UKGC Warned of ‘Dangerous Pyramid Scheme’
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Posted on: March 22, 2021, 05:20h.
Last updated on: March 22, 2021, 11:07h.
Football Index was a disaster waiting to happen, according to a document that described the soccer trading platform as an “exceptionally dangerous pyramid scheme under the guise of a football stock market.”
The document, seen by The Guardian, was authored by an unnamed person “with extensive experience in the [gambling] sector.” It was passed to UK Gambling Commission staff in January 2020, who forwarded it to the regulatory body’s senior executives, according to The Guardian.
But questions will be asked about why the regulator apparently ignored the document or failed to take it seriously. The author analyzed the Football Index business model in-depth and highlighted fundamental flaws that made it allegedly unsustainable. The document recommended that immediate action be taken by the UKGC to protect consumers.
Market Crash
Launched in 2015, Football Index became a visible brand around English soccer by advertising heavily on TV and radio, and on player’s jerseys.
Mimicking a stock market, Football Index allowed users to buy and trade “shares” in professional soccer players. The value would fluctuate depending on metrics like a player’s on-pitch performances, or real-world value in the soccer transfer market. Players were then paid “dividends” based on the performance of their shares.
But early this month, the company announced it would slash dividends by 80 percent to ensure the platform’s “long-term sustainability.”
This caused the market to crash and the value of shares to nosedive overnight, forcing the site offline and leaving users unable to withdraw what was left of their balances.
The UKGC suspended the license of Football Index’s parent company, Bet Index, on March 11, the same day it went into receivership.
Dangerous Liabilities
But 14 months earlier, the UKGC was warned that the only way Football Index could afford to meet its liabilities — the dividends it had to pay to users 00 in the long term was “through the constant sale of yet more new shares to new users alongside a constant churn in positions.”
“Should user growth stop or decline, the company would quickly find itself unable to pay these liabilities to users,” continued the report.
This left Football Index “vulnerable [to] and destined for a bank run in which the first ‘X’ percent of users manage to get some money out before the system collapses and the remainder lose everything,” it concluded.
Lawmakers including Labour MP Carolyn Harris have vowed to ask questions in Parliament about Football Index and whether the UKGC was derelict in its duty to oversee the company.
The UKGC has countered that while it is its duty to look at suitability, including financial circumstances, when licensing an operator, it does not “oversee their businesses on a day-to-day basis or monitor the financial health of operators directly in real-time.”
“People using gambling operators do so at their own risk,” it added.
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