Why Football Index failed to find the net

By blurring the line between gambling and investment, Football Index created a business model which caused it unsustainable liabilities.

Launched in 2015, Football Index was marketed as a “football stock market” and soon became popular with fans across the UK. It was, however, operating under a licence from the Gambling Commission, rather than the Financial Conduct Authority, which oversees investment products.

In its appearance, language and marketing, though, Football Index operated as an investment platform.

The platform allowed users to buy “shares” in football stars, which would rise and fall depending on the players’ form. Those shares would earn “dividends” over the three-year term of their bet, and users could buy and sell “shares” between themselves, for a 2% transaction fee.

The shares, though, were bets. Blurring this line was a major issue for Football Index. There were concerns, too, over its business model, particularly around its deliberate aping of investment products. The Guardian reported in March this year that the Gambling Commission was concerned the presentation led to “irresponsible gambling behaviour from… users misled into believing they are investing rather than gambling”.

Football Index’s liabilities – the dividends it was obliged to pay on shares – increase every time a share was purchased. The Gambling Commission estimated liabilities exceeded £1m per month in January 2020, and “the only way the company can afford this long-term is through the constant sale of yet more 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,” it added.

Football Index claimed to have around 500,000 account holders, and estimates of the amount of money trapped in the exchange when it collapsed ranged from £60m to £90m. It ceased trading and appointed administrators from Begbies Traynor in March 2021.

One analyst told The Guardian that a significant secondary element of Football Index’s failure was miscalculating how good its customers would be at picking successful players. They overwhelmingly favoured high-performing players like Harry Kane, over players at mid-table and relegation-threatened teams. In essence, customers chose players likely to generate them high returns, rather than the players who would make Football Index money.

There are two key lessons from Football Index’s collapse.

The first is to be clear about your business model.

Bookmakers generally face time-limited bets and can adjust their odds. Longer-term bets require extremely sophisticated modelling, and when customers homed in on more successful players that paid out higher returns, the only way to cover the costs was to bring in more customers.

The second lesson is that, without enough cash reserves, it created a situation in which it had to pursue new customers in order to meet its liabilities. It just didn’t add up.

“Should user growth stop or decline, the company would quickly find itself unable to pay these liabilities to users.”

Photo courtesy of iStock.

Calum Fuller Calum Fuller is editor of AT and 20 magazines. He's previously served as editor of Credit Strategy, assistant editor Accountancy and began his career at Accountancy Age..