The billion dollar mess at the heart of Indian gaming

Vineeth tried out several gaming apps and got addicted in no time. He staked more and more, even borrowing money from friends. Soon, his losses started piling up. He wasn’t able to repay.

On the night of 31 December 2020, he hung himself at a rubber plantation near Kuttichal, his hometown in Thiruvananthapuram district. A police officer investigating the suicide told Mint that Vineeth had run up a debt of over ₹20 lakh, including ₹6 lakh in pawned jewellery.

Until a few years ago, playing games for stakes was largely an offline affair. Participants went to smoke-filled cafes or clubs. The online world offers access to a similar experience from the privacy of one’s home. Regulations which worked offline are at times ineffective online. And online gaming companies—many of which are witnessing a phase of rocket-fuelled growth—want to avoid the dreaded “gambling" tag by all means.

But as cases like Vineeth’s evolve from an isolated event to a broader pattern, all manner of online games which involve real money—rummy, poker and fantasy sports—are inviting greater scrutiny from state governments.

While gaming firms have consistently argued that these games involve a significant amount of skill, and the outcome is not merely based on chance, many states have refused to consider this distinction. Going strictly by the law, as it has been laid down by judicial rulings, a game of skill isn’t considered as gambling in India. But state governments have been in a tearing hurry to change the status quo, amending their respective gaming acts to keep out games that are played for stakes.

For instance, the Kerala government issued a notification in February to declare online rummy, when played for stakes, as illegal. Telangana and Andhra Pradesh have amended their laws to remove or curtail the “games of skill" exception, Nandan Kamath, principal lawyer at LawNK, a law firm specializing in sports, media and technology laws, said.

Online gaming isn’t allowed in Tamil Nadu either. Sikkim, Nagaland and now Meghalaya have brought in licence regimes , which include games of skill for stakes.

Kamath believes that it is the stickiness of online games and the lack of social friction in the digital world that is bothering state governments. “The states are, therefore, partly going after how attractive and easy these games are to play and believe that people need to be protected from themselves. The minute you stake money on a game, some states consider it as gambling without (even) asking any other question," he said.

Nevertheless, the stakes couldn’t be higher for the gaming companies. The market is on fire. India’s online gaming industry is expected to nearly triple, from $1.1 billion in 2019 to $2.8 billion by 2022, consulting firm Deloitte noted in a recent report. That growth will be primarily driven by mobile gaming. This market includes segments such as video games, but one of the fastest-growing sectors is real money gaming.

Most gaming firms have witnessed a huge surge in traffic as well as business over the past year, as Indians, locked down at home, sought newer avenues of entertainment. India, today, has over 300 million online gamers. Online rummy alone has an estimated 30 million regular users.

While outright bans at the state level can slow down the gaming party, investor money is at risk, too. Between the top three companies—Dream11, Games24x7 and Mobile Premier League (MPL)—over $1 billion has been pumped in by marquee investors, including Tiger Global, TCV, Falcon Edge, and Sequoia, Tracxn data showed.

“One of the biggest challenges is that (while) there is tremendous interest from an investment perspective, the regulatory uncertainty makes people think twice," Sameer Barde, chief executive officer (CEO) of The Online Rummy Federation, which represents large rummy operators, said. “We are going through that phase where at some level, there is resistance about gaming being bad. At another level, there is ambiguity about who should regulate it—the Centre or the state," he added.

The skill test

His day job is that of a real estate broker in Mumbai. At night, he plays poker, sometimes for eight hours non-stop. The realtor, who didn’t want to be identified, said he is into poker since 2010, but shifted entirely to online platforms over the past year. On average, he makes ₹2 lakh a week now, but his initial years were disastrous—he lost heavily.

“You have to be prepared to lose in the first 2-3 years. Poker players are ruthless, and they are all here to make money. You play, invest, lose money, re-invest. That is how you learn the tricks of the trade—like reading an opponent’s body language or his betting pattern," he said. His broader point: poker is like any other sport; the more you practice, the better you get.

Real money game operators will be happy to borrow his logic as they battle for an identity that is separate from gambling. Ask any gaming operator why rummy, poker and fantasy sports that is played for money isn’t gambling, and they would cite a dozen court rulings, starting from the 1950s. “The gaming industry is very confident about going to the courts because the jurisprudence is very clear. What we offer is not gambling, and it should not be banned," Dinker Vashisht, vice president of corporate affairs at Games24x7, a company that operates rummy and fantasy cricket platforms, said. Cases appealing against the state-level bans are subjudice in Telangana, Andhra Pradesh, Tamil Nadu and Kerala, he added.

In gambling, the element of chance is predominant, and it does not enjoy protection under most state laws. But past rulings have held that games such as rummy involve more skill. The Supreme Court in 1967 (State Of Andhra Pradesh vs K. Satyanarayana & Ors) held that rummy “requires a certain amount of skill because the fall of the cards has to be memorized and the building up of rummy requires considerable skill in holding and discarding cards". Similarly, fantasy cricket requires the gamer to have some knowledge about the pitch and weather conditions, apart from adequate skill to pick the right combination of players while having access to a limited purse.

If activities are based on skill, they deserve protection under the fundamental right to do business and practise a profession, which is granted under Article 19(1)(g) of the Indian constitution. Yet, the reading of Article 19 has to be more nuanced and must be seen in the context of the state’s social obligation, some lawyers stressed.

“Here is a larger public policy question which governments will evaluate: if large sections of the bottom of the pyramid are wasting hard-earned money even on a game of skill, there is a social impact. If there is any practice that affects a vulnerable population, it can be regulated," Mathew Chacko, partner at Spice Route Legal, a law firm, said. “In India, we don’t have the broad idea that one can practice whatever trade or profession they want—it is a restricted right to practice," he added. So, how will the courts treat an outright ban? “The constitution does not permit an outright ban, except where that is the only solution. My prediction is that high courts across the country will come up with different answers to this question," Chacko said.

Tech games

Vishal Gondal, founder and CEO at GOQii, a fitness tech company, has been one of the most vocal critics of real money gaming. In January this year, he tweeted: “When rummy & real money gaming guys put full page ads that they are safe, but terms & conditions say that they can cause addiction & financial loss, what should the government do?" He tagged the prime minister’s office in the tweet.

The criticism earned him many enemies. He received 11 legal notices and a summon from the police in Faridabad. Gondal blamed the harassment on “rummy/RMG/gambling cartels" who wanted to silence him.

Gondal, however, isn’t that easy to silence. After all, he is known as the “father of Indian gaming". In 1999, he founded the game development firms Indiagames, which was later acquired by The Walt Disney Co. He is also an investor in Fearless and United Guards (FAU-G), an action game developed by nCore Games. He does know a bit about the sector.

The online paradigm, Gondal and other industry watchers believe, makes real money gaming 10 times more addictive than in the offline world. Why is that? Gaming companies can use artificial intelligence to make sure a gamer is spending more. Some apps can read incoming SMSes and will know when a person’s salary is credited, for instance. They can send a notification nudging a person to play at the right time.

Online gaming firms also go all out to retain players. Parth Chadha, founder of EWar Games, a real-money gaming company, said numbers are tracked and business intelligence software is regularly used. “We may want to give some cashback to a player if he has lost a lot. We also have deposit offers," he said.

Meanwhile, while high decibel advertising on TV has been used as a means to attract more and more players, testimonials on the websites of gaming companies appear persuasive.

Kuldeep Tomar from Baghpat, Uttar Pradesh, won ₹63 lakh, a testimonial on the website of MPL said. “I started playing fruit chop and rummy. Within a year, I won ₹4 lakh while having fun playing games. MPL helped me solve my financial problems. I paid for my kid’s school fees. Recently, I also bought an iPhone to play on MPL," the endorsement read.

Sanjay Kumar, in a testimonial posted on Paytm First Games, said: “I love to play rummy on Paytm First Games and recently won Pulsar Bike and received it within seven days."

An ad on Adda52rummy, another gaming company, stated in bold, “Saloni won ₹50,000. You could be next."

Regulate us

Startups, typically, hate being regulated. In fact, no industry wants too much regulation. On the other hand, gaming companies have been calling for regulation. In the eyes of many industry watchers, that is a veiled admission—parts of the sector are problematic.

“It would be disingenuous on our part to say that there is no problem. There is a problem. The way to curtail that is to regulate and not to ban," Dinker Vashisht of Games24x7 said. Bans, he added, will lead to the flourishing of a grey market, an underground circuit.

Gaming firms said they would much rather deal with a central regulation than comply with state-specific legislation. The idea of a central Gaming Commission has been doing the rounds—a body that would maintain licences, do audits, look at advertising regulations, game formats, revenues and taxation. This could be some months or years away though, and so, industry bodies and the larger firms say they are self-regulating for now.

The Online Rummy Federation has a code of conduct. Tenets include everything from making sure that underage players are not allowed to algorithm certification. “Certified members (in the federation) can’t allow bots to play against a human. You also can’t have employees playing. We have got records of every single game played in the last three years. A third-party audit agency can randomly pick any game and trace back any player with the help of the KYC," Sameer Barde of the federation said.

Large firms such as MPL have a warning system for gamers playing too long or veering towards risky behaviour. Some users are blocked and MPL directs them to mental health experts.

The companies are hoping that state governments will become more understanding. In the 1990s, there was intense competition between states to ban another vice—alcohol—but then, most states did away with prohibition, pointed out Shivanandan Pare, CEO of Adda52.com. “As the economy grows, people would like to have different formats of entertainment," he said. “As a nation, we have to accept that rummy, poker, and fantasy is a way of being entertained."

John Melvin Konath contributed to this story.