The five most shocking aspects of the damning Football Index review

The independent review into the regulation of BetIndex, the parent company of the collapsed Football Index, landed yesterday and it certainly wasn’t short on detail regarding this high-profile and devastating scandal. Indeed, the 67,600-word document left no stone unturned as it laid bare how BetIndex’s product enjoyed hockey-stick growth, largely unchecked by the UK Gambling Commission (UKGC), before the whole house of cards came crashing down in March 2021. The result was customers saw their ‘portfolios’ go up in smoke as £124m in open bets were lost for good. Some, as revealed on social media, saw life-changing sums of money disappear with the demise of Football Index and, therefore, Malcolm Sheehan QC’s independent review was highly anticipated among the Football Index community. After reading through the 193-page document, we have picked out the most glaring aspects that will hopefully lead to change so that we don’t ever see a repeat of what is the biggest UK gambling industry failure to date – a failure which has left a stain on the industry and the UKGC.

It took more than three years for the UKGC to realise the product had altered dramatically

BetIndex was granted a licence by the UKGC in September 2015 after being established with the personal wealth of individuals associated with the start-up and £1m raised through the sale of a house. Originally, the product was primarily about the awarding of dividends based on media ‘buzz’, yet it morphed into allowing customers to buy and sell ‘shares’ (three-year bets). The review suggests the UKGC was not made aware of this change in business model, including ‘instant sell’ functionality, and it wasn’t discovered until January 2019 when BetIndex applied for a further licence for a new entity, BetExchange, to act as an intermediary in operating the Football Index platform. Sheehan wrote: “Therefore, for the first three years of its operation the Football Index product offered a key functionality, the ability for customers to buy and sell shares, that had not been regulated or properly appreciated by the Commission as part of the licence issued. “It is this functionality, and consumers’ current inability to use it to sell their shares, that has generated much of the concern arising from the suspension of BetIndex’s operating licence.” In July 2019, one officer in the UKGC’s licensing division noted in an internal email that the product “mimics the functionality of the stock market”. The officer added: “Although the operator did use some ‘market’ language in the original application, they were also very clear that it was fixed-odds betting. That seems to have changed in the last four years.” How this fundamental change in the business model went unnoticed for all that time is quite remarkable.

The UKGC seemed desperate for the financial watchdog to regulate BetIndex

What is apparent from reading the review is that Football Index became a regulatory hot potato that the UKGC struggled to understand and, more importantly, wanted to get rid of from a regulatory standpoint. From logs of conversations between the UKGC and the Financial Conduct Authority (FCA), it is plain to see the gambling regulator was keen for the FCA to regulate part, or all of, BetIndex. The FCA wasn’t so accommodating, it appears. Much time it seems was wasted with both sides discussing whether the fact users were able to buy and sell shares meant the FCA should regulate the product. Other times, the FCA didn’t respond to the UKGC’s messages. This part of the review sums it up best: “According to the FCA, its view that the FCA would not take action in relation to the regulation of BetIndex was communicated to the Commission in a telephone call on 10 February 2020. “The Commission, however, does not appear to have understood the FCA to be stating definitively that it would not regulate part of the product, as the Commission continued to seek meetings to discuss dual regulation of BetIndex over the following year until the company’s licence was suspended.” While both bodies, along with legal representatives for BetIndex, went round in circles debating whether Football Index was a betting or financial product, as well as the terminology on the site, users continued to make deposits and new ones signed up. By January 2020, BetIndex onboarded 20,000 new customers in a single calendar month.

The warning signs were clearly there 

BetIndex was categorised as a ‘small operator’ by the UKGC between 2015 and 2018, yet it wasn’t until 2019 when it was re-categorised as a ‘high-impact operator’ in 2019 when UKGC officials began to scrutinise the company’s operations. The reason for the regrading was that BetIndex’s gross gambling yield (GGY) had exceeded £25m for the first time. In fact, the staggering GGY growth the business experienced – 2015 £90,839, 2016 £483,538, 2017 £2,989,471, 2018 £15,510,860, 2019 £39,427,609 – should have set alarm bells ringing far sooner. What’s more, the UKGC received 82 complaints or criticisms of aspects of BetIndex’s conduct between 11 August 2017 and 18 March 2021. An official from the French gambling regulator also contacted the UKGC’s Sports Betting Intelligence Unit in February 2019 to question BetIndex’s business model. “For me, it is more FOREX than betting,” the official stated. An enquiry about the business model was also made by the Football Association, while the CEO of an unnamed operator wrote to the regulator in January 2020 suggesting Football Index customers were “being broadly misled, misinformed and encouraged to gamble irresponsibly”. The CEO continued: “The daily increase of customer funds at risk makes this matter incredibly sensitive, serious and urgent and we have no choice but to contact you directly.” Despite the red flags, as well as claims on social media and other emails to the regulator that Football Index was possibly a Ponzi scheme, the UKGC didn’t suspend BetIndex’s licence until 11 March 2021. One reason for the reluctance to act was the fear of sparking a collapse in the prices of footballer ‘shares’ and causing a ‘run’ as users scrambled to withdraw funds.

Market-making activities seemed suspect

The review revealed the value of the market and the players’ values could be directly impacted by BetIndex. As well as creating new shares and adjusting the algorithm, BetIndex was able to buy and sell shares through its own account run by a market maker. The review said this market maker reported directly to the board but was not subject to independent oversight. This market maker could buy and sell to impact the market but had insider information which was not available to other players and a detailed understanding of the algorithm. This individual worked seven days a week and had a share portfolio totalling £2.9m, the review disclosed. The review followed up by saying: “Given the complex nature of the product and the fact that the market was able to impact the outcome of the ‘event’, there was a question as to whether the product was suitable for a gambling licence.” Details of the market maker’s activities led to consternation on Twitter when the review was published.

 The UKGC is under-resourced to properly regulate the market

Because BetIndex was classed as a small operator and, in line with the UKGC’s budget, resources and regulatory model, it wasn’t proactively monitored by the regulator, the review said. That said, the review revealed the UKGC’s compliance division consists of 35 people, eight of whom are focused on the National Lottery. The regulator has oversight for around 2,800 licensees and the National Lottery, yet in 2015 when BetIndex applied for its licence, the licensing arm had 46 employees handling responsibilities relating to 3,000 operators and 30,000 personal licence holders. The review said that in the financial year 2015/16 the UKGC received 273 new operating applications, of which 93 included betting activities. Sheehan wrote: “The Commission has told the review that since 2015 it has seen significant shifts in the gambling market reflecting wider technological and consumer trends in society, in particular a shift to online gambling. “This period of rapid growth has also seen an increase in the complexity of business models and product offerings, with the lines between betting as defined in the Gambling Act 2005 and other types of products becoming increasingly blurred.” He added: “Whilst the Commission’s 2015/16 income was around £19.21m excluding grant in aid funding for National Lottery functions, with 290 staff, the equivalent income for 2020/21 is £18.87m, with 338 staff overseeing around 2,800 firms and 16,500 individuals. “The review understands that increased licence fees for online operators are to come into force from October 2021.” Whether this increase can equip the UKGC with sufficient resources to properly monitor the UK online market remains to be seen. Either way, it’s little comfort to those who ploughed four and five-figure sums, including life savings, into a product that ultimately imploded so spectacularly and believe the UKGC was asleep at the wheel.