Gambling Commission’s Rhodes says Football Index “not a Ponzi scheme”
Rhodes said the post aimed to set out answers to recurring questions relating to the brand since the publication of the Department of Digital Culture, Media and Sport (DCMS)’s independent review into the matter last month.
He said the post aims to clarify any misunderstandings of the actions taken by the Gambling Commission relating to Football Index’s collapse.
First, Rhodes stated that the brand was not operating as a ‘Ponzi scheme’, as found by the DCMS’ independent review, and that there was nothing about Football Index’s operating model at the time of licensing that made it substantially different to other operators, besides its reliance on a single product rather than a diverse portfolio.
He said that as set out in its detailed financial assessment in early 2020, the brand was able to cover its liabilities in bet dividends for at least 12 months in cash holdings, and potentially for three years if it made significant reductions to its overheads.
It therefore did not need to rely on new customers to meet its obligations, and was not operating as a Ponzi scheme, Rhodes claimed.
He said the operator did however do two things during the novel coronavirus (Covid-19) pandemic, without notifying the Gambling Commission as per its obligations, which led to a rapid depletion of its cash reserves.
First, it increased its dividends to customers by 50% and then, when this did not satisfy its users, increased these to 100%. This reduced the longer-term protection for its customers, Rhodes said. The operator also changed its cash holding requirements from 12 months’ worth of dividends to just one month’s worth.
Through these two steps, Rhodes said BetIndex essentially doubled the speed at which it was paying out money, and was not recruiting enough new customers to compensate for this, which resulted in its collapse.
The Commission does not oversee gambling operators’ business on a day-to-day basis or monitor their financial health directly in real time, Rhodes pointed out.
Had the Commission been made aware of the company’s actions, suspension of its licence would have come much sooner, he said.
Rhodes also clarified that the Gambling Commission cannot offer redress for the funds lost and has no statutory powers to do so.
Legislation passed by parliament treats gambling as primarily a leisure product and therefore it is regulated as such. To provide similar levels of financial protection seen elsewhere, such as in financial services, would require a different approach to regulation in legislation, he said.
While Rhodes claimed that the Commission did not licence a product it did not understand, he said that BetIndex had offered functionalities which were not included in its licence terms, such as the sale of bets between users, the Instant Sell function and Market Maker.
He went on to claim that despite compliance failings by the operator from 2018 onwards, all operators are given the chance to improve and bring themselves back into compliance before the Commission considers licence suspension or revocation.
This, Rhodes said, is why the company was not shut down earlier after problems in BetIndex’s operating model were identified.
An earlier suspension of the business’ licence would also have led to customers losing significant amounts of money, he said.
The reason that customers were not advised earlier of investigations taking place into the operator is that the Gambling Commission cannot talk about individual cases or businesses which are under investigation, he said.
“I hope that what I have set out does provide some insight and clarity into what happened and what the Commission can and cannot do as a result,” Rhodes concluded.