Fantasy Sports in India: Legal Challenges and the Way Forward

Introduction: Fantasy sports have become a sort of a recent obsession with millions of people online and in India, just within a few years, with billions of users. However, such sharp  popularity came with a heaping helping of problems related to the legal landscape. Questions of a “game of skill” versus a “game of chance” have formed the core of numerous judicial debates. In this article, the legal framework governing fantasy sports, notable judgments by courts, and the way forward would be analyzed.

Body:

Fantasy sports platforms have grown exponentially in India over the last few years and have turned into the most followed form of online engagement, especially in relation to cricket. It is a concept where players can create teams with virtual identities, and their performances are judged based on how those players perform in real matches. Other sites also include Dream11, My11 Circle, and Mobile Premier League (MPL), which have capitalized on the excitement for sports among the Indian media consumers, especially cricket, to drive user engagement and monetization.

Since a large population watches the game closely, fantasies offer an interactive medium by which people can connect more intensely with the game. For instance, the fantasy cricket company Dream11, launched in 2008, was perhaps one of the first sites that popularized fantasy cricket in India and today has more than 150 million users. Encouraged by the success of Dream11, several other platforms entered the market, allowing people to form teams across various sports like football, kabaddi, basketball, and cricket.

My11Circle, launched in 2019 itself, scaled up very quickly through strategic marketing campaigns with the involvement of popular cricketers like Sourav Ganguly and Shubman Gill to the users. MPL, which allows multi-gaming options combined with fantasy sports, thus took the benefit of India’s rapidly growing gaming ecosystem.

The fantasy sport industry has gained ever more momentum, especially when marquee sporting events are around, as in the case of the IPL and the FIFA World Cup. These are times when the fantasy sport sites usually see an exponential upsurge in their user engagement as people try to capitalize on their expertise about players and the games to bag some moolah.

The Federation of Indian Fantasy Sports (FIFS and Deloitte report indicates that the fantasy sports industry is envisaged to grow to about $3.7 billion by 2024, with a compound annual growth rate (CAGR) of 32%^[1]. Number of fantasy sports players in India increased from 20 million in 2016 to over 130 million in 2021 and therefore indicates accelerated pace of adoption of these platforms.

Driving this growth are robust factors such as internet penetration all across, affordability of smartphones, and the high and rising digital literacy. Besides, maturing digital payment platforms make it easier for users to engage in paid fantasy sports leagues. Fantasy sports tap into the ever-expanding culture for online gaming in India with a user base that is fast getting habituated to spending time and money on these digital platforms. Fantasy sports have mushroomed from a niche activity in India into a mainstream online activity very quickly. The principal legal issue for these companies has been the question of whether these are games of gambling-something that is illegal in Indian law-or whether they fall in the “game of skill” category, which is legally permissible. Such understanding would require that one read on India’s basic laws on gambling, state-specific regulations, and key judicial decisions that classify a game of skill from a game of chance. These begin with the old Public Gambling Act of 1867^[2] enacted by British colonial authorities in India to prohibit public gambling houses and participating in any form of gambling.

The Act, however, applies only to traditional modes of gambling and does not specifically mention online^[3] or digital versions of it such as fantasy sports. Neither does it include games of skill, thereby establishing a relatively bright legal demarcation between games of chance/gambling and skill-based games. As gambling has been specifically included in the State List in the Indian Constitution, the State governments have jurisdictional authority over the activity of betting within their respective borders. Consequently, fantasy sports have different legal status in different states of India. While Maharashtra, for example, completely prohibits most forms of gambling through its Bombay Prevention of Gambling Act, 1887^[4], other states like Goa and Sikkim, although still controlling their operations, permit both online and offline gambling. An uncertain approach by different states to regulations is a hindrance in the fantasy sports market. For example, some states have tried to ban online fantasy sports as they compare it to gambling. But the courts have largely overruled such orders, and thus there exists a grounds for classification of fantasy sports to be games of skill. The most significant legal difference in fantasy sports regulation is the conceptual distinction between “games of skill” and “games of chance.” Under Indian jurisprudence, any game that is substantially a game of skill rather than luck or chance^[5] would not be considered gambling and, therefore, would fall outside the prohibitions under law. Good numbers of judgments have been formed as a basis for this distinction:

1. Dr. K.R. Lakshmanan v. State of Tamil Nadu (1996)^[6]

This was a landmark case wherein the Supreme Court of India held that horse racing was a game of skill rather than a game of chance^[7]. Ruling was made in the sense that there was consideration of much knowledge regarding horses, jockeys, and track conditions among other factors, while wagering on races. The law laid down a precedent judgment that if a game has a substantial degree of skill, then it will be considered out of the scope of the gambling laws. This principle has since been applied to other skill-based games, including fantasy sports, since courts have deemed they entail analytical and decision-making skills in order to win.

1. State of Bombay v. R.M.D. Chamarbaugwala (1957)^[8]

This case led the Supreme Court to examine the legitimacy of the Bombay Lotteries and Prize Competitions Control Act, 1952 and further claimed that any game or competition that is inherently governed by skills cannot be regarded as ‘a game of chance’. The Court ruled that those games by which judgment, intelligence and wider knowledge determine the decision fall within the broad ambit of the skill-games. This judgment provided the much-needed judicial precedent that serves as the very bedrock upon which fantasy sports are analyzed today. Another debate that has this from a legal point of view is whether fantasy sports stand to be classified as games of chance or games of skill^[9]. In 2019, the Punjab and Haryana High Court gave a landmark ruling in its judgment on a case titled Varun Gumber v. Union Territory of Chandigarh^[10], in which it supported Dream11, one of India’s largest fantasy sports providers. In this regard, it decided that fantasy sport operations are a game of skill because, while playing fantasy sports, applicants have to apply knowledge, experience, and judgment in making up their teams. Further, the Court has stated that the result of fantasy sports is not strictly determined by chance but by player statistics, form, and real-life performance. Later, the Supreme Court confirmed this decision in 2021 and thereby reeded the fantasy sports into the ‘Game of Skill’. Even after these judgments, there have been instances where states like Tamil Nadu and Kerala have tried to enact legislation to ban online fantasy sports, yet courts have largely overturned such a ban referring to the skill-based nature of the games. Popular fantasy sports in India require a uniform regulatory framework. In this regard, the NITI Aayog has floated a self-regulatory model governing online fantasy sports sites-to focus on responsible gaming, while these sites are able to stay out of the legal radar of operation. Till then, an additional con would still be applicable to the industry itself. There would be issues left at the discretion of the state on the regulation front, and it would reflect inconsistently in the market. Even with some degree of protection under the “game of skill” category afforded by this current legal structure for fantasy sports in India, conflicting state regulations still leave enough ambiguity to fuel the gray-market activity.

Fantasy sports have grown at a phenomenal rate in India. They run ahead of the current legal and regulatory framework. Even though judicial rulings have declared fantasy sports as games of skill as opposed to chance, non-uniformity in regulation has led to an element of confusion or ambiguity, mainly at the state level. So, it leaves it to the interpretation of the states on their decisions in law. This is why regulatory reform is the call of the day from various quarters. It is against this backdrop that NITI Aayog has come up with a centralized framework for regulating online fantasy sports platforms. In December 2020, NITI Aayog released a report, “Guiding Principles for the Uniform National-Level Regulation of Online Fantasy Sports Platforms in India”. The report had conceded that the industry, if regulated uniformly under national-level regulations, could provide full long-term growth with significant revenue and employment generation. Main recommendations by NITI Aayog’s report include:

• Centralized Self-Regulation: This would be responsible for ensuring all operations are governed by rules related to transparency, fairness, and consumer protection.
• Crystal Clear Differentiation Between Games of Skill and Chance: The NITI Aayog’s report has essentially emphasized that there is an urgent need to categorize fantasy sports squarely under games of skill; therefore, excluding them from all the vagaries under the gambling laws.
• Licensing and Compliance: Fantasy sports platforms should seek licenses to operate and strictly comply with guidelines which assure transparency and protect users’ interests.
• Consumer Protection and Responsible Gaming: Recommendations of this report include protection of consumers, promotion of responsible gaming, controls on excessive financial exposure, and measures which prevent minors from participating.

The report acknowledges the fact that India presently lacks a current legal framework that would sufficiently infuse the clarity required for the fantasy sports industry to grow within all states.

Thus, the central model of regulation would offer a uniform legal condition for players as well as operators and reduce the present ambiguities and risks pertaining to law. One of the major issues haunting fantasy sports platforms is the lack of legal regulations in Indian states. Gaming under the Constitution of India remains completely under state jurisdiction, which means each state has the authority to enact its set of rules and regulations regarding games of skill as well as chance. As a result, interpretations are handed out in bits and pieces like fragments of a broken civilization. While there are states like Maharashtra that recognize fantasy sports as games of skill and some others entirely banning them. For example:

• Tamil Nadu, Andhra Pradesh, and Telangana states tried to ban the fantasy sports games by imposing gambling activities levied by courts even though they declared it as a game of skill.
• Maharashtra and Karnataka have legalized fantasy sports but under regulatory conditions.
• Other states like Goa and Sikkim have very relaxed gambling laws but lack entire regulatory guidelines for fantasy sports platforms.

This inconsistency creates uncertainty for fantasy sports operators. Navigating through a highly complex and fragmented regulatory environment, they must. Platforms such as Dream11, MPL, and My11 Circle have blocked users from states having hostile regulatory environments; in other words, the scope of the market remains curtailed in those regions. Such a concern raised by the fantasy sports industry requires comprehensive reform with a unified legal approach to fantasy sports. These inconsistencies can be overcome through the following:

• Central law defining fantasy sports to come under the category of games of skill will go a long way in shaping up the industry. A standardized legal status of all states would put operators at ease, without fear of state-specific bans or penalties.
• Regulatory Authority Formed: As proposed by the NITI Aayog report, a regulatory authority could be formed that would exclusively oversee the functioning of these fantasy sports platforms. With the regulatory body thus constituted, it can ensure national guidelines are complied with; and, essentially, offer licenses, including one for complete ambulatory business and address consumer complaints.
• Explicit Guidelines on Skill-Based vs. Chance Games: The government should clearly establish guidelines for determining the distinction between games of skill and chance to^[11] put an end to the confusion at the state level that has persisted so far. It would make sure that none of the state governments can classify fantasy sports under gambling laws without a stringent reason.
• Consumer Protection Measures: While regulation is reformed, there must also be a lot of consumer protection. This can be achieved through mandatory risk disclosure and implementation of spending limits to prevent inappropriate levels of behavior that are akin to gambling. Platforms also need to be vigilant in running sustainable and transparent operations.
• Taxation and Revenue Sharing: Consistent taxation policy among all states should evoke more entry from the operator side and simultaneously streamline revenue for the government. The Indian regulatory environment for fantasy sports is struggling to be on level ground, mainly because of lack of uniform national framework.

Although the judgments in courts have been in favor of the fantasy sports platforms, the unregulated, state-by-state approach poses an underlying challenge to the growth of the industry. The report by NITI Aayog is a landmark for resolving those issues as it introduces a centralized, self-regulatory framework for the fantasy sports industry. Until then, the industry will stay in a limbo situation wherein it will be subject to legal controversies. A clear, national-level regulatory reform is required so that this new industry can grow in place of consumer interests. Fantasy sports are growing phenomenally worldwide. Laws have been properly carved out across the respective countries like America, etc. Regulation of fantasy sports, by and large in the United States, is a state subject just like in India. However, unlike the US, where fantasy sports are regarded very differently from the ‘gaming activities,’ in particular in federal law, in the UK they are not gambling. The most significant piece of legislation that affects fantasy sports in the US is the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006^[12]. The statute prohibits gambling businesses from accepting payments related to illegal internet bets. However, fantasy sports fall under the UIGEA since it categorizes them as games of skill, except on some specific criteria like:

• The results do not depend on the performance of a single team or player during a real game.
• The participation in the competition is decided based on the statistical data of various games participated by the players.

Fantasy sports has thus become a multi-billion dollar business since federal exemption, thanks to which DraftKings as well as FanDuel have entered almost all the states of the US. However, its rules differ from state to state. For instance, Nevada operators are required to secure gambling licenses. On the contrary, Arizona has completely outlawed paid fantasy sports though has recently been relaxing certain banning provisions. A number of US states have created their own regulatory regimes for DFS, mainly targeting licensing and consumer protection.For instance, there is New York, Massachusetts, or Virginia, which holds that operators of fantasy sports should be licensed and remit a fee for registration. The states, on their part, have rules about fair and transparent play. Some of the features include provisions for age control provisions, deposit limits provisions, and responsible gaming warning provisions. The US model, though state-specific, is progressive where fantasy sports are generally considered games of skill, provided operators comply with the state laws. India’s challenge is somewhat akin because states have the right to regulate gambling, but unless there is a national framework, defining fantasy sports may be somewhat inconsistent. Online fantasy sport regulation in the United Kingdom is structured and streamlined under the 2005 Gambling Act. In the United Kingdom, fantasy sports are controlled by the UK Gambling Commission (UKGC), which is the national body responsible for regulating activities involving gambling.

Classification of fantasy sports remains subjective and has, more so on the basis of whether it is skillful or a game of chance. To the UK, any fantasy sports platforms providing monetary winnings need to apply for a Gambling License from the UKGC. The license has very high standards, which include measures of player protection, advertising restrictions, and anti-money laundering protocols. However, as long as the fantasy sport is deemed to be predominantly a game of skill, it wouldn’t be considered gambling as such, thus making it more flexible for the operators. Contrary to India, which still does hold its actual confusion of whether fantasy sports are gambling or not, the UK is looked at like a country that clearly shows its path towards the comprehensive legal framework. As UKGC exists, the fantasy sport websites operate transparently and respond-ability exists both for the state and the player. The UK greatly values consumer protection. Fantasy sports operators must: Clearly provide information about risks associated with gaming.

• Allow users to choose the kind of deposit and spending limits.
• Program of self-exclusion for the players who wish to cut down their gaming.
• Problem gambling resources.

The UK stands out from its consumer welfare angle, but a balanced approach as it tackles fantasy sports in comparison with gambling laws. Fantasy sports and the regulations in India can be learned from US and UK markets.

• A national-level regulating authority: Similar to the UK, a national level regulatory authority exists for fantasy sports platforms. This may bring homogenization across all states.
• Licensing Frameworks: Just as in the US and the UK, a license for fantasy sports operators in India would only permit those operated compliantly and with transparent running of platforms. This will make for much safer gaming space and will encourage proper investment in the industry.
• Consumer Protections: India can just borrow from the US and the UK and practice its consumer protection measures strictly. Such may include age limits, responsible gaming culture, and transparency by gaming operators about the risks. As an industry, fantasy sports is more regulated within the US and UK and hence is seen as a legitimate, skill-based activity. However, the regulatory framework in India is very fragmented and confused. India can borrow the best international practices towards a fair and harmonious regulatory model aligned with growth for the fantasy sports industry, protecting consumers, and offering much-needed clarity in the law. Draw lessons from the success of the US and UK frameworks in line with India’s journey to the right frameworks in the area of regulatory reform in this very fast-growing sector.

Conclusion:

The state needs to consolidate all the fragmented state-level regulations so far, which confuse not only operators but also the users-there are some states where fantasy sports are being permitted and a few others are trying to label them within the gambling act. Uncertainty will persist in regulators’ minds to stifle the full potential of this market and deter investment and innovation. Uniform legal framework distinguishing games of skill from games of chance for long-time sustainability of fantasy sport platforms. More importantly, this national framework is supposed to balance commercial interests and consumer protection. The guidelines on transparency, fair play, responsible gaming, and taxation can both help in fostering a safer and more trustworthy environment for games and ensure sustainable governmental revenue. The self-regulation suggestion by NITI Aayog along with licensing and consumer safety recommendations becomes a well-grounded idea for this framework.

The fantasy sport of India requires a national level approach towards regulation which will end the current conflict with the state and central laws of the country for the future of fantasy sports in India. Such an approach would provide clarity about the law, support industry growth, and protect users, which will make India emerge as a global leader in the fantasy sports arena.

Author: Ananya Khandare, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing

References:

• Dream11 Fantasy Sports Ruling – Punjab and Haryana High Court
• Public Gambling Act, 1867
• NITI Aayog report on Online Fantasy Sports Platforms
• Dr. K.R. Lakshmanan v. State of Tamil Nadu 1996 AIR 1153
• State of Bombay v. R.M.D. Chamarbaugwala 1957 AIR 699

^[1] Aita, D. (2022). Digitization in ports: Application of digital twins to complex logistics. https://core.ac.uk/download/544318690.pdf

^[2] Public Gambling Act 1867

^[3] admin1989. (2022, May 23). Three benefits of online poker. Phnompenhnoodles.com. https://phnompenhnoodles.com/three-benefits-of-online-poker/

^[4] Bombay Prevention of Gambling Act 1887

^[5] Schwabe, J. (2017). Daily Fantasy Sports Go “All In”: The Demise of American Morals? https://core.ac.uk/download/268221272.pdf

^[6] Dr. K.R. Lakshmanan v. State of Tamil Nadu 1996 AIR 1153

^[7] Pinball: The Man Who Saved the Game | 2022 St. Louis International Film Festival. https://watch.eventive.org/2022sliff/play/634cc1530ae00c003db6687e

^[8] State of Bombay v. R.M.D. Chamarbaugwala 1957 AIR 699

^[9] Hessian Administrative Court of Appeal revises its decision of February 2004: A setback for the liberalisation of the German gambling market? – ISA-GUIDE. https://www.isa-guide.de/english-news/articles/7445.html

^[10] Varun Gumber v. Union Territory of Chandigarh (2017 Cri LJ 3827)

^[11] Signal, P. B. (n.d.). Is real-money gaming gambling? The Playbook. https://theplaybookarchive.thesignal.co/p/online-real-money-gaming-gambling-gst

^[12] AFBF Establishes 2023 Farm Bill Priorities. (n.d.). Observatorios CTAEX. https://ctaex.com/observactaex/ota/articulo-rss/contenido/3254/afbf-establishes-2023-farm-bill-priorities