Objective metrics for regulation in the online gaming industry

The use of scientific standards and data-backed decision making in the formulation of regulatory policy is a well-established approach that has widened regulatory oversight over legitimate businesses, while allowing consumers to make informed decisions.

A prime example of this can be seen in the food and beverage industry where the Food and Safety Standards Authority of India has mandated the provision of nutritional information, allowing consumers to choose products suitable for their dietary requirements, while creating greater awareness for healthy eating choices, without restricting any product categories from being available in the market.

Rational and scientific benchmarking also allows businesses to remain viable and competitive, driving innovation and investments into creating more valuable products and services for consumers in a free market environment.

India’s online gaming market still lacks transparency to certain extent due to the absence of a regulatory framework. The prime confusion is related to divergent perceptions in distinguishing the games of skill and games of chance. In essence, skill-based games are constitutionally protected businesses that fall under the purview of the Centre, while games of chance fall under the jurisdiction of state regulations. Despite significant clarity at the Centre, there continue to be various state-level regulations adversely impacting the skill-based online gaming sector. For example, it is worth looking at the Madras High Court judgement (November, 2023) which has overturned a move by the state government to ban skill-based games like rummy and poker under the purview of its Prohibition of Online Gambling & Regulation of Online Games Act.

Some argue that the line between games of skill and games of chance is not always clear. In line with such arguments, it has been observed in the recent past that skill-based gaming operators have been charged with retrospective taxes at (higher) rates commensurate with the games of chance. As a corollary, this may decelerate the growth trajectory of the skill gaming sector.

So, what makes these two different and what are some of the key factors to consider when identifying a game of skill versus a game of chance? Knowledge, experience and defined gameplay strategies are key indicators of a ‘game of skill’. This means that a player's performance in the game is determined by their skill and understanding of the gameplay. In these games, players must use their skills and knowledge of the game's mechanisms and develop gameplay strategies to outwit their opponents. Another set of important factors would be practice and experience, which effectively means that in a game of skill it would be more likely that a person without experience would lose more often than a person who has invested time and effort in practising and honing their skills. In the case of games of chance, there would be no such preponderances and any person would always have an equal likelihood of winning or losing. All these are factors that can be assessed on the basis of scientific experimentation, statistical analysis and mathematical formalism. Therefore, quantifiable metrics must be developed with scientific judgement to validate where a game falls in the spectrum of chance to skill, if the decision is not binary.

In the current scenario, it is imperative to have a clear and transparent methodology for determining whether a game is based on skill or chance. Such a methodology should be fair, standardised, and based on objective criteria. Currently, with varying and subjective understanding of these concepts, the industry faces challenges dealing with regulatory authorities, often having to resort to legal recourse to demonstrate that their skill-based game offerings fall squarely within the purview of the law. Once there are clearly defined objective metrics to determine the preponderance of skill, gaming companies can focus on innovation in designing games that emphasise skill, strategy, and decision-making. These elements form the foundation of games considered to be skill-based. By doing so, gaming companies can efficiently align their products with the legal framework and ensure that they are compliant with the regulations of the country.

This article is authored by Diganta Mukherjee and Subhamoy Maitra.