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Long read: is online poker the entry point to India?

| By Stephen Carter | Reading Time: 8 minutes
As we await the Law Commission of India's decision on sports betting regulation, Joanne Christie investigates how foreign operators can legally dip their toes into the subcontinent now

As gambling advocates wait with bated breath to see if the Law Commission of India will recommend the regulation of sports betting in India, Joanne Christie investigates how foreign operators can legally dip their toes into the subcontinent now

From a sheer numbers perspective, there’s no doubt India is one of the most attractive markets for igaming operators looking to expand their geographical reach. A population of 1.3 billion that is growing faster than any other country in the world and is expected to overtake China shortly.

Economic growth of around 7%, with the World Bank expecting it to be the fastest growing economy this year. Mobile connectivity that puts it at number 14 in OpenSignal’s ranking of 77 countries’ 4G coverage, with 86.26% of the country having access to 4G. When you add to the numbers the sport- and gambling-mad culture, the potential seems eye-watering.

There is, however, a rather large problem in that most forms of gambling are as illegal in India as they are ubiquitous, ruling out any kind of entry into the market for most large foreign igaming operators.

But signs of a softening of legislators’ anti-gambling  stance are coming thick and fast of late, and the Law Commission of India is expected to come out with a report on whether or not sports betting should be legalised imminently, having been asked to consider the matter by India’s Supreme Court back in 2016.

Even if, as is hoped by advocates for licensed gambling, the news from the Law Commission is positive, the wheels of progress are likely to move slowly and a regulatory framework is some way away. In the meantime, however, foreign operators are increasingly focusing their attention on the one vertical that is — debatably — open to them: poker.

Indian law differentiates between games of chance and games of skill, with the former mostly outlawed by the states and the latter mostly permitted.

“Right now our emphasis is on skill gaming because although we are advocating for a legalised sports betting framework, subsequently that is still a work in progress,” says Roland Landers, CEO at the All India Gaming Federation (AIGF). 

It’s no secret PokerStars has been looking at an Indian market entry for some time, with Amaya CEO Rafi Ashkenazi repeatedly outlining a desire to launch in the country during shareholder updates. The company’s initially stated timeline has been delayed more than once, however, so it’s unclear when we might see such a launch.

According to Ranjana Adhikari, co-head of the media, entertainment and gaming practice at law firm Nishith Desai Associates, it isn’t the only foreign company with an interest in India.

“In the last two years we’ve seen burgeoning interest in online poker. Domestically there have been some players that have done extremely well. I think looking at the sheer size and potential of the market, foreign operators would want a piece of the pie in some capacity or the other, whether through software licensing or some sort of incorporated or unincorporated venture.

“If you follow the statements made by a lot of global companies in recent times, you will find a notable mention of India being a part of their future plans,” she says.

One reason foreign operators may be taking their time launching, says Adhikari, is because there are a number of laws that need to be considered when it comes to India, not just gaming laws.

“It is regulated very differently compared to other regulated markets. There is no one central body of laws that one needs to look at. In fact, it is not just the body of gaming laws that you have to look at, but you also have to look at the consumer protection laws, the foreign exchange laws, the tax laws, to understand and structure any deal in this space.

“My assumption is that if a foreign player looks at working out a deal with an Indian partner, or even if they decide to enter organically on their own, structuring and putting things in place is going to take these companies time.”

Dot.com versus licence?
There are two main options for foreign operators looking to launch in India: they can either simply set up a dot.com site on the presumption poker is a skill game and therefore legal in any state that hasn’t specifically banned skill games, or they can obtain a licence from one of the two states which offer them in India for skill games — Nagaland and Sikkim.

The problem with going down the former route is that even if one assumes they are allowed to operate on that basis, they could be tripped up by the Foreign Exchange Management (Current Account Transactions) Rules, which regulate remittances from India to foreign entities. These prohibit remittances abroad for winnings and participation in any form of hobby, irrespective of the skill element.

While Adhikari says banks may not always be scrutinising all transactions and blocking them, it’s not a sustainable business plan to hope this continues. “There are a lot of foreign dot.com operators which have been reporting that they have some sort of Indian player presence, but they are not sizeable and the reason for this is some transactions do go through, the authorised banks may not have questioned them, but there’s a greater likelihood and risk that it would be disallowed sooner or later, which means the business may not be sustainable and viable.”

One way around this is for the operator to set up shop inside India via a wholly owned subsidiary, however they would also have to restrict player pools to Indian players to meet the Foreign Exchange Management Rules.

There’s also the possibility of a challenge under the country’s foreign direct investment policy, which prohibits investments in gambling. Although skill games fall outside the scope of gambling, Adhikari says that as there have been no federal court rulings in India on whether or not poker is legally considered to be a skill game, the situation is not entirely clear cut. This is the reason why so far, foreign operators have preferred to invest in rummy than poker as a Supreme Court has previously ruled rummy to be a skill game.

“Rummy was a game which at least had some sort of judicial interpretation by the Supreme Court of India, poker until about early December didn’t have a single case law in India where they commented on the game play formats of poker. Because of this there was no Indian precedent to rely on to say that poker it is a game of skill. The operators would rely on legal opinions from a law firm like ours or maybe expert reports on the game play,” says Adhikari.

Unfortunately, the development in December wasn’t a positive one – a Gujarat High Court was approached by land-based poker clubs seeking recognition of poker as a game of skill. The ruling went against the clubs, though it has since been appealed. 

Although on the face of it this isn’t a positive development, if the appeal also goes against the clubs, the matter is likely to eventually be heard by the Supreme Court and a positive decision there could legitimise poker and take the uncertainty out of the matter in the same way it did for rummy. “Once it goes to the Supreme Court and the Supreme Court decides, it will be a definitive hearing on the issue and will be applicable pretty much everywhere in India,” says Jay Sayta, corporate lawyer and founder of GLaws.in, a website that covers developments in gambling laws in India.

Licensing route
As it stands, the Gujarat case is only applicable in that state and other states have taken the opposite view, says Gaurav Gaggar, senior director at law firm Gaggar & Partners. “The fact of the matter is that India is very much like the US. It is such a large and diverse country — we are 29 states and each state comes up with its own thought process so in one odd state there will be a negative ruling but in many others it will be the opposite. Skill-based gaming is fast gaining acceptance in many states and is an indicator of things to come.”

Of the two states in India with established licensing regimes for online poker — Sikkim and Nagaland — experts are pretty much agreed that the former has little potential for foreign operators.

As Gaggar puts it: “Sikkim is not a possibility at all because a Sikkim licence allows you to operate only in the state of Sikkim and not outside the state of Sikkim.”

On the value of a Nagaland licence — a relatively new option made possible by the Nagaland Prohibition of Gambling and Promotion and Regularisation of Online Games of Skill Act 2016 — there’s less consensus.

“A Nagaland licence does not have much value outside the state of Nagaland and Nagaland itself is a very small state that does not have much significance as far as the poker market is concerned,” says Sayta.

Gaggar, however, takes a different view. “India is a federal country. The idea is that the laws of one state are applicable in another state as frequently as possible. If I do something that is legal in one state I can pretty much do it in any state unless a particular state disallows me to do so in that particular state.

“That is the logic and principle behind the crafting of this particular law in Nagaland. So as long as you have a Nagaland licence it allows you to operate anywhere in India except if a particular state comes out with a law that says, ‘this law is not applicable in our state for XYZ reasons’.”

Adhikari believes a Nagaland licence does not “completely derisk” operators offering poker throughout the country, but says it does provide a framework for dealing with any challenges from other states.

“That’s the selling point that Nagaland has. Nagaland says you can offer it to whichever state you want, however if a government of another state has a reservation or has an issue with you offering it under the Nagaland laws there is a process by which the government of Nagaland would consider the case and then disallow the licensee to offer the website in the relevant state in question.”

There are also benefits in terms of the reassurance value of the licence to both consumers, and more importantly, service providers. “Practically what has been happening is that platforms such as Google, Facebook and payment gateway operators, they have been more comfortable giving their services and allowing their platforms for digital marketing if someone has a Nagaland licence because that is the closest you have to something in terms of a licensing regime,” says Adhikari.

First movers to find favour
In terms of federal developments or regulation of gambling beyond skill games, much will depend on whether or not India’s Bharatiya Janata Party-led government wins another term when the country’s elections come up next year.

But Adhikari says foreign operators should be looking now at skill games as a way to establish their brand in anticipation of the wider gambling market opening up in future. “The current government has performed fairly well. I think the business community is a bit optimistic that hopefully they will get another term and maybe if this government gets another term you may see a greater push to put in play legislation to regulate online gaming, including sports betting.

“Having a Prime Minister with a progressive outlook in terms of business is helpful and we hope that they acknowledge the potential revenue they can make off this.

“Optimistically speaking, maybe in five or 10 years we could have an established regime. Therefore, the foreign operators need to start looking at the Indian market now, at least for skill games, to have the first-mover advantage.”

And AIG’s Landers says this is exactly what many operators are doing. “We have international operators who are looking at the industry and investing now in advance of that because these things take time and obviously the international companies we have as members either have some business here currently, like Microgaming, or are already looking at this market now so that they are in early so as and when legislation happens it becomes easier for them.”

Poker certainly hasn’t been the star performer of the igaming verticals in recent years, but in India it may serve an important purpose for foreign operators keen to get their brand front and centre in what could one day be a huge market.

Related articles: Indian online sports betting legislation could be published by end of 2019
Taxing times ahead for igaming operators in India (paywall)
Microgaming, MPN add Mercury Poker to Indian Poker Network
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