UK Government Won’t Bail Out Football Index Victims, Says Minister
Posted on: June 9, 2022, 09:02h.
Last updated on: June 9, 2022, 01:23h.
The UK government will not compensate individuals who lost money amid the collapse of soccer trading site Football Index.
At a special parliamentary debate Tuesday on the impact of the fiasco, UK sports minister Nigel Huddleston MP said it would be “inappropriate” to use public funds to bail out customers of a gambling company.
Football Index imploded in March 2021, taking millions of pounds held in customer accounts. Subsequently, insolvency documents showed that the company had £124 million (USD $155 million) in “open bets” at the time of its demise but only around £4 million (USD $5 million) in cash.
The trading site is reported to have had over 50,000 registered users, but only around 30,000 were regular traders. The Times of London estimated average individual losses of around £3,000 ($3,760) each.
Critics say the company’s business model was like a Ponzi scheme doomed to fail from the beginning.
The company billed itself as a combination of fantasy sports and the stock market, advertising heavily in and around British soccer. The platform allowed users to buy “shares” in soccer players, which would earn them “dividends” based on real-world player performances and fluctuating transfer-market values.
But these shares were purely notional, with no underlying value. This meant the business model required the constant sale of new shares to new users for Football Index to pay its liabilities to winning customers.
The market crashed overnight after the company announced it would dramatically slash dividend payments in a bid to “ensure the long-term sustainability of the platform.”
Users panicked and cashed out. Those that didn’t see the value of their shares quickly evaporate.
Many MPs present Tuesday said constituents had lost investments they planned to use for deposits on homes or their children’s education. The victims said they believed these losses resulted from regulatory failure and that they should be compensated by the government.
Regulator Dropped Ball
Huddleston expressed sympathy but ruled out compensation. Instead, he said steps would be taken to tighten regulation around novel products that blur the line between gambling and investing.
A government report published last September said the UK Gambling Commission had failed to fully understand Football Index until it was too late and may even have issued it the wrong license type.
The regulator was aware of the company’s financial difficulties and considered suspending its license but feared this would cause the crash.
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