All You Need to Know about Karnataka’s Ban on Online Gaming

The online gaming industry has the potential to generate $2 billion in revenue by 2023 and is currently worth $1 billion or more.

Despite the boom, Indian states are divided on whether to legalise online gaming due to disagreements over what constitutes a game of skill or a game of chance.

While the governments of Karnataka, Kerala, Tamil Nadu, Odisha, and Assam consider fantasy gaming to be a game of chance (which is illegal throughout India), the Supreme Court, as well as the governments of Punjab, Haryana, Maharashtra, Sikkim, Nagaland, and others, consider fantasy gaming to be a game of skill (which is acceptable)

In the last two years, Indian online fantasy sports platforms have seen an increase in users, owing primarily to the onset of the pandemic and increased internet and smartphone usage.

According to an EY report, the online gaming industry has the potential to generate $2 billion in revenue by 2023 and is currently worth more than $1 billion.

Meanwhile, in India, the number of players wagering real money on fantasy gaming platforms such as Dream11, Mobile Premier League (MPL), MyTeam11, Halaplay, 11 Wickets, and My11 Circle, among others, is expected to reach 150 million.

Despite the boom, online gaming remains an "ambiguous" concept for regulators, similar to certain segments such as cryptocurrency. Because of the ambiguous regulations, fantasy gaming platform Dream11 suspended operations in Karnataka earlier this week. A complaint was filed against its founders, Bhavit Sheth and Harsh Jain, in light of the state's recent ban.

In another case, MPL, Nazara Games' Halaplay, Paytm First Games, and other online casino-type games have stopped offering cash games to Karnataka users.

Inside Karnataka’s Online Gaming Ban: The When, Why & How

In September 2021, the Karnataka government passed legislation prohibiting online " games of chance." According to the bill, operating such games, sheltering such operations, and abetting and participating in such online games, both cognisable and non-bailable, is a crime.

Under the Karnataka Police (Amendment) Act 2021, the offence will result in a prison term of up to three years and a fine of up to INR one lakh.

The entire argument for Karnataka and other states prohibiting fantasy gaming platforms is that Dream11 and others are "games of chance" rather than "games of skill."

Games of chance are those that are entirely dependent on random factors of any kind. For example, rolling dice, playing cards, and other games in which a player has no control over the outcome.

Skill games, such as horse racing, carrom, chess, Rummy, Teen Patti, and others, are mostly based on a player's mental and/or physical level of expertise.

The central disagreement here is whether games like rummy and poker are "games of chance" or "games of skill." While the former is frowned upon, the latter is considered acceptable.

Karnataka's bill seeks to prohibit "all forms of wagering or betting, including in the form of tokens valued in terms of money paid before or after issue of it." It also prohibited the use of electronic means and virtual currency, as well as the electronic transfer of funds in connection with any game of chance.

Some For, Some Against — A Game Of Chance Or Skill?

In the aftermath of the debate, Tamil Nadu passed an ordinance prohibiting even games of mere skill (if played for stakes) from being referred to as wagering or betting in cyberspace. As a result, online gaming companies scrambled to obtain a stay of execution on the ordinance, which the Madras High Court granted.

Other Indian states, including Telangana, Kerala, Odisha, and Assam, have banned online real-money gaming in a similar manner to Karnataka and Tamil Nadu, citing a blurred line between games of skill and games of chance.

Not only the companies, but a Chennai-based advocate filed a petition last year seeking a ban on online gambling apps, as well as the arrest of Virat Kohli and Tamannaah Bhatia as MPL brand ambassadors.

He claimed that they are abusing their celebrity status by luring lower and middle-class users into betting, debt, and gambling rather than actual hard work.

Former captains of the Indian cricket team, MS Dhoni and Saurav Ganguly, have also been investigated for their involvement with fantasy sports websites.

Fantasy gaming, on the other hand, has been supported as a "game of skill" in states such as Maharashtra and Punjab. In the past, the Supreme Court dismissed a petition seeking a ban on fantasy gaming, classifying rummy and other games as games of skill.

To conduct real-money games such as poker and rummy, Sikkim and Nagaland require online gaming operators to obtain special licences. They are, however, recognised as "games of skill" and thus exempt from the state's gambling regulations.

In the midst of the country's gaming boom, the Confederation of All India Traders (CAIT) also requested that Indian online gaming platforms be exempted from a proposed law in Karnataka that would prohibit online gaming and betting.

Need for regulatory framework

As there is no centralised framework in this space, online gaming startups are currently mired in a maze of compliances. Due to the lack of a centralised framework at the union level, states have developed their own law, and as a result, lawyers serve as game-testers for these corporations.

Each game must be reviewed by an army of lawyers prior to release to ensure that the flow and user journey do not violate any national or state laws. While the gaming industry advocates for self-regulation rather than legislation or bans, a centralised framework is the only way forward.

This is only possible if state-level cases are consolidated and brought before the Supreme Court.