The Viewpoint - Fantasy Sports: A Legal Check

With the advent of technology, the gaming industry has witnessed a paradigm shift given the increase in internet users. This has paved a path to online gaming like, rummy, poker, and other new age fantasy sports.
The Viewpoint - Fantasy Sports: A Legal Check
Prashanth Shivadass, Rachana Pise

Introduction

Games whether casual or social are enjoyed by all age groups. In fact, the gaming industry has become a major powerhouse of entertainment. This aspect of entertainment has taken a leap towards gaining monetary benefits by means of betting or gambling. Gambling is deep rooted in the Indian culture, whose reference can be traced back to one of the greatest Indian mythological script, the Mahabharata. With the advent of technology, the gaming industry has witnessed a paradigm shift given the increase in internet users. This has paved a path to online gaming like, rummy, poker, and other new age fantasy sports.

The Online Fantasy Sport Platform (OFSP) includes several players such as Dream 11, My 11 circle, My Team 11, Howzat Fantasy,etc. OFSP offers fantasy sports contests wherein a “sports fan gets the opportunity to engage actively with the sport of their choice and draft and compete with their virtual teams containing counterparts of real-life players from upcoming matches, score points based on such players’ on-field performance and compete with other fans.” In other words, it can be said that OFSP encourages the fans to interact and help develop interest in real time sports.

The legality of such a business model have been questioned and Courts have held that a fantasy sport is predominantly a ‘game of skill’ and not a ‘game of chance’ hence does not qualify as gambling. The legality of fantasy sports have been discussed elaborately in the latter half of this article.

Skill v. Chance

To understand the concept of Skill v. Chance, we should first understand the term gambling. Griffith specifies five characteristics of gambling:

  1. The exchange of money or something of value;

  2. A future event that determines the result of this exchange and the outcome of this event is unknown at the time that a bet is made;

  3. Chance at least partly determines the outcome of the exchange;

  4. Losses can be avoided by simply not taking part;

  5. Winner gains at the expenses of the losers.

The arcade style games with skill or chance components, allow for an overall more engaging experience for a new generation player. Games of skill and games of chance are often not all that noticeably different. Oftentimes, a game will have elements of both skill and chance. Whether it is a game of skill or game of chance, will often depend on which element is the dominant factor in determining the outcome of the game. Skill can include any of the following:

a) A learned or developed ability;

b) Strategy, or tactic;

c) Physical coordination or strength;

d) Technical expertise;

e) Knowledge and means of accomplishing a task.

Most online games require skill; however, they also involve some type of random number generator. Buried in the source code of nearly every video game, the generator produces unpredictable numbers and values as dice do in board games. Without unpredictability, most games other than those of pure skill such as chess, would become quite monotonous.

Regulation of Fantasy Sports in India

The term ‘Gambling’ is understood as the ‘act of wagering or betting for money’s worth’. Section 12 of the Public Gambling Act provides that “game of mere skill” does not fall under the ambit of gambling.

Further the 276th Law Commission Report recommends that skill – based games may be exempted from the ambit of gambling. However, no specification was made with respect to fantasy games qualifying as a ‘game of skill’.

While most States prohibit gambling in common houses, few States such as Sikkim, Nagaland etc., have regulated online gaming through respective State legislations. However, some States such as Telangana, introduced Gaming (Amendment) Act, 2017, with an object of zero – tolerance towards any form of gambling which has a serious impact on the financial status and well – being of common public. This amendment has widened the scope of what constitutes wagering and betting. It now includes “any act of risking money on uncertain event, including on a game of skill”. This amendment has been challenged before the High Court in Writ Petition No. 20261 of 2017.

The State of Tamil Nadu has also introduced an ordinance banning games which involve any kind of wagering or betting in cyberspace by using computers or any other communication device, common gaming houses and electronic transfer of funds to distribute winnings or prize money. Persons involved in betting will attract an imprisonment for two years or fine not exceeding Rs. 10,000/- or both.

Since OFSPs are relatively new in India, there are no major legislative developments. Thus, we depend on the stand taken by the Judiciary in interpreting the legality of these platforms.

Judiciary on Fantasy Sports and its correlation to gambling

The term ‘mere skill’ was interpreted by the Supreme Court in The State of Bombay Vs. R.M.D Chamarbaugwala as ‘games which are predominantly skill based’ and has laid down that a substantial amount of exercise of skill is required for a game to be not classified as gambling. A competition in order to avoid the stigma of gambling must depend to a substantial degree upon the exercise of skill. Therefore, a competition success which does not depend on a substantial degree of ‘exercise of skill’ amounts to gambling. The judicial view with respect to classifying a game as a game of skill or a game of chance has been very strict.

It is possible that games that are legally offered through virtual medium may or may not satisfy the test of “skill versus chance”. Fantasy sports possess an element of skill that predominantly affects the outcome of the games and, as such, is not a gambling activity and are classified as ‘games of skill’. In order to substantiate the same, the High Court in Shri Varun Gumber v Union Territory of Chandigarh and Ors observed as under:

A person, while participating in a tournament was required to:

a) use considerable skill, judgment, and discretion while drafting his fantasy sports team;

b) assess the relative worth all the players available for the draft and evaluate the worth of a player against other players;

c) abide by the rules while evaluating a player’s statistics as well as the strengths and weaknesses of such players;

d) ensure that the draft did not contain a significant number of players from a single real-world team, and;

e) evaluate and take into consideration other crucial factors with respect to the game, pitch, and condition of players.

The decision of the Hon’ble High Court was appealed before the Hon'ble Supreme Court of India. However, the appeal was summarily dismissed.

The Bombay High Court in Gurdeep Singh Sachar Vs. Union of India relied on the observations made by the Punjab and Haryana Court in Varun Gumber case. A Criminal Public Interest Litigation was filed before the High Court of Bombay wherein it was contended that, Dream 11 was carrying out gambling/ betting/ wagering in the guise of ‘online fantasy sports gaming’ in violation of applicable laws; and evading taxes by levying inadequate goods and service tax on such offerings. The Court observed that, unlike betting, winning or losing in fantasy sports was not dependent on any team winning or losing in the real world.

The High Court of Rajasthan (Jaipur Bench) in Ravindra Singh Chaudhary Vs. Union of India & ors. had observed that the skill of the participant determines the result of the game having predominant influence on the outcome of the fantasy game. Whether any particular team in the real-world match wins or loses, is also immaterial as the selection of virtual team by the participant involves choosing players from both the teams playing in the real world. It is also clear that offering the fantasy games such as Dream 11 involved substantial skills and is therefore a legitimate business activity not amounting to wagering and having protection under Article 19(1)(g) of the Constitution.

Other Regulatory Mechanisms

"Federation of Indian Fantasy Sports" (FIFS) is a Section 8 Company incorporated under the Companies Act, 2013, for the purposes of self-regulation and promotion of best practices in online fantasy sports services and contests offered in India. It has issued a Charter for Online Fantasy Sports Platforms, which inter alia imposes the following conditions:-

"1.3.6 Pay-to-play contest formats on an OFSP will not be offered by a Member to users who are less than eighteen (18) years of age.

.......

1.3.12 In contests on an OFSP, the skill component of such contests is predominantly determined via a manual team selection by users. As such, users will not be offered the opportunity or option to auto-select or auto-fill any part or portion of their fantasy sports teams.

1.3.13 All users will be restricted from drafting or editing their fantasy team after the passing of a predetermined and pre-declared deadline. All contests on an OFSP will lock prior to the commencement of the underlying real-world competition to which the contest relates, and users will not be permitted to make any changes to their fantasy team during the course of a match or afterwards, which affects the tabulation of points with respect to such match.

1.3.14 A team selection by a user will have to conform to the skill-set based combinations prescribed by a Member's rules and terms and conditions.

1.3.15 A contest on an OFSP will require a user to draft a fantasy team composed of at least the number of athletes that would comprise a starting line-up of one (1) team in the real-world sports match; provided always that the minimum number of players in a fantasy team shall be five (5).

1.3.16 At any given time, a user will be restricted from selecting more than seventy five percent (75%) of his/her fantasy players that constitute his/her fantasy team or squad from a single real-world team/squad in a single contest. Any fractional amounts shall be rounded down to the nearest whole number.

1.3.17 Each Member will ensure that only real-world players and athletes are permitted to be drafted for fantasy sports teams.

1.3.18 A winning outcome will not be based on the score, point-spread, or any performances or results or partial results of any single real-world team or any combination of real-world teams.

1.3.19 A winning outcome will not be based on the score, point spread or performance of a single athlete in any single real-world sports match.

1.3.20 The winning outcome of a contest on an OFSP offered by a Member will not be based on Esports contests or virtual, randomised, simulated or historical sports matches.

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1.3.27 Members will not offer gambling services"

The charter ensures that the game run by its members is purely skill based and does not fall under the ambit of ‘gambling’. The FIFS is regulated by an Ombudsman which mandates a retired Judge of the Supreme Court or a Chief Justice of any of the State High Courts, to preside and ensure that the disputes and gradiences related to OFSPs are redressed in a fair and just manner. Presently, the Ombudsman is Chaired by Hon'ble Mr. Justice A.K. Sikri (retired).

The FIFS has also issued Self-Regulation Guidelines (‘guidelines’) on Advertising Online Gaming by adopting IAMAI Guidelines, to ensure that the advertisements are fair, transparent and not misleading. The guidelines prohibit advertisements by members suggesting any gambling/betting activities, which in turn attracts penalties for violation. It is ensured that persons below 18 years of age are not allowed to participate. It also ensures that the public is not misled or cheated and there is transparency in prizes and other financial attributes.

Conclusion

Fantasy Sports are a globally recognized tool for fan engagement, as they provide a platform for all sport lovers, to engage in their favorite sport along with friends and family. This legitimate business activity having protection under Article 19(1)(g) of the Constitution, contributes to Government Revenue not only by way of GST and Income Tax, but also by way of increased viewership and higher fan engagement, thereby simultaneously promoting even the real - world games. However, there is a very fine line between online fantasy sports platforms and gambling. While High courts have encouraged such platforms by holding that fantasy sports are game of skills, it still remains sub-judice before the Supreme Court to accept or change its stance and read down / frame guidelines.

The authors are Founder and Associate respectively with Shivadass & Shivadass (Law Chambers). The Authors would like to acknowledge the contributions of Chaitanya Sharma, a 4th Year law student from School of Law Christ University, Bangalore.

The contents and comments of this document do not necessarily reflect the views/position of Shivadass and Shivadass (Law Chambers) but remain solely of the author(s).

For any further queries or follow up, please contact admin@sdlaw.co.in.

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