Will Fantasy Sports Become A Fantasy?
If you were one of the 31.57 million people who watched the IPL in 2020, chances are that you saw not one, not two, but several ads for fantasy sports companies. From BCCI president Saurav Ganguly to current stars like Hardik Pandya to international stars like Shane Watson - it seemed like every cricketer was associated with one of the fantasy sports apps. If the ads weren’t enough, Dream11 decided to sponsor the entire IPL, spending Rs. 222 crore in the process. MPL, another fantasy app has become a sponsor and merchandise partner for the Indian national cricket team at the sum of Rs. 65 lakh per match plus an additional three crores per year as the merchandise partner (total of approximately Rs. 9 crores).
As access to the internet has grown in India, so has an interest in fantasy sports, and as you would expect, cricket is at the top of that list. There are around 140 such recognised fantasy sports platforms in India currently, a large increase from the 10 platforms that existed in 2016. Most of them follow a similar business model - you create your team and you get points depending on how the players perform during the matches in real life. They’ve also found a great way to monetize while ensuring that everyone is happy: Users pay a small fee to enter into tournaments. When the tournament ends, the money is distributed among the winners, and the platform keeps a part of this as a “platform fee.” For example, Dream11 keeps 15% as its platform fee.
Dream11 is the biggest player in the space and currently has 90% of the market share. The company launched in 2008 and by 2015 the company had 0.3 million users. Fast-forward to 2020 and the company has 800 million users. The revenue has grown significantly as well - in 2019, Dream11 generated a revenue of around ₹775 crores - a 250% growth over their 2018 revenue of ₹224 crores. The company recently raised $225 million and is now valued at $2.5 billion.
It isn’t just Dream11 though - the entire industry is thriving. According to a FIFS-KPMG report in 2020, gross revenues of online fantasy sports operators stood at ₹2,400 crores in FY20. This is up 2.6 times from ₹920 crores in FY19. However, if reports are to believed, this is only the start of it. A FICCI-EY report estimates that the online gaming segment will be worth Rs. 18,700 crores by 2022. A KPMG report predicted that the IPL fantasy league will be worth $1 billion.
Legal Challenges
Despite the seemingly endless potential of the sector, there is obviously a lot of challenges as well. A major one is the regulatory difficulties. A lot of critics say that these apps constitute betting or gambling and accordingly should be regulated as such. However, last year in July, the Bombay High Court ruled that these platforms were not illegal as they did not involve any form of betting or gambling. In fact, it ruled that they could be considered games of skill. This seemed to settle the matter as The Supreme Court had already ruled (RMD Chamarbaugwala v. Union of India) that games of skill are not held to be gambling activities but are commercial activities, which are protected as a fundamental right under Article 19(1)(g) of the Constitution of India.
While many hoped that was the end of the regulatory uncertainty, it was not to be. In September 2020, Andhra Pradesh became the seventh state after Telangana, Odisha, Assam, Tamil Nadu, Sikkim and Nagaland to ban online real-money games, which include Dream11, MPL, and several other fantasy apps. Interestingly though the issue wasn’t regarding whether these fantasy sports platforms constitute games of skill - legally it seems as if it has been accepted as such. However, the issue was whether you can involve money in such games. Moreover, it seems as if there was a rise in suicides and in financial issues, leading the State governments to step in.
As of this week, the Central government has also stepped in. From December 15, the Advertising Standards Council of India has issued a series of guidelines regarding TV advertisements for gaming companies. It requires them to include a statutory warning accompanying all ads that these games should be played only at one’s own risk as it “involves an element of financial risk and may be addictive.”
So it seems to be at an impasse - how do you ensure that the companies and the sector continue to grow and also protect the users?
Is A Win-Win Situation Possible?
The Government think tank NITI Aayog recently published a set of draft guidelines titled “Guiding Principles For The Uniform National-Level Regulation Of Online Fantasy Sports Platforms In India.” Much to the relief of these platforms, NITI Aayog has not recommended banning them. The main reason for this is the growth that the sector has seen and continues to see. They estimate that the online fantasy sports sector could attract foreign direct investment (FDI) of more than INR 10,000 crores over the next few years, as well as generate 1.5 billion online transactions by 2023.
Instead, NITI Aayog recommends a set of nationwide unified regulations for fantasy sports. Their stated aim is to ensure that growth continues while putting an end to the constant legal uncertainty faced by the sector. They also recommended the creation of a centrally administered and nationally available safe harbour for games of skill. Safe harbour provisions are relatively common in the legal world and essentially ensures that certain conduct will not be deemed to violate a given law. Therefore, in this context, it can be said that when it comes to gambling laws, games of skill are deemed to be a safe harbour. Thus, they will be exempt from gambling regulations, as long as they adhere to the regulations set.
There are two other concerns. One is the age limit. The Federation of Indian Fantasy Sports, which includes Dream11 as one of its founding members, states that users below the age of 18 should not be allowed to spend or earn any money through pay-to-play formats. This is something that is very difficult to regulate - but a basic age verification would go a long way in assuring State governments that the platforms are taking steps to protect users.
Another point of contention is that there should be no misleading claims. As seen below in this ad from Proxy Khel, companies usually assure winnings, which is very often misleading. However, this leads to more users joining under the impression that they’re going to make “free” money but eventually losing money. In this context, the NITI Aayog report states, “advertising for fantasy sports contests should neither imply that winnings in a contest are ‘assured’ or ‘guaranteed’, nor project fantasy sports as anything other than an amusement and fan engagement activity.”
As seen here, advertisements for these apps often guarantee winning. (https://inc42.com/buzz/are-fantasy-sports-platforms-ready-for-niti-aayogs-guiding-principles/)
It is important that the apps quickly nip these concerns in the bud with their own policies. The quicker they are able to show that they’re willing to work with the governments, the more beneficial it will be for them in the long run.
What Next?
It will be interesting to see how all the concerned stakeholders respond to the NITI Aayog report is. For many sectors in India, the questions of regulatory uncertainty still remain. We had written about one such case in the Hemp space recently. It is important that the government shows that India is encouraging innovation and assisting businesses, rather than impeding them. Having said that, State governments need to protect the interests of their citizens as well. A unified set of regulations that ensure that both sides are protected is the need of the hour - an urgent need.