Why online fantasy sports laws need further reviewing

April 10, 2021 10:24 AM

While NITI Aayog's proposals are no doubt a step in the right direction, some more thought may need to be given on how best to maximise the ease of doing business for OFSPs

It seems that achieving uniformity in the legal position would necessarily require some consensus amongst states.It seems that achieving uniformity in the legal position would necessarily require some consensus amongst states.

By Akshay Sachthey

India is now the largest online fantasy sports market by user base, having reportedly overtaken the US recently. KPMG estimates FDI inflows of over Rs 100 billion in this sector over the next few years. The NITI Aayog issued a discussion paper in December 2020 proposing draft guiding principles aimed at uniform regulation of online fantasy sports platforms (OFSPs).

Although there is room for finer print, the proposals in the discussion paper are much-needed, given India’s current legal regime under which online gaming remains largely unregulated and which is incredibly complex. This is owing to varying legal positions across states, lack of an objective test on games of skill (permitted) vs. chance (prohibited), criminal consequences for violating game operators, etc.

Self-regulation

The paper proposes self-regulation for OFSPs, with a government-recognised self-regulatory organisation (SRO) overseeing the implementation of certain broad guiding principles. The SRO would be governed by an independent oversight board having persons with relevant experience. SRO members would be OFSPs who have, as their registered users, at least 66% of registered game users in India.

Checks and balances

The first objective of the guiding principles is seemingly to have checks and balances for users. Pay-to-play games are proposed to be restricted to players below the age of 18. Terms of participation have to be fair and transparent. Rules and prizes are to be applied uniformly. OFSPs should have standards and policies to prevent illegal activity. Advertising and promotion of games should be fair, truthful and not misrepresentative. OFSPs should comply with applicable laws. The SRO should have a grievance redressal mechanism for users. These are all welcome steps.

Skill vs. chance

The second objective is to try and address the differential treatment of OFSPs across state laws. Here, the guiding principles seem to propose measures that may fall within with the legislative domain of the states and courts.

The principles require OFSPs to offer only skill-predominant games. For games that involve pay-to-play set-ups or differ in format from court-approved versions, it is proposed that an independent evaluation committee of the SRO should determine whether the game is of skill or chance, after statistical and legal evaluation. The committee is proposed to be given powers to set rules and recommend changes to game formats. Games have to closely emulate real world sports contests and not infuse artificial elements of chance, unless the committee waives this requirement. The principles also propose a national-level safe-harbour exemption for fantasy sports games that meet defined parameters for games of skill (they refer to a similar safe-harbour under US law).

While the intent behind the principles is positive, it is not clear how a committee formed by an SRO can have powers to make determinations of skill vs. chance or sanction different game variants or grant exemptions. These are matters falling within the legislative power of the states, since the Indian Constitution gives states the power to make laws on betting/gambling. Further, the treatment of different game formats would require interpretation of facts and law which is the job of the courts and cannot be done by the committee.

For example, the principles state that pay-to-play fantasy sports games should be approved by the committee. However, the legality of such sports games, where they involve real money, is unclear, and has not specifically been examined even by courts. In fact, the Supreme Court has taken the view that rummy games where stakes are involved or owners make profits could be treated as gambling. The SRO’s committee cannot settle this issue or sit in appeal over settled court rulings.

Further, safe-harbour provisions would, at best, grant protection against sanctions by the SRO but not from violation of state laws (the position is the same in the US).

It seems that achieving uniformity in the legal position would necessarily require some consensus amongst states. NITI Aayog has proposed that states be requested to grant immunity from criminal prosecution to OFSPs that meet the guiding principles. However, it is unclear how this can be done without amending state laws. Further, OFSPs could still face civil penalties in numerous jurisdictions which is far from ideal.

The Central Government could perhaps encourage joint deliberations amongst states and a model amendment to state laws could be agreed which covers the guiding principles. Another option is for Parliament to make a central law on the subject but this would require two or more states to pass a resolution under Article 252 of the Constitution and the law would only apply to those states.

While NITI Aayog’s proposals are no doubt a step in the right direction, some more thought may need to be given on how best to maximise the ease of doing business for OFSPs.

The author is Principal Associate at Phoenix Legal. Views expressed are personal.

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