by The Geek
EDIT: This article was published 12 hours before the UK gambling commission suspended the license of BetIndex Limited & the company went into administration.
The main criticism of my previous article was it was somewhat lengthy. The problem is that the mechanics of the Football Index product are so complex and obscure that most don’t understand it and many poor souls who have been misled by deceptive marketing believe they are “invested” and will go to great lengths to attack & undermine any critics of it. Trying to explain it to the average person is extremely difficult, as all they see in front of them are deceptively over-inflated bet slip valuations and payouts. { Deceitfully dressed up as shares and dividend yields. }
So I shall try to simplify. These are my personal opinions, and should the powers that be at Football Index wish to have a discussion and “Enlighten me” on anything that is factually incorrect, I’m all ears as the intention of the article is not to mislead, but educate.
Your Shares are Worthless
Once you have money in the product, it is worthless until you manage to cash it out to your bank. As Caan had explained previously in a video, you have effectively purchased a bet slip which is an IOU from the company. As I covered in my last article, if the football index model was actually sustainable the initial purchaser of this bet slip on Joe Average is paying £1 for an IOU of 67.5p of future payouts by the Football Index. So without realizing it, you immediately lose 32.5% of your money purchasing a newly minted share, but with all the smoke & mirrors employed by football index, you still see £1+.
This payout pot is not ring fenced in any way though, so if the company goes under so does your portfolio. Even your cash balance is at risk unless client funds are “fully protected”, so unless that money is in your bank, you are at the mercy of the operator still being around to pay those bets.
With the confidence I have in the management team of this company, expect it to all be gone when the lights go out.
When is a 3 year bet not a 3 year bet?
Just to confuse it even more, with their refresh model you’re not actually buying a 3 year bet, you are effectively buying an IOU on payouts over the entire length of the player’s career in the leagues covered by FI. {Which are partly topped up by trade commission}
The Market
Any market is driven by supply which drives prices down & and demand which drives them up. Sports markets are no different. As I alluded to previously, for the football index model to be sustainable there has to be an exponential increase in sustained excessive demand so that Joe Average changes hands at £1+ and not the 67.5p he is actually worth. { To reverse the number, you need to pay 148% more than Joe average is actually worth for the model to be sustained. }
However, his real value is 67.5p { 100% } and sports markets being the efficient beasts they are will always correct to that price without that excessive demand. And it’s irrelevant what happens to the market on a day to day basis he will always converge on that price. And it doesn’t matter how many players are in the market, or what happens to any of them, or what they do to the payout structure. Without sustained excessive demand the entire market always corrects to 100%.
And this is the fatal flaw in the Football Index mechanics!
COVID
Until COVID hit last year that had managed to achieve the exponential growth required to sustain the model, as people had been fooled into believing the bullshit in front of them and were pumping ridiculous amounts of money into this sure thing. How much longer it would have continued without COVID is unsure, but it was guaranteed to eventually happen and this would have probably happened during the next economic downturn. And the bigger it got, the worse the fallout was going to be.
Let’s blame this & that!
The common misconceptions among the football index community is that something football index has done has ruined it, be that the removal of instant sell, the order books, IPDs, NASDAQ, broken promises etc. Whilst sentiment around these may affect the speed of the market correction, the underlying factor was the bubble had burst and they couldn’t sustain the exponential cash inflows required to sustain the prices they needed to mint shares at 148%+ of their true value.
Who are squarely to blame in all this are those in charge of the company however. If I can work this out you can be pretty sure the tech guys there have long before I did. Yet instead of putting their hands up at any time this past year and putting the company into liquidation so that customers at least got some money back, they have been telling customers that everything is rosy and encouraging them to deposit even more money. They have been burning through customers’ money in an attempt to “re-start” and have been trying to prop up this failing model with dividend increases & buy rebates, TV and other significant advertising which have only provided temporary uplifts to the market correction.
The Great Reset
The reset does absolutely nothing to address the flaw in the model as it still runs on the same mechanics. All they did when the cut payouts by 80%+ was cause the market to correct to the new payout structure and as markets are efficient, so share prices dropped by a similar amount. In fact it doesn’t matter what they do with the dividends or the issuance model, the market will always correct to 100%. This makes it is impossible for them to continually sell you bets @ 148%.
In addition with the recent press coverage and complete loss of confidence in the company by many the market is actually going to correct to lower than 100% as you have an IOU from an untrustworthy company that many now think won’t last a year.
Although I can’t see it, even if they were extremely lucky and did re-start the market, history will simply repeat itself at some future date as the model is flawed.
Is football index a Ponzi Scheme?
I don’t believe it was set up as a Ponzi scheme, and it may be they didn’t realise the flaw in the model themselves until last year. I don’t believe Mike & Adam are sunning themselves in an extradition free tax haven as we speak either. { Although with the user sentiment around this travesty at the moment I would suggest they would be better off there for their own safety. }
However it’s certainly akin to a pyramid scheme and people need to realize that most of their monopoly money portfolio balances had already gone before the reset happened.
Conclusion
The only thing this reset has done is shift future payout liabilities from their balance sheet to paper losses for their customers. This frees up capital to continue to use yours & future customer money to carry on running the company into the ground for longer.
The only moral thing I believe the senior management team can do this juncture without a both profitable & sustainable business model is to put the various companies into administration now before current and future customers are completely wiped out by this travesty.
From everything I see in front of me today, they don’t have a going concern. If I personally had money in this thing I would be talking to solicitors about seeking an injunction against them being able to continue trading.
Let me know your thoughts in the comments below.
Related: Football Index: An open complaint to and about the Gambling Commission
12 thoughts on “Why I believe Football Index is doomed to fail.”
I have lost a huge amount. However, speaking to lawyers and gaining legal advice is costly, and I’d rather not sink any more money. Is the legal route exclusively for those w deep pockets?
While I agree with almost all of this and have been saying this for months, I would challenge the Great Reset section. A traditional bookmaker can afford to be generous when a customer signs up, knowing that most of them will benefit from the generosity originally but pay it all back + more + cover the costs of those that don’t pay it back. The dividend structure here was totally unsustainable and overly generous whether by design (to attract people to the platform) or incompetence. To make matters worse it was overly generous for a period of 3 years. This can only be afforded if during those 3 years you get in enough new customers to service the legacy promises you’ve made to previous users. Where this really falls down is the users you are getting in to fund the previous users are also buying in at the same generous terms as those before them and are in many cases the same customers putting more money in themselves. They are signing up for another generous 3 years so they need funding by even more new users, who again needed funding by more new users etc etc. At this point it absolutely is a ponzi scheme, whether by design or by accident (I would lean towards the latter, but who knows). There is a version of this model that works, where dividends are appropriately low enough or initial prices are initially high enough that the initial buy prices cover the expected dividend payout over contract, plus enough margin for FI that they cover their advertising costs and overheads and take home a profit. This needs to be the case across the whole range of footballers, accounting for the user base behaviour so the ‘popular’ players have the most margin in them. If you pick out Mbappe/Haaland when they make their debut you have a reasonable chance of getting dividends for the next 3 years that are greater than the price you paid, you have beaten the market and made a decent profit. But for pretty much everyone else, assuming the initial price/dividends were set correctly you are in for a loss. The vast majority of users will not make back in dividends the initial price they paid, and FI make a profit. This profit is more than enough to pay for the few times people picked out a superstar on their debut. It’s possible the new dividend structure would achieve this. But to get from the old structure to the new structure required all the unfortunate users who were left holding the bag had to do their brains. The constant need for new players to pay old players generous terms had to run out at some point. It was inevitable. The model with correct prices/dividends does not require this flow of new players. The payout from the whole pool of contracts is easily afforded by the original purchases. This would be no different to how a lottery or savings bonds work. The issue for FI, FI users or any other company looking in this space is that this model would be incredibly boring for almost all users as they would be slowly losing their money. This notion that I see repeatedly in comments sections and on twitter that ‘FI is an amazing concept, management have ruined it, get someone else in and it can be saved’ is total rubbish. The ‘amazing concept’ these users loved was a free money machine where they were written I.O.Us based on users yet to join. The people who have lost their shirt now unknowingly gave it to people posting rocket emojis and massive green portfolios for the last few years, many of whom are still bigging up the platform and are as responsible for the shambles we are seeing as FI and the Gambling Commission.
It doesn’t matter how you structure the payouts, the overall market will always adjust to the true value of those payouts.
Also, the more liquid the market, the more accurate and less irrational it becomes.
The ‘overall market’ is provided by FI. They issue the shares.
Despite losing a reasonable £ on this, I am enjoying the article and the comprehensive commentry above. Best to learn from mistakes. “The overall market will adjust to the true value of these payouts” – recommend any specific but accessible reading on this?
Extremely sad and I feel for everyone…I had £4k in a bookie once that went bust,never got a penny because they held the funds themselves..I didn’t mean to have it all in there,it was just that ARB bets kept winning and my withdrawal never went through as they went bust……I never left more than £1k in a bookie after that.
Don’t bet at all now as I have no accounts left and multi accounting is a nightmare nowadays
Mike & Adam WILL be very wealthy indeed.
I hope and pray nobody loses their lives over this. I feel sick at this whole shambles and as Paul says it would have been worse were it not for Covid as the bubble would have grown bigger before it went pop.
I refuse to believe fi did not realise that they were dealing with an unsustainable business model.
I’m sorry to have read about this on Twitter this evening but unfortunately I can’t say I’m entirely surprised.
I signed up to have a play with this around the start of the 2019/20 season as it intrigued me. £30 deposited & they game me a £50 bonus for signing up, and I planned to increase my stake if I liked what I found. I played around with it to see what it was all about to not much success while I was learning. Pretty soon I was about £20 down. I sold a few duds and bought a few more well known players and didn’t pay much attention. I made a few more trades around deadline day last Jan but never really fell in love with the format – I was expecting a more involved platform with more charts and graphs, it all seemed quite basic. One day I logged in after about a fortnight and I was about £8 down overall. I decided it’d be better off in my account than FI’s and sold the lot. To my surprise I was able to withdraw my £22 & the £50 they gave me – this seemed strange but I didn’t query it & took the lot – probably just an example of the bad management others have mentioned.
I was thinking about it some time later, still trying to pinpoint what didn’t feel right about it. The dividend system seemed massively flawed to me. If I buy a share in a commodity or a company, we have that security of it being tangible which doesn’t exist on FI – which some are comfortable with, others don’t really understand and others see as a flaw. With the company, it has a source of income (hopefully) outside of just getting more investment. A manufacturer takes some raw materials and some labour, makes something more valuable than the sum of its parts, sells for a profit. If the company makes a profit, us shareholders get a bit back. That money is coming from the consumers of the product, not just inward investment. A make-believe digital share of a footballer, basketballer, movie star, whatever… is never going to make any money. It exists in fairy-dust; 1s & 0s on a server hard-drive. So the only possible way a system like this can keep giving these dividends is by getting new money in (hence the generous £50 they gave me, TV ads, sponsorship, huge marketing drive) or by not having a fair market (i.e. the prices are deliberately manipulated by the computer to cover their own losses).
A real commodity has influences outside of just people buying and selling to make money – gold is used for jewelry, other precious metals in catalytic convertors, oil for fuel for heat & transport but still would never have a dividend paid because it is what it is. Just a gold bar or a barrel of oil that you rely on demand increasing to make your money. A man from the vault doesn’t bring you a pound coin round once a week because you own a gold bar – you make or lose your money when you sell it. The vault would soon run out of cash if they did. And unfortunately it looks like they have. These digital commodities simply have no use for anyone apart from trying to make money, so external influences don’t act on the market. They’re never turned into earrings where the customer is happy to pay much more than the gold is worth, and the process starts again.
In these platforms like FI, for everyone who makes £1, someone is losing at least £1 and it’s all designed so that the trading platform takes a skim off every trade. Eventually the losers get bored of losing (I did) withdraw their funds and tell their mates not to bother (I did) and there isn’t enough trades any more and kills the company’s cashflow. And there’s the castle built on sand we have today.
I’m genuinely sorry for those who have lost big. I have lost big on stocks over the years. £7k taking an arrogant/ignorant punt on Northern Rock back in the day. It stings. You’ll learn from it. I hope the regulators do.
“Risk comes from not knowing what you are doing” – Warren Buffett
there is a 4% commission on every trade, good or bad. therefore it is sustainable and not a ponzi.
However like the stock market divs should be kept small, and discourage mass money leaving the market. Doubling divs was a disgraceful gamble. Players are prone to injury and small careers therefore divs should have been bigger than the stock market but certainly no need to double
There is not 4% on every trade. It is 3 or 4% depending on whether you instant buy or not.
Doesn’t matter what level you set the payouts to, the market will adjust to it. They did 2x to try and get the model”re-started” but it was doomed to fail as they had lost the momentum needed to keep mint @ 148%.
All increasing the divs did was use customer money to slow the inevitable decline.