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Karnataka Bill banning e-gaming will impact 10% of online transactions: Experts

Industry seeks clarity on finer details of the law. Some operators in India’s billion-dollar online gaming segment intend to geo-block their operations in Karnataka or even shut operations if domiciled in the State.

October 06, 2021 / 03:57 PM IST

Uncertainty looms large over e-gaming platforms in Karnataka with the State government notifying the Karnataka Police (Amendment) Bill on October 5. The legislation bans online gambling and betting and also curtails online gaming.

Online gaming in India is divided into different segments, including fantasy sports, esports, casual games and real money games. Galactus Funware Technology (which operates Mobile Premier League), Dream 11 and NODWIN Gaming are among the companies in this space. It is estimated that India has 623 gaming startups.

Revenue erosion

“The development from Karnataka comes at a crucial time for gaming companies across the country. This will impact the online gaming industry and also lead to the loss of multiple jobs and opportunities. The online gaming industry will have to face a loss of 7-12 percent due to the ban,” said Sunil Yadav, CEO, PlayerzPot.

The Karnataka government had tabled the Bill in the Legislative Assembly on September 17, and it was passed on September 21. Violators face a maximum prison term of three years and a penalty of up to Rs 1 lakh.

Close

“Post the Gazette Notification on 5th October, the online skill gaming industry and startups are seriously assessing the way forward on operations,” Rameesh Kailasam, CEO, IndiaTech.org, an industry body representing India's tech startups, told Moneycontrol.

He added that while some operators have indicated that they would geo-block their operations in Karnataka or even shut operations if domiciled there, others are seeking legal clarity.

Prashanth Joshua Mandapalli, CEO, Mobius, a game development company, said Karnataka accounts for around 10 percent of transactions in online gaming. With the Karnataka Police (Amendment) Bill coming into the picture, these transactions will be impacted.

Skill vs chance

Yadav said there should be a distinction between a game of skill and a game of chance in the Bill and he hopes that the Karnataka government will relook this matter.

“It is critical that an assurance statement is issued by the Karnataka Government to end the chaos and panic by stating that no coercive action will be taken till the rules are formally notified. Should such a clarification not be provided, startups and their operations, especially those registered in the State, will see a detrimental impact. (The law will also impact) investments, livelihoods and perception of the State," said Kailasam.

Roland Landers, CEO, All India Gaming Federation (AIGF), said that as the apex industry body, AIGF has notified member companies to block Karnataka in accordance with the law. “....legitimate online skill gaming businesses that have the right to trade have been worst impacted. The irony is that illegal offshore gambling operators will flourish," he added.

Landers added that the online skill gaming sector has been a strong financial contributor to the Indian economy even during the unprecedented economic slowdown and contraction.

Big business

The online gaming segment grew 18 percent in 2020 to reach Rs 7,700 crore (just over a billion dollars) as the number of gamers grew 20 percent from 30 crore in 2019 to 36 crore in 2020; transaction-based game revenues grew 21 percent on the back of fantasy sports, rummy and poker, according to a FICCI-EY report.

In terms of specific segments, a report by NITI Aayog on online fantasy sports notes that the sector has the potential to create over 12,000 additional skilled engineering jobs in the next few years and can contribute over Rs 13,500 crore in taxes to the government.

When it comes to esports, the industry's revenues have reached nearly Rs 300 crore in FY21 and are expected to reach Rs 1,100 crore by FY25.

In addition, multiple international sporting events recognise esports, including the Asian Games and Olympic Virtual Series. They could also feature in the 2024 Paris Olympics. The Olympic Council of Asia recently announced that there will be 24 medals awarded at the 2022 Asian Games for esports events.

However, due to the uncertainty around the Bill, esports and other tournaments that charge a small registration fee will be illegal.

Even Kailasam, in a representation to the Karnataka government, said that entry fees charged by online gaming platforms cannot be equated to wagering / gambling / betting. He also recommended that online skill-based casual games and sports formats be recognised as a category that is predominantly skill based, non-addictive and involves a meagre amount of money.

"We hope that the government will relook at the Bill to conform to the Supreme Court’s jurisprudence and issue a final notification after examining suggestions and objections from stakeholders," said Dilip Chenoy, Secretary General, FICCI.
Maryam Farooqui
first published: Oct 6, 2021 03:57 pm

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