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Fantasy Sports: An Overview

Digital gaming industry has seen rapid growth with India recently overtaking the United States of America as the country with the world s largest online fantasy sports user base.[1] 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.[2] The Online Fantasy Sports platforms (OFSPs) witnessed a steady growth with contestant entry amount (CEA) of over INR 6000 crore in FY19 which more than doubled to INR 16500 crore in FY20.

However, OFSPs became ensnared in legal and social challenges where its fate depended upon the answer to the question of whether or not Fantasy Sport constituted a permissible game of skill or an illegal and immoral game of chance, ergo gambling. However, through obsolete or ineffective laws and differing opinions of various State legislatures as well as the judiciary, the debate becomes further clouded and the Fantasy Sports platforms have struck a gold mine by utilising this uncertainty to their advantage.

Nowadays there are a number of celebrity sports-persons such as Virat Kohli, Rohit Sharma, Sourav Ganguly, etc invested in and campaigning for these platforms. Some of the major active fantasy sports platforms in India are Dream11, Mobile Premier League, HalaPlay, My11Circle, MyTeam11, BalleBaazi, iGamio and Nostra Pro.

According to a report, there was more than a 100% increase in the number of Fantasy Sports Platforms with only 10 operators in 2016 to more than 140 in 2019. The Fantasy Sports user base grew from 2 million in 2016 to 90 million in 2019.[3]

This growth is mainly attributed to the Internet and smartphone penetration as well as increase in digital transactions via payment wallets and UPI. As of March 2020, the gross revenue of online fantasy sports (OFS) operators including Dream11 increased threefold to INR 2470 crore versus Rs 920 crore in the previous fiscal.[4]

A PricewaterhouseCoopers India report[5] underlines potential by stating that the country s fantasy sports industry can create over 5000 direct and 7000 indirect jobs over the next three years. It also estimates that this sector can contribute GST revenue worth between Rs 3000 crore to Rs 3500 crore over the next five years.

The Government, Judiciary and some State legislatures have now recognized the potential of Online Fantasy Sports generating employment, Foreign Direct Investment, technological innovations, and development of the sporting and entertainment industry.

Gambling And Betting Laws In India:

India is a quasi-federal State with its legislative powers distributed between Centre and State under Article 246 of the Indian Constitution on matters given under the three lists of the Seventh Schedule. Every State in the country controls determining the legality of betting and gambling through List II, Entry 34 of the Seventh Schedule which gives the State power to adjudicate on the subject. However, the platform of fantasy sports is still a grey area for most part since there has been no legislative development towards the same. And therefore, it has been left to the Courts to decide whether or not the OFSP s come under the radar of betting and gambling.

 Betting or Gambling has been defined under Section 65B under Chapter V of the Finance Act, 1994 as putting on stake something of value, particularly money, with consciousness of risk and hope of gain on the outcome of a game or a contest, whose result may be determined by chance or accident, or on the likelihood of anything occurring or not occurring.

Public Gambling Act, 1867 (hereinafter referred to as Act, 1867) is a colonial-era Act which puts a ban on public gambling and gambling houses with an exception to the games of skill.
The Act, 1867 had been put into place but post-independence, it was eventually left up to each individual States to decide whether or not to adopt the fundamentals of the Act. Most States, with certain amendments of their own, eventually adopted the Act, 1867. Other States introduced their own laws regulating the gaming platform.

Sikkim has introduced the Sikkim Online Gaming (Regulation) Act, 2008 which permits online casinos for certain games.

Meghalaya s Regulation of Gaming Act, 2021 allows online as well as land-based games of chance under a licence.

Nagaland s Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2016 regulate poker as a game of skill.

Betting on games of chance would attract the prohibitory laws mentioned above. However, betting on fantasy sports is unregulated and it attracted the doctrine of res integra. However, judicial pronouncements have now made the same clearer. In certain states like Andhra Pradesh, Telangana, Assam and Odisha, Fantasy sports are prohibited. Telangana introduced the Telangana Gaming Amendment Act, 2017 for the same.

Tamil Nadu introduced an Ordinance (Tamil Nadu Gaming and Police Laws (Amendment) Ordinance, 2020 published on 21 November 2020) to prohibit online wagering. However, the amendments brought the attention of the courts and the Madras High Court intervened as a reminder to strike down anything in the Ordinance which was prohibitory and went against the doctrine of proportionality given in K.S. Puttaswamy v. Union of India.[6] The Court went ahead to quote the 276th Law Commission, headed by Dr. Justice B.S. Chauhan, which recommended  regulation  instead of  prohibition .[7]

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 .[8]

Judgments:
The OFSPs have witnessed various ex-clients turned petitioners, claiming their registered cash back after suffering huge losses and citing its reasons to be the realisation of the nature of the activities carried on these platforms to be purely based on chance and not based on the skills of the participants and therefore, clearly amounting to gambling given under the Public Gambling Act, 1867.

This trend is witnessed in multiple cases in the High Courts of various States, one of them being Varun Gumber v. Union Territory of Chandigarh, 2017 in the Punjab and Haryana High Court.[9] The judgement analysed the Public Gambling (Punjab amendment) Act, 1929, gave a detail of the activities carried out on Fantasy Sports platforms such as Dream11, and considered the Apex Court judgement of K.R. Lakshmanan v. State of Tamil Nadu[10] which paved the way to a discussion on what amounts to a game of skill vs. chance.

The Court was of the view that playing fantasy games by any participant involves considerable skill, judgement and discretion. The participant has to assess the relative worth of each athlete/sportsperson as against all athlete/sports persons available for selection, study the rules and regulations of strength of athlete or player and weakness and therefore, fantasy sports constitute the game of "mere skill" and do not fall within the activity of gambling for the invocation of 1867 Act.

Justice R.V. More in the case of Gurdeep Singh Sachar v. Union of India, 2019[11] before the Bombay High Court has predominantly relied upon the analysis and findings of the Punjab Haryana High Court in the Varun Gumber case and also established that Dream11 and the fantasy sports services it provided fall under the definition of a  game of skill.

The Rajasthan High Court passed a similar judgement in Ravindra Singh Chaudhary Vs. Union of India & ors, 2020.[12]

The decades old Supreme Court judgements have determined the difference between games of skill vs. games of chance, which are with respect to horse-racing, prize competitions, poker, etc.

One such judgement on whether a sport predominantly relies upon skill or chance was given in the 1996 judgement of K.R. Lakshmanan v. State of Tamil Nadu supra. The 3-judge bench of the Hon ble Supreme Court held that "horse racing" is not gambling, and is a game of skill, not of mere chance. The inherent capacity of the animal, the capability of the jockey, the form and fitness of the horse, the weights carried and the distance of the race at the time of the race are all objective facts capable of assessment by race goers.

The Apex Court held that:
  1. The competitions where success depends upon the substantial degree of skill are not gambling; and
  2. Despite there being an element of chance, if a game is preponderantly a game of skill it would nevertheless be a game of "mere skill"

Almost 7 decades ago, the Apex Court in the case of R.M.D. Chamarbaugwala & Anr. vs. Union of India & Anr, 1957[13] pondered and adjudicated upon the contention that the word  gambling given under S. 2(d) of the Prize Competitions Act (42 of 955) included not merely competitions that were of a gambling nature but also those in which success depended to a substantial degree on skill and the sections and the rules violated their fundamental right to carry on business, and were unsupportable under Art. 19(6) of the Constitution. It was held that gambling is not trade and would not fall under the ambit of Article 19(g) of the Constitution. It was further held that the competitions which involve substantial skill are not gambling activities. Such competitions are business activities, the protection of which is guaranteed by Article 19(1)(g) of the Constitution.

In a recent appeal to the Apex Court against the order of the Rajasthan High Court, Justice Nariman and Justice Gavai held that the matter of OFSPs was no longer res integra due to the plethora of judgements given by several high courts on the matter. The bench also backed the High Court judgements and upheld the legality of fantasy sports in the country.

On 14th February, 2022, the Karnataka High Court also favoured the online gaming industry of India and called out the law against Fantasy Sports for being unconstitutional.

Challenges Faced By The Consumer:

  1. Financial Risk and Addiction:
    Today, all activities which involve investment of real money of a consumer, also involve a looming financial risk which the consumers need to be conscious of. Similarly, a financial investment in OFSPs involves an element of risk - the consumer may lose the invested money, the investment may not have profitable or even a break-even return, etc. However, the consumer can invest any amount into the game which allows him/her to control the degree of risk involved. Moreover, certain online platforms provide these games for free. Hence, it is up to the users to ascertain what degree of risk they are willing to take.

    Moreover, like any other application, most of the fantasy sports apps are designed to hold user attention and ensure that users return to the application.[14] A KPMG survey stated that 74% of the users engage with the platforms 1-3 times a week.[15] Unlike the USA and other countries, the concept of Daily Fantasy Sports (DFS) does not exist in India. So factors such as off-season periods help towards achieving the goal of reduction of the factor of addiction.

    The platforms recognize the financial risks involved as well as the element of addiction and they make the same perfectly clear in their advertisements with disclaimers.
     
  2. Minors:
    The biggest apprehension towards the OFSPs is the element of minors getting addicted to these platforms. Therefore, most of these platforms have an age restricting criterion which does not allow children below the age of 18 years to participate in the games offered. The draft of guiding principles submitted by NITI Aayog concluded with similar views. It was stated that pay-to-play formats should not be offered to minors.

Other Challenges:
The lenient approach taken by these platforms towards following the guidelines provided has resulted in a number of issues. In India, there are charges of GST fraud against Dream11, one of the prominent Fantasy Sport Platforms, by the Maharashtra government and the matter is pending in the Chief Justice of India Sharad Bobde's court.

The Madras High Court has expressed concerns over the flourishing industry. The court said it was saddened by the spate of deaths after at least 10 people lost money by indulging in online gambling and committed suicides.[16]

Fantasy Sports In The USA:

While people have been playing season-long fantasy sports since the 1980s, which still continues in India, daily fantasy sports (DFS) is a relatively new form of gaming in the USA. Rather than picking a team over the course of a season, players now can select a team for a day or week and win prizes based on their performance.[17]

In 2016, DFS reported $327 million in revenue in a single year, most of which came from DraftKings and Fan Duel.[18]

A federal law called The Unlawful Internet Gambling Enforcement Act, 2006 has been passed which prohibits online gambling but fantasy sports are exempted from the ambit as they are not considered online betting but come under the category of games of skill. The following exemption has been given under the definition of  bet or  wager in 31 USC 5362.[19]
However, USA being a Federal State, each State still maintains control over determining the legality of Fantasy Sports and whether or not it constitutes as online gambling, thus coming under the purview of the 2006 Act.

The legislation regarding Fantasy Sports is unclear in the USA as well. Reliance is given on judgments passed by Courts and precedents. The Courts in the USA as well as India have been favourable towards the OFSPs. The most common reason to consider fantasy sports a legal activity is the  dominant element test, which accepts that there is a percentage of chance in many legal activities, such as stock trading.

However, if the amount of skill outweighs the amount of chance needed to be successful, the activity does not constitute gambling.[20]

The US federal trial court in Humphrey v. Viacom[21] found that losses from fantasy sports were not  gambling losses as:
  1. fantasy sports operators provided a service of  statistical analysis in exchange for the entry fee; and
  2. the winnings were disclosed before the commencement of the fantasy sports season and were not dependent on the amount paid for the entry fee.

In April 2020, the Illinois Supreme Court, applying the  predominant factor test, ruled that DFS is not gambling. In Dew-Becker v. Wu, the Court found that  since every contest inevitably has some element of chance, the  predominant factor test  provided a  workable rule that allows for greater consistency and reliability in determining what constitutes a game of skill. The Illinois Supreme Court, along with a majority of US states, found DFS to be predominantly skill based ... because skilled players can predominate in the DFS contests.[22]
Similar views were expressed by the Indian Judiciary in the Satyanarayana case(rummy) and the Lakhshmanan case (horse-racing)

Taxation (and revenue generation) is a primary incentive for states to legalise DFS. Montana was the first state to pass legislation regulating fantasy sports with the primary purpose of it serving as a new source of revenue.[23]

In February 2020, the court in White v. Cuomo ruled that DFS contests are gambling under the New York state penal code and that the 2016 law that legalised DFS violated the state constitution s prohibition on gambling expansion.[24] The court rejected the legislature s finding that contests where participants compete for cash prizes by selecting an imaginary roster of athletes and gain points based on the real-life performance of those athletes are games of skill and therefore, not gambling. The court ruled that DFS met the state s definition of gambling because the actual performance of the real-life players is dependent on factors outside the DFS contestants  control.

NITI Aayog Paper On OFSPS:

The Apex public policy think tank of the Government, NITI Aayog, recognizing the vast-growth of the OFSPs in the country, recently in December 2020, published a paper highlighting the guiding principles for the Uniform National-level Regulation of Online Fantasy Sports Platforms in India.
 
The paper highlighted various issues surrounding the OFSPs industry such as:
  1. No objectively definable test to differentiate between a game of skill or game of chance and it is solely basing it on judicial pronouncements
  2. Different State-specific regulations for a national, and potentially international, platform resulting in inconsistent experience, fairness, etc

The recommended guiding principles and recommendations to be followed by all Online Fantasy Sports Platforms are:
  1. Independent Government recognition of the OFSPs;
  2. All formats of OFSPs should remain predominantly skill-based;
  3. Pay-to-play format should obtain an approval of an independent evaluation committee and shall not be offered to children below 18 years of age;
  4. OFSPs should imitate real-world officially sanctioned sport with little to no element of chance;
  5. Implementation of a single national policy which will bring transparency to both, the players and the platform;
  6. Independent oversight board for self-regulating organisations and establishing independent grievance redressal mechanism;
  7. Few other principles included fair and transparent pre-declared rules, compliance with advertising guidelines, and communication to all states for immunity.

Conclusion:
There is a need for an independent regulatory overview to avoid insider trading among the major OFSPs and to keep the operations of the said platforms transparent so that they do not encroach into gambling. The pre-dated legislation and new State amendments are some of the major causes of confusion and difficulty in regulation. Therefore, there is a need for a present-day well drafted umbrella legislation, specifically governing the Online Fantasy Sports platforms, with an equally robust regulation.

Ashwini Vaishnav, Union Minister of Electronics and Information Technology, had earlier signalled the Centre s intent to impose uniform regulation for online gaming soon.[25] This would not only enable free-flow of investment to boost a stagnant economy, but also ensure growth in the country s sporting culture, generate revenue for private sector, generate direct and indirect employment, and increase in FDI.

Strict age-limit verification is required, so that people under the age of 18 years are restricted from participation, along with a set cap on the amount of time and money spent daily by each person on these platforms.

End-Notes:
  1. NITI Aayog, Guiding Principles for the Uniform National Level Regulation of Online Fantasy Sports Platforms in India (Draft for Discussion), December 2020
  2. The Viewpoint - Fantasy Sports: A Legal Check
  3. Business of Fantasy Sports- https://fifs.in/wp-content/uploads/2020/07/Business-of-fantasy-sports_Final.pdf
  4. Ibid
  5. PricewaterhouseCoopers India s report: Federation of Sports Gaming  " Report on Taxation of Online Fantasy Sports Gaming Market in India (May 2019
  6. (2019) 1 SCC 1
  7. Junglee Games India Private Limited and Ors v. State of Tamil Nadu - MANU/TN/5230/2021
  8. Ibid at 2
  9. MANU/PH/1265/2017
  10. MANU/SC/0309/1996
  11. MANU/MH/1451/2019
  12. MANU/RH/0499/2020
  13. 1957 AIR 628
  14. Research White Paper on The Regulation of Fantasy Sports Platforms in India  by The Dialogue
  15. Ibid at 2
  16. Outlookindia on Online Gaming
  17. NCSL Legality of Fantasy Sports
  18. Link Springer - Daily Fantasy Sports and Law in the US
  19. https://www.law.cornell.edu/uscode/text/31/subtitle-IV/chapter-53/subchapter-IV
  20. Ibid at 17
  21. Humphrey v. Viacom, Case No. 06-2768, (D.N.J. 2007)
  22. Scott Beckmen & Hailey Perkins, A Victory for DFS and the  Predominate Factor Test, JDSUPRA (Aug. 17, 2020)
  23. Ibid at 18
  24. White v. Cuomo 2020 NY Slip Op 00895, 181 A.D.3d 76, 118 N.Y.S.3d 775 (App. Div. 3rd Dept.)
  25. In A Hat-Trick Of Wins For The Fantasy Sports Sector, Karnataka High Court Also Quashes The Law That Criminalized Fantasy Sports In The State - Golf Single Player

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