SUMMARY
IPL 2024 was supposed to be the balm to soothe the revenue pains after the GST setback, but most fantasy gaming platforms have hit pause on huge marketing spends, and customer acquisition remains a challenge
From IPL to GST — between these two acronyms, the fate of fantasy gaming in India has swung from euphoria to austerity.
With the 2024 season of the Indian Premier League kicking off on March 22, one would expect fantasy gaming apps to be pulling all stops for users with massive marketing spends and ads everywhere.
But the atmosphere is much more sombre this year, as fantasy gaming apps continue to reel under the GST clarity received last year. Most have hit pause on huge marketing spends, and customer acquisition remains a challenge even for IPL, the marquee tournament for fantasy gaming in India.
So this Sunday, we wanted to see the state of fantasy gaming apps and startups ahead of the IPL 2024. Over the next two months and 74 matches, many of these platforms will be looking for big gains, but the situation looks bleak even for the biggest startups, such as Dream11 and MPL.
But before delivering into this, let’s take a look at the top stories from our newsroom this week:
- Uber’s Playbook For India: With an eye on long-term success, Uber’s India playbook not only revitalises its global strategy but also positions the country as a crucial hub for innovation and growth
- Crypto Is Back? With Bitcoin touching its all-time high of $73K this week, Indian crypto investors are rushing to exchanges to cash in, but will this new gold rush last for long?
- Paytm’s Future: Even as the Paytm Payments Bank has been forced to make changes, the fate of Paytm as a fintech platform still hangs in the balance. What’s in store next?
Fantasy Apps Bowled By GST
IPL is big money for fantasy gaming apps. According to an analysis by Redseer last year, IPL 2023 generated a gross gaming revenue of approximately INR 2,800 Cr for fantasy apps, compared to INR 2,250 Cr in 2022. The cumulative gross revenue has seen a compound annual growth rate of 30% since 2019.
The total user base for fantasy gaming touched 61 Mn during the two months of the IPL 2023, and a whopping 35% of them were new to fantasy gaming. However, to achieve these outcomes, fantasy apps had to spend significantly on ads and marketing in the run-up to the IPL.
In contrast, customer acquisition has slowed down in the past six months after the GST clarity in August last year. Startups such as Dream11, MyTeam11, MPL, Zupee, WinZO, Rush by Hike have all gone through cutbacks of some kinds, including layoffs.
If anything, IPL 2024 was supposed to be the balm to soothe the revenue pains after the GST setback, but several fantasy gaming platforms are rethinking their customer acquisition costs so as not to run into major losses. MPL, Hike (Rush) and Spartan Poker let go of more than 500 employees, while Bengaluru-based Gameskraft’s Gamezy Fantasy, MPL-backed Striker, Fantok and Quizzy shut down operations.
The tax nightmare for real money gaming companies means startups are possibly looking at an additional tax liability of nearly INR 45,000 Cr, as per reports, with fantasy apps seeing the worst of the impact. Dealing with the revenue decline and huge tax exposure due to the GST clarification, fantasy gaming apps are likely to have a muted IPL in 2024.
Marketing On Mute For IPL
From sponsoring franchises in a major way and roping in cricketers for campaigns to spending millions on ads, fantasy gaming startups have gone all out to woo customers during the IPL over the last few years. However, there is a calmer atmosphere this year.
My11Circle is the only startup that has seemingly invested big in marketing but this is for the long run. The fantasy gaming app is the official partner of IPL from 2024 onwards, outbidding Dream11 with a INR 125 Cr annual outlay for five years. Over five years, My11Circle will pay the BCCI a total of INR 625 Cr for these rights.
Meanwhile, most others have cut their marketing spending in the past six months, which is largely an impact of the 28% GST rule.
This is how GST on real money gaming works now. The tax is applicable on the total value of bets for online games, irrespective of whether they are games of skill or chance. Previously, a lower 18% GST was levied, specifically on the platform fee for skill-based games.
While earlier the tax was applicable on the smaller platform fee charged by apps, now it is charged on the whole bet. For example, a user adding INR 100 to their fantasy account would be charged INR 28 as GST and would only get INR 72 to play with.
“There is a percentage of users out there who are just not happy with this new regime. If platforms subsidise the 28% tax, users will not get the offers and bonuses they are used to. Platforms have to find new ways to attract players. Users are not happy with this and there is a clear drop in engagement there,” a Delhi NCR-based gaming startup cofounder told Inc42.
Fantasy Games But Real Taxes
Plus, there is uncertainty around the exact tax exposure. Startups have taken some of these tax concerns to litigation and many are fearing that the GST would be applied retrospectively.
For instance, Dream11 founder Harsh Jain recently said at the Mumbai Tech Week that only after the issue of retrospective tax is cleared can there be any talk of IPO or other fundraising for fantasy gaming apps.
Given these troubles, it’s not a surprise that the 2024 IPL has seen muted promos by many of the fantasy apps.
“Fantasy gaming players other than those with deep pockets would not bet big on IPL because many are trying to cut costs. Plus there is a negative sentiment in real money gaming, which can lead to low ROI from ads and marketing rather than positive outcomes,” said a Bengaluru-based founder from the fantasy gaming industry.
The founder added that companies such as MPL, WinZO, Dream11 and others are likely to portray themselves as having games other than fantasy sports so that they can attract active gamers rather than casual users.
The GST changes spurred a consolidation wave in the online gaming industry. Many of the bigger players acquired smaller rivals to venture into new areas and new gaming formats.
Dream Sports, which runs fantasy gaming platform Dream11 and is among the few profitable players in the segment, is also considering diversifying into sectors like sports commerce, content, fitness, among others.
Casual gaming unicorn MPL has shifted its focus to Mayhem, its game development studio, and is bullish on creating games in categories other than fantasy sports. But these are new products or still in the works, so they still have a long way to go.
Where Will Fantasy Gaming Turn To?
Even for unicorns such as Dream11 and MPL, missing out the annual IPL bonanza is a major blow. It only makes it harder for these companies to raise funds for growth and scaling up other products.
Besides the revenue panic that set in last year, there’s also a fear that VCs might walk away from real money gaming and fantasy apps in the long run given that the GST has changed the unit economics drastically.
The Indian online real money gaming industry, which generated a revenue of $3.1 Bn in FY23 and grew at a robust 33% during the year, is likely to see a sharp slowdown in growth as the taxation is anticipated to impede expansion plans, a report by early-stage VC fund Lumikai said.
Founders in the space told us that cost-cutting has become necessary for many platforms because if they want to survive, they need to solve the unit economics problem first, and then look to acquire users. Even now, companies are looking at ways to make real money fantasy gaming as attractive as it used to be in the pre-GST era.
However, many including founders themselves, feel that IPL 2024 has come too soon for fantasy gaming apps in the process of making these changes. They might look at this season as a last ditch attempt to regain some market share and revenue momentum but are likely to turn to cost-effective strategies such as influencer-led content and referral campaigns to grow.
The usually loud and bombastic fantasy gaming marketing machine is giving this IPL a miss.
In Focus: What’s The Indian VC View On GenAI
With less than a month to go for The GenAI Summit on April 3, 2024, we are turning our focus to how generative AI is changing the startup ecosystem — from the business models of GenAI native startups as well as how other startups are adopting generative AI tools.
But what is the investor view on the GenAI hype?
Naturally, GenAI startups have drawn interest from the VC ecosystem, but investors are being more cautious given how novel GenAI is and how rapidly it is maturing. For instance, there is a slightly more conservative approach to investing in startups building the foundational models because of the capital-intensive nature of this space.
Here’s a deep dive into the world of GenAI investments
Sunday Roundup: Tech Stocks, Startup Funding & More
- Funding Galore: Startup funding activity gained ground in the second week of March, with startups cumulatively raising $226.2 Mn, 50% higher on a week-on-week basis
- Google On CCI Radar Again: Following the recent standoff between Indian apps and Google, the Competition Commission of India has ordered another probe into the tech giant’s app store
- Investors Jump Off Paytm: At least six mutual funds completely divested their holdings in Paytm last month amid major regulatory trouble, while other funds six significantly reduced their stakes
- BYJU’S In More Trouble: In a fresh trouble for BYJU’S, a US insolvency court ordered the arrest of a hedge fund manager who allegedly helped the edtech major hide $533 Mn from its creditors
