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Regulatory clean chit a priority for survival of real money gaming sector

Currently, different states such as Tamil Nadu, Karnataka, Telangana, and Kerala have enacted their laws to regulate online gaming apps offered by DFS and RMG players in the industry

Regulatory clean chit a priority for survival of real money gaming sector
A recent report by the Federation of Indian Fantasy Sports (FIFS) in collaboration with Deloitte said that India's fantasy sports market alone is projected to grow from `34,600 crore in FY21 to an estimated `1,65,000 crore by FY25, clocking a CAGR of 38%.

The future of online real money gaming (RMG) and daily fantasy sports (DFS) apps operated by unicorns such as Gameskraft, Mobile Premier League, Dream11, HalaPlay, Games24x7 and others, is once again in turmoil as the Central government and state agencies continue to crack down on the sector. 

Recently, the Tamil Nadu government took the ordinance route to initiate a blanket ban on these apps since the state considers these apps to be a new form of online ‘betting’ or ‘gambling’. In addition, the Directorate General of GST Intelligence (DGGI) has slapped a tax demand of `21,000 crore on Bengaluru-based online gaming unicorn Gameskraft Technology (GTPL), accusing it of tax evasion. GTPL, however, approached the Karnataka High Court, which, in an order dated September 23, has stayed the notice till the hearing in the case begins after Dussehra.

Note that the central government-appointed committee had already suggested the creation of an independent regulatory body to regulate RMG and DFS games under the IT ministry, although the entire details or guidelines of enforcement are yet to be shared publicly. However, most players in the space that FE spoke with likewise agree on constituting a self-regulatory body and industry-wide guidelines enacted under the IT ministry to bring some legitimacy to the segment. 

Siddharth Sharma, vice president of business strategy at Head Digital Works which offers online rummy and fantasy sports games said that the most straightforward way ahead to regulate the industry could be via a nodal regulatory agency rather than having to deal with multiple state-level regulations. Currently, different states such as Tamil Nadu, Karnataka, Telangana, and Kerala have enacted their laws to regulate online gaming apps offered by DFS and RMG players in the industry. 

“State governments keep changing and perspectives keep changing, and every year it becomes much harder to keep track of what the current stance of regulation is in each geography. And that’s why from an industry point of view, it’s easier to have the central government lay down a bunch of regulations…This is in the interest of the business surviving because a lot of investors have put money into this sector as well,” he added.

A recent report by the Federation of Indian Fantasy Sports (FIFS) in collaboration with Deloitte said that India’s fantasy sports market alone is projected to grow from `34,600 crore in FY21 to an estimated `1,65,000 crore by FY25, clocking a CAGR of 38%. The report added that the total revenue attributable to the DFS industry stood at `10,700 crore, including `5,500 crore indirect revenue in FY21 through its vendors and service providers.

However, the debate on the legality of these ‘online’ apps continues to be questioned by various states and central agencies even though the Supreme court earlier held that such games involve some level of ‘skill’ and is not entirely based on chance. In 1967, in a legal suit between the State Of Andhra Pradesh vs K. Satyanarayana & Ors, the Supreme Court ruled that games such as rummy are skill-based. Although this ruling applied only to games played in offline clubs at that time in 1967, RMG app developers cite the judgement as the basis for the constitutional validity of their online app offerings as well. 

“Although Indian laws on gambling largely predate the internet and are inconsistent across States, it does provide safe harbour for games of skill… So, the moot question is not about the legality of real-money games and fantasy sports. It is about the lack of a bright line test guiding the developers and publishers on whether a particular game is predominantly a game of chance or a game of skill. That coupled with the dated views of local authorities driven by moral panic has kept the industry vulnerable to legal uncertainty,” said Jitendra Soni, Partner at Argus Partners, a law firm that advises players in the DFS and RMG gaming space. 

Soni added that although there is some amount of legality for DFS and RMG games, what considers skill and chance in a game is still being debated. “There are only a few games which may be pure of chance or skill. It is the dominant element of these two, or what the Indian courts call the ‘predominance test, which determines the real character of the game. Further, the Indian courts have also given weightage to the dynamics of online games while applying this test. Whether a game is of chance or skill is ultimately a question of fact to be decided on the basis of the facts and circumstances of each case. For that reason, while games such as rummy, bridge, etc. are games of skill, casino games (such as blackjack, roulette, etc.) are chance-based games or akin to gambling,” Soni added. 

While the RMG and DGS game developers claim that the gameplay is highly based on skill and not based fully on chance or luck, the future of this billion-dollar sunrise sector can be in jeopardy if it does not get regulatory clearance in India. With millions of dollars already invested in fantasy sports, especially via the FDI route, a regulatory clean chit is a priority now for investors, and founders in the gaming sector. 

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