Football Index Facing UK Government Inquiry into ‘Flawed’ Business Model
Posted on: April 14, 2021, 06:32h.
Last updated on: April 14, 2021, 10:15h.
The UK government will launch an independent investigation into the Football Index collapse, sources have told The Times. The soccer trading platform tumbled into insolvency overnight on March 5, resulting in collective losses for its users of almost $100 million ($138 million).
Many of those users are now demanding answers about Football Index’s business model and whether it was sustainable in the long term. And if it wasn’t, why was it able to attract backing from high-profile names within the gambling industry and elite soccer? And why was it licensed by the UK Gambling Commission in the first place?
Some accuse Football Index of being little more than a Ponzi scheme and are mulling class action against the site.
“This case further reinforces the need for our comprehensive review of gambling laws,” said The Times’ “government source.” “This independent investigation into Football Index will feed into that work, and if we need to make changes to regulation to protect people, we will.”
“Something appears to have gone very wrong here,” the source added.
Soccer’s ‘Stock Market’
Launched in 2015, Football Index marketed itself as a soccer “stock market” where users could buy and sell notional “shares” in professional soccer players.
The value of these shares would fluctuate, depending on factors like the football star’s on-field performances or actual value in the real-world transfer market. Successful traders were paid “dividends” based on the performance of their shares.
The brand, advertised widely on television and radio, sponsored the jerseys of two English Football League teams, QPR and Nottingham Forest.
Its board was populated with veteran betting industry execs like Brian Mattingley, the former chairman of 888 Holdings, now chairman of Playtech, and Mark Blandford, the founder of Sportingbet, who was also among the company’s biggest shareholders.
The site promoted itself as the “smart” alternative to sports betting, where users were supposedly less exposed to risk.
But unlike investing in a company, which has real, underlying value, Football Index’s shares were purely notional.
This meant the business model relied on the constant sale of more shares and for its growth rate to exceed its churn rate. Otherwise, it would find itself top-heavy with successful players and unable to pay its liabilities, or dividends.
Sure enough, when the company announced it would be cutting dividends to ensure “long-term sustainability,” user panic set in and the market crashed.
Player accounts were decimated. Average individual losses are thought to be around £3,000 ($4,120) each.
The UK government is currently undertaking a review of the country’s gambling laws, which have been criticized as being too liberal. Regulations are expected to be tightened in the coming year.
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