Analysis: What lessons can be learnt after Football Index collapse report

The collapse of Football Index earlier this year was a damaging blow to the gambling industry in the UK and left many critical with how the situation played out. Critics blamed the Gambling Commission for acting too slowly, while many were left out of pocket after the company went into administration. A government review from the Department for Digital, Culture, Media & Sport (DCMS) has just been published looking into how the saga unfolded and exploring the regulation of Football Index. But what does it tell us?

The background behind Football Index

Football Index was a unique gambling product founded in 2015, which allowed users to buy and sell shares in footballers similar to how you could trade on the stockmarket. Users were able to earn daily and monthly pay-outs known as dividends based on how the footballer would perform on the pitch and in the media. The model was a mix of fantasy football, stock markets and betting, with the company, BetIndex, taking a commission on trade.

Users would make a profit by identifying promising players or new signings early on cheaply, then selling them as their stock rose. Bruno Fernandes’ rapid rise from signing for Man Utd from Sporting Lisbon in January 2020, to being named in the PFA Premier League team of the year the following season, can be considered a good example of this. £11m ($15.1m) was paid out in dividends to investors in 2019/20.

Where it all went wrong

A week before Football Index entered administration in mid-March 2021, the company made changes to its dividends system, admitting that the previous model wasn’t sustainable. It changed the maximum amount customers could be paid out per share daily to 6p, which was reduced from 33p. This was changed as, according to Football Index, the "current yields were just not sustainable" so the implementation was aimed to cut costs.

Shares in players dropped as the cap was announced, until its operator BetIndex announced the suspension of the platform as it entered administration. At the time, there was plenty of uncertainty if the majority out of the £4.5m in the company’s player protection account that was owed to users would be paid back until the High Court intervened. As a result, all dividends by the 26 March cut-off date were paid back into users’ accounts, meaning around £3.5m was refunded. Although active bets were not paid back and no solution for this has currently been made. However, after BetIndex’s licence was suspended in March, the government authorised a review to investigate fully how the company got into such a financial mess.

Report findings

The independent report by the DCMS found that BetIndex didn’t properly notify the Gambling Commission of what the product would entail when it applied for a licence and failed to inform the regulator of the changes made to the product after the launch.

The report mentioned that the Gambling Commission should have responded to the challenges brought up by the novel product once it launched in 2015, by scrutinising it earlier and producing quicker action rather than allowing issues to escalate. An example of this was Football Index apparently operating on the wrong type of licence, with the exchange model it offered not disclosed by BetIndex during its process for a fixed-odds betting licence.

Football Index was never regulated by the Financial Conduct Authority (FCA), but the report mentioned that there were several occasions where the FCA should’ve responded to requests by the Gambling Commission.

In response to the review, the Gambling Commission has developed a strengthened Memorandum of Understanding with the FCA to ensure regulatory irregularities are identified sooner. The Commission has also updated its risk assessment framework, so that novel products such as Football Index are properly considered and regulations surrounding them tightened.

Gambling Commission CEO Andrew Rhodes said the regulator agreed that it should have acted quicker but that still might not have saved customers from losing out as a result of the Football Index collapse.

Change needed

There are plenty of lessons to be learnt from the Football Index disaster. The fact more criticism was aimed at the Gambling Commission won’t help as the DCMS concludes its review into the 2005 Gambling Act, which is looking at the role of the Commission. It was only last June that the Gambling-Related Harm All Party Parliamentary Group (APPG)called it not fit for purpose and how it was in need of a complete overhaul. It’s crucial for the future of the industry in the UK that changes made by the Commission, including being more stringent to novel products and acting faster, are stuck to and enforced to avoid such another damning case, which in the end, sees the customer suffer the most. Otherwise, stricter action will be taken on the Commission and the market’s current regulations which ultimately could see a restrictive market that would drive players to the black market.

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