The Gambling Commission was warned that Football Index was putting £100 million of customers’ money at risk and ‘Immediate and urgent action’ was needed to protect them, 14 months before the company went into administration.
Sportsmail has seen a devastating report compiled by an industry insider and presented to the regulator in January 2020 and now MPs and pressure groups are calling for an inquiry into the demise of the online gaming company.
The 11-page document predicted the collapse of Football Index in extraordinary detail, claiming the business model was flawed and the company would collapse if too many customers tried to withdraw their money at the same time.
Campaigners have questioned why Football Index was granted a licence for its game
The football trading game went into administration this month in exactly those circumstances.
Its operating licence has now been suspended by the Gambling Commission, which is facing difficult questions over why it did not act sooner.
Football Index allows users to buy and sell ‘shares’ in leading players and receive dividends based on performance. Some people had more than £100,000 tied up in the site.
However, the company ran into financial difficulties and announced a cut in dividends and issued more shares, among other changes, in an attempt to secure ‘the long-term sustainability of the platform’.
Spooked customers responded by trying to get their money out of the game and this led to a disastrous collapse in player values, which swept away thousands of pounds, threatening lives and livelihoods.
Virtual gambling platform Football Index, a shirt sponsor for two Championship clubs – including QPR, was met with a furious backlash after jaw-dropping share price crashes
‘Users do not understand the risk they are taking with their money in Football Index,’ the report warned more than a year ago.
‘They believe they are betting on the performance of footballers, but in fact they are betting on continual user growth and the health of Football Index’s balance sheet.’
The report argued that the business model only worked if new customers kept ‘investing’.
Vast sums were spent on marketing, including shirt sponsorship deals with Nottingham Forest and QPR and regular adverts on TV and radio, to keep the customers coming.
The buy and sell prices for the world’s top players plummeted drastically over the weekend
A report sent to the Gambling Commission in January 2020 highlighted risks for customers
Once their numbers declined, the report argued, the company would struggle to make dividend payments, it would not have sufficient funds to pay out those customers who wanted to sell their shares and there would be a ‘run’ on the market.
Handed to the commission at the beginning of last year, the report claimed the company’s strap line, the ‘Football Stock Market’, and other marketing had ‘induced thousands of users to ‘invest’ sums of money significantly larger than they otherwise would in a gambling platform’.
It said users had open bets of £10,000, others over £100,000 or more than a year’s worth of their salary.
‘Not only is this incredibly dangerous in that significant and life-altering sums of money are at stake and risk but the perceived safety of the platform is inducing users to shift their capital from genuine investment vehicles (bank savings, ISA’s, stocks) into it given the hope and promise of constant high returns.’
Report reproduced tweets in which Football Index users described game as savings scheme
The document reproduced scores of tweets in which Football Index users advocated the game over recognised savings schemes.
‘My advice to everyone with any savings stagnating in the bank is give #FootballIndex a try now,’ tweeted @bealolufc in December 2019.
And @index_lion added in September 2019: ‘Stocks currently giving me around 5% ROI. ISA giving me 2%. Index so far has been 15% the difference is staggering.’
#FootballIndex is the best savings account I’ll ever have. 40% in 6 months,’ said @petecfc.
Borussia Dortmund’s Erling Haaland and Manchester United’s Bruno Fernandes are two of the most popular players on Football Index
However, those ‘savings’ were not secure. Eventually, the market crashed and thousands of people saw the value of their portfolios plummet.
‘We have placed a bet in good faith, many with large sums, and the bookmaker has essentially just disappeared overnight,” said Dave, a customer from Watford.
‘This is a market that had £120million of traders’ money, where is this now?
‘I have personally lost around £20,000 but I know of at least a handful of users that have lost over six figures. Our portfolios are worthless now and we can’t access them.’
In March last year, Football Index removed a feature that allowed customers to sell up any player they ‘owned’, as the company struggled to retake control of its market.
Football Index has recognised the ‘frustration and disappointment’ from users in a statement
‘Let’s say you bought a player for £3 and he was worth £8 a few months later, you previously could sell the player at the higher price to FI itself and they had to pay you out,’ explains Kieran Maguire, football finance expert and lecturer at Liverpool University. ‘They changed this to a buying and selling market where you had to find someone who wanted to buy your shares.
MP Carolyn Harris has written to Culture Secretary Oliver Dowden asking for an inquiry into the collapse of Football Index; he is already committed to a review of the industry as a whole
‘It made the rules up as it went along,’ he added.
‘Under normal gambling scenarios that would not be allowed but, under Football Index’s terms and conditions, they could do what they wanted.’
Now MPs from all parties are demanding an inquiry, into the Gambling Commission’s failure to intervene before it was too late.
Football Index are the main shirt sponsors for Queens Park Rangers and Nottingham Forest
‘The collapse of Football Index is a complete scandal,’ Carolyn Harris MP told Sportsmail. ‘The Gambling Commission was clearly asleep at the wheel and people’s lives have been devastated as a result.’
Harris, who chairs the All-Party Parliamentary Group for Gambling Related Harm, has written to Culture Secretary Oliver Dowden demanding an urgent review into why Football Index was allowed to operate in this way.
The group estimates users of the site had lost an average of £3,000 each.
Some want to go further and would like to see a full-blown public inquiry.
Adam Cole is the chairman and founder of Football Index
‘They were alerted there might be a problem,’ said Matt Zarb-Cousin of the pressure group, Clean Up Gambling. ‘They took months to commence an investigation.
‘They were allowed to… get users to invest more. The Gambling Commission were facilitating that by failing to take appropriate action.
‘They are culpable. There needs to be a public inquiry.’
The Gambling Commission suspended the operating licence of BetIndex, the parent company of Football Index, on March 12, this year.
Administrators were called in on March 11 after Football Index experience financial problems
Users celebrated increases in the value of their portfolios compared with savings products
In a statement the commission said: ‘The suspension follows an ongoing… review into the operator, as we had concerns activities may have been carried on in purported reliance on the licence, but not in accordance with a condition of the licence, and that Football Index may not be suitable to carry on with licensed activities.
‘We have made it clear to the operator that as the investigation progresses, we expect it to focus on treating consumers fairly and keeping them fully informed of any developments which impact them.’
Football Index told Sportsmail earlier this month that it is ‘a gambling platform and has never claimed to be a savings product’.
It added: ‘The bets that users make on Football Index are not financial investments.’
On March 11, administrators Begbies Traynor were called in – with Football Index claiming there is a hope that the site will be able to continue in a ‘restructured format’.
In a statement, Football Index said: ‘Until such time as the administrators is in office, the platform will remain suspended and no trading or payment transactions, such as deposits and withdrawals, will be possible,’ Football Index added.
‘Once in office, the administrators will be in contact with customers, creditors, and other stakeholders. This interim step of suspending the platform is merely to ensure that everyone’s rights are preserved in relation to funds held by BetIndex Limited.’