Football Index, the site that operates as something of a football player stock exchange, is changing the way in which dividends are being paid, causing disarray for investors. Many investors are leaving the site in the wake of the company’s decision to reduce dividends that are paid for each player transaction, meaning that both assets values and possible returns for customers have taken a significant hit.
It has meant that some users have lost tens of thousands of pounds, with one person allegedly losing as much as a quarter of a million. The company has also announced that there is ‘no guarantee’ that investors will actually see a return on their contributions. The idea is that a player’s performances on the pitch increases the dividends paid to users that ‘own’ them, but those dividends have now been reduced from 14 pence to 3 pence.
Update 12/03/21: Football Index Enters Administration
Following suspension of their operating license by the UK Gambling Commission and the temporary closure of the Football Index platform, the company has been forced into administration. The immediate future for Football Index and owners BetIndex remains unclear.
What Football Index Is & How It Works
Launched in 2015 by Adam Cole, an entrepreneur, his idea was to create a comprehensive trading exchange that would track the performance and valuation of professional footballers as if they were market assets. The notion was that it would essentially mirror the way that stock markets like the London Stock Exchange and the NASDAQ worked, with player values going up and down.
The best way of thinking about Football Index is as a football-based stock exchange. You use real money to essentially ‘bet’ on the performance of footballers, with your stock value going up when they do well and badly when they perform poorly. The better a player performs, the more in-demand their stock is, which causes the price to rise. When they stop performing well, people want to sell their stock so their price drops.
The aim of the enterprise from a punter’s point of view is to buy an asset when they are cheap, perhaps because they are performing poorly or undervalued, then selling them when their stock has risen and you can make a profit. On top of that, profits are made through ‘dividends’, which is where players earn points courtesy of algorithms that are based on the likes of mentions in the media and Opta stats.
Football Index doesn’t care whether a player does well or performs badly, taking a 2% commission on trades in order to make its money. The idea behind the platform when it was first created was that it would reward those that are in-the-know about football, given that it would reward players who were ahead of the curve on the likes of transfers or injuries to key players in a team.
The company’s success led to it becoming the chief shirt sponsor for both Queens Park Rangers and Nottingham Forest in the Championship. It is not yet clear whether either club will consider their position at the end of the season as a result of what has happened. The fact that the company as ‘sustained substantial losses’ in recent months suggests that it might look to end its sponsorship arrangements anyway.
How the Dividends Work
The dividend payouts on Football Index, which are the subject of the current controversy, came in three forms:
- Media Dividends
- Match Day Dividends
- In-Play Dividends
The Media Dividends are paid out on non-match days and occur for the players that score the most mentions in the media. The first player gets 3 pence per share, the second player gets 2 pence per share and the 3rd player gets 1 pence per share. Only the player ranked in the first position gets a payout on match days. An extensive list of news sites is monitored to reach the conclusion regarding the media mentions of players.
Match Day Dividends, as you might imagine, are based on how players perform on the pitch. Players are ranked according to their ‘Match Day Score’ on days when games take place in the Champions League, Europa League, World Cup or European Championship, including qualifiers, as well as matches in the Premier League, La Liga, the Bundesliga, Ligue 1 and Serie A.
The Match Day Score is separated in five different categories, taking into account Goalkeepers, Defenders, Midfielders, Forwards as well as Star Players. For each category, the top ranking player will be eligible to get a dividend, with the amount depending on the classification put in place for the match that they played in. The score is decided upon but an Opta-powered performance matrix.
The final dividend to mention was the In-Play Dividend, which resulted in payouts for players completing certain key actions for their team. In-Play Dividends were only available during the first 30 days of ownership of a player. The amount that was paid out per share depended on what it was that the player did as well as the position that they played on the pitch, such as goalkeepers getting 1 pence per share for a clean sheet. The In-Play Dividend was dropped from the service in February.
What Has Happened to Dividends & Share Prices
The world of Football Index has been thrown into disarray after the company decided to dramatically alter the way in which dividend payments are made. Last season, the company claimed that it paid out as much as £11 million in dividends, paying as much as 33 pence per share as a maximum dividend that a user could win. Now it plans to cut that to a maximum of 6 pence per share, which is a drop of 82%.
One user took to Twitter to sum up the situation in the following way:
”Imagine the uproar if you’d placed £10 on Leicester to win the league in 2015 at 5000/1 with PaddyPower, then half way through the season, PaddyPower realised they couldn’t afford to pay you out if it won and manually changed the odds to 5/1. That’s what #FootballIndex has done.”
The move to alter the dividend terms in such dramatic fashion has seen an extreme crash in share prices. Users have found their portfolio worth significantly less money in the space of hours. The company’s own terms and conditions say that any ‘adverse changes’ to how it operates would take place after 30 days’ notice, meaning that the current changes won’t take place until Monday the fifth of April.
Because of the nature of the business, however, the market has reacted badly to the news that the dividend price will be reduced by 82%, just as the normal stock market would react to such information. The extreme difference in price between the Sell and Buy options when the market re-opened on Saturday has left investors finding it virtually impossible to recoup their initial outlay, to say nothing of trying to turn a profit.
What The Company Is Saying
As you might imagine, Football Index are acting as if they’ve done nothing wrong. The company released a statement that pointed to the ‘substantial losses’ they had suffered in recent months. The Board, it said, had ‘agreed a recovery plan aimed at stemming losses whilst retaining the dividend payments at current levels’. This seems to fly in the face of a recent statement that said they’d ‘never been in a stronger financial position than today’.
Football Index’s Chief Executive, Mike Bohan, said on the 18th of February that he would hold a Question & Answer session in order to give users a chance to ask any questions. It was seen as a positive move at the time, looking to improve liquidity and give the platform some stability The session got postponed, however, when it became clear that Football Index were going to have to make dramatic changes.
Instead of addressing the immediate concerns of people who had lost vast sums of money, Football Index instead said, ““As soon as the board had agreed a revised plan, on Friday 5 March, we published an extensive written statement addressing the most pressing concerns raised by our customers.” It seems as though it is scant consolation for some punters, who have lost ‘life altering’ sums of money.
Is It Gambling Or Investing?
One of the major things that many of the investors in Football Index might not have realised is that the service is a form of gambling. Indeed, in 2019 the company was criticised by numerous places for using language that suggested that it was more akin to a regulated investment market than betting. Instead of describing what they were doing as betting on footballers, they said it was ‘investing in shares’.
Even the language of the payout was misleading, referring to it as a ‘dividend’. The website talked of users ‘buying a portfolio of shares’ in football players, as opposed to placing a bet on whether they’d do well or poorly. The idea of cashing out on a bet was referred to as ‘capital appreciation’. It seemed as if they were deliberately using language that steered away from the notion of it being a gambling site.
Patrick Connelly, a Financial Adviser for Chase de Vere, spoke of how users could be misled by the language. He said,
“This is a gambling site that looks and feels like an investment platform. However, it’s important to note that, unlike most investments, the money that people stake isn’t protected by the Financial Services Compensation Scheme (FSCS) if everything goes horribly wrong.”
It was a belief that was backed up by James Daley at Fairer Finance, who said, There is almost nobody that makes a profit from gambling. These sites need to be much clearer that they are a gambling and not investments and they should not be trying to use the language of financial services to lend themselves credibility – it’s misleading.”
He continued, “It is possible that this gives you the worst possible financial start and the wrong idea about what long-term investment is really about. Gambling and investing are completely different universes. There are parallels and it is easy to play on those to try and make your site look responsible – but that itself is irresponsible.”
The Betting Adjudication Service’s Richard Hayler, which is the industry’s arbitrator for disagreements between punters and betting companies, confirmed that the terminology was misleading and confusing but that it satisfied the rules laid out on such things by the United Kingdom Gambling Commission. That included its own website describing it as a ‘regulated fixed-odds gambling product’.
Whilst the company itself has never denied that it is a gambling platform, the misleading language may have led some users to feel that their money was more secure than it actually was. A spokesperson pointed out that Football Index is ‘licensed and regulated by the Gambling Commission’ and that ‘all brand communications are also compliant with Advertising Standards Authority guidelines’.
None of that will be of any consolation to the Football Index customers that have lost vast sums of money because of the changes that the company plans to bring about. It’s unlikely that any of them would have been less likely to invest their money in their service if it had been made much clearer that it was a form of gambling, as opposed to an investment opportunity, but that is something that obviously can’t be quantified.