Online fantasy sports on song

Aayush Kapoor/Harjas Singh | Updated on July 19, 2021

But clarity in regulation needed to sustain growth

In December 2020, NITI Aayog released a draft report discussing the emergent need for the online fantasy sports sector to be recognised and supported. The report recognised the potential of the sector in terms of its contribution to the economy, while also generating direct and indirect employment opportunities, driving investment, innovation in technology, entertainment and sports development. The flurry of advertisements promoting online fantasy sports platforms during the 14th edition of the Indian Premier League (IPL) in April was a testament to the growing popularity of the sector.

As the nation looked set to embrace online fantasy sports, reports suggested that the National Payment Corporation of India (NPCI) was looking to prohibit all UPI transactions under ₹50 for gaming merchants due to the surge in people using UPI to play online fantasy sports during the IPL. Similarly, there have also been reports of the GST Council re-examining the applicable rate and quantum of tax applicable on online fantasy sports games.

The timing and impact of these contrasting events perfectly encapsulate the contradictions inherent to the landscape of online real money gaming in India.

Skill test

In the legal sphere, online fantasy sports are required to pass the skill test prescribed, in a majority of States, under an adapted version of the Public Gambling Act, 1867 (PGA) — a pre-Independence legislation which (originally) mandated the prohibition on gambling. One of the noteworthy aspects of the PGA, which also forms part of the State anti-gambling legislation, is that games of “mere skill” are excluded from the prohibition mandated under the anti-gambling legislation. This exception was examined by the Supreme Court in the landmark Satyanarayan case of 1968, defining games of skill to mean games which depend predominantly on the superior knowledge, training, attention, experience and adroitness of the player to operate, regardless of the monetary stakes involved.

More recently, in 2017, the Punjab and Haryana High Court applied the principles of the Satyanarayan case and recognised online fantasy sports games as “games of skill”. This view was reiterated by the High Courts of Bombay (Gurdeep Sachar order) and Rajasthan, placing online fantasy sports platforms beyond the ambit of “gambling” under the respective State gambling prohibition laws.

However, in 2020, in a special leave petition filed by Maharashtra, the Supreme Court granted a stay on the Gurdeep Sachar order. Separately, various State governments (including Andhra Pradesh, Tamil Nadu and Telangana) have introduced legislation or amendments to their anti-gambling laws prohibiting all real money games, including games of skill, with some specifically targeted at online real money gaming. As a result, online fantasy sports platforms no longer allow users from these States to participate on their respective platforms.

Despite these setbacks, the fantasy sports sector continues to prosper; fuelled primarily by increasing affordability of smartphones, the low cost of mobile data packs, and the widespread adoption of digital payments.

The gross revenues of online fantasy sports platforms stood at around ₹2,400crore in FY20 alone. According to experts, in India the sector is expected to be worth $3.7 billion by 2024, creating a huge opportunity for new entrants. The market has witnessed a 700 per cent increase in the number of fantasy sports operators in the past decade, and a 2,500 per cent growth in the number of fantasy sports users.

This potentially robust demand, the country’s young populace, and a complementing pool of software development talent places India at an advantage to become a global hub for the sector and is perhaps the reason for attracting significant foreign investment. Reports suggest the sector could attract FDI of over ₹₹10,000 crore over the next few years.

Of course, regulatory and policy bottlenecks will need to be resolved to unlock the full economic value of India’s enormous sports-loving population. While the online fantasy sports platforms and the NITI Aayog have advocated self-regulation, divergent State legislation and the cumbersome licensing regime imposed by a few States might impede the sector’s potential.

The writers are Partner and Associate, General Corporate, respectively, at Shardul Amarchand Mangaldas & Co. Views are personal

Published on July 19, 2021

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