Resolving Legal Complexities and Paving the Way Forward for the Fantasy Sports Industry in India

INTRODUCTION

Gaming has become a booming industry in the past few years in India. The number of gamers has exponentially increased primarily because India has one of the largest consumer bases of smartphones and the easy availability of the internet across the geographical boundary of India. ¹ Many gamers have focussed on fantasy sports as the preferred form of gaming due to the rush these platforms offer in managing the teams.

Fantasy sports games are games in which users draft their fantasy teams based on selecting a team from the actual pool set of players who are due to play a given day. ² There is a set of points attached to the different elements of a game, and the fantasy sports player who earns the maximum points based on the real-life performance of players of his draft wins the pool of money. ³ Usually, an administrative or service fee is deduced by the platform provider, and the remaining amount is credited to the fantasy sports player. ⁴ India has many fans of different games such as cricket, football, basketball, etc., which are usually the sports the fantasy sports platform offers. With the availability of infrastructure and engineering talent in India, the country can become a global hub of fantasy sports across the world. ⁵

In July 2020, KPMG India, in its report titled “The Business of Fantasy Sports,” noted that the number of fantasy sports users has increased from 2 million to 90 million in a period of 3.5 years from June 2016 to December 2019, which marks a compounded annual growth of 212%. ⁶ Further, the report states that the number of fantasy sports platforms has risen from 10 to 140 in the time frame mentioned. This also marks the growth of revenue of the online fantasy sports industry from INR 920 crore in the financial year 2018-2019 to INR 2470 crore in the financial year 2019-2020. ⁷

However, the industry is still marred with an uncertain future. This is primarily because of India's complex and unsettled legal regime governing gaming. Several states have come out with numerous overlapping judgments on the topic, and the legality of fantasy sports in India is still in the bay. Further, even if several courts have adjudicated on the issue, the reasons enumerated in the judgments might fall short in the upcoming times. There needs to be a definite law and structure to govern gaming in India. A regulatory framework must be developed to govern gaming in India and establish a permanent regulator.

Further, the perils of gaming are repeated time and again, and the authorities remain reluctant to give finality to the matter. Gaming addiction is seen as a significant problem by legislators, and gaming and gambling are often seen as synonymous with each other. ⁸ Recently, the Home Minister of the State of Madhya Pradesh, Mr. Narottam Mishra, said that the state will be bringing in an Act to regulate online gaming after an 11-year-old boy allegedly committed suicide after losing INR 6000 to online gaming. Further, he also expressed that online gaming is a serious issue. ⁹ Recently, the Madras High Court, in the case of D. Siluvai Venance v. State, ¹⁰ has observed the lack of a regulatory framework governing gaming in India and has stressed formulating legislation to govern the same. At this juncture, it is essential to look at the legality of fantasy sports in India by reviewing several case laws and existing legal frameworks.

LEGAL REGIME OF FANTASY SPORTS IN INDIA

Gaming in earlier times was reduced to gambling, and a glimpse of it could be seen in the legislative framework governing Gaming in India. Under Entry 34 of the List II of the Seventh Schedule, states of India can make laws to govern and regulate “betting and gambling” within their specific jurisdiction. ¹¹ Hence, every state has its own act to govern gaming in India (as far as it includes betting or gambling). However, it is a gross simplification of the nature and scope of gaming and has its huge problem given that fantasy sports are usually played over online medium, and its effects transcend the physical boundaries of the state. For example, a company “X” (which is a fantasy league platform), can have its registered headquarters in State “A”. Further, Mr. Y (who is a user of the fantasy league platform) can be a resident of State “B”. If, Mr. Y wins the game, it would cause loss to the residents of all the states. This is problematic as the legislation of State “A” would not apply to the residents of other states.

Notably, the Public Gambling Act of 1867 (PGA) governed gambling in erstwhile India. In 1935, after the Government of India Act, states in India were given the exclusive power to enact laws on “betting and gambling,” and the PGA ceased to be central legislation. The PGA aims to criminalize gambling at public forums and “common gaming houses.” Section 12 of the PGA carves out an exception and provides that the provisions of the PGA would not apply to games of skill. ¹² However, many states adopted the PGA in their respective jurisdiction, and some chose to enact their own gaming acts.

In Sikkim, the Sikkim Online Gaming (Regulation) Act, 2008 was enacted. The first online gaming act was formulated by Sikkim to permit and regulate online gaming within its jurisdictional boundaries. ¹³ Further, in Nagaland, the Nagaland Prohibition of Gambling and Promotion of Online Gaming of Skill Act, 2015 (Nagaland Act) allowed the players to indulge in online skill gaming.

Section 2(3) of the Nagaland Act defines the term “games of skill” inclusive of “all such games where there is preponderance of skill over chance, including where the skill relates to strategizing the manner of placing wagers or placing bets or where the skill lies in team selection or selection of virtual stocks based on analysis or where the skill relates to the manner in which the moves are made, whether through deployment of physical or mental skill and acumen.” ¹⁴ Further, it is essential to note that fantasy sports have been categorized as a game of skill under Schedule A of the Nagaland Act which has also introduced a licensing regime for the governance of gaming.

In the state of Telangana, the Telangana Gaming Act, 1974, governing offline gaming was amended. The Telangana Gaming (Amendment) Act, 2017 prohibits games of skill and chance played for rummy. ¹⁵ This amendment is in direct violation of the judicial pronouncements that allow for betting on skill games. Further, the state of Odisha, through the enactment of the Orissa Prevention of Gambling Act, 1955, has prohibited both games of skill and chance played for money. The same has been challenged by Winzo, a popular gaming application, before the Orissa High Court, insofar the enactment prohibits games of skill played for money. ¹⁶ The judgment of the case is still awaited.

Similarly, Meghalaya has introduced a licensing regime through the Meghalaya Regulation of Gaming Act, 2021. The licensing regime is subjected to the Meghalaya Regulation of Gaming Rules, 2021. The correct position of the legality of fantasy sports in the state of Meghalaya is that the games of skill played for money can be offered by operators if they are licensed under these said legislations.

Sikkim has also introduced a similar licensing regime via the Sikkim Online Gaming (Regulation) Act, 2008, and the Sikkim Online Gaming (Regulation) Rules, 2008. However, apart from a select few states like Sikkim, Meghalaya, Odisha, Telangana, and Nagaland, most other states have laws formulated to cater to offline gaming. Applying the same to fantasy sports is problematic for numerous reasons. The need for new legislation governing fantasy sports has been felt by all the gaming industry stakeholders. The conventional understanding of gaming and gambling being synonymous can no longer be said to be true. As a result, the extension of gambling laws formulated in line with the PGA to the gaming industry is not desirable.

In December 2020, the Niti Aayog came out with a draft for discussion on “Guiding Principles for the Uniform National Level Regulation of Online Fantasy Sports Platforms in India.” The draft recommended a single fantasy sports regulator (FSR) who should have at least 66% of India's total fantasy sports users. ¹⁷ The draft further talked about a single legislative framework for the governance of fantasy sports in India. This is possible only when central legislation is formulated to avoid conflict of various state laws. Further, it is essential to note that fantasy sports essentially operate in cyberspace. Hence, central legislation would be better equipped to bring uniformity in the governance of fantasy sports in India.

The Law Commission of India in Report No. 276 titled “Legal Framework: Gambling and Sports Betting including in Cricket in India” has already charted out the constitutional competence of the Centre to govern online gaming. ¹⁸ The Parliament has the power to enact laws on betting and gambling offered and played over media (telephones, wireless, broadcasting, and other like forms of communication) under Entry 31 of List I of the Seventh Schedule to the Constitution of India. Another way to look at it would be to term Fantasy Sports Platforms as an “intermediary” under Section 2(1)(w) of the Information Technology Act, 2000. This would bring the platform under the centre's governance and would help in formulating a central legal framework.

The decisions of the FSR should be final in relation to the legality of the fantasy sports platform and should be subject to one final appeal before the appellate authority (AA). The AA would provide another chance to the fantasy sports platform to put forward its plea. In all cases, the decision of the AA should be final. The establishment of both the FSR and the AA should be done under the statutory provisions of the new central law. It is important to realize that this is the only cogent way to guide the industry forward.

ANALYSIS OF JUDICIAL PRONOUNCEMENTS RELATED TO FANTASY SPORTS

Fantasy sports are not regulated through a particular act governing the same. Much of the governance of fantasy sports comes through judicial pronouncements over many years on topics that may not be directly related to it. Still, it is related to other aspects of fantasy sports. The early judgments focused on betting, which is relevant to the extent fantasy sports have some element of betting attached to them.

In the case of RMD Chamarbaugwala v. Union of India, ¹⁹ the Supreme Court of India held that to decide whether an activity falls within the purview of gambling, it is essential to apply the “skill test.” The court further held that if the competition substantially involves skill, it would be classified as a commercial activity protected under Article 19(1)(g) of the Indian Constitution and would not be termed gambling. RMD Chamarbaugwala can be called the first judgment, which is directly relevant to the discourse of fantasy sports and its legality in India, as the judgement still holds good in law.

Further, the Supreme Court of India, in the case of State of Andhra Pradesh v. K. Satyanarayana, ²⁰ held that on applying the skill test, rummy could be classified as a game of skill and not of chance. The gameplay of memorizing the cards, building cards, and holding and discarding cards was considered an element of skill. Further, it was clarified in the judgment that the expression “mere skill” means the presence of skill of a substantial degree.

The subsequent judgment which helps us understand the debate of “skill v. chance” is Dr. K.R. Lakshmanan v. State of Tamil Nadu (1996) 2 SCC 226. The Supreme Court held that in any game of skill, the element of chance would be necessarily present. Still, the investigation should be done on whether the game is predominantly based on skill or not. In this case, the court held that betting on horse-racing is a game of skill as it depends on the analysis of varied factors such as the physique and capacity of the animal, the track record of the jockey, the amount of weight the horse carries, the length of the race, etc. It is on the basis of all the study of all these factors that bets are placed.

However, it is essential to note that the law laid down by these three judgments was dramatically changed by the decisions to follow. The first in the series was the case of The Director, Inspector General of Police v. Mahalakshmi Cultural Association (Mahalakshmi Case). ²¹ This case relates to a raid of a gambling club by the Madras Police in which the Madras High Court held that rummy, when played for stakes, would amount to gambling. By way of an SLP led by Mahalakshmi Cultural Association along with several intervention applications by online rummy operators, this matter was heard by the Supreme Court. Two separate orders disposed it off. Cumulatively, the orders focused on Madras High Court adjudicating a game that was not rummy and was played in a “brick and mortar” establishment. Further, the order was not on online rummy. In effect, the observations made by the Madras High Court did not survive and cannot be termed as law.

At this juncture, it is essential to note that the judgment by the Madras High Court supplemented the argument that online skill games, when played for stakes, constitute gambling. The same idea was put forth in the case of Gaussian Network Pvt. Ltd. v. Ms. Monica Lakhanpal, ²² that an online version of offline games of skill constitutes gambling. Further, the court opined that the skills required to play an offline game cannot be equated with skills needed to play an online game. Also, manipulation is possible in the online variant of games of skill. The order was challenged by Gaussian before the Delhi High Court, but before adjudicating, the petition was withdrawn by them.

The argument that the skills differ in playing online and offline games does hold merit, but it is not true of each round of skill. Also, all online games are not prone to manipulation. For example, when two players are playing rummy in real-time, it is synonymous with an offline rummy game. Also, the point of manipulation does not arise at all. The only difference is the media on which the game is being played.

The Punjab and Haryana High Court delivered the first judgment, which directly talks about fantasy sports in India in the case of Varun Gumber v. UT of Chandigarh. ²³ The court considered the rules of “Dream 11” (a fantasy sports platform) and held that essentially it would fall under the ambit of a game of skill. The skills lie primarily in 1) selection of 11 players, from the pool of both the teams, who would play better on the given day with a maximum of 7 players from one of the two teams, 2) altering the players of the team 60 minutes before the scheduled start of the game, 3) selection of the captain and vice caption of the fantasy team which awards double or 1.5 times the point system accorded to the components of cricket respectively, 4) selection of players within the point limit set out by the platform. These decisions demonstrate that the player is strategizing while forming a team, and the result of the bets placed depends on the player's skill set.

At this juncture, it is important to note that there are many rules in Dream 11 which might point out the proposition that Dream 11 is a game of chance. The most significant example was the rule that a player would not be able to edit or modify the players on his team one hour before the match deadline in the game of cricket. This is important because the team's announcement happens half an hour before the match deadline. So, there could be a case where a fantasy sports player has chosen a player in his dream team, and he is not in the playing 11 of the actual game of cricket. Further, it is detrimental to the winning chances of the fantasy sports player if he has selected such player as his captain or vice-captain. Even though every team will try to pick the best 11 players in their team, the selection of the players could then be called a matter of skill.

But, in practice, the best 11 may not be in the playing 11 for several reasons such as injury to the player, allowing a less experienced player to get more game time, rotation of the players to avoid fatigue, etc. These factors are largely unknown to the fantasy sports player. Hence, the selection of players for the whole duration of the game becomes a matter of chance and would predominantly cloud over the game's entirety. Hence, a plain and straightforward adjudication of fantasy sports as a game of skill would be an erroneous understanding. The rules of every fantasy sports game would determine whether the game is of skill or chance. The categorization of skill or chance depends on the game and its rules.

Further, in the case of Gurdeep Singh Sachar v. Union of India, ²⁴ the Bombay High Court took the same view established in the case of Varun Gumber. The court also observed that winning in fantasy sports is not dependent on the winning of an actual team in the real world and hence it cannot be termed synonymous with gambling. Similarly, the Rajasthan High Court, in the case of Chandresh Sankhla v. State of Rajasthan, ²⁵ relied heavily on Varun Gumber and Gurdeep Singh Sachar and held on to the same principles that Dream 11 is a game of skill.

The Karnataka High Court has reaffirmed that games of skill can be played for money and struck down significant portions of the Karnataka Police (Amendment) Act, 2021. Further, the Madras High Court in the case of Junglee Games Pvt. Ltd. v. State of Tamil Nadu ²⁶ struck down amendments in legislations brought by the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021 as unconstitutional. The amendment act aimed to ban online games of skill played for money. The court held that states cannot legislate on games of skill. Also, excessive restrictions on games of skill are violative of Article 19(1)(g) of the Indian Constitution. However, it is pertinent to note that soon after the pronouncement of the judgment, the Law Minister of Tamil Nadu, S. Regupathy, announced that the state government will bring a new law to ban online rummy for the welfare of the public at large. ²⁷

These judgments gave a ray of hope to the fantasy sports industry and constituted law relating to the legality of fantasy sports. However, on March 6, 2020, the Supreme Court stayed the effect of the Gurdeep Singh Sachar case and issued notice to all the parties involved in the Sachar case. The order created unrest in the fantasy sports industry again. The non-interference of the Supreme Court in the cases of Varun Gumber and Chandresh Sankhla, by dismissing the appeals in both the cases, was compromised by the stay order. This marks the complex nature of the treatment of fantasy sport in India.

The existing road for a fantasy road platform is marred with uncertainty. First, a platform releases the game for people to download at large. Then, the legality of the same is challenged before a judicial forum. After this, a long prolonged legal battle awaits the platform. Further, if the gameplay is adjudicated as a “game of chance,” criminal sanctions are awarded (since it would be termed as “gambling” under the respective state legislation).

The objectivity with which criminal law is supposed to operate is compromised in the whole procedure. This course is, in fact, violative of the basic tenets of criminal law as the law should clearly list down prohibitions. Further, this route proves to cause a “chilling effect” in the mind of the potential investors of the platform, and hence the funding of the platform is affected. The only recourse available to the new fantasy sports platform is to model the game, and its rules, in accordance with a platform accepted by the judicial forum. However, this hampers innovation and could prove to be fatal to the industry as a whole.

CONCLUSION

The Indian judiciary and the legislators have either accepted or rejected fantasy sports as a game of skill or chance. However, as demonstrated above, the rules of fantasy sports would help us understand the platform's true nature. An investigation of the rules with respect to the elements of skill and chance is not conducted by any judicial pronouncement or legislation. And even if an analysis was completed, as it was in the case of Varun Gumber, the effect of change of rules on the nature of fantasy sports platforms is not done. Due to the dynamic nature of fantasy sports, the changing regulations of the platform require active monitoring. Initial scrutiny of the rules concerning the elements of skill and chance is insufficient given the nature of a forum. Active monitoring is only possible by a dedicated FSR. The FSR should formulate parameters and guidelines which are general to all fantasy sports of skill.

Further, the FSR should develop game-specific fantasy sports rules such as cricket and basketball to ensure skill-based gaming. This FSR should be established at a central level to resolve the conflict between overlapping state laws and judicial pronouncements. Recently, the state government of Rajasthan introduced “The Rajasthan Virtual Online Sports (Regulation) Bill, 2022” to regulate fantasy sports and derivative formats of fantasy sports. But the same suffers from gaps and is highly based on the judicial pronouncements on gaming in India without considering the complexities of online gaming. ²⁸ Such introduction of measures by states would complicate the regime of fantasy sports even more. Therefore, a central regulatory authority should be created as soon as possible. Fantasy Gaming as an industry has a considerable scope. India must resolve the issues and complexities to promote ease of business to fantasy gaming platforms giving way to innovation and clarity in the industry.