Skip to main content

Legal Capsule by Veyrah Law



Earlier, only a handful of cricket and football fans understood and participated in fantasy sports in India. In the past decade, the subscriber base, number of fantasy gaming companies and the investor base have all increased multifold. Now, credit to Dream11 bagging the title sponsorship of renowned Indian Premier League and their funny television commercials, fantasy sports are well known and are played in almost each Indian household. More so, fantasy gaming is not limited to cricket and football anymore; there are fantasy leagues for almost all sports, be it a franchisee league or an international league/tournament. The statistics clearly indicate that fantasy leagues are here to stay. 

Fantasy Sport 

What is a fantasy sport? To put it simply, fantasy sport is a game which occurs over a predetermined number of rounds, in which participating users select, build and act as managers of their virtual teams prepared from a real team. The virtual team prepared by a user competes with the virtual team prepared by other users. The results are tabulated based on the statistics, score, achievements, and results of the real players. The winner of a fantasy game is a user who accumulates the maximum number of points amongst the entire set of competitors. A fantasy game may extend from a single sporting event to an entire league or series.

From a legal standpoint, fantasy sports linked with monetary benefits was always a grey area in India. It has always been mistakenly equated with betting and gambling. Unfortunately, the archaic Indian laws governing gambling have not helped; laws governing the modern business models are the need of the hour. Having said that, the judicial principles have set out certain clear patterns for fantasy sports. The legality of fantasy sports is determined based on it either being a game of chance or a game of skill. 

Dream11 Litigation

Dream11, India’s first fantasy sports unicorn led the way after being muddled in various litigations. Indian judicial authorities pronounced the difference between game of chance and game of skill and adjudged fantasy sports (in the case of Dream11) to be a game of skill. The judicial authorities evaluated the gaming model of Dream11. Upon evaluation, the judicial authorities determined that a user/player on fantasy gaming is required to exercise a considerable level of skill, knowledge and discretion while drafting a team. Further, a user is required to study the rules and regulations to draft a team. Therefore, the success of a player is an outcome of his/her superior knowledge and skill over the others. 

The legal fight led by Dream11 bore fruits and paved the way for various other fantasy sports companies. Based on certain publicly available statistics, in the last decade – the subscriber base has increased from 20 million to 250 million, the number of gaming (and allied) companies has increased 10 times. The industry revenue has increased multifold as well and is expected to skyrocket in the next 5 years. Of course, these statistics sound like music to investors’ ears. Therefore, the investments into these gaming companies have increased multifold as well, with marquee investors entering these companies with big-ticket size investments.

Investment potential

While investments have increased and time for further investments may be ripe, potential investors may need to assess and evaluate certain elements of the business before infusing funds into these companies. The investors need to ensure and take adequate representations from the company that the business model is clearly a game of skill. They should ensure that the model falls squarely within the criteria laid down by the judicial precedents and does not promote any aspects of gambling or betting. Another reason to ensure this is the foreign exchange laws. Under India’s foreign exchange laws, while fantasy gaming companies are considered as service companies and do not draw major foreign exchange conditionalities, the foreign exchange laws categorically prohibit any foreign investment into gambling and betting sectors. Hence, if the company is at fault, it will not only be looking at penal provisions under the legislations prohibiting gambling in India; but also at penal provisions under Indian foreign exchange laws. 

While central laws in India allow fantasy sports companies to operate as a game of skill, certain states (such as Telangana, Assam, Odisha) have enacted laws prohibiting any risking of money on an uncertain event, including games of skill. Further, certain states (such as Nagaland) have enacted a license regime for virtual team selection games and virtual fantasy league games. The division of central and local laws is something investors need to be mindful of. They should conduct a thorough due diligence to understand the risks associated with the business and their investment. While as such there are no legal regimes to be followed by fantasy gaming companies, a game changer in this sector is the establishment of self-regulating body FIFS, Federation of Indian Fantasy Sports. FIFS was established to protect consumer interest and create standardized best practices in the Fantasy Sports industry. The establishment of a self-regulating body reduces the governance hassles and ensures promotion of the sector. 

Way Ahead

While the absence of sector specific laws may be a concern, the current set of laws do not create any embargo on the continuity of business of these companies. To that extent, one could safely state that fantasy gaming business do not have an existential crisis that should be a red flag for investors. If the growth of fantasy gaming companies is anything to go by, this sector may be apt for investors looking to invest into gaming and technology companies.

Arun Mohanty | Principal Associate, Veyrah Law; Ajay Joseph | Partner, Veyrah Law

Views expressed above are for information purposes only and should not be considered as a formal legal opinion or advice on any subject matter therein.

Popular posts from this blog

VC Interview: Shailendra Singh of Sequoia Capital India

In a recent interview to Venture Intelligence, Shailendra Singh discussed some of the firm’s newer investments in the early stage segment including in the online payments space, the progress at a few existing portfolio companies and the active role the firm is playing in helping its portfolio companies scale and succeed in India and globally. Prior to joining the firm in 2006, Singh was a strategy consultant at Bain & Company in New York and before that, an entrepreneur in the digital media industry. Venture Intelligence: How does Sequoia go about identifying potential early stage investments in India? Is there anything different you are doing today than, say, a couple of years back? Shailendra Singh: There is a lot more focus on technology investing and early stage investing. In general, as you might remember a few years ago, we were doing primarily growth investing but in the past 18-odd months, we have had a very strong focus on early stage and that’s continuing. In terms

ChrysCapital, Motilal Oswal PE & Sequoia named PE-VC Firms of the Decade

Press Release ChrysCapital, Motilal Oswal Private Equity and Sequoia Capital India have been named the top Private Equity & Venture Capital investors in India during the last decade, as part of Venture Intelligence’s APEX Awards. The Venture Intelligence “Awards for Private Equity Excellence” (APEX) is dedicated to celebrating the best that the Indian Private Equity & Venture Capital industry has to offer.  While ChrysCapital won the “Private Equity Investor of the Decade” award, Motilal Oswal Private Equity was feted as India’s “Growth Capital Investor of the Decade”. The Indian arm of the storied Silicon Valley VC firm, Sequoia Capital, was named the country’s “Venture Capital Investor of the Decade”. The APEX Awardees are selected based on both Self Nomination by the participating PE-VC firms as well as "crowd sourced" nominations and voting from the Limited Partner, PE-VC and advisory communities. (The main criteria were Exit Track Record, New Fund Raises & Fo

Ambit tops League Table for Transaction Advisors to Private Equity deals in 2019

Ambit Corporate Finance topped the Venture Intelligence League Table for Transaction Advisor to Private Equity Transactions for the year 2019. Ambit advised PE deals worth $2.4 Billion (across 4 qualifying transactions) during the period. Citi ($1.1 Billion across 2 deals) and  Avendus  ($969 million across 12 deals) took the second and third spot. Edelweiss Financial Services ($758 million across 9 deals) and  PwC  ($708 million across 15 deals) completed the top five in 2019.  The  Venture Intelligence League Tables , the first such initiative exclusively tracking transactions involving India-based companies, are based on value of PE and M&A transactions advised by Financial and Legal Advisory firms. Ambit Corporate Finance advised the $1.9 Billion buyout of Pipeline Infrastructure from Reliance Industries   by Brookfield Asset Management  and the IFC and I Squared Capital-backed   Cube Highways' acquisition of Delhi-Agra Toll Road from Reliance Infrastructu

PE-VC investments in 2020 cross $39-B to create a "hat trick" of all time highs

Press Release:  Private Equity - Venture Capital (PE-VC) firms, shrugged off the pandemic induced blues, to invest a record $39.2 Billion in Indian companies (across 814 deals) in 2020,  shows data from  Venture Intelligence  - a research service focused on private company financials, transactions, and their valuations. The $17.3 Billion* invested by US-headquartered private equity and other global sovereign wealth funds in Reliance Industries Limited (RIL) Group firms - including in the telecom-focused holding company  Jio Platforms ($9.9 Billion), Reliance Retail ($6.4 Billion), and  Reliance Digital Fibre Infrastructure Trust ($1 Billion) - accounted for 44% of the total PE-VC investment value in 2020. (*This figure excludes the $10.2 Billion in strategic investments by Silicon Valley tech giants Google and Facebook in Jio Platforms). On the back of the RIL deals, PE-VC investments in 2020 grew 6.6% over the   $36.3 Billion (across 1012 deals) invested in 2019 and helped create a

Legal Capsule by Veyrah Law

COVID-19: Turning Point for Online Pharma With the rapid advancement of the internet and movement of businesses online, it was only time before the pharmaceutical retail industry also joined the bandwagon. The pharmaceutical retail industry which has long been popular among investors also started to venture into providing online services ( Online Pharma ). This was due to the increased demand and tech-savvy clientele who preferred to order from the comfort of their homes. So, it was only natural that the Online Pharma sector bloomed during the Covid-19 pandemic and the ensuing lockdown.  Online Pharma is high in demand due to better discounts, convenience, greater anonymity, accessibility in remote locations, easy home delivery, etc. These features have made it the preferable option over community brick and mortar pharmacies during the pandemic. This article explores the current regulatory regime surrounding Online Pharma and the opportunities in India that it presents for investors. O