Stock exchange for soccer stars
British legislators are looking to roll some heads in the ongoing saga of the soccer betting exchange Football Index and its parent company, BetIndex Limited. Members of Parliament are looking squarely at the UK Gambling Commission and, of course, BetIndex itself.
Football Index is a European soccer betting site that uses a stock trading-like mechanism, rather than traditional betting lines. Customers can buy shares of soccer players, either from other customers or from Football Index itself, depending on how many shares have been issued and when. Share prices go up and down in price based on supply and demand. Account holders can sell shares at any time to lock in profits (or limit losses) and get money back in their accounts.
In addition, Football Index pays dividends per share for the highest performing soccer players each day or week. Thus, it pays even more to hold shares in top players (though cheap “stocks” might also throw off dividends if a player has an unexpectedly great match), as the shares can be a source of consistent income.
It is these dividends that have caused a gigantic problem. Football Index realized it was losing money, eventually deciding to reduce the maximum daily dividend payment per share from 14p to just 3p. The site announced the change on March 5, saying it would take effect in 28 days.
Company tanked its own site
As you might guess, share prices completely cratered. Some players’ prices fell by more than 90%. Why? With the potential revenue from shares so drastically reduced, demand for shares plummeted. And with that disappearing demand, so went the share prices. For example, the price of a share of Borussia Dortmund star Jadon Sancho went from £7.52 to a measly 72p in the span of less than two days.
Customers saw their account values decimated. Any cash in their accounts was safe, but most value was only on paper, just like we see with our regular stock portfolios. Some people lost thousands, tens of thousands, even hundreds of thousands of dollars.
To make matters worse, The Guardian reported that Football Index continued to issue new shares in February, even after the company realized it was going to have to slash dividends. The site made an estimated £75,000 on new shares of just the eight most popular soccer players, knowing the value of those shares would bottom in just a couple weeks.
Government officials searching for answers
Since then, the UKGC has suspended BetIndex’s gambling license and Football Index has suspended its own platform and has gone into administration (bankruptcy). BetIndex hopes to find a buyer than can keep Football Index going, but it appears that even if player deposits are safe, tens of millions of pounds in account value will likely be lost.
The All-Party Parliamentary Group for Gambling Related Harm wrote a letter to Culture Secretary Oliver Dowden, urging him to initiate a public inquiry into how exactly something like this could happen. Chair Carolyn Harris said that it “raises significant questions of the Gambling Commission” and has accused the UKGC of failing in its oversight of BetIndex and its gambling products.
UKGC CEO Neil McArthur stepped down on Monday, but it was supposedly unrelated to the Football Index scandal.