It has not been an easy journey for the fantasy sports industry over the last decade. Early on, with no law to rely on, its main task was to not fall afoul of archaic anti-gambling laws that prohibited ‘common gaming houses’ and ‘instruments of gaming’ but, rather charitably, carved out an exception for ‘games of skill’.
While the Supreme Court had helped define the broad contours of this exception, did it apply to fantasy sports? There was no obvious way to know and only one way to find out – if someone sued the operator. The industry pioneers grew cautiously and quietly, risking the dangers of assumed criminal liability while building an engaging and constantly evolving product for the Indian sports fans.
Then, inevitably, the legality of fantasy sports was challenged before the Punjab & Haryana High Court. The court evaluated one specific format of fantasy sports that was before it and recognised it as a ‘game of skill’ — by extension, not gambling. Multiple other high courts followed suit, each endorsing the same format, but not laying down broader principles that could serve as precedent. The judicial clarity acted as a fillip for the industry, changing the risk profile of the sector and attracting entrepreneurial interest and venture funding.
Fantasy sports contests are neither a new concept nor a uniquely Indian product. They have been around in the US for many decades, first in offline physical form before growing into a multi-billion-dollar industry in the online version. India got its first taste of online fantasy cricket 20 years ago with a game called Super Selector, which was free to play and offered winners nominal prizes. It is only in recent years that online fantasy sports contests have offered prize money for those who play for stakes, raising eyebrows in the bargain.
Paid fantasy sports are easily mistaken for sports betting, especially given their regulatory adjacency to anti-gambling laws. There is, however, a subtle but important difference. Fantasy sports do not involve staking on the results of the underlying real-world sports match or, for that matter, directly on the performance of the participating athletes.
A fantasy sports contest is a separate, derivative strategy contest that is based on – but distinct from – the real-world sports match. Users stake on their own ability to research, plan, draft, select and assemble a virtual team from available players, within the rule constraints of the contest, in an attempt to outwit other users and win, at times, cash prizes. It is in some ways akin to professionally managing a virtual sports team and being compensated for good performance.
There are scores of sports disciplines and, each year, many thousands of sanctioned sports matches are played worldwide. The possible variants of virtual contests are only limited by one’s imagination and, to a certain extent, by technology. This means that the number of potential virtual contest formats is infinite. While many of those may not satisfy the legal test of being ‘skill predominant’, some certainly will. However, when the various High Courts endorsed one specific format of fantasy sports (where users pick players before a match begins), things changed for them all, regardless of their merit. The one format became effectively risk-free, the rest remained in ambiguous legal territory. Practically all of the 100-plus fantasy sports operators began offering more-or-less the same judicially-endorsed format.
Progressively, the industry grew more competitive, more risk averse and more fearful of innovating. Instead of differentiating on product, the operators focused on highly-visible marketing campaigns to attract new users. These attracted the attention of broadcasting and advertising regulators who recently required the ads to carry disclaimers that fantasy sports involve risks and might be addictive. Multiple state governments also decided that all online contests involving money were addictive and harmful and deserved an outright ban. Some states even passed laws removing the ‘game of skill’ exception from their anti-gambling laws, others legislated special provisions criminalising all games played for stakes in cyberspace.
By criminalising the medium rather than the activity, these laws appear to be premised on an insufficient awareness. To include fantasy sports within the ban is surprising given that these do not involve any form of interactive online gameplay, only using the online medium to enable users to draft their virtual team over a few minutes preceding a match. These recent regulatory pushbacks are signs of a fracturing system. First, the industry found itself limited and, then, punished for successfully engaging users nonetheless.
Engaging sports fans is the USP of fantasy sports. They have been able to increase the salience of and interest in various sports that have otherwise struggled to garner public attention. As the following has grown, more is being written about young and emerging athletes. Matches and sports that would otherwise have been ignored are being closely watched, followed and researched. Viewers enjoy sport when they are invested in it – using data and statistics to separate themselves from their fellow participants. User engagement sustains the economy of sports: real sports, not just fantasy. Punishing it should never be on the regulatory agenda.
The ongoing trajectory of events suggests that it is time to put in place a mechanism that insulates legitimate fantasy sports operators from criminal liability and recognises fantasy sports as a cross-border activity deserving immunity from the vagaries of variable state-by-state treatment. While freeing innovation and creativity from their current dependence on judicial permission, this can be done by recognising an independent administrative forum where operators can test new formats and have them evaluated and endorsed prior to their safe and protected roll out to the public. Passing the legal threshold and finding the right balance between innovation, integrity and legality must form a key component of empowered self-regulation of the sector.
India is uniquely placed to provide an opportunity for the fantasy sports industry to become world-leading, a fact that hasn’t garnered enough attention. If we get our regulatory framework right, several traditional contender economies will be unable to compete given that they either have already legalised sporting betting or do not have legal frameworks that can bring the clarity fantasy sports needs for growth and value.
Timely regulatory interventions can enable the industry to differentiate, consolidate, grow and deliver on its latent promise and potential to consumers and to investors. It will also help India capture the economic value of its enormous sports-viewing population and provide basis to exercise the soft power that is vital in the world of sport and its governance. There is no better time than now to support a sector with major growth potential that provides such significant downstream benefits.
Nandan Kamath is a sports and technology lawyer based in Bengaluru.