Why online gaming companies are engulfed by a sinking feeling despite the Cricket World Cup fever

Cricket, by far the most popular sport in India by light-years, became a natural ally to major online gaming companies.

The Indian team may be flying high at the ongoing ICC ODI World Cup but despite the cricket fever, the online gaming sector, a major ally in the business of cricket, is gripped by a sinking feeling as the fourth largest category in the Indian media and entertainment world is staring at uncertain times.

Online gaming gained wings ever since COVID-19 struck in early 2020. The exponential growth in terms of subscribers and business grabbed the attention of the government and industry leaders. Ironically, an industry that thrives on technical innovation and smart products, is limping due to a combination of reasons and it’s just not high taxation alone.

Perceptions And Threats

Pegged to be a $5 billion industry by 2025 at a CAGR of 28-30 percent and an ever-growing subscriber base projected to touch 500 million in two years’ time, online gaming companies were really flying high. Thehumongous threat from offshore betting companies notwithstanding, the scenario in the apparently sunrise sector has changed dramatically in recent months as tax authorities started taking a closer look at the real money gaming business and imposed retrospective dues for the period 2017-2022 based on computation of face value of a bet.

While the newly-implemented 28 percent GST on deposits, which kicked off this October, is being seen as an impediment in garnering profits like before, several top companies with large subscriber bases fear that it may not be a level-playing field going forward, given the manner in which a handful of operators are trying to grab control of the Indian gaming business.

At least three major platforms have already turned their attention to Europe, Americas and Africa while investors are currently apprehensive about pumping in billions of dollars into Indian operations.

Divided Industry Needs Central Self-Regulatory Body

When the Ministry of Electronics and Information Technology (MeitY) notified the online gaming rules in April 2023, the industry heaved a sigh of relief that there would be fair play and uniform regulations for all, but only just. It may be pertinent to mention that one of the objectives of MeitY was to streamline the online gaming operations by forming at least three self-regulatory bodies (SRBs) to act as watchdogs. Six months have passed and not even a single SRB has been formed. It is not difficult to fathom why.

Ever since platforms, big or small, started making money, the industry leaders started feeling threatened. With the primary objective to wipe out competition and keep the business confined to a few chosen ones, the growing mistrust among platform owners became increasingly clear. It continues to hurt the industry. Sample this.

On September 27, 2023, the Federation of Indian Fantasy Sports (FIFS) and the E-Gaming Federation (EGF), privately formed self-regulatory bodies, made a representation to the Revenue Secretary, Ministry of Finance, that “its members are fully committed to implementing and complying” with the amended GST rules. This was wholly against the sentiment of the overall industry.

FIFS, presided by the owners of India’s largest and oldest fantasy operators Dream11, and EGF, largely driven by rummy operator Games 24x7, represent only a handful of platform owners. At a time when MeitY is looking to unify the operators, the finance ministry entertaining a representation from two relatively minority stakeholders sends wrong signals.

Most online gaming companies are members of the All Indian Gaming Federation. It has 50-plus registered members and aims to protect the interest of all players in the business. The FIFS-EGF representation will not go down well with Gameskraft Technologies, which is challenging in Supreme Court allegations of evading (retrospective) taxes amounting to a whopping Rs 21,000 crores. Gameskraft runs one of the most popular and prosperous rummy brands, Rummy Culture, and is a direct competitor of Rummy Circle, owned by Games 24x7. The nasty rivalry is thus obvious!

So far, MeitY, the nodal ministry dealing with the online gaming industry, has been alert to this unsavoury situation and its inability to form self-regulatory bodies is a clear indication of the deep divide and trust deficit among operators.

Success And Its Pitfalls

Cricket, by far the most popular sport in India by light-years, became a natural ally to major online gaming companies, especially the three unicorns Dream Sports, MPL and Games 24x7. All three partnered with the popular IPL, a BCCI product. Also joining the IPL bandwagon were the precocious Winzo. Each of these platforms were endorsed by top celebrities like MS Dhoni, Virat Kohli, Rohit Sharma, Amir Khan et al. But those happy equations are fast changing.

MPL withdrew from their three-year Indian cricket team kit sponsorship deal after a year and slashed its marketing budgets to keep its online business sustainable. Paytm, which had its gaming platform First Games, also severed its links as BCCI’s title sponsors a year before the completion of its contract. Only Dream11, the oldest fantasy company in India, continues to honour its BCCI commitments despite a sharp decline in its net profit while Games 24x7 (better known by their fantasy brand My11 Circle) and Winzo face sustainability questions as far as their association with the Lucknow and Kolkata IPL franchises are concerned.

The stunning success of this sector is also turning out to be its biggest enemy. The motive to kill competition is detrimental to India’s plans for an atmanirbhar, prosperous and innovative digital environment. If the Directorate General of Goods and Service Tax Intelligence remains steadfast in extracting its Rs one lakh-crore retrospective tax demand from gaming companies, fantasy and rummy-specific companies could face bankruptcy, no matter what survival plans – like offering promo cash or bonuses -- they offer to retain subscribers and earn platform fees, their principal source of revenue.

As far as the government is concerned, it is perhaps caught between financial prosperity of an industry that also brings along with it a certain degree of social evil like addiction. There have been numerous suicides arising out of wagering on real money gaming platforms.

Even operators are aware that the games that fetch maximum returns operate under stealth and trickery. Given all the talk around fantasy, the court’s ruling that fantasy games have a preponderance of skill, is a matter of debate. Data has shown that players with good skills in betting platforms also have a higher chance of winning in fantasy games. Interestingly, no platform has agreed to undertake a data-base test to examine skill vs chance.

So, it’s going to be a wait and watch policy for operators. The government has promised a GST review in six months’ time but the Supreme Court decision on retrospective taxation will be the game-changer.

Soumitra Bose is a veteran journalist and a research scholar. He tweets @Soumitra65. Views are personal, and do not represent the stance of this publication.