The UK Gambling Commission (UKGC) allegedly received a warning regarding betting exchange Football Index in January 2020, describing the website as a ‘dangerous pyramid scheme’.
According to The Guardian, a document was sent to the UKGC, notably highlighted issues surrounding Football Index’s dividends, which it argued resembled the activities of a pyramid scheme.
The report estimated that in January 2020, Football Index’s liabilities ‘exceed £1 million per month’, and that the only way the firm could continue to operate in this manner in the long term ‘is through the constant sale of yet more new shares to new users alongside a constant churn in positions’.
Concluding the report, the author argued that ‘should user growth stop or decline, the company would quickly find itself unable to pay these liabilities to users’.
Dividends played the core role in Football Index’s collapse last week, as many customers and investors abandoned the website following a decision to reduce dividends on footballer shares from 14p to 3p, resulting in many traders losing thousands – in some cases hundreds of thousands.
Again, last year’s report allegedly warned of this possibility, stating that ‘life-altering sums of money are at stake and at risk’, whilst also criticising Football Index’s business model for leading users into ‘a dangerous false sense of security’.
The ‘perceived safety’ of the platform, it was claimed, encouraged the exchange’s users to ‘shift capital from genuine investment vehicles (bank savings, ISAs stocks) into it, given the hope and promise of constant high returns’.
Football Index owner BetIndex had previously been reprimanded by the Advertising Standards Agency (ASA) for marketing itself as an investment platform rather than as a betting operator.
This too, was referenced by the report, which asserted that this marketing strategy “led to unparalleled levels of irresponsible gambling behaviour from 10,000s of users misled into believing they are investing rather than gambling, with little or no consideration that all of their money is at risk”.
Following the mass exodus of traders and investors, Football Index entered administration and suspended all business operations last week, although BetIndex remains hopeful that the brand could ‘be recused as a going concern’.
The operator’s gaming licence was subsequently suspended by the UKGC, in addition to its membership of standards body the Betting and Gaming Council (BGC)
The Guardian’s revelations come at a time when the UKGC is facing increased scrutiny over its response to the demise of Football Index. John Whittingdale, the DCMS secretary overseeing the review of the UK’s gambling laws, reportedly held ‘frank talks’ with the regulator earlier this week.