A spate of high-stakes legal victories means the fantasy sports format is here to stay, but there is still much to be done to stabilise the industry, writes Amol Apte at Dream11

Editor’s note

Despite the sector holding much promise, fantasy sports and online gaming companies with stakes have had to fend off litigation and regulatory ire. However, the fantasy sports sector recently saw a significant win with the Supreme Court upholding a Rajasthan High Court order dismissing a public interest litigation that sought to ban such games. The court in its judgment said the question of fantasy sport games such as Dream11 amounting to gambling was no longer open to question. On the other hand, online gaming companies with stakes had to hold off celebrations despite a favourable ruling from Madras High Court after the Tamil Nadu government said it would re-introduce legislation to ban them.

The popular Indian film, Baahubali, has a scene where a captured wild bison is brought from the jungle before the king for a fight. The king wants to use the bison to demonstrate his strength in a stadium full of people eagerly awaiting to see who will win. Neither the bison wants to be tamed, nor the king wants it to be used as a work animal. The fight ends with the king killing the animal for a few short-lived moments of enjoyment and spectacle.

Amol Apte
Vice president, legal at Dream11

This scene has parallels to the constant stand-offs between disruptive tech startups and the law, with startups being the wild bison and the law being the king. The disruptive startups work hard in the first phase of their growth, solving a lot of problems, capturing consumer interest and trust as well as investor confidence. They achieve many things that would take traditional businesses decades to achieve. But the fast-paced growth may sometimes take the focus away from engaging with regulators and ensuring a framework of regulation, governance and compliance.

On the other hand, regulators take their own time to adjust and understand new technologies, and rather than creating a win-win legal framework that allows disruptive businesses to survive and grow while ensuring compliance and governance, they get drawn by the easier alternative of prohibition to rein in the startups that are raring for growth.

Online fantasy sports (OFS) and online gaming in India are examples of industries that have disrupted the way sport is enjoyed, and the way people spend their time and money on entertainment. At the same time, these two sectors are live examples of how a legal or regulatory vacuum can create uncertainties or even existential challenges for otherwise growing and booming industries.

Some of the most recent judicial developments in the OFS industry have busted a few myths and also defined a certain path for the industry and legislators to work on a mutually beneficial, and compliance and governance-driven, framework.

Definitive traits

Everyone is aware of legal arguments around elements like the involvement of skill in virtual team selection, points systems, knowledge of the real-life sport, players, etc., and their respective importance in fantasy sports that give it a definitive skill-based structure. In the author’s personal opinion, fantasy sport is a unique tool of entertainment that has the following critical elements, which set it apart from all other forms of online entertainment and gaming:

  1. It’s a form of entertainment that relies on a predominance of skill, which is based on skill-predominant real-life sport;
  2. The real-life sport only contributes to the extent of supply of statistics for the fantasy sports, which are then used for points generation, tabulation of respective participants points, etc.; and
  3. The formats of virtual teams in fantasy sports are the same as, or almost like, real life.

Since 2017, fantasy sports companies in India have fought quite a few battles in court, and have received a favourable view from various high courts as well as the Supreme Court. A closer look at this judicial journey of the fantasy sports industry in India would reveal that the industry has slowly but steadily built and consolidated a road towards better governance and, more importantly, a road towards regulation, which is always better than the road towards prohibition.

Four key judgments from the Punjab and Haryana High Court, Bombay High Court and more recently from Rajasthan High Court have taken the fantasy sports industry in India ahead, one step at a time. Also, a recent Supreme Court judgment has silenced criticism of gambling and betting against the industry.

The first step

The landmark judgment of the Punjab and Haryana High Court in the matter of Varun Gumber v State and Ors was the first step for the fantasy sports industry towards establishing its status as a legal business in India. The petitioner in this case was a fantasy sports user, and was aggrieved that the format of fantasy sports was akin to gambling, and is thus a prohibited activity under the provisions of the Gambling Act, 1867.

We are aware that the Gambling Act, 1867, clearly stipulates that nothing in the act shall apply to games that involve “mere skill”. The Supreme Court in various cases has laid down the “predominant factor theory” to assess if a game involves mere skill or not.

The case was the first occasion for any court in India to analyse and assess fantasy sports on the touchstone of “predominance of skill”. It was the first time that a court assessed contours of a fantasy sports game and concluded that the game involved mere skill and, therefore, did not amount to a gambling activity. The court, after analysing the formats, held that not only were they based on the predominance of skill, but as it was not gambling, it was a legal business and had protection under article 19(1)(g) of the Constitution of India.

A leap forward

In 2019, the fantasy sports industry took another leap ahead in terms of judicial recognition, when the Bombay High Court in the matter of Gurdeep Singh Sachar v the State, decided on a somewhat similar issue of gambling, albeit with the addition of a goods and services tax (GST) angle. This judgment was another leap forward for fantasy sports because not only did the court validate and agree with the judgment passed by the Punjab and Haryana High Court earlier, but it also analysed the definition of “betting” as stipulated under the Finance Act, 1995, and held that fantasy sports did not amount to betting, gambling or wagering.

The issue of GST is intertwined with the issue of gambling and betting in as much as this would decide the quantum at which the GST would be payable. It is in this context that the Gurdeep Singh Sachar judgment holds immense value for the fantasy sports industry.

It is important to note that only the special leave petition preferred by the State of Maharashtra against the Gurdeep Singh Sachar judgment is pending before the Supreme Court. The top court has already dismissed the special leave petition preferred by the Union of India against the order.

However, it has allowed them to prefer a review petition before Bombay High Court, primarily because the government submitted that they didn’t get a chance to represent themselves. But in this matter, the Supreme Court clarified, in its order dated 31 January 2020, that the union could only argue about GST in the review, and the gambling issue was no longer open.

Consolidation

Realising the regulatory vacuum, and understanding the need for better governance, consumer grievance redressal and world class practices, the fantasy sports industry had started working towards establishing a self-regulatory body almost immediately after the Punjab and Haryana High Court order, which gave birth to the Federation of Indian Fantasy Sports – formerly known as the Indian Federation of Sports Gaming – and had adopted a charter and policies to make sure that its members offer court-approved fantasy sports formats, along with an avenue for the users to resolve their grievances with fantasy sports platforms. This self-regulatory industry body has more than 30 fantasy sports operators in India as members.

It is in this context of better governance and self-regulation that 2020 and 2021 have proven to be the years of consolidation and vindication in terms of judicial and legal clarity and, at the same time, recognition to efforts to create a well-governed and self-regulated industry.

The Rajasthan High Court, first in the matter of Chandresh Sankhla v the State of Rajasthan, held that the issue of gambling is no more res integra (open for legal debate). More recently, in the matter of Ravindra Singh Choudhary v State the court recognised that the fantasy sports industry does not operate in a regulatory vacuum and is governed and self-regulated through the Federation of Indian Fantasy Sports. It also recognised several best practices from the body’s charter, and the efforts made by the industry to ensure an ecosystem that is based on the foundation of governance.

The Rajasthan High Court once again, in the matter of Sahil Nalwaya v State, held that any order to prohibit a legal business of fantasy sports will not only be against article 19(1)(g) but will also not hold water as per article 14 of the Constitution of India.

While it’s well known that these orders have been challenged before the Supreme Court in different special leave petitions, and have been dismissed, two orders from the Supreme Court stand out and give emphatic clarity around the allegations against fantasy sports as a business in India.

First, an order in January 2020, in the matter of a clarificatory application filed in the context of Union of India v Gurdeep Singh Sachar and Others, clarified that the argument of gambling is no longer valid. Second, the 2021 judgment in the matter of Avinash Mehrotra v State and Others upheld three judgments of Punjab and Haryana High Court, Bombay High Court and the Rajasthan High Court, and held that the issue of gambling in the context of fantasy sports format before the court is no longer open for legal argument.

Bringing clarity

These judgments and orders have, on the one hand, put an end to allegations of betting and/or gambling against the fantasy sports industry and, on the other hand, paved the way for the industry to start focusing its energies on governance, regulation and more systemic growth of the industry. These court judgments have in a way brought a sense of stability to an industry that holds great prospects for the exchequer, investment, business, entertainment, fan engagement, as well as employment, technology development, and other such areas.

At this stage, it is important for the legislature to understand that invoking prohibition by referring to Entry 34 on Gambling and Betting of the State List – under the seventh schedule of the constitution, which defines allocations of powers and functions between the union and states – may not be the right way to look at the fantasy sports industry, because the high courts and the Supreme Court have time and again held that it does not amount to betting and gambling.

A better and in the author’s opinion more progressive way may be to look at the industry from the lens of regulation under a better-suited Entry 33 under Sports, Entertainment and Leisure. There are several other aspects of this business that may attract elements of information technology, interstate trade and commerce, and intermediation, and thus may need a deeper analysis of a suitable entry in the Central List. This outlook may create a whole new landscape for generating income for the exchequer, as well as generating employment for the country.

It is also critical for the industry to focus more on matters of good governance, and start looking at the softer elements of its offerings, such as providing more controls in the hands of users to avoid addiction, creating better processes for user verification and identification, creating transparent processes to develop user trust and avoid perception issues, and other such issues that are common to tech platforms.

When both the industry (bison) and legislature (king) start looking at the win-win solutions, facilitated by stability brought in by the judicial pronouncements, it will pave the way for a future that is mutually rewarding and at the same time stands the test of governance and better regulation.

On the back of a clear judicial and legal mandate coupled with a cohesive approach from the industry and legislators, the fantasy sports industry is poised to be the chosen tool for sports engagement and entertainment for sports fans in the years ahead.

Amol Apte is vice president, legal, at Dream11, an online fantasy sports platform based in Mumbai. The views expressed in this article are personal.