In its present shape, the Virtual Online Sports (Regulation) Bill, 2022 could end up creating more legal perplexities in an already complicated sector. It restricts its scope to Fantasy, ESports and its derivatives

Traditional business wisdom suggests that any industry goes through four stages of evolution — beginning, scaling, focus and consolidation. Earlier, it could take 2-3 decades for all stages to manifest, but in the digital era, the journey from start to consolidation takes less than a decade. The online gaming industry is going through a similar progression, though opinions could vary whether it is on stage 2 or 3. Consolidation or maturity is, amongst other things, facilitated by proper legal framework. Till now, the online skill gaming industry has been operating in a regulatory vacuum, and a proper regulatory set-up is necessary for its formalisation.

In this context, the Rajasthan government’s draft of the Virtual Online Sports (Regulation) Bill, 2022 assumes significance. This is the first time that a major State has come out with a draft bill for the online skill gaming sector, which hitherto was often viewed as undesirable in Manichean worldviews of State governments. States would often introduce bans which were subsequently overruled by respective High Courts, as ultra vires the Constitution. 

Rajasthan had asked the stakeholders to provide suggestions on the bill, which indicates that the government could possibly introduce it in the Assembly session in July. In an instance of fresh thinking, the State government seems to attempt to regulate it under Entry 33 of the State List of Schedule 7 (Legislative competence under Centre, State and Concurrent lists, in the Constitution) which empowers States to make laws with regard to entertainments and amusements.

This shows appreciation of the myriad High Court judgments that have held that States cannot regulate the online skill gaming sector (rummy, Fantasy, poker, chess, horse racing, etc) under Entry 34 of the State List that deals with Betting and Gambling. So far, so good! 

Falls way short

But is the Rajasthan draft the model law which the online skill gaming industry is waiting for? Sadly, the draft bill falls way short. In fact, in its present shape, it could end up creating more legal perplexities in an already complicated sector. It restricts its scope to Fantasy, ESports and its derivatives. Fantasy’s de-hyphenation from the overall online skill gaming universe (on which the bill is totally silent) is particularly confounding.

True that last year the Supreme Court held that Fantasy’s legitimacy is no longer  res integra, upholding a Rajasthan High Court decision that the activity depended upon skill, and not chance. But then the apex court jurisprudence for other games of skill goes back much earlier. In 1969, in State of Andhra versus K Satyanarayana & Ors, the Supreme Court held rummy to be a game of skill for the first time applying the preponderance yardstick mentioned in the Chamarbaugwala cases of 1950s (provenance of skill gaming jurisprudence) to differentiate between games of skill and games of chance, deciding that rummy indisputably fell in the former category.

This judgment was reiterated by the Madras, Kerala and Karnataka High Courts — all in the last one year, holding that online version of rummy is a legitimate business and leisure activity. In 1996, in the case of KR Lakshmanan versus State of Tamil Nadu, horse racing was held to be a game of skill by the Supreme Court. 

With such clear precedents, an attempt to regulate only Fantasy, and not other members of the games of skill family, could prove untenable. It also belies business sense. Of the four unicorns (firms valued over $ 1 billion) that the online skill gaming sector has given, only one is a pure fantasy operator. The rest have offerings in fantasy as well as other games of skill including rummy and poker.

Amongst other firms that are knocking on the door of  Unicornhood, most offer a wide spectrum of games of skill. Therefore, such a law if enacted could keep an overwhelming majority outside the regulatory regime it aspires to introduce. It is only recently that the major players of the industry have come together and spoken as a collective voice on issues such as GST or Centre’s AVGC policy. This unity was being acclaimed as an indicator of the imminent maturity of this sunrise sector. But, in its present form, the Rajasthan draft, and the versions it may spawn in other States, could end up putting the industry back in disarray. 

The writer is a policy and regulatory affairs professional, presently employed by a gaming unicorn

Published on June 17, 2022