Football Index: a hybrid between betting site and Stock Exchange that caused millions of losses | sport business

Two weeks ago, on 22 September, the British authorities published a 193-page report on the case. In the document, an independent attorney named Malcolm Sheehan QC presents a review produced after 13 weeks of investigation.

The report points out flaws in at least two aspects: the company’s business model and the supervision of the bodies that supervise betting in the United Kingdom. A story that serves as a warning to other markets.

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The Football Index was under the command of BetIndex, a company that is now under state intervention. The product was launched in 2015 and was authorized to operate by the Gaming Commission, the British government body that regulates gambling in the region.

Fans could enter the platform and buy, with real money, “shares” that made reference to real athletes – like Messi or Cristiano Ronaldo. As is done with companies, on a Stock Exchange, but without any link with the player.

There were two ways to make money:

1. Speculation: players’ “shares” could be bought and sold between platform users, as in a
2. “Dividends”: the Football Index remunerated investors based on events, such as game performance and mentions in the media

Once the “share” of a particular athlete was acquired, the investor would own it for a period of three years, in which he would receive the “dividends” and would be free to sell it to other users.

There was evident confusion about the nature of the environment – ​​and in some ways purposeful. Football Index had government permission to operate as a bookmaker. After all, it was said that it was about: the fan put his money in a certain player hoping that, over three years, he would be able to multiply that amount.

At the same time, BetIndex used and abused the similarities with the financial market. Terms like “stocks” and “dividends” are being described in this text in quotation marks because they were not, in fact, stocks and dividends. But the company made it look like the place was an investment environment, in which the gambler looked like an investor.

In English football, the Football Index has appeared on the jerseys of Queens Park Rangers and Nottingham Forest. Sponsorships to clubs with national exposure helped to publicize the tool.

The product was also in British newspapers, magazines and radio. After appearing in a video in the highly regarded Four Four Two magazine, the deal finally caught the government’s attention.

Two words recur in the report that Malcolm Sheehan QC produced on the case: Ponzi and pyramid. They refer to a fraudulent operation, a financial crime, of reasonable sophistication.

Conceptually, a pyramid scheme works like this: investors are lured with the promise of easy profit in a given business. At first, they are successful. This attracts new investors, whose money is used to reward those who arrived first.

The problem is that the business itself doesn’t make money. As the owner of the scheme needs new investors to bring in money all the time, the amount of interested people eventually runs out, and inevitably participants will end up without getting their money back.

In the case of Football Index, BetIndex had as revenue a commission charged on top of each transaction – that is, a percentage of all purchases and sales of player “shares” between users of the platform. But this entry was not enough to cover costs.

In August 2020, according to this independent investigation, the company made the decision to increase the dividends paid to “stock” owners. She spent around £1 million a month.

Initially, the increase in dividends would be 30%. Users felt that it was too little to generate profit on investment. Then BetIndex announced that the increase would be 100%. Its cost would rise to £2 million a month; a high risk, in the midst of the pandemic.

The intention was to increase the number of users on the platform, so that the new money invested by them would cover the remuneration of those who were already there. This did not happened. And then, suddenly, the company drastically reduced the “dividends”. Reason for widespread shouting.

From the moment the Football Index had its rules changed, with reduced dividends, people tried to get rid of the “stocks” they had bought. And then the law of supply and demand was perverse.

The value of something is linked to the number of people who want to buy it. On the other hand, when everyone tries to sell this thing at the same time, its value plummets. That is what happened.

A practical example was that of Bruno Fernandes. The Manchester United midfielder was trading at £7.23 at one point. In a matter of days, that value had plummeted to 0.90 pounds for those who wanted to buy, or 0.68 pounds for those who were selling.

A profile identified as IndexTrak, on Twitter, showed the overall impact. In just two days, the sum of the value of all the shares (considering the sale valuation) plummeted from £65 million to less than £7 million. The crash took place in March 2021.

British media outlets have made several reports on the subject, in which they show cases of fans who have lost tens of thousands of pounds. In all, people’s identities were protected. They were ashamed that they had been deceived.

No BBC, a 22-year-old user, alias Ben, reported losing £4,000 in just seven days. Jack, also coined, 24, said his loss had reached 5,000 pounds.

THE Guardian reported cases of investors who would lose £32,000 if the Football Index just went offline and didn’t return the money.

In the independent review by Malcolm Sheehan QC, there is mention of a document produced in January 2020, when the Gaming Commission was already putting BetIndex against the wall to understand what was happening in its operation. The title of the report was: “Football Index – £100m in high risk consumer money”.

Anyone visiting the Football Index website at this point will find an environment under intervention. Begbies Traynor LLP was placed by the government to carry out the insolvency proceedings.

This means that this state-appointed agent is raising financial disputes that BetIndex has with users, while also trying to sell company assets to settle the debts.

But the story does not end with the liquidation of the business. After all, despite there being clear indications that it was indeed a pyramid, the company put its scheme into practice with the authorization of the Gaming Commission to function as a bookmaker.

– In recent years, we have seen an increase in the complexity of the business models and products offered. The lines between gambling and other types of products, such as financial services or computer games, have become increasingly blurred. We are already working on several recommendations in this report,” said Andrew Rhodes, CEO of the Gaming Commission, in response to the The Athletic.

The conclusion of the document that the British government recently published, the 193-page investigation, could not be much different: a fair share of the “blame” for the damage caused by the Football Index falls on the ineffective supervision of the business.