Fantasy sport, Karnataka’s online gambling ban, and what policymaking gets wrong

The ambiguity created by the law’s failure to distinguish between gambling and OFS is likely to incentivise overcompliance and lack of response uniformity among OFS platforms
Deeming something illegal does not mean that the activity in question no longer exists (Hindustan Times) PREMIUM
Deeming something illegal does not mean that the activity in question no longer exists (Hindustan Times)
Updated on Oct 08, 2021 06:24 PM IST
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ByAtish Padhy

Over the past few years, online fantasy sport (OFS) in India have gone from being a rather shady area of niche interest to becoming ubiquitous, so much so that a fantasy sport platform, Dream 11, was the title sponsor of IPL 2020. Indeed, the IPL viewing experience has changed significantly in recent years, with the long breaks between overs now stuffed with an array of commercials about cryptocurrencies, mutual funds and above all, fantasy sport. To someone unfamiliar with state-level policy developments in the country, this omnipresence of fantasy sport commercials would seem to suggest the presence of a thriving and safe fantasy sport industry, but the reality, of course, is quite the opposite.

Despite a Rajasthan High Court ruling (later upheld by the Supreme Court), stating that engaging in OFS is a business activity and, thereby, protected under article 19(1)(g) of the Constitution, several states have either explicitly banned online fantasy sport or buried them under regulatory ambivalence.

The latest in this tradition of clamping down on a promising but nascent industry is Karnataka, which amended its 1963 Police Act to ban online gambling. As The Indian Express reported, “The amended law also puts betting on the skills of others in the category of gambling and also states that ‘any act of risking money or otherwise on the unknown result of an event including on a game of skill’ is an offence.”

This provision, thus, extends the ambit of the law beyond just gambling and creates an atmosphere of uncertainty for OFS. The ambiguity created by the law’s failure to distinguish between gambling and OFS is likely to incentivise overcompliance and lack of response uniformity among OFS platforms. This is reflected by the fact that, as of October 6, Mobile Premier League (MPL) and Paytm First Games have blocked access for Karnataka-based users but Dream11 has not.

The law is problematic at three levels — conceptual, economic and ethical, each of which reveals the problems that persist in Indian policymaking.

Conceptually confused

The distinction between gambling and other forms of financial investment in “games” is based on the framework of games of chance vs games of skill. The easiest way to understand this difference is by observing the pattern of rewards a player accrues over time.

In a game of skill, a person can learn to get better at playing and consequently, is likely to make more money as time passes. In a game of chance, one cannot get better at playing, and their rewards/losses, therefore, do not show a pattern of improvement.

It is important to remember that this binary framework does not mean that a game of skill can have no element of chance involved in it, because even “real” sport itself has an element of chance (think of how the toss affects outcomes in cricket). The framework only identifies whether skill or chance play the overwhelming role in determining a game’s outcome.

Creating fantasy teams and participating in fantasy sport contests, as would be obvious to many, involves a significant amount of domain knowledge. (via REUTERS)
Creating fantasy teams and participating in fantasy sport contests, as would be obvious to many, involves a significant amount of domain knowledge. (via REUTERS)

Creating fantasy teams and participating in fantasy sport contests, as would be obvious to many, involves a significant amount of domain knowledge, for instance, of cricket gameplay, player form, pitch conditions, and a deep understanding of the intricacies of T20 cricket (like wickets in powerplay overs are more valuable than in the death overs). Thus, investing money in an OFS cannot be called gambling.

Curiously, the amended Karnataka Police Act makes two exceptions — betting on horse races and lottery contests. These exceptions are telling. The exemption of betting on horse racing shows the differential treatment given to a “real-world”, “well-established” activity that policymakers can understand readily, as opposed to online fantasy sport, which are a “virtual”, “emerging” activity and perhaps more difficult to grasp. Yet, at their heart, both activities are similar if not the same, involving investing money on the outcome of a skill-based sport or the performance of people involved in the sport. This step-motherly treatment meted out to innovative, tech-driven improvements on existing activities, drives policymaking in other innovative industries as well.

One can also use this exemption to argue for the need for greater representation of the country’s youth in politics, since the participants in online fantasy sports, in contrast to horse-race betting, are more likely to be youngsters, just as youngsters are more likely to be the ones driving innovation in broader tech startup space in general. Indeed, the motivation behind the bill is to protect the youth from becoming habitual gamers and stop them from being idle.

The exemption given to entering lottery contests, which are as chance-driven as one can possibly imagine, can be interpreted to be based on the fact that a lottery ticket, generally, costs little money. This differential treatment based on the quantum of money at risk is completely ad hoc. The skill vs chance framework determines whether a financial activity can be called gambling. It is thereby a property inherent to the design of the game, and therefore does not depend on arbitrary factors such as the quantum of money actually at stake. Buying a 100 lottery ticket is as much an act of gambling as gambling thousands at a roulette table. This points to the larger problem of the lack of “principle-based” policymaking in India, which is driven instead by arbitrary paternalism.

Economically detrimental

According to a discussion draft published by NITI Aayog in December last year, the OFS industry has grown at a “compound annual growth rate (CAGR) of 212 per cent, from 2 million users in June 2016 to 90 million users in December 2019.” This staggering growth brings with it great potential, including the possibility of over &10,000 crore in foreign direct investment and a further 10,000 crore in taxes over the next 5 years. In Karnataka alone, the online gaming industry employs an estimated 4000 people. Right up front, in its executive summary, the NITI Aayog document argues:

“With a large market of Indian sports fans and availability of digital infrastructure and engineering talent in India, the OFSP industry can be an engine for growth, employment and innovation in fantasy sports across the world, and also become a global hub for fantasy sports.” The think tank also conducted a consultation in September last year with industry representatives in order to arrive at principles and recommendations that would serve to enable the growth of the OFSP industry.

This dissonance between state governments and the Government of India’s think tank on the matter of OFS platforms shows the Indian State to be an incoherent entity, whose vision and goals, far from being uniform, are in active conflict with each other. Add to this equation the importance of an indigenous online gaming and fantasy sport industry to the Union Government’s (led, currently, by the same political party as the Karnataka state government) own policy of Digital India, and Aatmanirbhar Bharat, and you have a thoroughly-confused policy environment.

This is likely to create uncertainty and suspicion (perhaps the most significant barrier in a promising high-tech industry) in the minds of entrepreneurs, even if many Indian states do not engage in such heavy-handed legislation, and/or the judiciary continues to uphold OFS as games of skill.

Ethically blind

Of course, none of what I have said so far should be taken to mean that the OFS industry has no issues or risks associated with it. As with any other form of engaging and/or financial activity, the risk of addiction exists and so does the risk of unscrupulous platforms with unfair practises reducing games of skill, in effect, to fraud. These problems need attention and deliberation, not an outright ban.

A regulatory regime is required, which would address issues of data protection, fraud and addiction, keeping consumer interest in mind while enabling the industry to grow. For this, the NITI Aayog has proposed the creation of a self regulatory body that is recognised by the government.

One such body, the Federation of Indian Fantasy Sports (FIFS), already exists. It is also possible to argue for regulation to be driven by legislation or guidelines issued by the union government. Both approaches would come with their own set of trade-offs, but one can only begin to have this conversation when the legality of OFS platforms does not differ arbitrarily from one Indian state to the other.

Finally, one can argue against the ban on gambling altogether. Bans, as the cliche goes, don’t solve problems, they only drive them underground. This is true of gambling as it is true of alcohol and narcotics. Bans work to absolve the government of its regulatory responsibilities. But deeming something illegal does not mean that the activity in question no longer exists and eventually, as has been well documented in the deaths due to contraband alcohol, unregulated, banned activities and substances end up hurting the very people the bans intend to protect.

Paternalisic bans, therefore, can be seen as moral failures. In the end, it is telling, perhaps, that I had to talk about substance abuse to make my point about how India’s policy landscape is thwarting a promising and innovative industry.

Atish Padhy works at the Takshashila Institution

The views expressed are personal

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Friday, January 21, 2022