Legal matrix of Online Fantasy Sports in India

A growing body of academicians consider fantasy sports to be skill-dominant, but does the judiciary agree?
Legal matrix of Online Fantasy Sports in India
Online fantasy sports

The commercialization of traditional and modern sports has paved the way for online platforms to increase engagement in these activities. There are a host of online games that are available, from money games such as online poker and fantasy football or cricket, to casual games such as Candy Crush and Temple Run, and then of course, e-sports such as Counter-Strike or FIFA.

Of these games, fantasy sports itself has generated a revenue of Rs 2,400+ crore for the FY20 compared to Rs 920+ crore in FY19, with the market expected to grow exponentially in the coming years. It is anticipated that the growth will reach Rs 11,880 crore by FY23 at CAGR 22.1%.

In fantasy sports, participants draft their own virtual sports team, selecting real-life players from teams scheduled to play against each other. There is a plethora of fantasy games that a participant can choose from, including football, basketball, cricket, or kabaddi. These fantasy games offer two model formats - the “free to play model” and the “pay to play model.” As the names suggest, the free to play model does not require any entry fee for a user to participate, whereas in the latter model, the participants are required to deposit an entry fee to register for the contest. The pay to play model not only generates revenue for the operator, but is a considerable source of revenue for the government through income tax deductions on the participant’s earnings and goods and service tax revenue calculated on the operator’s gross revenue.

Legality of Fantasy Sports in India

The rise of fantasy sports raises questions about the legality of such activity, that is, whether it would amount to gambling or betting. Under the Constitution of India, gambling and betting are State subjects, with each state forming its own laws. Some states, such as Assam, Orissa, and Telangana, prohibit any gaming activity for money. The constitutional validity of the Telangana Act is pending challenge before the High Court of Telangana. Other states permit gambling with respect to games of skill.

The expressions “gambling” and “game of skill” have been dealt with by a Constitution Bench of the Supreme Court in the case of Dr. KR Lakshmanan v. State of Tamil Nadu & Anr. Following the earlier decisions in RMD Chamarbaugwala & Anr. v. Union of India & Anr. and State of Andhra Pradesh v K Satyanarayana & Ors, the Court held that gambling is the payment of consideration for a chance to win a prize. A game may be of chance or of skill, or a combination of both elements. A game of chance is determined entirely or largely by luck, whereas a game of skill depends on the players superior knowledge, experience and adroitness. The Court concluded that though an element of chance exists in a skill game, the element of skill predominates over the element of chance.

The Court authoritatively held that a ‘game of chance’ would fall within the vice of gambling and is prohibited as per state law, whereas a ‘game of skill’ is distinguishable from gambling and enjoys protection under Article 19(1) (g) of the Constitution.

It is pertinent to note that the Law Commission of India, in its 276th Report examining the aspect of legalizing gambling and sports betting in India, recommended that skill-based games may be exempted from the ambit of gambling, without specifying the games that would qualify as ‘game of skill’.

In light of the above noted Supreme Court decisions, it is evident that the legality of online fantasy sports depends on whether these sports would constitute a ‘game of skill’ or ‘game of chance.’ Several leading academic institutions, including Indian Institute of Management, Bangalore (IIM-B), have conducted empirical studies to affirm that fantasy sports are games of skill. Researchers at Massachusetts Institute of Technology (MIT) and Columbia University contrasted data gathered from fantasy cricket and basketball platforms against data collected from the stock market and concluded that fantasy sports participants demonstrate a higher degree of skill than mutual fund managers who manage stock portfolios.

A growing body of academicians consider fantasy sports to be skill-dominant, but the rather important question is, does the judiciary agree? The High Court of Punjab & Haryana had an occasion to consider this issue in Shri. Varun Gumber v. Union Territory of Chandigarh & Ors’ There, after examining the business model of an operator, the Court held that playing fantasy sports calls for considerable skill, judgment, and discretion, as the user has to judge the athleticism and dexterity of the players, comparing their strengths and weaknesses against other players, and accounting for other, non-athletic, characteristics, such as biases and prejudices. The Court held that fantasy sports possess an element of skill that predominantly affects the outcome of the games and, as such, are not gambling activities but are games of skill. A challenge against this judgment before the Supreme Court was summarily dismissed.

This decision was followed by the High Court of Bombay in Gurdeep Singh Sachar v. Union of India, and the High Court of Rajasthan in Chandresh Sankhla v. State of Rajasthan and Ravindra Singh Chaudhary v. Union of India. The decision of the High Court of Bombay was challenged inter alia by the State of Bombay before the Supreme Court. By an interim order, the Apex Court has stayed the operation of the High Court order.

The latest decision of the High Court to touch upon this issue has been that of the High Court of Rajasthan in Ravindra Singh Chaudhary, decided on October 16 this year. The Court had occasion to consider the effect of the Supreme Court’s order staying the judgment of the High Court of Bombay. The Court observed that, despite the interim order of the Supreme Court, the stand of the Union of India and the GST department before the Court was that fantasy sports are a game of skill and do not amount to betting and that the 276th Law Commission Report has opined that fantasy games, such as fantasy football, would be considered as “gaming,” as opposed to betting.

The Court observed that the users are not gambling on the outcome of any game, since the result achieved by a participant of online fantasy sports is wholly independent of the result in the real-life game. Considering these factors and the presence of industry regulators that place checks and balances on operators, the Court arrived at an independent view that fantasy sports are a game of skill.

It is a very fine element of skill that differentiates fantasy gaming from gambling. While the decisions of the High Courts have encouraged businesses and websites offering fantasy gaming, it remains to be seen whether the Supreme Court will affirm the decision of the High Courts and classify fantasy sports as a game of skill.

Regulation of Fantasy Sports

Only a few States regulate online gaming. For example, the State of Nagaland legislatively recognizes fantasy sports as a game of skill and requires a license to operate/offer such virtual games, and the State of Sikkim requires a license to be obtained in order to conduct any online gaming.

The Governor of Tamil Nadu recently promulgated an ordinance to "ban online gaming." The moves comes even as the Madras High Court continues to deal with two PILs filed on allied issues, one being to ban online games and another which also seeks action against celebrities endorsing online games.

 Online fantasy sports
Tamil Nadu Governor promulgates Ordinance to "Ban Online Gaming"

Indeed, the High Court of Madras in D. Siluvai Venance v. State has recognized the need for a comprehensive legislative framework to regulate the online gaming industry. The Court has observed that such regulation would encourage investment in the sector, resulting in technological advancements and generation of revenue and employment.

By and large, the fantasy sports arena is self-regulated by industry bodies, such as the All India Gaming Federation, which ensures that online gaming is conducted in an ethical manner. The Federation calls for responsible gaming, requiring its members to meet the standards implemented across the online gaming industry, maintain transparency with the players, protect their confidentiality, and set up a grievance redressal mechanism, etc. After examining in detail the charter of a similar industry body, the High Court of Rajasthan in Ravindra Singh Chaudhary appears to hold that operators that comply with the charter will be considered as legitimate business activities.

Sachit Jolly is a Partner and Priyanka MP is a Senior Associate at DMD Advocates. Pritthish Roy is a law student.

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