On 21 October, the Rajasthan High Court dismissed a petition to ban Dream11, an online fantasy sports platform. The basic legal question before the Court was whether Dream11 is a game of chance — that is whether it amounts to gambling — or is it a game of skill? While dismissing the petition, the Court reaffirmed Dream11’s classification as an online platform of skill – in line with previous decisions by the High Courts of Punjab & Haryana and Bombay. Despite frequent existential challenges in courts, fantasy sports as a category continues to grow rapidly. A July 2020 report by KPMG and the Federation of Indian Fantasy Sports (FIFS) highlights that gross revenues have expanded three-fold over the previous year, to touch Rs 2,400 crore.
Fantasy sports allow users to create their own virtual teams by selecting active real-life players. Users then gain points based on actual team or player performances and compete to earn points, often for cash prizes. Success in fantasy gaming, therefore, is determined by a user’s exercise of superior knowledge, judgment, and attention with respect to a particular sport. This understanding is also echoed in the judgment of the Punjab and Haryana High Court in the Varun Gumber case, where it held that a user’s exercise of knowledge, judgment and attention were critical to winning in fantasy sports. Therefore, the court exempted this category of online games from the provisions of the Public Gambling Act 1867.
The Rajasthan High Court has held that the question of whether playing fantasy sports on a platform such as Dream11 amounts to gambling is no longer res integra or undecided in law. As a game of skill, where users can pay a fee to compete and win prizes, fantasy sports platforms like Dream11 are legitimate businesses protected by Article 19(1)(g) of the Indian Constitution, which guarantees the right to carry on an occupation, trade or business. As far as the courts are concerned, this issue seems to be settled for now. However, legislators should provide stable legal recognition to a segment of online gaming that, according to the FIFS-KPMG report, contributed Rs 776 crore in taxes to the exchequer in FY2020.
The Rajasthan High Court also examined the role of the Federation of Indian Fantasy Sports (FIFS) as a self-regulatory body for the online gaming universe. The court spoke favourably of self-regulation, noting that the FIFS charter was focused on ensuring that members offered games of skill and not games of chance. This is an important development in digital markets because it provides legitimacy to a mode of regulation that is hotly contested in Indian policy discourse. For example, when the Telecom Regulatory Authority of India (Trai) claimed jurisdiction over cloud service providers (CSPs) and started a consultation for the same on 14 September 2020, CSPs resisted calling it interference. While the consultation sought suggestions for a framework to set up an industry body, CSPs like Amazon Web Services and Microsoft Azure responded by stating that they were already subject to guidelines by the Ministry of Electronics and Information Technology (MeitY) as well as provisions of the Information Technology (IT) Act 2000. They argued that any additional regulation would lead to an overlap, while Trai responded by saying it was not trying to regulate CSPs, and was merely seeing if the industry could come up with a voluntary code of conduct.
The FIFS model serves as a useful template for the design of self-regulatory mechanisms in India. First, it demonstrates the value of self-identification within a very heterogenous digital space. The explosive growth of various digital applications and services can make differentiation between different types of entities a challenge for the State. Illustratively, a seemingly homogenous category such as ‘gaming’ can include very different entities – eSports or competitive video-gaming tournaments, multiplayer online video games like Fortnite and the now-banned PUBG, casual games such as Angry Birds, and fantasy sports as offered by the likes of Dream11. Therefore, self-identification is perhaps the quickest and clearest means of categorisation. An FIFS membership allows members to distinguish themselves from other gaming segments. This, in turn, gives them the agency to engage in more focused discussions on means of maximising consumer and market welfare, simultaneously.
Further, the FIFS has adopted the Internet and Mobile Association of India (IAMAI) Self-Regulation Guidelines on Advertising Online Gambling. In doing so, the federation has pre-empted potential challenges linked to misleading advertising practices, and demonstrated a willingness to be proactive. Perhaps, most vitally, it has shown a willingness to work with external stakeholders, and a retired Supreme Court justice serves as the Federation’s ombudsman. Further, its board members include persons with experience in regulatory bodies, including a former Board of Control for Cricket in India (BCCI) secretary and a former Sports Authority of India (SAI) secretary.
The combination of clear self-identification, proactive adoption of rules or guiding principles and inclusion of expert stakeholders are basic ingredients that new industries can use to mainstream self-regulation in the 21st century.
Takeaways for future regulation of digital markets
The pace of technological change has led to an increasing complexity in the digital ecosystem, which is now replete with diverse products and services. This challenges State capacity to regulate new markets and necessitates a greater degree of industry expertise. In this context, self or co-regulatory approaches enable industry expertise to be leveraged to arrive at solutions, while maintaining flexibility and the ability to innovate.
Conversely, top-down regulation can often be heavy handed – such as the ban on PUBG Mobile in Gujarat last year. Police in some districts of the state even arrested several college students, in response to complaints that they spent long hours playing the game instead of focusing on their studies. The developers of the game responded by placing a six hours-a-day cap on gameplay and adding ‘health reminders’ that showed up every few hours of play. This demonstrated that collaborating with digital entities, which can make modifications to their products and evolve unique solutions, can make for a more proportionate and effective response. A corollary is that limited oversight capacity must be reserved for new markets that are associated with the greatest possible harms.
Such harms-based approaches, also known as risk-based regulation, have become a worldwide norm. In 2013, Australia’s Environment Protection Authority (EPA) initiated a project to identify the nature and scale of environmental impacts caused by various activities, prioritise which should be addressed first, and incorporate the same into the EPA’s business planning processes. This approach ensured an efficient allocation of sparse regulatory resources. A similar principle seems to underlie threshold limits witnessed in laws like Germany’s controversial NetzDG, which imposes greater obligations upon social networks with over two million users, or Australia’s Criminal Code Amendment that differentiates between degrees of harmful content, imposing stricter obligations to remove content containing ‘abhorrent violent conduct’.
Focusing State capacity on areas with significant potential harms, in turn, encourages self-regulatory efforts in relatively low-risk areas. The digital ecosystem encompasses a wide range of services across the spectrum of potential harms. For instance, the potential for harm to a user’s life and person is far greater with a ride-sharing app like Uber than an online game like Fortnite. Fantasy sports as a segment, therefore, is a good candidate for self-regulation, with relatively low potential harms – such as gambling or misleading advertisements. This understanding needs to be reflected in India’s regulatory outlook, with more organisations like the FIFS being given legal recognition. Industry, meanwhile, can accelerate this process by engaging earnestly with emerging problems and creating credible self-regulatory mechanisms that represent wide industry consensus.
The authors work at Koan Advisory Group, a technology policy consulting firm. Views are personal.