We have written multiple articles and blogposts on this topic. For an overview of the existing Indian gaming laws, see our previous blog. See also the implementation of various state enactments pertaining to online gaming as discussed in our previous blog. Detailed discussions on judicial tests separating gaming and gambling have been discussed in our previous blog. Scope of E-sports Betting in India and the dire need for a comprehensive regulatory framework has also been discussed by our Partner, Archana Balasubramanian in a recent article in Gutshot magazine.
The objective of this post is to consolidate and update readers on the position of E-sports in India and summarise in one place all commercial – legal aspects of the same.
What is E-Sports?
Commonly confused with online gaming due to its reliance on electronic devices, E-Sports is a competitive multiplayer sport played across various formats including leagues, tournaments and championships. However, what separates E-Sports from online gaming is the fact that it requires significant physical and mental skill. In that sense, E-Sports in fact has more in common with the traditional sports. For example, both are monitored; its participants require excellent hand-eye co-ordination, focus, sensory processing, and executive function; and both require considerable practice and strategizing.
Key Stakeholders in the E-Sports Industry
Akin to any another, the E-Sports industry was birthed and shaped by the interplay of certain key and important stakeholders. Inter alia, the key stakeholders involved are:
|Players||they are the athletes and participants who as individuals or members of teams, clubs, and franchises, professionally compete in virtual leagues, tournaments, championships, or other such arenas.|
|Team Owners||they include clubs, franchises and other such organizations that draft the players for the competitions.|
|Sponsors||they invest financial and operational resources in exchange for marketing and advertising rights.|
|Organisers||they periodically create and organize the competitions across multiple online games and platforms.|
|Publishers||they own the intellectual property of the online games which form part of the competitions.|
|Broadcasters||they stream and make the competitions available to the audience.|
|Regulators||they include federations and associations that create and develop the rules that govern the competitions.|
E-Sports Ecosystem and its Formats
While the nature of the competitions vary depending on a number of factors such as frequency, scale, operations, organiser preferences etc., their formats typically fall into three broad categories: physical –wherein competitions are conducted in stadiums, arenas, and other venues, online – wherein competitions are conducted on gaming platforms but monitored and/or streamed via private rooms, and platform-based – wherein simultaneous games and competitions are conducted on a virtual platform.
Similarly, the ecosystem in which the competitions are conducted also fall into two broad categories: open and closed. Whereas the open ecosystem makes competitions more frequent and accessible by allowing anyone to view, organise, and participate, the closed ecosystem like traditional sports tournaments is exclusive to specific teams, players, and viewers; who are required to pay premium fees for their involvement.
Economic Impact in India
As estimated by the FICCI-EY report 2021, the Indian E-Sports industry is expected to quadruple and reach INR 11 billion by 2025. Fuelled by the boost in broadband capabilities, users, and smartphone production and penetration, the economic impact of this growth is going to be multifaceted.
For example, as the popularity of E-Sports rises amongst the youth, more people will seek to become salaried players by joining teams. While the team owners will benefit from the sponsorships as well as the prize moneys, the organizers’ revenue will increase from the frequent competitions, participations fees, and the sale of viewership rights to broadcasters. In order to win, teams will also be motivated to customize their gaming experience and make in app purchases, which in turn will bring increased revenue to the publishers and developers. Meanwhile, broadcasters’ and sponsors’ earnings will soar from the business produced from advertising and marketing. Ultimately, the investments made in the industry and the tax revenues generated therefrom are expected to be in billions of rupees.
Moreover, not only will the E-Sports industry tap into new income streams that include licensing, merchandising, player salaries, even management incomes etc. but will also foster thousands of job opportunities in the fields of event management, sales, law, game design and development, broadcasting, marketing and advertising.
Legal Framework and Challenges for Indian Business Owners
At present, the central legislations on gaming in India are limited to the Gambling Act 1867 and the Prize Competitions Act, 1955. Applicable in 16 states and union territories, the Gambling Act excludes from its purview, those games which require skill. Empowered under List II of the Seventh Schedule of the Indian Constitution to regulate laws on betting and gambling, various states accordingly permit games which require skill, and prohibit those based purely on chance.
Unfortunately, there exists no manual, guideline, rule, regulation, or test which clearly distinguishes the two. The determination is therefore only made in disputes before judicial forums and bodies; when it is often too late. This uncertainty presents the biggest challenge for all the stakeholders and business owners of the E-Sports industry.
What aggravates this confusion further, are the divergent views of the state governments across India. More particularly, Sikkim, Nagaland and Andhra Pradesh are the only states that have introduced regulations pertaining to online gaming. Apart from Odisha, Assam, and Telangana, all other states permit games of skill. In West Bengal, playing particular games including poker etc. are licensed by the state, whereas Goa permits gambling only in statement government authorised casinos.
Notably, recent landmark judgments of various Indian courts have come to the rescue of the E-Sports business owners. In 2017, the Punjab and Haryana High Court was the first to rule that fantasy sports were games of skill. The same year, the Madras High Court urged the need for a regulatory framework that deals with online gaming. Unsurprisingly, the ruling of the Punjab and Haryana High court was also endorsed by the Rajasthan and Bombay High Courts, and ultimately upheld by the Supreme Court.
Other Challenges for Indian Business Owners
In games and tournaments involving real money transactions, the threats of cybercrime, identity theft, data privacy breach, credit and debit card frauds, underage gambling, match fixing, intellectual property infringement etc. are likely to confront all stakeholders of the E-Sports industry. Therefore, unless business owners ensure proper onboarding and authentication of transactions, put in place robust firewalls, encryptions, and secure biometric authentication, they are likely to expose themselves to limitless legal consequences.
The wide disparity in the already scarce and outdated laws, rules, and regulations imposes a colossal burden of compliance on E-Sports business owners in India. As a result, none of the stakeholders are likely to enjoy and be subject to the same rights and obligations, until a comprehensive and clear regulatory framework is put in place and effectively implemented by the Indian government.
– Archana Balalsubramanian (Partner), Siddhant Marathe (Associate)