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Football Index, a player stock exchange, has seen an exit of investors after deciding to cut dividends paid on each player sale, resulting in a substantial decrease in asset valuation (player price) and returns (player value) for its clients.
Many users are said to have lost tens of thousands, if not hundreds of thousands of dollars, with one bettor supposedly losing £250,000. To make matters worse, Football Index claims that there is “no guarantee” that investors will have a return on their investment.
Authorised by the UKGC
The platform, which is authorised by the UK Gambling Commission (UKGC), pays users in dividends depending on player results on the field, with the higher the dividends the more the players do.
Football Index confirmed the situation to its clients and owners, stating that money deposited in player shares is “not stored in any account or otherwise protected as they are sums at risk,” and that there is “no guarantee that all funds will be repaid” regardless of stock holders’ cash balances.
The decision to cut player dividends from a rate of 14p per player to 3p was most likely made because the operator’s own earnings were insufficient to offset the dividends being paid out.
For example, on Friday afternoon, a share of Borussia Dortmund star Jadon Sancho was valued at £7.52, but by Sunday morning, it had dropped to 72p.
Long-term sustainability of the business front-of-mind
A spokesperson for Football Index explained: “Our decisions have been guided by a desire to help customers achieve the best outcomes and receive the best possible returns while also having the long-term sustainability of the business front-of-mind.”
He clarified that the platform’s ‘yields had become unsustainably high compared to the level of activity on the platform’ causing it to make an ‘unfortunate but necessary’ decision.
An earlier statement from the company read: “In consultation with our legal and financial advisors we have had to make the very difficult decision that in order to ensure the long-term sustainability of the platform we simply must reduce Dividends. As such, in accordance with our terms, we are giving 30 days’ notice regarding this change.
“This decision is not one that we have taken lightly. The Board deliberated at length, and we have taken a number of other steps before reaching this decision: we have restructured, reduced costs, including taking Directors’ salary cuts and have tried our very best to keep the Dividends at the level that they have been. Unfortunately, however, the current yields are just not sustainable.”
Many consumers were outraged by the move and expressed their displeasure on social media, with many threatening legal action against the operator.
In response to social media criticism, Football Index CEO Mike Bohan said that the company’s changes were made to preserve market liquidity, and that the company is “engaging with third parties in the market.”
Protecting trading environment
Football Index was analysing all options to protect its ‘trading environment’ from the detrimental effects of its decision to cut dividends, according to Bohan, who added that the firm will be launching new trader-led enhancements in the coming weeks.
“We’ve set the objective for our primary market maker to trial a bottom-up approach to liquidity that I believe will add some confidence to Traders and encourage more users to come on board.” Bohan said.
Football Index was established in 2015 by entrepreneur Adam Cole with the aim of developing a robust trading exchange that would measure professional footballers’ success and value as financial properties, similar to the LSE and Nasdaq.
Football Index has so far raised £1.1 million in venture capital from a Seedrs crowdfund in 2016, despite the fact that the firm is said to have no venture capital backing.
As of 2018, the site officially has 100,000 visitors and has sponsorship deals with two EFL Championship football teams, Nottingham Forest and Queens Park Rangers.
The Advertising Standards Agency (ASA), the UK’s advertising watchdog, has issued notices to the company for promoting its services as an investment tool rather than a means of gambling, following a concern regarding an advertisement featuring the aforementioned Sancho.