Karnataka HC lifts online gaming ban, big relief for fantasy sports

Karnataka government struck down the law banning betting and wagering in online games in October last year.

The Karnataka High Court on Monday struck down a state government law that banned online gaming. 

The Karnataka government had notified the law banning betting and wagering in online games in October last year, after Governor Thawar Chand Gehlot gave his assent. 

“The verdict is welcome news for all the sports fans in India, the biggest market for fantasy sports globally, with over 13 crore (130 million) users playing across more than 200 platforms. This judgement follows other positive judgements given by Hon’ble High Court’s of states such as Punjab & Haryana, Rajasthan, Bombay that recognised Fantasy Sports as games of skill and a legitimate business activity protected under Article 19(1)(g) of the Constitution of India,” said Said Bimal Julka, Chairman of Federation of Indian Fantasy Sports (FIFS).

“The overall impact of the judgment for the sector is positive in the short term, as this formally allows entities involved in the business to continue to offer their services in Karnataka, earlier due to the amendments in The Karnataka Police Act such service providers were facing business disruption issues and regulatory hassles more so as many of them are based in the state,” said Salman Waris, Partner at Delhi-based law firm TechLegis.

However, according to him, it is important to note that the Bench made it clear that the entire Act is not struck down and the judgment will not stand in the way of the legislature bringing in new law in consonance with the Constitution against gambling. 

“This leaves room open for further regulatory intervention by the government and there appears to be long term regulatory uncertainty, there already a matter pending before the Supreme Court in relation to skill based online and fantasy gaming so till the SC gives the final decision there would continue to be some amount of regulatory uncertainty for the sector in the long term,” said Waris.

“The law does not distinguish between skill-based gaming and those whose outcome is largely determined by luck or chance. Blanket banning of online gaming will hurt the industry and is counterproductive to India's ambition of a trillion-dollar digital economy.  

India is among the world’s fastest-growing gaming markets today. Skill-based online gaming has the potential to grow from around $1 bn in annual revenues presently to $8-10 billion annual revenue by 2030,” said Barnik Chitran Maitra, Managing Partner and CEO of Arthur D. Little, India & South Asia.

The Tamil Nadu government had, earlier last year, passed a law to ban online games such as rummy, poker and other skill-based games that involve betting and money prizes, but it was revoked in August. Other states that have clamped down on the industry include Telangana, Andhra Pradesh, Kerala, Assam and Odisha.

Sameer Barde, CEO, E-Gaming Federation (EGF), said, “We welcome the Honourable Court’s forward-looking judgment. We sincerely hope that this will set the tone to establish a robust regulatory framework for the online gaming sector.  EGF would be keen to collaborate and support the Government of Karnataka in developing a comprehensive regulation that will address all the issues of the state, citizens, and the sector. 

Since the ban, fantasy gaming platforms like Dream11, Mobile Premier League have suspended their operations in the state. In the aftermath of the ban, an FIR was also registered against Dream11 CEO and co-founder Harsh Jain. However, the court had granted him relief against any coercive action. 

Dream Sports, the parent firm of fantasy sports platform Dream11, raised an investment of $840 million at a valuation of $8 billion in November. This was led by Falcon Edge, DST Global, D1 Capital, Redbird Capital and Tiger Global, even though the larger gaming sector faced regulatory uncertainty.

While Dream Sports is the most valuable start-up in the sector, Virat Kohli-backed MPL is at the second spot as it raised $350 million at a valuation of $2.3 billion in September 2021.

India’s mobile gaming sector will grow from $1.5 billion of revenue in 2020 to $5 billion by 2025, according to a report published by VC firm Sequoia and management consulting company BCG in late 2021.

While India’s gaming company initially monetised through in-game advertising, 80 per cent of the $1.5 billion generated by mobile gaming in 2020 came from in-app purchases and real-money game (RMG) spends, the report said. There are now over 300 million gamers in India, and revenue across all gaming devices reached $1.8 billion in 2020, up 500 per cent from 2016.

Deepak Gullapalli, MD & CEO, Head Digital Works, which owns online skill gaming platform A23, said, "We welcome the verdict but at the same time urge the state to view this sector as one that can be regulated. It has always been our intention to work with the state and stakeholders to have a solution that works for all stakeholders.”

MATCH POINT

– India has over 13 crore online fantasy sports players across more than 200 platforms

– Dream Sports, the parent firm of fantasy sports platform Dream11, raised an investment of $840 million at a valuation of $8 billion in November and is the most value gaming start-up in India

– Virat Kohli-backed Mobile Premier League is at the second spot as it raised $350 million at a valuation of $2.3 billion in September

– Skill-based online gaming has the potential to grow from around $1 bn in annual revenues presently to $8-10 bn annual revenue by 2030

– 80 per cent of the $1.5 billion generated by mobile gaming in India in 2020 came from in-app purchases and real-money game