As per the reports published by Indian Private Equity & Venture Capital Association and PGA Labs, ed-tech startups in India have received a total investment of $2.22 billion in 2020 as compared to $553 million in the previous year, with Byju’s and Unacadmey cornering a lion’s share of total investments. Similarly, Indian online gaming sector saw a 78% surge in investments from $97.1 million in year 2019 to $173 million in year 2020. The online gaming industry is estimated to grow at the rate of 41% each year and is expected to be a $2.8 billion industry by the year 2022. The euphoria in gaming sector is evident from India’s first IPO by a pure play gaming company – Nazara Technolgies Limited, that got oversubscribed by 175 times.
While this is great news for the online gaming sector, the law around real money gaming and online fantasy sports is neither clear nor uniform in its application across India. In India (with the exception of the states of Sikkim and Nagaland), there is no dedicated legislation which governs online gaming. Companies offering online fantasy sports have to deal with a 150-year-old gambling legislation – the Public Gambling Act, 1867 or its varied avatars adopted by various states. Such laws neither envisaged nor accounted for the modern-day online fantasy league gaming of cricket, football, basketball, kabaddi etc. and obviously ruefully lack the context.
A seamless operation of online fantasy sports platform requires uniform law across India. Gambling or betting is a state subject that allows each state to frame their own laws. With each state enacting their own legislation, seamless operation of online fantasy sports platforms across India becomes difficult. In this regard, Niti Aayog, has issued a discussion paper that seeks to recognise the online fantasy sports as an industry and seeks to provide uniform law across India.
So far, online fantasy sports have been successful in securing favourable and consistent position from judiciary. Various high courts have upheld that online fantasy sports are game of skill, where the success of a player depends on degree of skill, superior knowledge, training, attention, experience and adroitness of the player. As the element of skill has a much greater role and predominantly influences the outcome than mere chance, it cannot be regarded as gambling or betting so as to be regulated by gambling laws. While judiciary had largely been consistent, the Supreme Court has recently admitted an appeal and allowed the arguments to be heard afresh, thereby lending a bit of uncertainty to the sector.
Despite a largely clear position in law adopted by various high courts, various states have proceeded to ban the online fantasy sports and other real money games. Dream11 has notified on their website that it does not offer services in Telangana, Assam, Tamil Nadu, Odisha, Andhra Pradesh, Sikkim and Nagaland. Such states have expanded the definition of gambling and betting. Pursuant to these amendments, putting money on risk on any game including a game of skill is regarded as gambling. It is, however, yet to be seen whether such amendments will pass the test of judicial interpretation as several of such amendments have been challenged before the respective high courts on grounds that such laws breach the fundamental right of livelihood granted by the Indian Constitution.
In this regard, Niti Aayog is very pragmatic in their approach. In their discussion paper Niti Aayog seeks to recognise online fantasy sports as an industry that has a symbiotic relationship with sports, enabling fan engagement and increasing interest in a wide variety of sports events. It recommends setting up of an inter-state self-regulatory body with its own set of rules and regulations, provide safe harbour provisions with defined parameters and mechanisms to determine fantasy sports game formats that are ‘games of skill’. While it may not be easy for online fantasy sports companies to follow such elaborate rules, it will at least save the sector from existential crisis.
Niti Aayog is also pushing for a common regulatory playing field applicable across the country for the online fantasy sports. However, it is the prerogative of each state to participate in this process. Till the time that various states heed the need for uniform legislation and Supreme Court give its final verdict and accord legality to this upcoming industry, the investors and entrepreneurs will need a leap of faith before committing headlong in the sector.
(The writer is Partner, J Sagar Associates)
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