The emails also suggest proposals to make the market more stable may have been rejected because of concerns about the possible impact on revenue and raise fresh questions for the Gambling Commission about its understanding of Football Index’s business model before issuing the firm with a betting licence in September 2015.
Football Index collapsed in March leaving its former customers facing estimated losses of at least £90m, a few days after its directors announced a drastic cut in the dividends paid on the “shares” in footballers that traded on its site. That led to a crash in the market, which forced the firm to suspend its operations. The Gambling Commission then suspended its betting licence on 11 March.
Shortly after Football Index was forced offline by the latest of several crashes in its market in the months leading up to its failure, it emerged the Gambling Commission had been warned in January 2020 that the site was “an exceptionally dangerous pyramid scheme under the guise of a football stock market”. Now, though, it appears that the firm’s executives, including its co-founder and chief executive, Adam Cole, received a similar warning in the summer of 2016.
The problem identified at the time, according to the former employee, involved the pricing of shares alongside a determination by FI’s executives to keep the market as buoyant as possible at all times. This, the ex-employee says, was “nothing short of a pyramid scheme [and] unsustainable,” since it created a bubble which could be maintained only by constant growth in the user base.
While a detailed proposal was drawn up to reduce share prices to sustainable levels more quickly when necessary and return stability to the market, this was ultimately rejected, the source claimed, because senior executives were concerned that revenue – from selling shares and the commission on sales between players – would also drop, potentially hampering efforts to attract further investment or sell the business.
“From this date [in mid-2016] onwards, the management … were fully aware there was a problem with the current financials and the way the market was working,” the former employee says.
However, the executives “wanted everyone to think that they were winners [when] you need to have some losers … to cover the profits of those which win, [as] it’s a zero-sum game and we are not printing money out of thin air.”
The emails also raise questions about the extent of the Gambling Commission’s examination of Football Index’s business model prior to licensing it for launch and the regulator’s apparent failure to grasp inherent flaws in its operation, which were seemingly clear to at least some of the firm’s own employees.
A commission investigator looking into the firm’s plans before launch suggested that a “Fantasy Football type game … is probably the closest fit for your product”. While the investigator also asked for “calculations of how the player value is calculated”, the former FI employee suggests “he never did a deep dive”.
A spokesperson for the Gambling Commission referred the Guardian to its response to the independent review into Football Index’s parent company BetIndex. The commission’s chief executive, Andrew Rhodes, said then: “We accept and agree that we should have drawn a line under our efforts sooner, but this does not mean those customers would not have lost money in the event of the BetIndex company collapsing. Throughout this case we sought the best outcome for consumers within the scope of our regulatory powers … The lines between what is gambling and other types of products, such as financial services or computer games, has become increasingly blurred and no longer neatly fit into existing statutory definitions of gambling.”