Football Index Collapse: UK Regulator Didn’t Understand ‘Dangerous Pyramid Scheme’

A UK administration report into the founder of soccer trading political program Football Index has heaped blame on the country’s gaming and financial regulators. The UK Gambling Commission (UKGC) was later(a) to see the complexity of the refreshing betting product, so practically so that it awarded it the damage typewrite of license, per the report.

Football Index was billed as a “virtual stockpile market” for soccer fans, where users could purchase and sell notional “shares” in pro association football players. The economic value of these shares would fluctuate depending on the real-world performances of the players they represented. Successful traders would find “dividends” or payouts based on the performance of their shares.

Soon after its launch in 2015, Football Index became a seeable trademark around UK soccer, advertising widely on telecasting and radio. It regular sponsored the jerseys of II English Football League Teams, QPR and Nottingham Forest.

User Panic

But in arrears the scenes, the companionship had overextended itself. Despite operating inwards “extremely challenging conditions,” according to the report, it opted in August 2020 to increase the dividends it was paying to successful customers past 100 percent.

Unlike shares inwards a company, which make real underlying value, Football Index’s shares were purely notional, which meant its stage business simulate relied on the constant sale of more shares to young users to pay off its liabilities and avoid collapse.

And fall in it did, inward Mar 2021, just hours after the troupe proclaimed it would live slashing dividends to ensure “long-term sustainability.”

Many users panicked and cashed out, causation the marketplace to collapse overnight. Those who didn’t saw the economic value of their shares evaporate. Average single(a) losses were estimated to live around £3,000 ($4,120) each.

“The Gambling Commission could get improve responded to the challenges that the novel product raised once launched, with before scrutiny, including of the speech used by the product, quicker decision-making and action, and amend escalation of issues,” the written report concludes.

Too Little, Too Late

The UKGC began looking for into Football Index more intimately in too soon 2020.  But only when after a complaint from an unnamed somebody “with extensive receive inwards the [gambling] sector,” who warned the regulator it was an “exceptionally life-threatening pyramid scheme” and a “disaster ready and waiting(p) to happen.”

At this point, the UKGC realized the trading aspect meant the mathematical product belike should hold been operating under a betting interchange license, which allows for bets to be matched by users, rather than a straightforward betting license.

But the account reveals the UKGC was now unsure whether Football Index was a betting product at all and was examining whether it should be regulated by the Financial Conduct Authority (FCA) instead. This suggests the regulator did non to the full see the production it had been licensing for the previous quintuplet years.

Aware of Football Index’s financial difficulties, the UKGC considered suspending its certify but feared this would reason the wreck that eventually happened.

Blurred Lines

Then-UKGC chief executive Neil McArthur resigned inward the viewing of the platform’s striking collapse. His successor, St. Andrew Rhodes, told The Athletic the report provides “a number of helpful recommendations for how both [the UKGC and FCA] tin work best together and for how our regulatory coming deals with refreshing products.”

In recent years we experience seen an increment inward the complexity of business organisation models and product offerings,” he added. “The lines between what is gaming and other types of products, such as financial services or computing machine games, has become progressively clouded and no longer neatly scene into existing statutory definitions of gambling.

“We experience already acted on a number of the recommendations inwards the report,” he added.