At a time when the government is plotting potentially tightening restrictions in the gambling sector, and at a time when anti-gambling campaigners are as vocal as ever, the apparent demise of Football Index is catastrophic on many levels.
Because don’t fall for the firm’s marketing hype: this is not a ‘virtual stock market’ as they like to call it, this is a betting platform that is licensed by the UK Gambling Commission.
And this is a betting platform that, through systemic failures in their business model, could leave punters significantly out of pocket.
The issue is not with the product in itself as such, but in the continued moving of the goalposts – particularly the decrease in dividends revenue that the site’s users were forced to accept this month.
That set alarm bells ringing about the financial position of Football Index, and perhaps it should have come as no surprise this week that the firm looked set to be placed into administration.
Should the worst case scenario become a reality, punters with live accounts with the brand may find it difficult to get their hands on their invested cash – in some cases, individuals may be out of pocket to the tune of £200,000.
So let’s take a look at the history of Football Index and see what lessons can be learned.
A Unique Proposition
When Adam Cole thought up the idea of a football stock market, it’s hard to disagree with the uniqueness of the concept.
Football Index was born, and investors found themselves with two potential revenue streams:
- Buying and selling shares – each player’s value fluctuates over time like traditional business shares
- Dividends – Football Index paid out dividends based on players’ performances in games, and their presence in the media
In theory, it’s a straightforward market mechanic, however that it hasn’t always proven to be the case. Football Index have had to intervene at times and put their own funds into the market to add liquidity, and typically that can only be considered a bad sign.
What’s more, they also have a lengthy list of terms and conditions which – let’s face it – most people aren’t going to read. Some will have wished they had, as Football Index had included a clause which allowed them to change the structure of dividend payments at any time.
And it was a raft of changes introduced in March which have perhaps embedded the final nail in the firm’s coffin….
A Gamble That Hasn’t Paid Off
Football Index is a betting platform….there are no two ways about it.
Before, they spoke about trading – a somehow more respectable word that gambling which implies strategy – when in fact the site’s users are betting on the performances of a player and their value increasing.
Indeed, as the furore in March began to unfold, the wording of Football Index’s Wikipedia mysteriously changed – now, customers (no longer ‘traders’) were placing fixed odds bets, not trading shares. The picture that FI presented of their platform being some kind of investment vehicle was shattered.
Worse was to come. Almost overnight, they slashed the dividend payments – before, a player could earn a maximum of 33p per share, but after the changes that became just 6p, which is roughly an 80% downturn.
This caused widespread panic, and some quicker investors quickly sold their shares and accepted a loss – others were not so lucky, and the value of their holdings fell by anything between 50-90%. Jadon Sancho, for example, had a peak value of £15 per share. Today, he changes hands for less than £1, and millions of pounds has been lost in a heartbeat.
So What Happens Now to Football Index?
While not a traditional bookmaker, be under no illusions that if Football Index falls into liquidation this is the largest betting entity in UK history to go under.
Not only have administrators been called in, but their licence with the Gambling Commission has been suspended – they won’t be getting that back until they can prove they are financially viable.
Typically, stock trading firms in the UK are regulated by the Financial Conduct Authority (FCA), and that gives a greater range of protections to investors. With Football Index, the flimsy definition of their ‘medium’ financial cover means that their customers may – or may not – ever get their money back.
Many have likened Football Index to a Ponzi scheme, and there has certainly been a sense that those at the top of the ladder have benefited the most. And it’s amazing that the UKGC even allowed Fi to operate a clause where they can change the dividend pay scale at any time – it’s like a bookmaker accepting a bet andthen paying only half of your winnings out because, well, just because they can.
The UK Gambling Commission has issued a statement, calling on Football Index to ‘treat consumers fairly’ throughout the investigation into their future, but fairness has not been a watchword often deployed by FI….and it’s that which has ultimately got them into this mess.
Sadly, it’s their customers who will lose out the greatest.