Fantasy or Reality – Leveraging Technology for money Games
The craze for fantasy sports and other online games played with real money has skyrocketed with several apps mushrooming in last 2 years to catch consumers attention. A few of the popular ones are listed below
- Paytm First Games.
- 8 Ball Pool.
According to a FICCI-EY report, the Indian fantasy sports industry is slated to touch $2.5 billion in 2022. The industry is growing at a CAGR of 32% and is expected to be worth $3.7 billion by 2024. With a user base of around 90 million in 2019, according to a study by the Federation of Indian Fantasy Sports in collaboration with KPMG, the fantasy sports industry is now generating huge revenues.
So much is the traction of these apps that a report suggest that Dream11.com currently has over 150 million registered users. Concerned with growing addiction among youth, ASCI came out with guidelines to regulate advertising to educate users that these games do entail an element of risk of incurring financial losses. ASCI was also concerned that “frequent use of celebrities in many of these advertisements make them more attractive to consumers, and consumers tend to trust their heroes and role models blindly”. Our detailed update on ASCI guidelines can be accessed here;
Fantasy sports – a game of chance or Skill
A game of chance is a game where the outcome is solely dependent upon the algorithms in a device and/or random selection of a winner through automation or manual intervention and/or sheer luck. Gambling, lottery, or any game which involves wagering of money or anything of monetary value sans any skill, mental or physical, qualifies as being a game of chance. On the other hand, a game of skill is the one where the outcome is determined mainly by mental or physical skill rather than randomized selections.
It is widely accepted that no game is a game of pure skill only. Almost all the games involve an element, even though in minimal measures, of chance. In such a situation, the Indian Court/s have adopted “dominant factor test” or “predominant test” which is required to determine whether “skill” or “chance” plays a predominant part in determining the result of the game. It is also seen that the Court/s in India have kept games which are predominantly based on skill out of the purview of the regulatory and penal provision/s.
Legality of Gambling in India
Gambling in India, barring few States, is an illegal activity in view of the Public Gaming Act, 1867. Under Indian constitution gambling falls under the State subject i.e., only State/s Government/s in India are entitled to formulate laws for gambling activities within their respective States. Thus, every State in India is authorised to enact their own laws in relation to it.
Game/s of skill
There are some examples of games which have been considered by court/s for making such a distinction. For instance, the legality of the card game of ‘Rummy’ was examined by Indian court/s and it was held to be a game of skill as opposed to the three-card game. In Rummy the fall of cards would need to be memorized and its building up requires considerable “skill” in holding and discarding the cards. Similarly, ‘Bridge’ was held to be a “game of skill”. Further, the Hon’ble Supreme Court when examining whether horse racing was a game of “skill” or “chance”, held it to be a “game of skill”. The Hon’ble Court observed that in selecting the horse its fitness needs to be assessed by a person placing a bet or wager.
Coming to the fantasy sports games, and taking ‘Dream11’ as an example, it comprises a game which requires the user to compile their own fantasy teams from the list of players scheduled to play live on a given day. The Hon’ble High Court of Punjab and Haryana examined if the format (offered by ‘Dream11’) involves skill as a dominant element. An individual, who lost money while playing the game brought an action before the Hon’ble Punjab and Haryana High Court alleging that the format of ‘Dream11’ qualifies as being ‘gambling’ and thus is prohibited. The Hon’ble Court in this case relied on the previous decisions and concluded that playing fantasy sports games required the same skill, judgement and discretion as in the case of horse racing. An appeal to the Hon’ble Supreme Court was dismissed.
Therefore, based on the Court’s ruling, it can be said that fantasy games are legitimate considering they have predominant element of skill involving selection of players based on their credentials and performance – in particular. The Hon’ble Court’s judgement also led to the rapid development and expansion of apps and websites offering e-sports or fantasy games.
However, despite some favourable judgements from different court/s in India, the States of Assam, Nagaland, Odisha, Telangana, Sikkim, Andhra Pradesh, Tamil Nadu, Karnataka and Gujarat have placed restrictions on online games. The restrictions are outlined as under:–
The legality of the money games which involve online payment is still not clear. This is because the Assam Game and Betting Act, 1970 (“AGBA”) prohibits all forms of betting or wagering on any game or sport, except horse racing and lotteries. Further, there exists no exemption or allowance for “games of skill” either and online fantasy sports platforms do not operate for residents in Assam.
The Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2015 (“Nagaland Act”) regulates this gaming activity in the State. Interestingly, the Act explicitly defines as to what constitutes a game of skill i.e., “where there is the 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”. Thus, the said statute clearly recognizes the skill element, if involved, in an online fantasy sports platform/s.
However, Section 7 of the Nagaland Act mandates obtaining a license through the issuing authority for entities which are incorporated in India and wish to offer such games on online media and earning revenue for the same. Further, the entity should not have any interest in gambling activity in India or abroad. This implies that any such entity should be restricted to carrying out their commercial online gaming activity within the State only – which, in a way, is a restrictive provision.
Furthermore, the license fee for the first three years per game is INR 10 Lakhs (approx. USD 13,334), or INR 25 Lakhs (approx. USD 33,334) for a bouquet of games per annum. For the next two years, the fee is INR 20 Lakhs (approx. USD 26,667), or INR 50 Lakhs (approx. USD 66,667) for a bouquet of games per annum. Licensees are also required to pay an amount of 0.5% of the gross revenue generated as royalty along with other guidelines for fulfilling of KYC norms, foreign deposits etc.
The above regulations apparently render the online gaming activity within the State lacklustre.
The Orissa Prevention of Gambling Act, 1955 (“TOPGA”) bans all forms of games for money and betting or wagering where a “person intentionally exposes money or things of value to the risk or hazard of loss by chance”, except “lotteries”. Online fantasy sports platforms are also not allowed in Odisha.
The Telangana Gaming (Amendment) Act, 2017, (“TGAA”) explicitly prohibits any act of risking money, or otherwise on the unknown result of an event including on a game of skill.
The Sikkim Online Gaming (Regulation) Act, 2008 (“SOGRA”) mandates obtaining a license for an online gaming platform including those relying on “chance”. However, the licensing provision mandates that such games shall be played from within the State of Sikkim and are to be offered within the physical premises of gaming cafés situated within the State of Sikkim through intranet gaming terminals. This effectively precludes any platform which wants to operate within Sikkim from outside even if such a platform were to offer money game involving skill.
The new Andhra Pradesh Gaming (Amendment) Act, 2020 (“APGAA”) has plainly prohibited online gaming platforms involving money, even if such a platform offers money game involving skill. The local Government has issued notices to online payment platforms such as ‘Paytm’ to completely stop their practices in the State.
The Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021, (“TNGPLAA”) has expanded on the existing law i.e., Tamil Nadu Gaming Act, 1930 and taken online gaming platforms into its ambit of restriction – but continues with the exemption for games of skill as opposed to betting involving sheer chance or luck. Thus, online fantasy sports platforms continue to operate within the territory of Tamil Nadu.
The Karnataka Police (Amendment) Compliance Act, 2021 (“KPACA”) banned all formats of online gaming that involve an entry fee or registration fee. In response to the amendments, online gaming companies and industry bodies filed six petitions in the Karnataka High Court. These petitions are still pending on resolving the issue of challenging ban of online games of skill.
Gujarat Prevention of Gambling Act, 1887 (“GPGA”) prohibits any game of chance and lotteries involving money to be played within the State. However, the State Government is given authority to judge game of skill if it involves playing money game online.
Overall, even though gambling is an illegal activity in India, majority of States in India, barring the ones mentioned above, do clearly recognize the distinction between the ‘game of skill’ and ‘game of chance’ as per the ruling of various court/s in India. Thus, providing such platforms some form of legitimacy.
As we understand, the objective of the States in having the restrictions in place is not only to control gambling it is also to safeguard the interest/s of the consumers at large. However, such an excessive control over gaming activities is not helping the exchequer of these States as they are missing heavily on raking in the revenue from such gaming platforms, which, of course, in turn can be used for the development/s of the State/s.