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The lessons we need to learn from the Football Index crash

You may not have heard of the Football Index. And you may well not be aware of the Football Index crash that happened this month, followed by the platform going into administration.

But, for some people it’s been devastating. People have lost tens of thousands and, in some cases, even more.

The Football Index blurred the lines between gambling and investing. Many people, tired of the investing status quo and its seemingly unachievable entry points, leapt at this new and exciting venture.

Sadly, it looks like it didn’t pay off and they’re now paying the price.

  1. What is the Football Index?
  2. What happened in the Football Index crash?
  3. Other similar events to the Football Index crash
  4. Why are we so susceptible
  5. How can consumers be better protected
  6. What about as individuals?

What is the Football Index?

Founded in 2015, it’s a betting platform that tries to replicate a stock market. But, instead of stocks and shares, customers buy and sell football players. The key difference being that traders don’t actually own part of a player.

If you click on the about page of the Football Index you’ll still be greeted with the following message: “Football Index is a challenge to traditional bookmakers. Every time you put a bet on with a bookies, you’re being played. Become a football Trader, and take back control.”

There is then a disclaimer.

  “Football Index is a real money virtual stock market licensed and regulated by the Jersey Gambling Commission and the UK Gambling Commission. This is a betting platform and should not be viewed as an investment vehicle.”

However, this means very little given how the firm presented itself.

It referred to players as shares and even called bonus pay outs – given when a player played well or made media appearances – dividends.

The Football Index even spoke about partnering with American stock exchange Nasdaq and becoming a genuine alternative asset class. Nasdaq even spoke about this in 2019. Was this still a genuine plan more recently or simply a pipe dream used to instil confidence among traders?

What happened in the Football Index crash?

The platform has gone into administration. Customers lost almost £90 million as the company collapsed.

This is despite the Football Index repeatedly reassuring consumers that they have “never been in a stronger financial position” as recently as November.

However, earlier this month the platform slashed the “dividends” by 82 percent, triggering a massive slump in the value of players on its market.

Just days before the platform announced the “dividend” cut it also “minted” new shares of players, essentially inviting customers to buy more stakes at values that would soon collapse.

The “minting” of shares and a 2 per cent commission on buying and selling on its platform were the company’s two main sources of revenue.

The Gambling Commission suspended the company’s betting licence and has announced an investigation into its operations. The collapse is the biggest failure of a gambling business in British history, many are saying. The CEO of the gambling commission resigned today. This is likely linked to the index’s collapse.

Even MPs are unhappy about the events. Richard Holden, MP for North West Durham, told The Athletic: “The Gambling Commission must immediately answer very serious questions of oversight.”

Other similar events to the Football Index crash

The Covid-19 crisis seems to have created many similar events.

Positively, so many more people have started investing and actively engaging with their finances. This is great – and something I’ve been hoping would happen for years.

But, the worry is people aren’t doing so responsibly. How many of the thousands that have opened investment accounts have 3 to 6 months expenses saved in an emergency fund? How many have got access to clear, unbiased information about their investments?

Wall Street Bets and the Game Stop saga is another clear example of this. Although this was an investing opportunity rather than gambling, many people were in danger of essentially gambling their money in this case.

What was proclaimed as a victory “for the little guys”, wasn’t all it seemed for everyone.

After the initial hype died down, many traders – often inexperienced – were left severely out of pocket. “Barring deaths in the family, this has been the most devastating two weeks of my life,” one trader told Forbes.

Why are we so susceptible

Companies and influential individuals need to stop taking advantage of a generation that has been financially devastated in the past year.

Even before Covid-19, millennials and GenZs were struggling. Rights of passage that our parents and grandparents enjoyed seem unattainable to most of us.

In 1990 the average UK house price was £57,736. Today it’s £237,834. During the same period average household income has only increased by £17,000.

Credit: Nude

We’ve been brought up on a diet of side hustles and making money, so why wouldn’t we leap at the chance to try something new that we’re told will make us significant cash?

However, we must remember, that if it sounds too good to be true, it probably is.

Making money doesn’t have to be exciting and a lot of the time won’t be worth shouting about on social media. Investing part of your income for the long term may be boring, but it does work.

How can consumers be better protected?

Firstly, stricter regulation is almost certainly needed, particularly in relation information shared on social media.

In the case of the Football Index, it will involve gambling regulators. But, retail investment platforms are unlikely to escape tougher regulation for long too.

However, this does not necessarily guarantee a positive end result for consumers.

Regulation tends to lead to higher costs for firms, which in turn often get passed onto consumers. There’s a real worry that this would make investing and financial products as a whole more inaccessible by raising the entry barriers.

Idealistically, firms should behave more responsibly. So far many are not. This means external action – either using the carrot or the stick method – is needed to protect a generation of eager consumers.

What about as individuals?

As individuals there is little we can do.

Something we can all do is talk about money and finance more. Sharing experiences – both good and bad – helps everyone to learn and feel more comfortable about their money.

However, be wary not to spread false information or point friends in the direction of bad advice. Instead, be open and honest about what you do and don’t know. If in doubt, ask a professional.

It’s also time to speak out.

Call out bad practices online and on social media if appropriate. If a case is serious enough, you could even consider contacting the press.

Practices are unlikely to change while people continue to support them and pour their cash into these companies.

If nothing changes and we sit idly by, wealth inequality is just going to keep soaring. Big players will continue to make money out of other people’s misfortune.

The easiest step, as always, is to vote with your wallet. Only invest or store your cash in platforms that align with your values. That may be easier said than done. But, ideally look to companies that at the very least don’t have a track record of exploiting their customers.

If you found this post interesting, please like it and share across social media or send it to your friends. I’d also love to hear your thoughts and experiences. Have you got caught out by anything similar? If so, how did you recover? Do you have any tips to help others avoid getting caught up in similar schemes? Share your thoughts below!

Don’t forget to follow me on social media @Katie20Percent to keep up to date with all my latest posts and content!


By The Twenty Percent

Hi I'm Katie and I use my blog to help young people take control of their personal finances.

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5 replies on “The lessons we need to learn from the Football Index crash”

Excellent write up – Football Index cleverly combined two loves of my life, football and investing. Although marketed as ‘investing’ I knew it was really gambling, yet that didn’t stop me from still having a chunk of cash (about £500) in my account when it all went pear-shaped! I had been duped into thinking my money was safe, didn’t see the signs so have written it off as gambling losses, lesson learnt.

Although it annoys me that I could have invested that money for real, e.g. in my ISA, it was money I had spare so there’s been no financial impact, unlike with some other poor mugs whose lives may have been ruined.

Right now, I just want to see those who ran FI held accountable for their actions.

Hi Katie, this was a really good piece, I never used (or played?) this website, but from the outside it actually sounds like a good idea. It’s like fantasy football with gambling involved right? I’m not much of a gambler but that doesn’t sound like a bad game that people wouldn’t like. The issue seems to be with how the company marketed their game. A gambling game and investment inherently don’t go together. In a gambling game, in the long term, the house will always win. That’s not the case with investments where, ideally, both parties grow together. As you say, if this company presented their gambling game as an investment then that’s seriously wrong. By the sounds of it with their “shares” and “dividends” that’s exactly what they were doing, making it sound like an investment. Ultimately, the cost of those players can’t keep going up like it can with an investment, because… well, they’re not actually worth anything and the people’s money is not being invested to create further growth.

Overall it sounds like Football Index was acting to make itself sound like an investment, or another get rich quick scheme, which in my views only falls into one category: scam. It’s so sad to here that many people lost so much money like this.

Andrew

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