The popular self-styled ‘stock market for football’, now in administration and subject of a suspension by the Gambling Commission, enraged thousands of participants by reducing the share price of players leading to mass panic, financial losses and accusations that the company is nothing more than a ‘Ponsi’ scheme.
Football index describes itself as ‘the place to buy and sell shares in footballers for real money’. In practice, the platform was an extension of fantasy football but with real cash investments and real cash returns. Participants would buy ‘shares’ in footballers which would fluctuate in value depending on the performances of the players in games and by the demands of the market. By way of an example, if a participant bought 100 shares in a player for £1 each and that player later went on to have a great run of form, their share price might increase to £5 a share and said participant could then sell his 100 shares for £500 making a tidy £400 profit. As well as share prices, another feature of football index was cash dividends, summarised by joey d’Urso in his piece for the Athletic as
“rather like fantasy football points but with real cash; pennies and pounds in the bank for owning shares in players who score goals or rack up assists and clean sheets. Dividends are also paid out for a player’s “media buzz’, quantified by mentions in mainsteam press outlets’.
Over recent years the popularity of football index has increased to the point where football index was a highly credible organisation sponsoring two championships football teams and advertised and discussed on many credible sports news outlets. This seemingly upward trajectory of Football Index all changed last week however. In a post on their website on 5 of March football index posted the following:
“To date, our Traders have enjoyed some phenomenal dividend increases year-on-year which have brought some incredible payouts. Continuing this trend is only possible in a buoyant market and the reality is we do not have that at the moment. In consultation with our legal and financial advisors we have had to make the very difficult decision that in order to ensure the long-term sustainability of the platform we simply must reduce dividends. As such, in accordance with our terms, we are giving 30 days notice regarding this change.”
As a result of the announcement, share prices plunged. As panic set in and some participants decided to cut their losses and sell up, the share prices dropped further. Whilst football index markets itself as the ‘football stock market’, it is regulated by the Gambling Commission. Therefore, the risks involved are the same as any other gambling endeavor. In this case however the key difference is that people have not lost money because of gambling choices they have made, eg buying shares in a player that didn’t perform, but rather by the actions of the company and the subsequent reaction of the platform users who, in many cases, rushed to sell their shares fearing that their value was going to fall even further.
What has further infuriated users is that Football Index allowed new shares to be released allegedly at the same time that the company knew they were experiencing financial hardship with 300,000 new shares issued across the exchange in February. The announcement that the “phenomenal dividends” were to be reduced and that “Continuing with this trend (of phenomenal dividends) is only possible in a buoyant market and the reality is we do not have that at the moment” was taken by some to imply that dividends were paid using money brought in by new users. This led to the comparisons with a Ponsi, or pyramid, scheme where a constant supply of new money is needed to pay people higher up the pyramid which has a devastating effect then the new money at the bottom stops coming in.
After a week of panic and frustration, Football Index announced yesterday that they would enter administration. In a Company announcement released late last night, the company stated:
“After much difficult deliberation we must now issue the following update.
The Board of BetIndex Limited has consulted with external legal and financial advisors, and the UK and Jersey Gambling Commissions. The decision has been made to suspend the platform.
The dividend restructure announced on Friday was a necessary step in a business recovery plan to seek the long-term sustainability of the platform. However, it is clear that this has not been well received and we need to find a more agreeable way forward.
We are pursuing a restructuring arrangement to be agreed with our stakeholders including, most importantly, our community. We are preparing this through an administration with insolvency practitioners Begbies Traynor, to seek the best outcome for customers with the goal of continuing the platform in a restructured form.”
Throughout today further news has emerged regarding the fate of Football Index. Queens Park Rangers announced on their website that they will no longer have the name of Football Index on their shirts, effective immediately. CEO Less Hoos said “As a football Club we entered into a one year agreement with Football Index in good faith. In light of recent events, the front property of QPR’s home and away strips will no longer spirt the football index logo”. Nottingham Forest are expected to follow suit but no announcement has been made at this stage.
Also today, the Gambling Commission announced that they had suspended Football Index’ operating licence. The Commissions stated:
“The Gambling Commission has decided to suspend the operating licence of BetIndex Limited (t/a Football Index) pursuant to section 118(2) of the Gambling Act 2005.
The suspension follows an ongoing section 116 review into the operator, as we had concerns activities may have been carried on in purported reliance on the licence, but not in accordance with a condition of the licence, and that Football Index may not be suitable to carry on with licensed activities.
We have made it clear to the operator that as the investigation progresses, we expect it to focus on treating consumers fairly and keeping them fully informed of any developments which impact them.”
This news will come as a massive blow to users of the gambling platform with sales and purchases now suspended. Whilst the company went on to say in their statement that the administration and suspension of the platform was an interim step” to ensure that everyone’s rights are preserved in relation to funds held by BetIndex Limited.”, users will worry that there is no way back, particularly in light of the Gambling Commission suspension, and that their funds, in many cases amounting to life changing sums or lifetime Savings, will now be permanently lost.
© Whitestone Chambers