The Grey Market of the Fantasy Sports Industry in India

Games, whether in form of popular social or casual games, are enjoyed by people of all age groups across the globe for their entertainment value. Games like gambling, in fact, irrespective of many of its vices have been a part of the Indian culture since time immemorial. Even before the six-sided dice were invented, Indians used the nuts of the Bibhitaki tree as dice. References to gambling can be traced to the Mahabharata, one of India’s oldest mythological epics, in which opponents were tested based on their skills at board and dice games rather than fighting wars and battles.

The gaming industry has witnessed a paradigm shift with the evolution of television, digital and online gaming models. Following the increased internet penetration in the mid-1990s, from being targeted at academics to being used by the general population, internet-based online games gained popularity. The Digital India Drive under the aegis of the Modi Government has led to improving the infrastructure as a whole. Better internet speed even in remote areas has led to more consumption of content where the mass population resides with the dogma of rural boundaries.

Post-demonetization, digital online payment systems received a boom with a larger part of the population being incentivized and compelled to use the same. All these factors add to the huge potential of the market in India and have led to a surge in the number of online gaming sites over the last few years. The popularity of online gaming is best evidenced by the rapid growth in online card games, like Poker and Rummy and new-age games like Fantasy sports. 

Gaming as a whole is gaining increasing significance as a major source of income and a profitable business venture worldwide. In a study, by KPMG (KLYNVELD PEAT MARWICK GOERDELER) India dated September 2019, it is suggested that the Indian online gaming industry is set to become an INR 250.3 billion industry by 2024. Given the high growth potential of the Gaming Industry in India, many foreign entities see exploring possibilities to set up operations here.

Similar trends are reflected in many industries related research reports which say that several global gaming firms have opened offices in India or have signed distribution agreements with leading Indian mobile game developers to distribute their products in India. While operating gaming businesses is easier in some countries of the world where gaming is legal, the situation is not so easy in India where the laws are stringent. With the advent of social and casual games both offline and online, the ‘gaming’ industry can now be said to comprise two verticals- traditional and online forms, and skill-based social and casual gaming which includes fantasy sports.

Fantasy Sports is a type of game, often played using the Internet, where participants assemble imaginary or virtual teams composed of proxies of real players of a professional sport. These teams compete based on the statistical performance of those players in the actual games. This performance is converted into points that are compiled and totalled according to the roaster selected by each fantasy team’s manager. These points system can be simple enough to be manually calculated by a “league commissioner” who coordinates and manages the overall league, or points can be compiled and calculated using computers tracking actual results of the professional sport.

The global fantasy sports market is expected to grow from US$20.36 billion in 2020 to US$22.31 billion in 2021 at a compound annual growth rate (CAGR) of 9.5 per cent, according to Research and Markets. The market has expanded tremendously- in 2020 alone, 100 million users in India joined various fantasy gaming platforms, and they currently engage 14% of all smartphone users in the country. Their revenue jumped threefold in a year to $340.5 million in 2020.  One of the biggest roadblocks to a sunrise industry is uncertainty around its legal status. KPMG’s July 2020 report titled ‘The Business of Fantasy Sports’ pegs the online fantasy sports user base from India at 90 million.

The Grey Market of the Fantasy Sports Industry in India
Image – Data Sports Group

At the same time, legal and regulatory uncertainties hang like the proverbial sword of Damocles on the future of the industry, which earned Rs. 2,470 crores in revenues in the last financial year alone. The NITI Ayog’s recently released draft document titled Guiding Principles for the Uniform National-Level Regulation of Online Fantasy Sports Platform in India noted that the industry could attract Rs. 10,000 crores in FDI over the next few years, and correctly acknowledged the “emergent need” to recognize and support the sector.

The argumentative Indian cannot resist debating whether ‘fantasy sports’ are predominantly games of skills or games of chance, because if they were to be characterized as the latter, they may be potentially unlawful or banned (under, for instance, the Public Gambling Act, 1867 and analogous state legislation). However, this debate is often uninformed, and not helped by the fact that there is no legal definition of ‘fantasy sports’ in our statute books. In the absence of a specific statute regulating online gaming licenses in India, any discussion or debate on the subject leads to the traditional penal law and other laws. As the NITI Ayog observes, fantasy sports have had to seek shelter under “an undefined exception” to the state gambling and public order laws.

In contrast, in the US, for instance, online fantasy sports are specifically carved out as lawful under the Unlawful Internet Gambling Enforcement Act, of 2006. Potential legislation and regulation of the industry will have to address the question of whether fantasy sports are a state or a union subject. Various judicial decisions have delved into the contours of Entry 33 of the Sports List, which includes ‘sports’. The jurisprudence about the Indian Olympic Association’s challenge to the jurisdiction of the Centre in regulating its affairs and those of other National Sports Federations, and various challenges to the validity of the National Sports Code, is quite illuminating.

Courts have observed that if ‘sports’ was seen as a state subject, then regulation of inter-state sports and those with other countries would fall within a legal vacuum. This is because the state would lack the competence to legislate beyond its borders, and there would likely be conflicting regulatory regimes within each state concerning interstate sports. Consequently, the courts held that international sports and regulation of National Sporting Federations and the Indian Olympic Association would fall within Entry 97 of the Union List, which pertains to all residual matters.

This analysis becomes even more critical in the context of an activity that is not even, strictly speaking, a sport itself. Fantasy Sports provide an online environment to allow participants in multiple jurisdictions, unknown to each other, to simulate certain aspects of a real-world sporting event. The need for uniformity of laws governing participation is thus critical for such participants, who are often fans situated in disparate locations, looking for stimulating ways to engage with sports they love. The subject matter of fantasy sports should therefore fall within Entry 41 of the Union List, which pertains to import and export across customs frontiers, as also Entry 42, which relates to inter-state trade and commerce.

The early success of the Federation of Indian Fantasy Sports set up by the Indian fantasy sports industry, in provide accessible and cost-effective dispute resolution towards addressing consumer grievances, is a good example of why self-regulation with appropriate checks and balances is the way forward for the industry. At the same time, the robust penal laws will ensure that unscrupulous operations that offer games of “questionable legality” in the guise of fantasy sports are also addressed.

In 2017, fantasy sports operators established the self-regulatory body of the Federation of Sports to protect consumer interest and create standardized best practices for the industry. The body has a created charter that outlines a framework within which the industry must function. The July 2020 report The Business of Fantasy Sports, from KPMG and the FIFS, estimated the number of fantasy sports platforms in India in 2019 to be 140, with the top four or five players accounting for 95 per cent of the market share. Increasing competition, high customer acquisition costs and the disruption caused by Covid-19 are likely to lead to some market consolidation in the short to medium term, the report said. Fantasy Sports has become a large and important sub-sector of the Indian sports industry. Many stakeholders now rely on a continued favourable legal regime for it and will be watching the related legal action in custody.

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