Football Index, which went into administration last week, has been under review for almost a year, the UK Gambling Commission revealed.
UKGC Was Warned About the Collapse a Year Ago
The Gambling Commission of Great Britain was alerted in January 2020 that gambling website Football Index was a ‘dangerous pyramid scheme’. The Guardian revealed that the UKGC received a document, notifying that the betting platform was akin to a Ponzi scheme due to issues with its dividend payouts.
While Football Index has about 500,000 registered users, only 30,000 of them were active traders, The Times says. This means that the users incur an average loss of around £3,000 ($4,120) each.
The business model of the company offered users to buy “shares” in soccer players to later receive “dividends” based on player performances and rising or falling values. However, the market crashed after the company decided to substantially cut dividends for the sake of “the long-term sustainability of the platform.”
The report warned the UKGC that Football Index’s liabilities ‘exceed £1 million per month’ and predicted the market crash since the website’s activity would have been sustained only by the constant sale of new shares to new users together with a churn in positions. The document concluded that the payment was possible only through the growth of the customer base and should this growth stop, Football Index would collapse.
Dividends were the main factor that led to the fall down of the gambling platform. When the stock market decided to slash dividends on footballer shares from 14p to 3p many customers and investors left the website, while traders lost thousands and even hundreds of thousands.
Why Was Football Index Left Operational?
The Commission said that the review did not find any grounds to suspend the operator’s license at that time. It highlighted that such a decision would have worsened the company’s financial situation and would have put the funds of customers in danger. The regulator explained:
“We know from experience that the suspension of a license can, of itself, trigger or hasten the financial decline of an operator and put customer funds at risk.”
The Commission said that it always prefers to first look for other steps that could have the same regulatory outcome and protect consumers without dragging the business down into collapse. After Football Index changed its payout scheme, the Commission decided to strip its license as a last resort.
The Commission has received an assurance that customers’ funds are in a trust account and will not be distributed to any creditor. However, funds invested on the platform are considered at risk and do not have the same protection.