In a significant development in the ongoing legal battle over the regulation and taxation of fantasy sports, platforms have presented a key argument to the Supreme Court: they do not control the funds deposited by players. According to the industry, these funds are managed by independent escrow agents, a critical distinction aimed at refuting claims that the platforms are engaged in betting or gambling. This argument forms a central part of their defense as the court considers a host of petitions concerning the legality, tax treatment, and regulation of the online gaming sector.
In a detailed explanation to the bench, senior counsel Arvind Datar, representing the Federation of Indian Fantasy Sports (FIFS), clarified the financial architecture of these platforms. He stated that all member platforms are mandated to keep user deposits in independent, non-interest-bearing fiduciary bank accounts. This strict segregation ensures that user funds are never commingled with the platform’s operational capital. In many cases, these accounts are managed by third-party escrow agents, which means the fantasy sports platforms have “no right, title, or interest” in the funds. The platforms’ revenue is derived solely from a platform fee, typically around 10% of the prize pool, which is collected only after a contest is completed.
This operational model is designed to demonstrate that fantasy sports are games of skill and not gambling. The industry argues that since they do not hold or profit from the players’ stakes, they are not acting as a bookmaker or a gambling intermediary. The platforms operate on an automated system where entry fees are received, and winnings are instantly distributed to the winners’ wallets based on pre-announced scoring rules. Datar pointed out that in the last decade, there have been no recorded instances of a winner not receiving their prize due to a default, and in such an event, the liability would fall on the fiduciary, not the platform itself.
The ongoing legal proceedings are a culmination of challenges against state laws from Tamil Nadu and Karnataka that have sought to classify these games as gambling. The outcome of this Supreme Court hearing is poised to have a far-reaching impact on the future of India’s booming online gaming industry, potentially setting a national precedent on the distinction between games of skill and chance, and clarifying the tax and regulatory framework for the sector.
Key Highlights:
- Fantasy sports firms have told the Supreme Court that escrow agents, not the platforms, are in control of player funds, a key argument to distinguish their operations from gambling.
- Player deposits are kept in separate, non-interest-bearing fiduciary accounts, and platforms only earn revenue from a small, fixed percentage as a platform fee after a contest ends.
- The industry’s legal argument hinges on the claim that this financial segregation proves that fantasy sports are games of skill, not chance-based wagering.
- The Supreme Court’s final decision is expected to have a significant impact on the legal, regulatory, and tax future of the online gaming industry in India.