Football Index: Gambling or Investing? Was It Properly Regulated?

declineIf you have been keeping up with the general news recently, then the likelihood is that you have heard of Football Index entering into administration. Of course, if you have never heard of Football Index before, then there is the potential that you will find this to be a little confusing as gambling businesses fail all of the time so what’s the fuss?  This is, however, a special case as it is seems now that betting investment products like this may not have been properly regulated and perhaps should be classed as an investment rather than betting.

Fortunately, we are here to shed some light not only on what the company, but also what has led to its downfall. Plus, we will look at whether products like this should be considered as a gambling product or an investment.

Furthermore, what will happen to money in the half a million customer accounts with Football Index now that it has entered the administration phase? How is it that such a company was allowed to continue operating for such a long time period without stricter regulation being imposed on it, when warning signs had been flagged over a year earlier. Should they have been regulated as something else? And if so, who should have been responsible for the regulation?

football index logoThe Football Index platform was founded by Adam Cole, who created the Electric Video brand that dealt with pre-recorded video and DVD and the MyVillage network, which lists local restaurants, bars and services within the United Kingdom.

The BetIndex Limited brand launched Football Index in October of 2015, with the premise of providing a platform where registered users could bet on football players. The stock exchange cap, which was known as “The Footie”, began with the launch of the platform on October 2, 2015, providing a base value of 1,000 points. By April 3 of 2020, The Footie had grown to 159,207 points. Trader portfolios on the site ranged from £10 to over £1,000,000, and all sales occurring there included a 2% commission for the platform.

The site passed half a million registered traders by late 2019, and during the 2018/19 football season, more than £321 million was traded on Football Index. Over £4.3 million was paid out to traders through dividends, too. It was in 2020 that the company formed a partnership with NASDAQ, whose technology powered an Order Books system integrated later on in the year, and in January of 2021, Mike Bohan was appointed as CEO of the company.

Throughout this run, members of the site were able to bet on the future success of different football players. Customers essentially purchased imaginary shares in players to be in with the chance of earning dividends that were calculated based on player performance on match days, as well as based on their presence in the platform’s Media Rankings. The latter of these paid out on the top trending footballers each day.

Changes were announced at the beginning of March 2021, which included the issue of new Shares as well as the reduction of the “dividend” payout from the maximum of 33p each to 6p per share. Naturally, that reduced the value of all open bets on Football Index, which had been purchased at prices which were based on the higher payouts. As a result, the site experienced a huge backlash from customers, who saw their portfolio drop in value from between 50% and 90%.

The Downfall of the Company and Administration

sorry we are closed signWith the introduction of the new terms relating to shares and dividends, Football Index went through a massive crash. Many customers of the site reacted with outright fury at the fact that the terms and conditions were outrightly changed in an instant, sending the market through a series of crashes upon re-opening for trading on the following day. With users of the site reporting potential losses of up to £32,000 if the site were to go out of business, things went from bad to worse for the company.

Many analysts noted that the Football Index was heading directly towards administration just five days after the massive crash on the market took hold. Customers were left with tens of millions of pounds trapped on the site, and speculation rose that if the company was to collapse, it would stand out as being the biggest failure of a British betting company. At the same time, it would possibly end up leaving individual customers facing up to potential losses of more than £200,000. A statement was then posted on the Football Index website claiming that the week had been challenging, and that as a result, a decision had been taken to suspend all trading on the platform.

On Friday, March 12, 2021, the UK Gambling Commission opted to suspend the operating licence of Football Index. This came just a few hours after it had made the announcement of its intent to suspend trading. That licence, which was held by parent company BetIndex based in Jersey, was suspended by the Commission following what it described as “an ongoing section 116 review into the operator”. The regulatory body suggested that the Football Index may not be suitable to continue on with licensed activities due to it not operating in accordance with a condition of the licence.

The following week, on March 16, it was reported that Football Index was seeking a buyer following its intense market crash. Financial advisory group Oakvale Capital, which specialises in gambling, was said to be leading the search for a new investment in the company. That search began ahead of a court hearing that was to take place in Jersey two days later, which would begin the administration process of Football Index. Directors of the company were said to be hopeful that the platform could be revived under new ownership, despite the widespread fury that its customers had experienced following the changes. However, the severe outcome of its implosion has already caused plentiful political, financial and legal issues.

A cross-party group of MPs took it upon themselves to construct a letter to culture minister Oliver Dowden, demanding that an investigation takes place into how Football Index was regulated. For now, it is also unclear as to whether traders of the platform will be able to recoup all of the money that they have invested.  The UKGC have now issued an update stating that customer funds are insured and that funds are safe, although those funds amount to a lot less than customers were expecting to have following the market crash.  Even if users get their money back they are looking at significant loses.

The Gambling Commission’s Stance on Football Index

gambling commission signIt is not only MPs that have been asking about how the site was regulated, but many others have been querying this, too. And it seems as though the Gambling Commission were ultimately unsure about how it should have been regulated. Should it have been considered as a gambling site or as an investment platform?

The Commission published information regarding its investigation into BetIndex on March 19. According to those details, it granted BetIndex a licence for Remote General Betting Standard Real Event in September of 2015. It also suggests that the operator was licensed to conduct such activities by the Jersey regulatory body.

That licence allowed BetIndex customers to place bets on the future performance of footballers. A bet on the site lasts for a three-year period, in which time, traders accrue dividends. Once that timeframe is up, the bet expires, and customers lose their stake as well as any right to further dividends. That product ended up evolving to allow registered users to buy and sell bets, and the prices of such fluctuated depending upon demand for them. Because of the company including products that contain elements of betting, the Commission elected to regulate it as a gambling company. However, at the same time, it identified elements that were not considered gambling, and therefore, those elements were not subject to being regulated by the Commission.

The UKGC also began its investigation into BetIndex back in May of 2020. At that time, there was no cause to suspect them of any wrongdoing, and therefore, a suspension on its licence was unnecessary. Once BetIndex notified the Gambling Commission of its intent to self-suspend so that it could restructure and relaunch in early March 2021, it raised concerns with the regulatory body. This is what led to both it and the Jersey regulator suspending the company’s licences.

BetIndex does supposedly possess a Trust Account that is there to hold dividends that should be paid out to winning customers. According to solicitors for the company, BetIndex has suspended payments from that account whilst it can calculate its customer entitlements. Other than to Football Index customers, the funds in this account will not be distributed to anyone. However, the speed at which this occurs is in the hands of the Court.

Dangerous ‘Pyramid Scheme’ Concern in Early 2020

pyramid scheme

According to some sources, the Gambling Commission had previously been warned over Football Index in January of 2020. Suggestions were made that labelled it as a highly dangerous “pyramid scheme under the guise of a ‘football stock market’ operation”. Through this, it was said that the site lured investors in and then handed profit to earlier investors with the funds deposited by recent ones. At the time, it was suggested that urgent action be undertaken so that users of the site could be alerted to its status.

Of course, the Football Index marketed itself as more of an investment product. If this was the case though, then it would have been overseen by the Financial Conduct Authority (FCA). The platform described the possibility for customers to buy what it described as “shares” in the leading footballers, from which they would earn their dividends after the aforementioned three-year period. And the platform increased its user base only after an extensive marketing campaign took place.

Yet, concerns were rife from the moment that Football Index was launched, especially within the wider gambling industry. The business model was described as unsustainable by many, and those concerns were made clear to the Gambling Commission in 2020. A document sent to the Commission outlined various flaws in its business model by an expert in the sector.

That report suggested that the company’s deliberate imitation of an investment product led to it providing a basis for “unparalleled levels of irresponsible gambling behaviour”. This, it said, was done with users believing they were making an investment, when in actuality, the entire site should have been labelled as a gambling platform. Users were not made aware of any risk to their “invested” money.

However, despite receiving this document and the expert information from the author, the Gambling Commission took little action over the status of Football Index. Now, just over one year later, it has entered into administration and caused severe (and potentially irreparable) damage to the funds of many people who have used the site.

How Was the Operation Allowed to Continue So Long?

percentage loss bar chartThe fact that the Gambling Commission only elected to regulate the parts of the site that it deemed as gambling stands out as being one of the key issues here. In theory, the entirety of the Football Index should have been labelled completely one way or the other. And judging by the experts, it should clearly have been considered as a gambling site from the offset. This theory means that the Commission should have regulated it in its entirety.

Despite the fact that Football Index told its customers in 2020 that had “never been in a stronger financial position than today”, the company was accused of not delivering on several promises by investors. The touted expansion into Germany and the partnership formed with NASDAQ were naturally viewed as signs that the company had a bright future ahead of it. Not to mention the fact that the company sponsored football teams like Nottingham Forest, being their main shirt sponsor.

Yet, an advertised Q&A with CEO Mike Bohan was advertised at the beginning of March, but that failed to come to fruition, leaving customers even more frustrated. If the Gambling Commission had taken full control of regulating the company, would it have had such issues surrounding it? Well, that is a question that we will never know a definitive answer to, but the likelihood is that it would have had to adhere to much stricter gambling rules in all sections of its platform, rather than just the ones that the Commission decided had some relation to gambling.

The likelihood is that due to this discrepancy between what was considered gambling and what was not, Football Index was allowed to continue operating in a lax way. The only question that remains for most people now is whether they will be able to receive the money they have earned. Things are not moving in the swiftest of ways for Football Index where this is concerned, and the backlash has already been immense.