Football Index Scandal: High Court Approves Repayment of £3.5 Million in Player Funds
Posted on: June 9, 2021, 04:21h.
Last updated on: June 9, 2021, 04:37h.
Some £3.5 million ($5 million) held in a Football Index “player-protection account” can now be redistributed to 280,000 former customers of the stricken soccer trading platform, London’s High Court has ruled.
The account was held by a third party and kept separate from the company’s operating costs. It will now be turned over to administrator Begbies Traynor to reimburse players who still had funds on the platform when it collapsed in March.
It’s a drop in the ocean compared with the estimated £100 million ($138 million) that players lost in the aftermath of Football Index’s demise. Some individual losses ran into hundreds of thousands of pounds.
It is still to be determined how customers who had active bets when their accounts were frozen will be repaid from the remaining money in the fund. But it’s likely these claims will be prioritized over players who were simply owed “dividends” by the company.
Soccer’s Flawed ‘Stockmarket’
Launched in 2015, Football Index marketed itself as a soccer “stock market.” Users could buy and sell notional “shares” in professional soccer players, which would fluctuate in value, depending on various real-world factors.
Successful traders were paid “dividends” based on the performance of their shares. But critics say the company’s business model was flawed, and that it overextended itself by overpaying successful traders.
Court documents showed that by the summer of 2020, Football Index was dependent on attracting new deposits to pay its liabilities to winning players.
It initially increased its dividend payments in a bid to attract more new depositors. And when that didn’t work, it announced it would slash dividends by 80 percent to ensure “long-term sustainability.”
The platform’s customers panicked, and in the ensuing stampede to cash out, the market crashed. Average individual losses are estimated to be around £3,000 ($4,120 USD) each.
According to court filings, the company appointed insolvency specialist Begbies Traynor three weeks before its collapse. But it continued to encourage customers to deposit money.
Previously, Football Index had continually reassured users about its financial health, especially during the pandemic. It also claimed to be less risky and more “responsible” than traditional betting companies.
But ultimately, the company’s business model relied on the constant sale of more shares, and for its growth rate to exceed its churn rate, something that could never be guaranteed.
Government Review Launched
On Monday, UK lawmakers announced they had appointed barrister Malcolm Sheehan QC to lead an independent review into the Football Index affair. The inquiry will examine whether there were failures of oversight by the UK Gambling Commission.
The regulator has said it launched an investigation into Football Index a year before its collapse, but feared suspending its license would have exacerbated its financial problems, immediately placing consumers at greater risk.
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