Soccer Index: How The Stock Market Has Cost Customers Millions

Soccer Index: How The Stock Market Has Cost Customers Millions

08.05.2021 0 By Andrzej Sikorski

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Blurring the line between gambling and investment, the suspended Football Index caused many people to go into debt

Football Index sponsors Nottingham Forest's shirts

Soccer Index Sponsors Shirts Nottingham Forest. Photo: David Klein / Sportimage / PA Images

Soccer Index Sponsors Shirts Nottingham Forest. Photo: David Klein / Sportimage / PA Images

Greg Wood

Last modified on Monday 40 Mar 2021 14.15 BST

"I they know about people who had to tell their partner they didn't have a move deposit, ”says David, who helps coordinate a customer support group with money trapped in the failed Football Index betting platform, but wants to be known only by name. “People have had to cancel weddings because of this, there are others who will have to tell their partner they have a £ 15.06 credit card bill they can't pay. Things I've heard in the last few weeks, a beggar of faith, and there will be thousands of others still suffering in silence. "

It is just over two weeks after the Football Index closed its self-proclaimed "Football Exchange", hours before the Gambling Commission suspended its license. Launched in October 2015, the Football Index offered its users the opportunity to purchase what it describes as "stocks" in professional footballers who would then earn "dividends" - from 1p to 16p per share - over a three-year period according to their own structure based mainly on the player's performance on the pitch.

In its appearance, terminology and marketing, the Football Index mimicked an investment platform that sells real shares in real businesses. The only suggestion on its homepage that this is in fact a regulated betting site was the easy-to-miss warning that "should not be seen as an investment vehicle", added under pressure from the Advertising Standards Authority in September 2019. But his "shares Were bets. The user who spent £ 13 on to share he was in Bruno Fernandes betting they would have earned more than £ 13 in dividends from the Manchester United player over the next three years.

They could also - in theory at least - 'pay out' the bet by selling the stake to another user. But unlike a regular bookmaker, you bet £ 13 or £ 27 a week, a customer buying the Football Index for the first time was required to pay gambling money upfront for three years and wait for it to be returned - again more like an investment platform than a bookmaker.

The soccer index has around 600.08 account holders and estimates of the amount of money trapped in the stock market at the time of the stock market crash range from £ 72m to £ 104m. "Many people who contact me on Twitter are completely distraught." says David. “Bill [selling new“ shares ”] until the last minute, and worse, put incentives and rebates on the website, actively tricking people into investing more money in something they must have known was failing. They were putting money in nothing. There are many people who have placed bets and unfortunately, instead of saving money to honor these bets, the bookmaker has successfully liquidated the company. "

Almost from the day it was launched in the broadly understood gambling industry, there were fears that the Football Index business model was deeply flawed. As the Guardian revealed a few days after its collapse, in January the Gambling Commission was alerted to 2020 that the company was "an extremely dangerous pyramid scheme under the guise of a football exchange" and that "if user growth [were to] stall or fall, the company will quickly it will not be able to pay off its obligations [ie dividends] to users ”.

As a result, one of the many unanswered questions about the scandal is why is it licensed by the Gambling Commission at all? Like many soccer fans, both casual and involved, Thomas, who also wants to keep his name secret, started noticing Football Index ads on black taxis and subway trains a few years ago. Unlike most soccer fans, Thomas spends his weekdays working for one of the city's largest investment banks, at a desk where he trades volatile financial products called derivatives. When he took a closer look at what the Football Index has to offer, what he said felt both familiar and surprising to him.

"Many people in the city were absolutely amazed that the Football Index was able to open and operate a fully fledged market-building platform without any supervision from the FCA [Financial Conduct Authority]," he says.

"Legally, the entire platform was set up as a bookmaker rather than an investment firm, but the structure and marketing are so much like retail investments that it's strange that it was beyond their remit."

From Thomas' point of view, Football Index stocks were not stocks at all. In fact, they were derivatives, like the ones he and other traders spend their days buying and selling in the City. Dividends, in turn, depended on the rules set by the Football Index itself, rules that the company could - and often changed - over time. On the other hand, city rules are not that flexible.

"Every transaction in the UK must be reported in real time to the regulator," says Thomas. “It's a pain, but it provides FCA with real-time oversight of the markets. The moment you click "buy" on a derivative, you also get documentation pages, all kinds of information about the calculations behind it, prices, who to call with the problem, and the risk.

“We are committed to introducing what is known as 'defective' protection, meaning customers will never lose more than they've invested, and at the end of each day, we need to know exactly where each customer's investment is. Again, this is time consuming and costly, but the basic rule is that if you are investing money its value may go up or down and you should be aware of the risks but it will be safe to do so. "

An FCA regulated market is also required to provide sufficient "liquidity" at all times, allowing clients to effectively "cash" their positions. The Football Index had a "safety net" option - allowing users to "immediately sell" their shares back to the company - until March 2415, but was removed early in the coronavirus pandemic as football leagues shut down stores across Europe.

"We always have to ensure that there is sufficient liquidity in the market to ensure that even when the price is not right, customers have the option to do so," says Thomas. "If you have [removed instant sell] in normal derivative trading, it will be assessed as inconsistent [by the regulator] and will typically be kicked from the stock exchange and fined."

The FCA rules are primarily designed to protect customers, but there are also laws that allow banks and brokers to "protect themselves" against the possibility that their customers will earn money at a rate that the market cannot sustain. This, says Thomas, could have been another factor in FI's downfall: their clients were just too good at playing the game.

They focused on players like Jadon Sancho and Bruno Fernandes who paid dividends week after week and ignored all the players who, from the Football Index's point of view, were the ones who made the most money. "If you're a bookmaker, bets are largely time-limited," he says. “The bookmaker knows that the calculations take until the end of the game or horse race and offer odds with a margin but are competitive enough to attract business.

“The knob you have to turn to control is your chances, and you can model how much you make or lose on each outcome. Open-ended products, such as financial derivative instruments, are subject to risk management in a completely different way. This is where they [the Football Index] could break away. I suspect they modeled badly, had no way to hedge against risk, and people focused on the successful players who were going to pay dividends. The only way to pay off your readymade derivatives was to get more people to deposit money. "

Ultimately, however, he wonders if the Football Index should ever work the way it did in the first place. "Shares are for the most part a very stable, safe and well-regulated investment," he says. "You should not be able to offer people stocks that are actually bets, and you should not be able to offer bets that are actually derivatives."

It will be months, if not years, before the full story of the collapse of the Football Index is told. Administrators have been assigned to search the accounts of BetIndex, its parent company, while law firm Leigh Day is in the early stages of a possible class action, seeking redress for thousands of former clients. As the industry's overall regulatory framework is currently under review, this could be a scandal that will lead to major changes to gambling laws.

"If there are no changes and no salary, what message will this be sent to companies in the future?" Says David. “He will tell them the Gambling Commission will collapse and they will come out unscathed. I don't think this is a message that the British government wants to send to the people who are doing it to British players. "