| Anyone been keeping an eye on the Football Index scandal? 13:41 - Mar 7 with 8420 views | BlueStreak |
Absolutely unreal from the owners who have basically committed £100m fraud.
Be interesting to see what happens here but some people have lost tens of thousands of pounds overnight.
I have lost £500, so not too much in the scheme of things but the arrogance of the FI board is incredible. Will be some serious fall out from this. |  | | |  |
| Anyone been keeping an eye on the Football Index scandal? on 17:59 - Mar 8 with 1904 views | Churchman |
| Anyone been keeping an eye on the Football Index scandal? on 11:05 - Mar 8 by backinbeige |
Context: I find the whole thing absolutely fascinating and I'm devastated for those who have lost significant amounts of money, not because of poor betting decisions but the total collapse of the market. That's out of their control. It's an innovative game that as long as you only stake what you can afford to lose is an interesting way to speculate and gamble. I didn't have any money invested and I am bitterly disappointed for those who have lost significant sums of money.
I don't think there will be any legal recourse - or if there is it will be hard to make it stick. But more power to those who try it.
The controversy with Football Index is that the creators of the game (the mgmt) partially control how the market works. The market isn't entirely shaped by market forces. The mgmt have decided to massively reduce the amount of dividends paid on a share, so all those who bought a share for (for example) £7 and expected a regular payment of 50p are now getting 1-2p. Also, because the dividends have been cut, the owners of these shares are desperate to sell. So the shares they bought for £7 are now worth 7p. If they bought 1,000 shares for £7k they can now only sell them for £70, so they have lost £6,930. Or more if they bought more.
What are dividends (this is for any interested reader wishing to join this conversation - my intention isn't to patronise anyone already commenting - I suspect you know more than me):
There's two main ways of making money on a share. (1) You can sell it for more than you paid for it once the price has risen, and (2) you can collect dividends. When own a share you are entitled to receive a regular payment (a dividend) for as long as you own the share. It is mostly down to the share issuer how much they pay and how often, but paying better dividends to shareholders will increase the value of their shares. Sometimes the issuer might pay no dividends - you could buy a share in Tescos and get nothing for a year. That's the risk you take when you buy a share, but it's definitely allowed.
The difference with Football Index and the real stock market is that when you buy a 'real' share from a company ("issuer") you own a share of that company and have voting rights. If a company stops paying dividends on its shares then the shareholders could unite until they have either 51% of the votes, or enough votes to force a decision, and vote to remove the current mgmt in favour of someone who will pay them dividends. If Tescos stop paying dividends then their shareholders could unite to kick out the mgmt team and replace them with someone who will actually give them some money. So Boards reducing or removing dividends rarely happens as the Board is effectively asking to be sacked.
What is Football Index?
Shares are traded in footballers, not companies. Dividends are paid out based on his match performance, a better performance means a greater dividend. It's like FPL points but you get paid. If Fernandes is on a run of good form and shareholders are receiving good dividends then shareholders will want more money to sell you his share, thus his share price goes up.
In Football Index, when you buy a share you own none of the company ("asset"... the footballer). Buying 0.1% of the available shares in Bruno Fernandes doesn't give you control of 0.1% of Bruno Fernandes. So if the issuer wants to stop paying dividends the shareholders don't have the same comeback. They can't force change. It's not a real stock market, no shares in an asset are owned, they just use these terms.
The second point is that, in financial markets, there are regulators who can step in and act as the lawmaker. They'll correct perceived injustices and get everything working again. The FCA regulate conduct issues (when individuals act badly) and the PRA regulate systemic issues (stopping multiple companies topples like dominoes when one company collapses, so protecting the market overall). Football Index is regulated by neither, they're regulated by the UK & Jersey Gambling Commissions. I don't know much about their powers but I imagine they're different to the FCA/PRA so unlikely to have the same ability to rescue a market crash, they're likely to be more focused on the issues around betting companies like how they advertise deals and dealing with addicts.
Football Index have decided to reduce the size of the dividends they're paying to shareholders because they're losing money. They said in their recent statement they're reducing dividend payments because of their own financial troubles. Essentially, they can't afford the dividends anymore.
When a company sells/issues an initial £100m worth of shares they'll receive £100m, but they might also find they have an obligation to pay an average of £25m per year in dividends. After four years they're giving away more than they earned. The gamble for the issuer, ie Tescos, is to spend that £100m they received in a way that generates them £30m per year. Tescos would probably build more supermarkets. So they'll be giving away £25m but generating £30m and will finish £5m up each year.
Football Index didn't 'build enough supermarkets' after investors pumped their money in and bought shares, and now they can't afford the dividends. Shareholders don't actually own any stake (equity) in the footballer (asset) they bought a 'share' of so can't force change through. Football Index feel they can just decide to reduce dividends - regulation doesn't cover this and there are no real shareholders who can force change.
Interestingly, the best time to buy shares is when they're at their lowest. Football Index shares have crashed, they've never been cheaper. We know that the management are actively working to gain money so they can afford to resume paying healthy dividends, as this would mean the share prices would rebound. If £7 shares are now trading at 7p (a hundredth of their price), and the management succeed in gaining some money from someone else to resume dividend payments, the 7p shares will rebound back to £7.
Some are investing in Football Index now. If they don't mind gambling £7 and buying 100 shares at 7p, then if the mgmt are successful in gaining money, and dividends resume, then the prices rebound they could find yourself with £700 with of shares. Well, maybe not £700, no one really trusts Football Index anymore so the market will be smaller after this week as people leave not wanting to be burned again, but the shares will be worth more than 7p each.
Crucially- only gamble what you are prepared to lose. |
Ta for this. I’d heard the name but knew nothing about it. And people have pumped their life savings into a scheme like this? Jeez |  | | |
| Anyone been keeping an eye on the Football Index scandal? on 18:36 - Mar 8 with 1865 views | jaykay |
i feel sorry for these people who have lost money. trouble is this appealed to people , who thought they are football experts. also when it was first talked about on here, people were saying they were making x amount of money. i would have thought that would have been replicated on football forums all over the country. so lots would have lost money |  |
| forensic experts say footers and spruces fingerprints were not found at the scene after the weekends rows |
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| Anyone been keeping an eye on the Football Index scandal? on 22:01 - Mar 8 with 1779 views | Jermynblue |
| Anyone been keeping an eye on the Football Index scandal? on 17:30 - Mar 8 by backinbeige |
One more point (told you I'm obsessed with this...).
When traders sold shares to each other, Football Index took something like 2% of the value of each trade. So if you bought a share for £10 you'd end up paying £10.20, with going 20p to Football Index.
For this to generate meaningful returns for Football Index they needed lots of trading activity. Lots of 2%'s would start to add up for them. Presumably there was not enough trades - there was no "liquidity" in the market - because they're going bust. It's safe to assume that most people who bought a share hung on to it. There wasn't enough trading.
They should have made the dividends more volatile. Traders needed to be punished more for having someone who didn't play well that week. This would mean that the traders are forever swapping shares depending on the slightest change in a player's form or who that week's opposition are, rather than hanging on to a share hoping a player gets over his barren scoring run. They needed to make it so that you needed to rebuild your team each week.
This clearly didn't happen as they didn't collect enough 2% commissions from the trades. |
Thanks for your overview of how this works. I was not really aware of Football Index and how it worked, but having seen the negative news in the last couple of days wanted to understand it further.
So, if I understand correctly, Football Index has two sources of income. The first is the income it receives for the initial shares it offers for each player and the second was the commission it took on share sales between traders and/or the the price differentiation between the buy and sell price of traded players. This was then expected to cover the cost of it operating and also the dividend paid on the players. So really issuing new shares for existing players was never going to be a viable option as it would dilute the dividend and thus reduce the price of the player. Therefore the sustainable income stream had to be the commission made on player trades unless some form of advertising income could also exist on their website by advertising other companies (no idea if this was part of their business model).
If this is the case then it looks like the main consideration of the traders should have been whether or not the volume of player trades was sufficiently high enough, or other income streams existed to maintain a high dividend and thus warrant an investment on football index. Then if this was the case the secondary consideration would have been which players offered the best earning potential. However, it seems that the focus of most of the traders was more on selecting the footballers which might earn the dividend rather than whether or not the business model of Football Index could sustain a dividend.
I feel sorry for those that have lost money that they cannot afford to lose when they probably expected at the time of their investment that the main consideration was their knowledge of football. |  | | |
| Anyone been keeping an eye on the Football Index scandal? on 09:19 - Mar 9 with 1646 views | backinbeige |
| Anyone been keeping an eye on the Football Index scandal? on 22:01 - Mar 8 by Jermynblue |
Thanks for your overview of how this works. I was not really aware of Football Index and how it worked, but having seen the negative news in the last couple of days wanted to understand it further.
So, if I understand correctly, Football Index has two sources of income. The first is the income it receives for the initial shares it offers for each player and the second was the commission it took on share sales between traders and/or the the price differentiation between the buy and sell price of traded players. This was then expected to cover the cost of it operating and also the dividend paid on the players. So really issuing new shares for existing players was never going to be a viable option as it would dilute the dividend and thus reduce the price of the player. Therefore the sustainable income stream had to be the commission made on player trades unless some form of advertising income could also exist on their website by advertising other companies (no idea if this was part of their business model).
If this is the case then it looks like the main consideration of the traders should have been whether or not the volume of player trades was sufficiently high enough, or other income streams existed to maintain a high dividend and thus warrant an investment on football index. Then if this was the case the secondary consideration would have been which players offered the best earning potential. However, it seems that the focus of most of the traders was more on selecting the footballers which might earn the dividend rather than whether or not the business model of Football Index could sustain a dividend.
I feel sorry for those that have lost money that they cannot afford to lose when they probably expected at the time of their investment that the main consideration was their knowledge of football. |
I believe that's the case too. I'm an interested observer rather than someone who works directly in finance. The only points I'd note:
- The trader keeps the price difference between how much they bought it and how much they sold it, that's their profit and doesn't go back to Football Index. FI just take the 2% commission off of the trade price when the share changes hands.
- I'm not sure that issuing more shares in a player would dilute their value. In normal financial markets, yes this would be the case, as the share would be linked to the company that issued it. If there are two shares in Tescos both shareholders have 50% each, and if two more get issued then four people own 25% each. Here, no one owns Bruno Fernandes, so each share issued just means someone else is going to get his dividends. No one's ownership is diluted. What I don't know is if FI invented a rule that mimics the stock market and reduces share's values if more are issued, or they just chuck more out.
The more I think about it, the more likely it is that FI will rebound. Reading some of the comments from traders on Twitter, the majority think that the prices are so low they're not going to bother selling. What's the point of claiming their £70 back when they had £7,000 and there's the chance it will rise. Might as well leave it in and see what happens.
The mgmt and creators of FI have proved there's a hell of a lot of interest in this type of model. It gives people (let's face it, men):
* The chance to play at being a Wall St trader
* The nostalgia and "got, got, need" of owning and swapping players like stickers
* The excitement of FPL based points when watching matches
* The adrenaline and buzz of gambling
So there's appetite for the product and there's an existing market that's waiting to resume gambling. If mgmt can convince some new backers to give them some money in the form of investment into their company, so they can afford to resume paying dividends - and they've got what the backers are looking for - then once they've got the balance between volume of trading and level of dividends right they'll be on to a winner.
If/when they receive investment and resume giving out dividends they won't go back to previous levels. There will be less people in the market for a start, a lot of left in anger. If they were paying (on average) 50p dividends and are now paying 1-2p dividends, the current market would probably be happy to resume playing if they announce they'll pay 25p dividends. This would mean their outgoings are more sustainable. Plus if they put some mechanisms in to increase volatility/liquidity and ensure traders have a need to trade shares more often, they'll get more 2%s. Perhaps now is the time to buy a few shares for £20 - only for the amount you're happy to lose if the market doesn't rebound though. |  |
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| Anyone been keeping an eye on the Football Index scandal? on 09:27 - Mar 9 with 1630 views | StokieBlue |
| Anyone been keeping an eye on the Football Index scandal? on 09:19 - Mar 9 by backinbeige |
I believe that's the case too. I'm an interested observer rather than someone who works directly in finance. The only points I'd note:
- The trader keeps the price difference between how much they bought it and how much they sold it, that's their profit and doesn't go back to Football Index. FI just take the 2% commission off of the trade price when the share changes hands.
- I'm not sure that issuing more shares in a player would dilute their value. In normal financial markets, yes this would be the case, as the share would be linked to the company that issued it. If there are two shares in Tescos both shareholders have 50% each, and if two more get issued then four people own 25% each. Here, no one owns Bruno Fernandes, so each share issued just means someone else is going to get his dividends. No one's ownership is diluted. What I don't know is if FI invented a rule that mimics the stock market and reduces share's values if more are issued, or they just chuck more out.
The more I think about it, the more likely it is that FI will rebound. Reading some of the comments from traders on Twitter, the majority think that the prices are so low they're not going to bother selling. What's the point of claiming their £70 back when they had £7,000 and there's the chance it will rise. Might as well leave it in and see what happens.
The mgmt and creators of FI have proved there's a hell of a lot of interest in this type of model. It gives people (let's face it, men):
* The chance to play at being a Wall St trader
* The nostalgia and "got, got, need" of owning and swapping players like stickers
* The excitement of FPL based points when watching matches
* The adrenaline and buzz of gambling
So there's appetite for the product and there's an existing market that's waiting to resume gambling. If mgmt can convince some new backers to give them some money in the form of investment into their company, so they can afford to resume paying dividends - and they've got what the backers are looking for - then once they've got the balance between volume of trading and level of dividends right they'll be on to a winner.
If/when they receive investment and resume giving out dividends they won't go back to previous levels. There will be less people in the market for a start, a lot of left in anger. If they were paying (on average) 50p dividends and are now paying 1-2p dividends, the current market would probably be happy to resume playing if they announce they'll pay 25p dividends. This would mean their outgoings are more sustainable. Plus if they put some mechanisms in to increase volatility/liquidity and ensure traders have a need to trade shares more often, they'll get more 2%s. Perhaps now is the time to buy a few shares for £20 - only for the amount you're happy to lose if the market doesn't rebound though. |
Are the dividends fixed?
If they are then that is the issue here, with a real equity the dividend is totally dependent on the capital position of the company. If the company does badly and is low on capital then they won't pay a dividend (which has been the case for some companies over the last decade).
They should have had a "prospective dividend" field which floated on a daily basis depending on the volumes and cashflows and as that dividend decreased do to capital issues people would have created volatility by getting out of the shares thus increasing the capital and it would eventually settle on a new appropriate price.
Having a fixed dividend essentially eliminates a major rebalancing effect of the markets.
SB |  | | |
| Anyone been keeping an eye on the Football Index scandal? on 10:07 - Mar 9 with 1577 views | backinbeige |
| Anyone been keeping an eye on the Football Index scandal? on 09:27 - Mar 9 by StokieBlue |
Are the dividends fixed?
If they are then that is the issue here, with a real equity the dividend is totally dependent on the capital position of the company. If the company does badly and is low on capital then they won't pay a dividend (which has been the case for some companies over the last decade).
They should have had a "prospective dividend" field which floated on a daily basis depending on the volumes and cashflows and as that dividend decreased do to capital issues people would have created volatility by getting out of the shares thus increasing the capital and it would eventually settle on a new appropriate price.
Having a fixed dividend essentially eliminates a major rebalancing effect of the markets.
SB |
This is where I start to guess as I haven't played...
They're fixed in as much as you get set rewards based on a player's performance. I imagine there's no capital linked to Bruno Fernandes (his transfer value isn't used). The only capital position that's relevant is Football Index's and the dividends very much are linked because they've stopped paying them!
Buying Fernandes' share for £5 and hoping for a payout based on his performance is basically the same as putting a £5 bet on for him to score. It's a bookmaker masquerading as a stock exchange. It's just that you win if he does 'anything' positive (score/assist/etc) rather than betting on a particular outcome.
If your outcome doesn't happen you don't lose the £5 you staked and need to lay another bet on, you could just keep his share and see what happens next week. His share price will drop but you won't lose the full £5, maybe £1 if you sell it for £4. So there's less incentive to keep churning over shares like an exchange. | |
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| Anyone been keeping an eye on the Football Index scandal? on 10:16 - Mar 9 with 1563 views | StokieBlue |
| Anyone been keeping an eye on the Football Index scandal? on 10:07 - Mar 9 by backinbeige |
This is where I start to guess as I haven't played...
They're fixed in as much as you get set rewards based on a player's performance. I imagine there's no capital linked to Bruno Fernandes (his transfer value isn't used). The only capital position that's relevant is Football Index's and the dividends very much are linked because they've stopped paying them!
Buying Fernandes' share for £5 and hoping for a payout based on his performance is basically the same as putting a £5 bet on for him to score. It's a bookmaker masquerading as a stock exchange. It's just that you win if he does 'anything' positive (score/assist/etc) rather than betting on a particular outcome.
If your outcome doesn't happen you don't lose the £5 you staked and need to lay another bet on, you could just keep his share and see what happens next week. His share price will drop but you won't lose the full £5, maybe £1 if you sell it for £4. So there's less incentive to keep churning over shares like an exchange. |
So looking here:
https://www.footballindex.academy/what-are-dividends
One major issue is that the dividends are only partially correlated to the price of the stock on the player. In the real world there will be a high correlation because the stock price and any dividend because a company doing well and likely to pay a dividend will be a desirable stock to own so the market will push up the price.
Here the dividends are mainly based on match performance that game and any random media soundbites. Given this they do show some correlation to the price (in that good players are still likely to performance well and do media stuff) but there is far more scope for black swan type events (poorer players scoring hattricks or being in the team of the week or good players not performing).
Given it's not brilliantly correlated it's hard to see how they can model future dividend liabilities against future volume based income. Hence we are where we are.
They should have made everything linked to the market in order to allow their liabilities to move along with the market sentiment and volumes.
SB | | | |
| Anyone been keeping an eye on the Football Index scandal? on 14:46 - Mar 9 with 1488 views | backinbeige |
| Anyone been keeping an eye on the Football Index scandal? on 10:16 - Mar 9 by StokieBlue |
So looking here:
https://www.footballindex.academy/what-are-dividends
One major issue is that the dividends are only partially correlated to the price of the stock on the player. In the real world there will be a high correlation because the stock price and any dividend because a company doing well and likely to pay a dividend will be a desirable stock to own so the market will push up the price.
Here the dividends are mainly based on match performance that game and any random media soundbites. Given this they do show some correlation to the price (in that good players are still likely to performance well and do media stuff) but there is far more scope for black swan type events (poorer players scoring hattricks or being in the team of the week or good players not performing).
Given it's not brilliantly correlated it's hard to see how they can model future dividend liabilities against future volume based income. Hence we are where we are.
They should have made everything linked to the market in order to allow their liabilities to move along with the market sentiment and volumes.
SB |
Presumably there's a very direct link between the dividend and the share price - the price is only determined by the market demand, which in turn is only determined by the level of dividend payout? For a company doing well read 'player doing well'.
This thread has turned a bit w@nky but I'm here for it | |
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| Anyone been keeping an eye on the Football Index scandal? on 14:53 - Mar 9 with 1485 views | HighgateBlue |
| Anyone been keeping an eye on the Football Index scandal? on 14:45 - Mar 7 by TractorWood |
I assume nothing will happen. This is not an investment, it's gambling. They use language like shares and dividends but in reality these are bets and payouts. When you couple this with tech startup business valuation modelling (aka active users and funds 'on deposit') they have clearly grown massively with foundations made of sand. As someone else says, it has all the hallmarks of a posh Ponzi scheme.
Call me stupid but I honestly don't see the appeal. If you like football, bet on football. If you like risky investing, invest in the stock market. |
You're right. They already got in trouble with the advertising regulators a couple of years back for not adequately explaining that this is betting, and explaining the risks involved. That said, even with a share in an actual business, it's only worth what people are prepared to pay for it, and if people are no longer prepared to pay as much because dividends are cut (as here) or for other reasons, you have no divine right for your asset to be worth what you paid. Surely anyone who buys an asset knows that? In putting their money into this, people were effectively saying "I know better than the seller what the true value of this supposed asset is", and they were wrong. It's hubris I'm afraid, but I still sympathise with people who will suffer hardship as a result. |  | | |
| Anyone been keeping an eye on the Football Index scandal? on 15:01 - Mar 9 with 1475 views | HighgateBlue |
Surely it's too early (and hence potentially libellous) to allege fraud? The Gambling Commission are rightly investigating, and rightly not pre-empting any conclusions. Let's see what they come up with.
Whether any other regulatory rules have been broken or not, I'm not sure anyone's in a position to assert that cutting the dividends was fraudulent, whether or not it was in accordance with the contractual terms entered into by users. I appreciate that these were "shares" rather than real shares, but with real shares, there's seldom a guarantee that any traded asset will pay out a particular dividend. If a company is in financial trouble, it may well look to cut the dividend to build its finances back up. I don't see how that would be fraudulent.
As I understand it in this case, the principal question is whether Football Index was entitled to amend the divided without giving greater notice of that change. If they should have given more notice then they will be in breach of contract. But even that does not constitute fraud.
Let's see what comes out of the GC investigation. | | | |
| Anyone been keeping an eye on the Football Index scandal? on 07:15 - Mar 15 with 1204 views | Muncher |
The problem (from the punter’s) point of view with Football Index is it made people think their football expertise surpassed their lack of investment expertise. It was an unsound business model that was always going to burn those left holding the parcel when the music stopped. | | | |
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