The Football Index Collapse

[THEWELLERNUT70]

These are the spivs who were all over Talksport when there was a round of matches promoting their tripe. Considering Talksport were balls deep in this company when it came to promoting it on its channel I wonder if they have out out a statement yet

"Football Index collapse: MPs call for inquiry into 'scandal' - BBC News" https://www.bbc.co.uk/news/amp/business-56420577

[GodIsADeeJay81]

Honestly, I heard all the adverts, but it just sounded an odd set up which I didn't fully understand so I stayed away from it.

Glad I did now.

[Chester Perry]

These are the spivs who were all over Talksport when there was a round of matches promoting their tripe. Considering Talksport were balls deep in this company when it came to promoting it on its channel I wonder if they have out out a statement yet

"Football Index collapse: MPs call for inquiry into 'scandal' - BBC News" https://www.bbc.co.uk/news/amp/business-56420577

The gambling commission will have a lot of questions to answer on this - the fundamental model was a pyramid scheme and they should have seen that. How they were granted a gaming licence is beyond comprehension let alone allowed to advertise as if it was an investment, which brings the role of the advertising watchdog into question too.

[cricketfieldclarets]

Wonder if il ever get my £50 stake in McNeil back

[CombatClaret]

It had all the hallmarks of a ponzi scheme along with a very toxic hoard of zealots who would jump on any negative social media comments pointing out the flaws in the system.

I love fantasy football and have been bombarded by adds for several years. I understand a little about shares, enough to know I don't know much, but enough to understand what FI offered were not shares under any stretch, they were the broker, the market, the valuation arbiter and had you by the b8lls once you put your cash in.
I was amazed to see just how many men though this was an actual retirement plan and sunk tens of thousands into 'shares' (bets) tied to nothing.

This day trader hook, explains McGee, was highly appealing to young men, tapping into masculine tropes of wealth and authority. “It’s a glorified image, particularly for working-class men,” he says. “Not only do they not have access to the steady jobs their fathers had, their chances of a steady career are very precarious. And here you have this image of becoming a stock market trader overnight, using your football knowledge. That’s deeply alluring.”
https://www.wired.co.uk/article/footbal ... k-gambling

[Stalbansclaret]

That tired old bore John Motson fronted up a lot of the ads on TalkSport. Another celeb who will advertise anything for a few quid they dont need, Still, fairly incredible really that people were sucked into investing large amounts in what were basically fictional "shares".

[CombatClaret]

I've less ire for the folk who are paid to read whatever is put in front of them, I don't expect due diligence from the blokes who tell you the half time score is brought to you by WeBuyAnyTragedy.com

I do expect it from the gambling commission and advertising standard who are the people who gave FI a license and said it's ok for the above mentioned bore to read whatever's on the card.

[Chester Perry]

Appears that the Gambling Commission may have ignored warnings about the problems at Football Index - from the Guardian

Football Index: Gambling Commission was warned about firm in January 2020
Regulator told of ‘exceptionally dangerous pyramid scheme’
Football Index went into administration last week
Foootball Index was launched in 2015 under a licence from the Gambling Commission.

Exclusive by Greg Wood

Thu 18 Mar 2021 21.00 GMT

The Gambling Commission was warned in January 2020 that the betting firm Football Index, which suspended its platform last week, was “an exceptionally dangerous pyramid scheme under the guise of a ‘football stock market’” and that immediate and urgent action was needed “to alert and protect their users”, the Guardian can reveal.

Football Index launched in 2015 under a licence from the Gambling Commission, which regulates betting companies, rather than the Financial Conduct Authority, which oversees investment products. The platform allowed its users to buy what it described as “shares” in leading footballers, which would earn “dividends” over the three-year term of their bet. Users could also buy and sell “shares” between themselves, with Football Index charging a 2% transaction fee.

On the back of an extensive marketing campaign – which included pitchside adverts at Premier League matches, slots on TalkSport radio and, more recently, shirt sponsorship of Nottingham Forest and QPR – Football Index increased its user base to an estimated 500,000 account holders.

Almost from its launch, however, there was concern in the wider gambling industry that Football Index’s business model could be unsustainable and that its failure could have significant consequences for the whole sector.

The Guardian has now seen a document sent to the Gambling Commission 15 months ago which makes these concerns clear. The document analysed Football Index’s business model in detail and highlighted what its author – a person with extensive experience of the sector – believed to be a number of fundamental flaws.

In particular, the report suggests that Football Index’s deliberate imitation of an investment product “has led to unparalleled levels of irresponsible gambling behaviour from 10,000s of users misled into believing they are investing rather than gambling, with little or no consideration that all of their money is at risk”.

It also points out that Football Index’s liabilities – the “dividends” it will be obliged to pay on “shares” over the term of a bet – increase every time a share is purchased. Even in January 2020, the report estimates that Football Index’s liabilities “exceed £1m/month”, and that “the only way the company can afford this long term is through the constant sale of yet more new shares to new users alongside a constant churn in positions”. It concludes that “should user growth stop or decline, the company would quickly find itself unable to pay these liabilities to users”.

The report says this leaves Football Index “vulnerable [to] and destined for a bank run in which the first ‘X’ per cent of users manage to get some money out before the system collapses and the remainder lose everything”.

The report also argues that Football Index’s business model leads to “a dangerous false sense of security” among its users “over the money [they] have at stake on the platform, as the majority simply do not consider that they could potentially lose the entirety of it”. As a result, it suggests, there are “many individuals who have open bets valued at more than a year’s worth of their salary”.

The report adds: “Not only is this incredibly dangerous in that significant and life-altering sums of money are at stake and risk, but the perceived safety of the platform is inducing users to shift their capital from genuine investment vehicles (bank savings, ISAs, stocks) into it, given the hope and promise of constant high returns.”

The document is understood to have been presented in person to Gambling Commission staff and emailed to senior executives.

The timing of the warning to the regulator – January 2020 – is significant not only because it predates the recent apparent collapse of Football Index by 14 months but also because at the time, the site still allowed users to “cash out” of their bets by selling shares back to Football Index at a small loss via an “instant sell” option. That option was removed in March last year, shortly before European football closed down for several months due to the coronavirus pandemic.

The warning arrived at the Gambling Commission about eight months before the first in a series of crashes in the Football Index market, the most recent of which, after the company announced an 80% reduction in dividends, forced the site offline a few days later.

The Gambling Commission said it “suspended [the licence] on 11 March 2021 as that was the first point where we had sufficient evidence to demonstrate that suspension was necessary”.

[paulatky]

I warned people on here over a year it was nothing more than a ponzi scheme and doomed for failure

[Chester Perry]

This may be of interest of some of you - FAQ's from legal firm Leigh Day and their investigation into the Football Index collapse

https://www.leighday.co.uk/faqs/football-index-faqs/

[CombatClaret]

I assume the above Gaurdian article might relate to warnings made by Caan Berry a professional sports trader (who you could class as a "person with extensive experience of the sector").
He was sending warning to the Gambling Commission a early as December where he breaks down the flaws in the model.

https://caanberry.com/football-index-wa ... ommission/

[Chester Perry]

This thread contains the full transcript of the letter to the Gambling Commission outlining the problems at Football Index in January - they failed to act on it - They Gamling had warings 15 months before the collapse and filed to act

https://twitter.com/mattzarb/status/1374318122606456835

[GodIsADeeJay81]

https://theathletic.com/2463807/2021/03 ... ed-article

Athletic article on this.

[Chester Perry]

This is interesting - The Financial Times with a piece on how Nasdaq trumpeted it's association with Football Index in 2019 after sharing it's technology with them - oh dear not a good look for a stock exchange to be publicly associated with a pyramid scheme is it

https://outline.com/6yjCdV

[Chester Perry]

The Guardian with more tales of woe casused by the collapse of Football Index

Football Index: how ‘stock market’ ended up costing customers millions
By blurring the lines between gambling and investment, the suspended company Football Index has left many in debt

Greg Wood

Sun 28 Mar 2021 07.00 BST


“Iknow of people who have had to tell their partner they don’t 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 who’ll have to tell their partner that they have a £10,000 credit card bill that they can’t pay. The things I’ve 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 company’s 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 player’s performances on the pitch.

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.

Football Index 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 Index’s 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 it’s bizarre that this wasn’t brought under their purview.”

From Thomas’s 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. “It’s 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 what’s called ‘downside’ protection, which means customers can never lose more than they’ve invested, and at the end of every day, we are required to know exactly where every client’s investment is. Again, it’s time-consuming and expensive, but the core principle is that if you’re 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.

A factor in FI's downfall may have been their customers were simply too good at playing the game
“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 FCA’s 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 FI’s 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 Index’s point of view, the ones that would make the firm the most money. “If you’re 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 shouldn’t be able to offer people shares that are actually bets, and you shouldn’t be able to offer bets that are actually derivatives.”

It will be months, if not years, before the full story of Football Index’s 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 industry’s overall regulatory framework also under review at present, it could yet be a scandal that prompts major changes to the gambling laws.

“If there’s 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 don’t think that’s the message the British government would want to send out to people who are doing this to UK punters.”

[Chester Perry]

Good to see that the DCMS are on top of things re the Football Index debacle - they have just managed to share contact details for everyone that has complained to them about the collapse

https://twitter.com/josephmdurso/status ... 8263185408

this is a really fundamental practice issue for a government department, justifies the decision not to let them directly run the Football Review

[Gp8419]

It was only going one way this thing when everyone reviewing it was winning and putting even more money in to invest further.My next door neighbour got stung with the map scheme (my advertising pays) some kind of Ponzi scheme same people I think.I warned him but he wouldn’t listen he was making 50 dollars a day by clicking on ten adverts a day,woke up one day and clearly his money had all disappeared.

[Chester Perry]

This is hardly a defence is it - I cannot really see a judge accepting such a weal technicality, when the spirit and thrust of the message was so different - Neil Kelly a director of Football Index parent company on the use of Football stockmarket in the advertising/promotional literature of Football Index

https://twitter.com/mattzarb/status/1396750088148590595