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Fantasy sports, reality check

Shwetasree Majumder | Updated on January 12, 2021

The big picture: KPMG’s July 2020 report titled ‘The Business of Fantasy Sports’ pegs the online fantasy sports user base from India at 90 million   -  ISTOCK.COM

Legal and regulatory uncertainties hang like a sword on an industry which earned ₹2,470 crore revenues in the last financial year alone

* Fantasy sports provide an online environment that allows participants in multiple jurisdictions, unknown to each other, simulate certain aspects of a real-world sporting event

* A recently released NITI Aayog draft document notes that the industry has the capacity to attract ₹10,000 crore in FDI over the next few years

* Potential legislation and regulation of the industry will have to address the question whether fantasy sports is a state or a Union subject

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Online fantasy sports are essentially skill-based sports engagement platforms where users engage in the sport of their choice by creating their own virtual teams containing counterparts of real-life players from upcoming real world sporting matches. By definition, the use of the word ‘fantasy’ implies that online fantasy sports are activities that draw on and are created by people’s imagination. They exist in mutual exclusion with ‘real’ sport, although they allow users to simulate certain aspects of sporting events (such as selection of an imaginary team) within the framework of which they employ their knowledge and intellect. They do not require users to engage any of the necessary attributes of ‘sport’ itself, for instance, physical prowess or ability.

Yet, one of the biggest roadblocks to a sunrise industry is uncertainty around its legal status. KPMG’s July 2020 report titled The Business of Fantasy Sports pegs the online fantasy sports user base from India at 90 million. At the same time, legal and regulatory uncertainties hang like the proverbial sword of Damocles on the future of the industry, which earned ₹2,470 crore revenues in the last financial year alone. The NITI Aayog’s recently released draft document titled Guiding Principles for the Uniform National-Level Regulation of Online Fantasy Sports Platforms in India noted that the industry had the capacity to attract ₹10,000 crore in FDI over the next few years, and correctly acknowledged the “emergent need” to recognise and support the sector.

The argumentative Indian cannot resist debating whether ‘fantasy sports’ are predominantly games of skill or games of chance, because if they were to be characterised as the latter, they may be potentially unlawful or banned (under, for instance, the Public Gambling Act, 1867, and analogous state legislation). However, this debate is often uninformed, and not helped by the fact that there is no legal definition of ‘fantasy sports’ in our statute books. In the absence of specific statute regulating online gaming and online gaming licences in India, any discussion or debate on the subject leads to the traditional penal law and other laws.

Despite the categorical position taken by a number of high courts that fantasy sports involve a user’s exercise of superior knowledge and judgement, and are, therefore, games of skill and not chance, a lack of understanding of the business model of fantasy sports operators leads to both civil and criminal cases being filed against them. Therefore, it is necessary that the industry is at least accorded legal recognition and protection to ensure that those operators who provide services where the skill of the user is predominant are granted safe harbour from criminal prosecution.

One is reminded of how, in 2004, Avnish Bajaj, the CEO of Baazee.com, was arrested and sent to Tihar Jail due to the availability of obscene materials on the website, sparking a fierce debate around whether he could be held liable for user content. This debate ultimately resulted in ‘safe harbours’ being crafted in our laws for the protection of online intermediaries. As the NITI Aayog observes, fantasy sports have had to seek shelter under “an undefined exception” to the state gambling and public order laws. In contrast, in the US, for instance, online fantasy sports are specifically carved out as lawful under the Unlawful Internet Gambling Enforcement Act, 2006.

Potential legislation and regulation of the industry will have to address the question whether fantasy sports is a state or a Union subject. Various judicial decisions have delved into the contours of Entry 33 of the State List, which includes ‘sports’. The jurisprudence in relation to the Indian Olympic Association’s challenge to the jurisdiction of the Centre in regulating its affairs and those of other National Sports Federations, and various challenges to the validity of the National Sports Code, is quite illuminating. Courts have observed that if ‘sports’ was seen as a state subject, then regulation of inter-state sports and those with other countries would fall within a legal vacuum. This is because states would lack the competence to legislate and to act beyond their borders, and there would likely be conflicting regulatory regimes within each state concerning inter-state sports. Consequently, the courts held that international sports and the regulation of National Sporting Federations and the Indian Olympic Association would fall within Entry 97 of the Union List, which pertains to all residual matters.

This analysis becomes even more critical in the context of an activity that is not even strictly speaking, a sport itself. Fantasy sports provide an online environment to allow participants in multiple jurisdictions, unknown to each other, simulate certain aspects of a real-world sporting event. The need for uniformity of laws governing participation is thus critical for such participants, who are often fans situated in disparate locations, looking for stimulating ways to engage with sports they love. The subject matter of fantasy sports should therefore fall within Entry 41 of the Union List, which pertains to import and export across customs frontiers, as also Entry 42, which relates to inter-state trade and commerce.

The approach in the Guiding Principles factors in the interests of all relevant stakeholders. While on the one hand it recommends the granting of legal status to fantasy sports themselves as games of skill, it accounts for the operators remaining compliant with other laws of the land. This puts the onus on the operators to demonstrate that their formats are skill-predominant. It also warns against permitting users below 18 to participate in fantasy sports and advertising the services through the use of terms such as “assured” or “guaranteed” wins, and as a means of livelihood, sustenance, or even an investment opportunity.

The early successes of the Federation of Indian Fantasy Sports set up by the Indian fantasy sports industry, in providing accessible and cost-effective dispute resolution towards addressing consumer grievances, is a good example of why self-regulation with appropriate checks and balances is the way forward for the industry. At the same time, the robust penal laws will ensure that unscrupulous operators who offer games of “questionable legality” in the guise of fantasy sports are also appropriately addressed.

Shwetasree Majumder is a Delhi-based intellectual property and sports lawyer

Published on January 12, 2021

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