| By blurring the lines between gambling and investment, the suspended company Football Index
has left many in debt
I know of people who have had to tell their partner they dont have the deposit for their
house move, says David, who is helping to coordinate a support group for customers with money trapped in the failed betting platform Football Index but
wishes to be known only by his first name. People have had to cancel weddings because of it, there are others wholl have to tell their partner that
they have a £10,000 credit card bill that they cant pay. The things Ive heard over the last few weeks beggar belief, and there will be
thousands more out there who are still suffering in silence.
It is just over a fortnight since Football Index closed its self-styled
Football stock market, a few hours before the Gambling Commission suspended the companys licence. Launched in October 2015, Football Index
offered its users the opportunity to buy what it described as shares in professional footballers, which would then earn dividends
from 1p to 14p per share over a three-year period according to a structure, which it devised, based mainly on a players performances on the
In its appearance, its terminology and its marketing, Football Index mimicked an investment platform, selling genuine shares in real-world
businesses. The only suggestion on its home page that it was, in fact, a regulated betting site was an easy-to-miss strapline warning it should not be
viewed as an investment vehicle, added at the insistence of the Advertising Standards Authority in September 2019. But its shares were bets.
A user who spent £10 on a share in Bruno Fernandes was betting they would make more than £10 in dividends from the Manchester United player over
the next three years.
They could also in theory at least cash out of a bet by selling the share to another user. But unlike a
punter with a regular bookie, staking £10 or £20 per week, a customer buying in to Football Index for the first time was obliged to put three
years worth of gambling money up front and wait for their returns again, more like an investment platform than a bookmaker.
claimed to have around 500,000 account holders, and estimates of the amount of money trapped in the exchange when it collapsed range from £60m to
£90m. Plenty of the people who are contacting me on Twitter are absolutely distraught, David says. They were minting [selling new
shares] right up until the final minute, and what is worse is that they were putting incentives and rebates on the website, actively inducing
people to put more money in to something that they must have known was failing. They were putting money into nothing. There are lots of people who have made
bets and, unfortunately, instead of setting aside funds to honour those bets, the bookmaker has decided to liquidate the company, effectively.
Almost from the day of its launch, there were concerns in the wider gambling industry that Football Indexs business model was deeply flawed. As
the Guardian revealed a few days after its collapse, the Gambling Commission was warned in January 2020 that the company was an exceptionally dangerous
pyramid scheme under the guise of a football stock market, and that if user growth [were to] stop or decline, the company would quickly find itself
unable to pay its liabilities [ie dividends] to users.
As a result, one of the many questions that remain unanswered about the scandal is why was
it licensed by the Gambling Commission at all? Like many football fans, casual and committed alike, Thomas, who also wishes to withhold his surname, started to
notice advertisements for Football Index on black cabs and tube trains a couple of years ago. Unlike most football fans, Thomas spends his weekdays working for
one of the biggest investment banks in the City, on a desk which trades volatile financial products called derivatives. When he took a closer look at what
Football Index had to offer, what he found seemed both familiar and surprising.
Many people in the City were completely astonished that Football
Index was able to open and run a fully-blown market-making platform without any oversight from the FCA [Financial Conduct Authority], he says.
Legally, the entire platform was set up as a betting enterprise rather than an investment firm, but the structure and marketing bears so much
similarity to retail investment that its bizarre that this wasnt brought under their purview.
From Thomass point of view,
shares on Football Index were not shares at all. They were, in essence, derivatives, like those that he and other traders spend their days buying and selling
in the City. The dividends, in turn, depended on rules set by Football Index itself, rules which the firm could and frequently did change as it
went along. The rules that apply in the City, on the other hand, are not so flexible.
Every transaction in the UK has to be reported in real time
to the regulator, Thomas says. Its onerous, but it gives the FCA real-time surveillance of the markets. The moment you hit buy on
a derivative, you also get pages of documentation with it, all kinds of information about the calculations behind it, the pricing, who to call with a problem,
and also the risks.
We are required to build in whats called downside protection, which means customers can never lose more
than theyve invested, and at the end of every day, we are required to know exactly where every clients investment is. Again, its
time-consuming and expensive, but the core principle is that if youre investing money, it may go up or down in value and you should be aware of the
risks, but it will be safe.
An FCA-regulated market is also required to ensure sufficient liquidity at all times, allowing clients to
in effect cash out of their positions. Football Index had a safety net option allowing users to instant sell their
shares back to the firm until March 2020, but it was removed at the start of the coronavirus pandemic as football leagues shut up shop across Europe.
We must always provide enough liquidity in the market to ensure that even though the price might not be good, customers have that option,
Thomas says. If you did that [removed instant sell] in normal derivatives trading, that would be judged to be non-compliant [by the regulator] and you
would usually be booted off the exchange and fined.
The FCAs regulations are primarily aimed at customer protection, but there are also
rules that allow banks and brokers to hedge against the possibility that their clients will make money at a rate that the market cannot sustain.
This, Thomas says, may have been another factor in FIs downfall: their customers were simply too good at playing the game.
They homed in on
players such as Jadon Sancho and Bruno Fernandes, who returned dividends week after week, and ignored all the players who were, from Football Indexs
point of view, the ones that would make the firm the most money. If youre a bookmaker, bets are largely time-limited, he says. The
bookie knows calculations run to the end of the match or the horse race, and they offer odds with a margin, but competitive enough to attract business.
The knob you have to twiddle to control that is your odds, and you can model how much you will make or lose on every outcome. Open-ended products
like financial derivatives are risk-managed in a very different way. This is where they [Football Index] might have come unstuck. My suspicion is they got
their modelling wrong, they had no way to hedge the risk and people zeroed in on the successful footballers that were going to pay out dividends. The only way
to pay out the derivatives they had already made was to get more people to put money in.
Ultimately, though, he questions whether Football Index
should ever have been able to operate as it did in the first place. Shares are, for the most part, a very stable investment, safe and regulated
well, he says. You shouldnt be able to offer people shares that are actually bets, and you shouldnt be able to offer bets that are
It will be months, if not years, before the full story of Football Indexs collapse is told. Administrators have been
appointed to sift through the accounts of BetIndex, its parent company, while the legal firm Leigh Day is in the early stages of a possible class action,
seeking redress for thousands of former customers. With the industrys overall regulatory framework also under review at present, it could yet be a
scandal that prompts major changes to the gambling laws.
If theres no change and no remuneration, what message does that send to companies
in the future?, David says. It would tell them that the Gambling Commission would take the fall and they will get away scot free. I dont
think thats the message the British government would want to send out to people who are doing this to UK punters.