Regulating Online Fantasy Sports Platforms – Recent Updates and Discussion Paper

The Indian gaming industry has received a significant boost after the widespread use of smartphones. While cricket is touted to be one of the most dominating games in the arena, games such as hockey, kabaddi, football, basketball, volleyball, and baseball are other favourites among the gaming generation. Fantasy sports unlike other online games, provide an opportunity for sports fans to showcase their sports knowledge and be actively involved with the sports they follow.

The key legal hurdle faced by online gaming companies in India is whether it is a game of skill or a game of chance. Countries have adopted different approaches to defining chance and skill. India has followed the US model by applying the “dominant factor” test. The Satyanarayana case[1] and the Lakshmanan case[2] were the first cases where the “skill versus chance” question was addressed. The Courts were of the opinion that no game exists which can have ‘skill’ as the individual factor to determine the result. In the State of Bombay v. R.M.D.C.,[3] the Court propounded that if a game contains both elements, i.e., skill and chance, it would be considered a game of skill.

The Court for the first time had settled the question pertaining to online fantasy sports being a game of skill or game of chance, in the case of Varun Gumber v. UT of Chandigarh & Ors.[4] The Court clarified that “Playing of fantasy game by any participant user involved forming of a virtual team by him which certainly required considerable skill, judgment and discretion. The participant had to assess the relative worth of each athlete/sportsperson as against all athlete/sportspersons available for selection. He was further required to study the rules and regulations of the strength of athlete or player and weakness also.” The Punjab Haryana Court in the aforesaid case ruled that fantasy sports of Dream 11 is a game of skill. The matter arose when a customer of Dream 11 had lost an amount of INR 50,000 in the game and approached the court for remedy claiming that the said game is illegal as it is a game of chance. Dream 11 further contended that the format of the game required users to choose players for their team which required certain levels of skill and experience. The players are also required to keep a tab on statistics and accordingly choose players. The Punjab and Haryana Court concluded that the Dream 11 is predominantly a game of skill that requires players’ judgement, attention and experience to determine the outcome of the game. The Court also held that as fantasy sports did not amount to gambling, Dream 11 was conducting a business activity protected under Article 19(1)(g) of the Constitution.

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While fantasy sports are considered to be a game of skill, there are several other views that fantasy sports are a game of chance. Following the precedent of the judgment in Varun Gumber v. UT of Chandigarh & Ors., the Rajasthan High Court and the Bombay High Court have ruled in favour of Dream 11. However, the Supreme Court as of March 2020 has for time being stayed the Bombay High Court decision, the matter is sub judice before the Supreme Court and brings doubt on the legality of fantasy sports in India. The games of skill require a certain skill to succeed in the game and such games are permitted to be played as per the Public Gambling Act, 1867 (“Act”) and games of chance that are based on an uncertain event are prohibited from the purview of gambling. In India, the Act was enacted in the pre-independence era. However, post-independence, the Constitution of India, in entry no. 34 of List II, Schedule 7 provided for gambling as a state subject and hence several states have enacted their own gambling prohibition laws while several states continued with the Act.

In this regard, there are no uniform laws pertaining to the regulation of fantasy sports. The laws of states vary to a significant extent. The recent increase in online gaming has questioned the legality of such activities considering that states, such as Assam, Orissa, and Telangana, prohibit any gaming activity for money. However, as the extent of laws governing such fantasy sports are state-specific and there is a significant ambiguity in the governance of the subject.

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It is a well-known fact that various games as on date require players to share their confidential banking information, pay money to access separate levels and operate on preset algorithms giving an impression to player that it can be a successful and easy money-making option. Further, it has been observed that these games do not publish the necessary disclaimers /warnings pertaining to financial loss or possible addiction, which is in utter violation of the Code for Self-Regulation as prescribed by the Advertising Standards Council of India (“ASCI”).

ASCI is a self-regulatory voluntary organization of the advertising industry in India established for protecting the interest of consumers. ASCI’s role has been acclaimed by various government bodies including the Department of Consumer Affairs (“DoCA”), Food Safety and Standards Authority of India (“FSSAI”), Ministry of AYUSH as well as the Ministry of Information and Broadcasting (“MIB”). The association with these government bodies is to co-regulate and curb misleading and objectionable advertisements in the respective sectors. ASCI guidelines address key concerns around the advertising of online games that involve real money and require advertisements to not be aimed at minors, not presenting gaming as a possible source of livelihood, or link it to success. In addition, the guidelines require all advertisements to carry a disclaimer regarding the risk of financial loss and the addictive nature of such games. These guidelines have been strongly backed by MIB, which has issued an advisory asking that advertisements adhere to the ASCI guidelines. Thus, it’s important to have a properly regulated legal environment in which citizens and most importantly younger generation can safely entertain themselves.

It is pertinent to note that such online gambling for real money often misleads the younger generation by misrepresenting such games as an income opportunity or alternate employment option which has not only resulted in a huge financial loss to several people across the world but also has resulted in the loss of livelihood and several lives have been lost which cannot be compensated in terms of money. The addiction in such games is so worse that certain gambling portals have also started providing helpline numbers for counselling. Thus, there is a need to standardize the same as well as to ensure that all advertisements in the said category carry the required warnings.

Considering the growth of the online fantasy game industry, and to promote the innovation and growth of the online fantasy game industry, along with the need for consumer protection and the public interest in the institution of grievance redressal mechanism inadequate efficient and affordable manner, NITI Aayog floated the discussion paper with the title “Guiding Principles for the Uniform National Level Regulation of Online Fantasy Sports Platforms in India” in December 2020.

NITI Aayog has taken the initiative to compile a list of guiding principles for the fantasy sports industry, which will be treated as a uniform “regulatory sandbox” and can be recalibrated based on ongoing innovations and developments in the sector.

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1. Compliance with Applicable Laws

The first principle requires online fantasy sports platforms to be compliant with all applicable laws in India.

2. Skill Dominant

Taking a cue from the existing jurisprudence surrounding the legality of the Online Fantasy Sports Platforms (“OFSPs”), NITI Aayog suggests that all formats of fantasy sports contests offered by OFSPs should remain skill-predominant. Further, the event, an OFSP operator intends to offer any other variant of a contest that varies from the fantasy sports format judicially determined to constitute a game of skill, it is required to obtain approval from an independent evaluation committee, constituted by the recognised self-regulatory organisation.

3. Protection of Minors

NITI Aayog suggests that pay-to-play formats of fantasy sports contests should not be offered by an OFSP operator to users who are less than 18 years old and the operators must ensure all necessary safeguards to protect minors. While the principle is in accordance with the Indian Contract Act, 1872, it is pertinent to note that the strict compliance to this principle is not pragmatic as several minor users conceal their age while using such platforms.

4. No Elements of Chance

The fourth principle entails that the OSFPs should, at all times, ensure that the games to a significant extent are based on skill and should generally relate to an entire real-world officially sanctioned sports contest as closely as possible. The OSFPs should not infuse elements of chance that are not present in the real-world contest. However, this prerequisite may be waived by the independent evaluation committee if it deems fit.

5. Fair and Transparent Terms

One of the cardinal principles of playing online sports is that the terms of participation in fantasy sports contests should be fair and transparent. The rules must be uniformly applicable to all players and the players should be provided with a grievance redressal mechanism for the redressal of their complaints.

6. No Gambling Services

The sixth principle requires the OFSPs to not offer or advertise gambling services or games of chance on their OFSPs and should adopt industry-standard policies and measures to prohibit and prevent the use of their OFSP for unlawful purposes.

7. Advertising and Promotion

The NITI Aayog suggests the following requirements in respect of advertisements and endorsements by OFSPs:

(i) Should be fair and truthful;

(ii) Should remain in compliance with the existing advertising standard of the ASCI and any other relevant body;

(iii) Should neither represent nor imply that winnings in a contest are ‘assured’ or ‘guaranteed’ nor project fantasy sports as anything other than an amusement and fan engagement activity; and

(iv) Should not represent that participation in fantasy sports is a source of sustenance, a means of earning a livelihood, a lottery, a jackpot or an investment opportunity.

8. Immunity from Criminal Prosecution

The last principle suggests that the self-regulatory organisation must send a communication to all the States requesting them to contemplate granting to OFSPs immunity from criminal prosecution or sanction in respect of the formats of fantasy sports contests that are compliant with these guiding principles. While the suggestion is beneficial to OFSPs, it may not be a viable solution considering that the legislations of each state vary in this regard.

Currently, the Federation of Indian Fantasy Sports (“FIFS”) is the self-regulatory industry body of fantasy sports in India. FIFS has been established to protect consumer interest and formulate best practices for fantasy sports in India. FIFS also publishes a Charter for Online Fantasy Sports Platforms which lays down the ground rules for the members. Therefore, these principles may offer considerable guidance to self-regulate the industry. However, in absence of adequate legislative backing, the conduct of OSFPs remains unchecked.

[1] State of Andhra Pradesh v. K. Satyanarayana, AIR 1968 SC 825.

[2] Dr. K. R. Lakshmanan v. State of Tamil Nadu, AIR 1996 SC 1153.

[3] State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699.

[4] Varun Gumber v. UT of Chandigarh & Ors., CWP No. 7559 of 2017.


This article is authored by Amit Vyas(Founder Partner) and Vishal Vora (Senior Associate) at Vertices Partners.


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VERTICES PARTNERS
VERTICES PARTNERS offers comprehensive legal services across the entire gamut of transactional, advisory, litigation and regulatory matters. Our areas of expertise include Corporate & Commercial; Private Equity & Venture Capital & Seed & Angel Capital; Commercial Litigation & Dispute Resolution; White Collar; Structured Finance; Stressed Assets; Banking & Finance; Intellectual Property; Real Estate and Media & Technology. The Firm believes in a Partner driven service and therefore leverages a lean Partner to Associate ratio so as to ensure the quality of service to the Client is maintained at all points of time. The Partners, collectively have over five decades of rich experience in their respective fields and this therefore gives the firm the ability to provide a global service offering.
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