This article is written by Pratap Alexander Muthalaly, from the Government Law College Trivandrum. This article addresses the growing popularity of fantasy sport, as well as its legal basis. It also addresses the current and future impacts of fantasy sport on India as a nation.
Table of Contents
What is fantasy sport?
Fantasy sports are basically online prediction games wherein one puts together a virtual team of real sports players. One can earn points based on the in-game performances of individual players, this is often through the conversion of statistics into in-game points and rewards. A perfect example of this would be ‘Dream 11’, an Indian fantasy sports platform that allows users to play fantasy sports based on cricket, kabaddi, basketball, and football.
Why are they so popular?
In recent years there has been an increased buzz around fantasy sports, notably the Mobile premier league and the cash-rich Dream 11. While there may be many underlying factors that have influenced the fast-growing popularity of fantasy sport, some key factors stand out. They are:
Availability of cheap smartphones
The increased availability of cheap, high-quality smartphones means that more and more people have potential access to fantasy sport and gaming.
The cricket craze in India has helped fast track the rise of fantasy sports platforms in recent years, with fans showing a strong positive response to platforms like Dream 11 which have successfully enhanced their viewer experience, especially during the lockdown period.
The increasing youth population in the subcontinent has been pivotal in the rise of fantasy sport. With the current generation spending more and more time on smartphones and by that extension social media, fantasy sport has given them the opportunity to socialize and have more fun-filled interactions and competitions with their peers.
A large part of the success and growth we see in the arena of Fantasy sport can be in a great deal thanks to the effective backing and support offered by the system. Seeing the obvious commercial and cultural potential of fantasy sport, it is not surprising that the BCCI is offering complete support to the functioning of fantasy sports in India. Moreover, many notable business giants like Jio and also Paytm are looking to make inroads into the colorful arena of fantasy sport.
Origin of fantasy sports
The origins of fantasy sports go all the way back to the early 1960s, when Bill Gamson, a psychology professor at Harvard, created what was dubbed ‘The Baseball Seminar’, a contest among his fellow college professors who each paid a ten-dollar entry fee to create what was essentially the precursor of a fantasy team of baseball players. In this setup, the winner would be “the participant who, over the course of an actual Major League Baseball season, chose players who picked up the highest tally of points based on a predetermined set of statistical categories.
This soon expanded into what was commonly called the Rotisserie league, an early inspiration for today’s fantasy leagues. Participation in these leagues was largely private until the early 1990s when the advent of the internet completely changed everything. The internet transformed fantasy sports from a simple hobby into what would eventually become a global phenomenon with increasing levels of commercial viability. This was solidified with ESPN being the first major media company to bring fantasy sports into the public sphere.
The legality of a fantasy sport is essentially based on whether it falls under the classification of ‘game of skill’ or a ‘game of chance’. Games of chance are considered gambling and as a result, are restricted by state gambling laws. This however does not apply to games involving a considerable and substantial degree of skill (mathematically, more than 50%). Games of this nature are outside the scope of the existing gambling laws and are therefore legal in India.
This legality of fantasy sports was raised in relation to Dream 11, before the Punjab and Haryana High Court in the famous case of Varun Gumber v. Union Territory of Chandigarh and later before the Bombay High Court in the case of Gurdeep Singh Sachar v. Union of India. These two cases popularly dubbed the Dream 11 Judgements, upheld that dream 11 and the fantasy sports services it offered fell under the ambit of what we call a ‘game of skill’ based on the following arguments listed below:
- Firstly the respondent parties argued that to achieve success users were required to deploy considerable levels of skill, judgment, and discretion while drafting up their fantasy team;
- They further argued that while playing Dream11 all users were required to study the rules of the game and the point system put in place by the fantasy operator; for example, in the case of Dream 11, a user is required to take into account a host of different statistics including batting average, total runs, number of half-centuries and centuries, strike rate, economy rate, and five-wicket hauls
- Furthermore, it was enumerated that success in the game arose primarily out of users’ exercise, superior knowledge, judgement, and attention; for example, in the fantasy cricket version of dream11, bonus points were awarded to the gamers based on very specific heuristics like the in-game performance of the virtual team’s captain (x2 points) and vice-captain (x1.5 points).
It was further enumerated that Dream11 was a legitimate business activity that was protected within the ambit of Article 19 (1)(g) of the Constitution of India which essentially confers the right to engage in any profession or to carry on any occupation, trade, or business subject to certain reasonable restrictions that apply to fundamental rights stated in Article 19 (6) of the Constitution of India.
In a subsequent appeal against this decision which was dismissed through an order of the Supreme Court, it was held that the expression “game of mere skill” was interpreted by the honourable Court to mean “mainly and preponderantly a game of skill”.
In the State of Andhra Pradesh v. K. Satyanarayana & Ors, a similar query was raised before the Supreme Court, only this time it was regarding the game of rummy and whether it was merely a game of skill or a game of chance. In this judgment, the court ruled that rummy was primarily a game of skill because many of the game’s intricate aspects required a considerable degree of skill. For example, the fall of the cards has to be memorized and the building up of ‘rummy’ requires considerable skill with regard to the practice of holding and discarding cards.
The Bombay High Court in the case of Gurdeep Singh Sachar v. Union of India looked at the scope of the services provided by Dream11 with regard to the Central Goods and Services Tax Act, 2017 (“CGST Act”). In Section 7 of the CGST Act, the scope of the expression ‘supply is discussed in detail’. Also, entry 6 of Schedule III referred to in Section 7(2) of the CGST Act details that actionable claims other than lottery, betting and gambling, are to be treated neither as a supply of goods or for that matter as a supply of services. In a scenario such as this, the amount of money pooled in the escrow account of Dream11 would essentially be considered an ‘actionable claim’, given that the amounts are to be distributed amongst the winning participants in tune with the ultimate result of the contest.
As was previously stated in the Varun Gumber judgment, the activities of Dream11 do not amount to any form of lottery, betting or gambling, and as a result, the said actionable claim would fall under Entry 6 of the Schedule III under Section 7(2) of the CGST Act. This is in accordance with the ruling by the Bombay High Court which states that goods and services tax at the rate of 18% would be applicable for the fantasy sports gaming service that is Dream11, thus resolving the questions regarding taxation.
Why is dream 11 illegal in some states?
Recently, ‘Dream 11’ was declared illegal in the states of Assam, Orissa, Andhra Pradesh, Nagaland, Sikkim, and Telangana. This was on the basis that it is illegal to participate or play in paid contests.
In the case of Andhra Pradesh and Telangana, all types of online gaming for money have been banned. This is irrespective of whether they are based on skill or chance. Meanwhile, both Sikkim and Orissa have banned all types of gaming irrespective of whether they are online or not. In the case of Nagaland and Sikkim, companies are required to obtain licenses from the state governments before allowing players to partake in gaming.
As a result of this, ‘Dream 11’ bans people from the states of Nagaland, Assam, Orissa, Andhra Pradesh, Nagaland, and Sikkim from partaking in paid contests.
Paytm Playstore ban
The Paytm app was recently taken down from the app store because it violated google rules regarding online gambling with cash prizes.
This was on the basis of a new scheme launched by the company through which users could collect cricket stickers and scratch cards to earn a UPI cashback. This offer applied to a multitude of services including recharges, utility payments, UPI money transfers, and also refilling money to one’s Paytm wallet. According to the Paytm blog, the services functioned as follows:
- Users would collect cricket-based stickers by engaging in a variety of payment transactions including recharges, money transfers, bill payments, and so forth
- Once a certain number of stickers was collected, users could get back a form of reimbursement.
- In addition to all this, users also had the added option of gifting stickers to their friends and colleagues.
The sudden disappearance of Paytm from the Play Store came on the same day Google issued a blog post highlighting its Play gambling policies in India leading to speculations that the Paytm app which competes directly with the global search engine giant’s Google Pay service was taken down for violating its guidelines. These issues were later sorted out and the app was eventually restored to the play store.
Fantasy sport has had a strong impact on Indian sports preference and tastes, with interest trickling over to sports other than cricket according to reports of the Federation of Indian Fantasy Sports (FIFS). The same reports also state that over 87% of those who engage in fantasy sports, claim to now research and gather more information to be better prepared and formulate a clearer strategy while playing fantasy sport, also over 48% of users now watch every game irrespective of team or country.
There has been a similar positive growth in terms of revenue and income. In the 2020 financial year, the gross revenues of online fantasy sports operators stood at ₹2,400 crores compared to ₹920 crores that they managed to earn in the 2019 financial year. That is according to the FIFS-KPMG 2020 report revenue was up by almost three times year-on-year.
Furthermore, there were significant increases in tax returns. This is because online fantasy platforms and operators deduct an amount in tax from individual winnings, before handing out the winnings among successful participants. Industry estimates suggest that the tax earnings deducted from winnings in 2019 amounted to 93 crores, while in 2020 this figure further rose to Rs 250 crore.
In addition to all this, the online fantasy sports industry has also stimulated the growth of other complementary businesses such as online sports scoring platforms, content aggregators, sports merchandising, e-commerce, online sports streaming, and digital payments to name a few. As a result of all this success, several large and well-established brands are starting to see online fantasy sports as a means to successfully market their products. Also, the very fact that this season’s IPL was sponsored by Dream 11 is a sign of intent and also the latent potential of fantasy sport.
Many experts believe that fantasy sports are yet to reach their full potential. That is, it will be some time before we see the true potential of fantasy sport. That is, the ground rules are still being laid out in spite of there being a strong foundation being provided due to the aforementioned Dream 11 judgments. According to the FIFS, it is estimated that more than 30-crore Indian sports fans will watch sports online by 2020 and at least 33 percent of them will play fantasy sports. Furthermore, the continued emergence of cheap high-quality smartphones, as well as rapid improvements in digital infrastructure, mean that growth will only continue in the coming years.
The growing potential of fantasy sport is on display for all of us to see. With the immense support that it receives from multiple quarters. This includes businesses, sports bodies, and most importantly the law, with the recent ‘’Dream 11’ judgments. This marks a largely positive sign for both sport and business in India. Fantasy sport also has the potential to help increase the potential of other sports in India, with there being a real possibility that sports like Kabbadi, basketball and Football could see an upturn in fortune thanks to fantasy sport. Fantasy sport can also provide increased employment in the country with more people seeing fantasy sport as a serious activity and less of a pastime. This is in large part due to the skill aspect that is involved. It is, however, important to keep in mind that this is only the beginning and therefore one must thread patiently and carefully with what could potentially be India’s fastest growing fledgeling industry in years.
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