussing the rules and principles that need to guide Fantasy Sports in India.

Let us dive deep into the published paper to understand the regulations being proposed to regulate and move the industry forward.

Key Observation of OFSP sector in India

In the published report, Niti Aayog acknowledges the phenomenal growth rate of the OFPS sector in India. After all, the industry has grown at a compounded annual growth rate of 212% between 2016 and 2019.

The paper believes that the industry possesses immense potential in attracting over 10000 crores in foreign investment and open 10000 new job opportunities. However, the paper also highlights caution due to several factors surrounding the sector, such as legal complexities, the multiplicity of industry federation, the huge divide between fantasy sport and online players, as well as lurking ambiguities in the recommendations made to regulate the industry.

All these factors combined can stifle the sector’s potential for growth. As such, Niti Aayog sought to propose guidelines that can promote transparency, accountability, and competent governance for all players involved in the OFSP sector.

The following are the three crucial observations made by Niti Aayog with regards to the current landscape of fantasy sports in India:

1 – In the report, Niti Aayog acknowledges that India has surpassed the United States of America to become the largest market for online fantasy sports. The report also notes how several OFSP’s in America came together in 1995 to form the self-regulatory body ‘FSGA’. The FSGA plays a significant role in representing the interests of OFSP’s and ensuring the support of legal game formats for them. The FSGA has thus played a very important role in the growth of the USA’s OFSP sector by ensuring consumer protection and legal participation.

2 – The report also addresses the lack of clarity surrounding the categorization of gaming platforms as ‘game of skill’ or ‘game of chance’. It proposes the need for objective tests to define what category a gaming app may fall in. It also brings attention to concerns that many OFSP’s have with regards to engaging with state governments and understanding laws specific to that state.

3 – Ultimately, the report acknowledges the need for a standard law and uniform guidelines to eliminate any uncertainty and confusion surrounding the prospect of running an OFSP. Principal policy implementation will help the industry grow, generate new employment opportunities, and invite foreign investment into the country.

Guiding Principles for OFSP

Based on the above observations, the discussion paper proposes the following guiding principles for operating an OFSP smoothly in India.

1 – Promoting Skill-Based Games

The discussion paper strongly recommends only allowing games that depend on the chance of winning due to skill. It advises the OFSP’s to maintain vital statistical data of all their players and submit them to a self-regulatory body.

2 – Prohibit Services to Minors

The paper also strongly advises against offering paid games to users who fall under the age of 18 and are therefore considered minors. The OFSP’s are required to put in place safeguards that prevent minors from engaging with their contests.

3 – Real-World Imitation

OFSP’s are required to emulate the contests and games of the real world as closely as possible. This is advised to prevent any elements of ‘chance’ from being introduced in the contests unless they have been allowed by an independent evaluation committee.

4 – High Transparency

The terms and conditions for all users of the app must be crystal clear. The terms should be uniformly applied across all aspects of the contests with regards to rewards, opportunities, and rules. The users should also have easy access to a robust redressal mechanism to make their grievances known.

5 – No Promotion of Gambling Services

There should be absolutely no mention or advertisement of gambling services on the gaming platform. The OFSP’s are required to abide by industry-wide accepted policies to ensure no illegal activities are being entertained.

6 – Advertising

The advertisements or promotional material created for OFSP’s should comply with the regulations established by the ‘ASCI’ or Advertising Standards Council of India. The advertising should make it extra apparent that the winnings are not ‘assured’ or ‘guaranteed’. The Advertisements should also refrain from making fantasy sports appear as if they can qualify as sources of sustenance or a stable income.

7 – Immunity for OFSP

The paper recommends collaborating with the state governments to ensure immunity to OFSP’s against criminal prosecution, if they comply with the above-laid rules and regulations and do not engage in illegal activities.

Criticism of the Current Guiding Principles

Although the Niti Aayog paper takes a step in the right direction and provides a roadmap that seeks to avoid confusion and pay attention to the grievances of stakeholders, it does have its fair share of critics.

While supporters of the paper advocate for its call of self-regulation for increased consumer trust and higher transparency, there are legitimate downsides to the proposal as well. The success of a self-regulatory body heavily relies on the participation of all its players and the body itself having an unbiased approach to the issues facing the industry.

Such bodies are always susceptible to infighting. The participation of large players with voting rights can undermine the role of other players on the board. The emergence of factions within the board is also a likely outcome.

However, one can expect sanctions and government monitoring to make sure such situations never arise.

The bottom line

The fantasy sports sector is undoubtedly the golden goose India desperately needs to preserve and exploit for its own good. The sector can help generate new jobs, bring foreign investment, and inject a much-needed adrenaline shot straight into the country's stagnant economy. The industry has so far been running on broad, obscure principles laid down by state laws. This and many other factors continue to stifle the growth potential that this sector possesses. With the proposal to have a self-regulatory body, with an independent oversight committee and a comprehensive customer grievance system, there is hope for a welcome change in the OFSP sector.

According to a recent report published by Deloitte, the company is expected to reach $2.8 billion by 2022. The Prime Minister of India himself has heralded the need to tap into the potential of India’s gaming sector, which is currently dominated by several global companies.

With so much support, there can be no questions on the fact that India’s OFPS sector needs a severe reform in the laws that govern them. Hopefully, that change comes sooner than later for the benefit of both the industry and the country.