The owners of Football Index transferred around £15 million of customers’ stakes to a connected company that spent it on building technology to sell similar products in foreign territories as the gambling website collapsed.
A document seen by The Athletic reveals an eight-figure sum moved from BetIndex, the Jersey-based company which ran Football Index, to its holding company Index Labs as part of “Project Hadron”.
Advertisement
The plan was to repackage the Football Index technology and sell it elsewhere as a cricket platform in India, a football platform in Germany, or an NFL platform in the USA.
Football Index was marketed as a “virtual stockmarket for footballers” with player “shares” traded for money online and users earning cash “dividends” based on footballers’ real-life performance on the pitch.
“Dividend” payments were reduced in March by up to 90 per cent, causing the biggest disaster to afflict British gamblers in history as ordinary football fans lost huge sums of money overnight.
A damning review into the company’s collapse published last month revealed that while around £124 million existed in virtual share portfolios on the site, only a small proportion of this was held in cash, meaning the company was unable to cope with a downturn in fortunes. A largely unanswered question over the past few months has been where this money has actually gone.
A presentation prepared in August this year by insolvency practitioners BDO, though, sets out Project Lynx, an attempt to obtain further funding from investors to continue building Project Hadron — even after Football Index’s collapse. It outlines plans for an ambitious global expansion and a product called “Token Trader”.
For many of the users who have lost money, it feels as though Football Index has taken their cash and — while they knew the business model was failing — kept trying to spend on speculative foreign projects which were unlikely to ever come to fruition.
“Project Hadron” was only 40 per cent complete in August after £15 million had been spent on it. The Athletic has learned that Index Labs employees were in the last few weeks made redundant and not paid for their final month’s work as the company seemingly had no funds left.
“They’ve sucked our money out to generate a new product,” says one Football Index user who lost £215,000.
Advertisement
“If we had had the choice, we would have never in a million years have ever agreed to them taking our stakes and using them like that,” says a member of the Football Index Action group with detailed knowledge of what is going on behind the scenes. “It looks like they’ve spent nearly £15 million of our money on this thing.”
After a detailed analysis of leaked documents and multiple discussions with Football Index insiders, The Athletic can reveal:
- How, despite the collapse of Football Index, investment has been sought to take a similar product into new territories and sports by January 2022
- Index Labs have floated the prospect of relaunching a product in the UK if licensing terms can be agreed
- What happened to “Project Hadron”
- The plan to enter India and Germany and branch out into other sports
- The “Token Trader” game that was being developed using the same technology as Football Index
- How Football Index’s “headquarters” in Jersey was just a nondescript nine square-metre office in St Helier
BetIndex, which received its revenue from customers buying virtual shares in footballers, paid Index Labs as a technology service provider.
BDO declined to comment when contacted by The Athletic.
“Project Hadron” had become a symbol of Football Index’s ambitions in the heady months before the pandemic placed a strain on the platform.
The project was repeatedly cited in podcasts, tweets and statements by the company’s founders as evidence of their plan to expand Football Index beyond the UK.
Users had hoped this would lead to connections between different countries, meaning more buyers and higher demand, therefore boosting the value of and ability to trade customer “shares”.
“Germany was the plan for a long time inside the company,” a former employee says. “It went crazy. (The customers were) really excited. They thought it would mean pooled liquidity and all the share prices would go up.”
A video with Football Index engineering staff in February 2021 — just one month before the collapse — outlines how the company was planning to replace the UK product entirely with a new product of some kind.
“It’s a whole separate new product,” the engineer said. “The existing Football Index platform is never going to be migrated to the Hadron product. It’s going to survive for a year or two from now.”
But different gambling laws in different countries make combining products across borders like this very difficult. So-called “pooled liquidity” between countries was viewed internally as a non-starter but this was never shared with excited customers, who kept piling money into the platform, with early adopters financially rewarded.
One former employee also recalls the internal hype about expanding to India and the USA, with Football Index seeking to capitalise on the huge popularity of cricket and American sports.
The document leaked to The Athletic reveals the vast sums of money transferred into the UK-based holding company Index Labs over the past two years.
Advertisement
It reveals how Index Labs was pitching itself to investors and shows the company received £4.45 million in 2019, £9 million in 2020 and £3.8 million in the first few months of 2021 from BetIndex, its only customer and source of revenue — the vast majority of which came from selling virtual shares to UK customers.
But now it too has gone into administration.
The Index Labs creditors’ proposal recently listed on Companies House says “as its sole customer, Index Labs’ turnover (is) derived entirely from BetIndex”. BetIndex’s turnover came from selling “shares” to customers and charging commission on shares traded by customers.
“We never thought they would be using our stakes to pay for it. That should have been kept to pay our winnings. Most companies get investment for that sort of thing,” says one member of the Football Index Action group. “We could never have imagined the Gambling Commission would allow that.
“The worst part is, it now turns out that they could only expand internationally in separate markets to ours due to regulation, so the whole thing wasn’t even for our benefit anyway. It was for theirs.”
Documents also reveal how Football Index was losing vast sums at the beginning of 2021 as it increased dividend payouts in an attempt to keep things ticking over, while revenue was drying up. This throwing good money after bad is why the business model has been likened to a Ponzi scheme.
“New deposits are not linked to payouts,” a Football Index spokesperson told The Athletic in March before the company entered administration. “We categorically deny any allegations that Football Index’s model is similar in any way to that of a ‘pyramid scheme’.”
The BDO document says “Project Hadron” was only 40 per cent complete after years of expensive development, and after asking for more money from investors to chase the possibility of expanding to Germany and India — despite the epic failure of the UK platform.
It proposes the opportunity of acquiring a share in “the business and assets of a UK sports trading platform and operations of an established provider,” notably avoiding using the name “Football Index”, which has been so publicly discredited.
Advertisement
The “opportunity” is to license the technology which underpinned Football Index to “expand the brand into alternative sports categories and new geographic jurisdictions,”, with January 2022 proposed as a return to market.
“This new platform is being designed to enable the system to be readily modified to accommodate multiple different sports and with the ability to operate in multi-currency/ multi-language and effectively in any territory.”
The presentation gives Germany as the best place for a relaunch, a plan requiring £4.5 million in new investment this year.
“Revenues are expected to begin to flow from this point forward and before the business is self -financing further funding of £14.5m is forecast to be required to get to this point in August 2023.”
In other words, despite the colossal failure of Football Index in the UK, the company was seeking investment of £19 million to chase the dream of profits in Germany. Perhaps even more startlingly, the plan to go into India with a cricket product “could be financed from operations and cash generated from Germany”.
At its heart, it reveals where some of customers’ money has gone — into a speculative project to expand abroad. It even notes this fantastical possibility that “there remains the possibility to relaunch in the UK market if clarity is obtained in respect of licencing”.
“I joined Football Index having seen all the marketing,” says one user who lost £215,000 and has had a heart attack following the stress of the collapse. “I have to take some responsibility for it but it’s on the front of Nottingham Forest shirts. It isn’t some sort of shady backstreet thing, it’s been fully in everyone’s face.”
This user — interviewed at greater length on The Athletic Football Podcast – had a dedicated account manager, something which was made available to big clients. The employee repeatedly said the German expansion was going to happen, as well as integrating Football Index with technology from NASDAQ, the blue-chip US stock exchange which would have lent huge credibility to the platform.
Advertisement
The Athletic has seen a document prepared by NASDAQ in February 2020 for Football Index outlining the possibilities of creating a new technology platform for the company.
This user does not shy away from personal responsibility and says he feels stupid after a decision that will have repercussions for his family for decades to come.
But in explaining why the situation is more complicated than that of an irresponsible gambler, he uses the analogy of placing a wager on a horse at the Grand National. If the horse breaks its leg or is simply too slow, nobody would dispute the resulting loss.
But to Football Index users, many of their “bets” on footballers were successful. They liken the situation to betting on the winning horse at the Grand National, seeing the horse clear at the final straight, putting more money on, and then seeing the bookmaker run away with the stake.
The user is particularly despairing about the role of the UK Gambling Commission, as detailed by Malcolm Sheehan QC in the recent government-commissioned review.
“They were warned back in 2019 about issues with it,” he says. “If they’d closed it then, £25,000 would have hurt a lot, but a lot less than £215,000.”
As far back as 2016, the directors of Football Index were warned by a former employee that the business model was “nothing short of a pyramid scheme (and) unsustainable” because it was based on a user-generated bubble, according to the Guardian.
Then, in January 2020, the Gambling Commission was told that the platform was “an exceptionally dangerous pyramid scheme under the guise of a football stock market” in a formal submission by industry experts.
A Commission spokesperson said: “The outcome of the independent review into BetIndex has recently been released and this focused on both the Commission’s and the FCA’s (Financial Conduct Authority’s) actions preceding the company’s collapse. We have outlined our response publicly to that review on our website.”
The BDO document outlines plans for a new product, based on the same technology as Football Index but is at pains to call it something very different: Token Trader.
“Customers buy tokens which can be redeemed for a high percentage of their initial issuance cost, which fluctuates according to performance,” the document says. “A nominal prize may be associated with holding high performing tokens depending on local regulation.”
Advertisement
Tokens can be entered into paid tournaments to generate revenue, and customers can trade them to speculate on price — rather like the “shares”, rather than tokens, in Football Index.
The presentation shows sample screenshots from the “new technology platform” with mocked-up profiles for footballers including Lionel Messi and Robert Lewandowski.
The product would seemingly function somewhat like a fantasy football game, with the option to “start building your squad of footballers” and enter a “prize pool”, with footballers associated with digital tokens.
The document goes into significant detail about the trading engine and matching engine inherited from Football Index, along with aspects like “media buzz”.
There is no indication that this proposal was ever taken seriously by any investors, who would surely have serious reservations about technology associated with a platform that has collapsed so spectacularly, causing so much misery.
But it does provide a possible answer to the ultimate question that so many Football Index users have been asking since the events of March: where did their money go?
While a small chunk of money held in cash balances has been redistributed, the £120 million of “open bets” staked on the platform has effectively vanished.
This new document reveals that a significant amount of money deposited into Football Index went to Index Labs, which, as recently as August 2021, was hoping to expand into foreign markets. That £15 million has now largely gone, spent on the salaries of engineers, some of whom have been recently made redundant. This is not the only way money left the company — dividend payments doubled from £1 million to £2 million a month from September 2020, in an attempt to keep users in the platform.
This raises serious concerns about why there were not bigger safeguards, such as ringfencing deposits on the platform, why these plans were not made public for so long, and why regulators did not do more to stop this disaster while the firm was under investigation.
One of the most confusing things about the Football Index saga is the complex web of companies and entities involved. Despite having a huge office in central London just before the pandemic and virtually all of its customers being in the UK, the Football Index website was run by “Jersey-based” BetIndex Ltd, which is now in the process of liquidation.
Advertisement
This company was the 100 per cent owned subsidiary of Index Labs Limited, a UK-based holding company. Countless official statements refer to Football Index as a “Jersey-based company” or having its “headquarters” on the island, just a short flight from London.
Despite feeling very much like the United Kingdom, Jersey is not technically part of it. It is a “crown dependency” of the United Kingdom like Guernsey and the Isle of Man, three territories that have strong ties to the mainland but considerable political autonomy.
BetIndex Limited has one named director, Neil Kelly, and a business address in St Helier listed on the Football Index website. In Jersey’s sleepy capital, pleasant cafes and upmarket clothes shops sit side by side, with mysterious firms offering offshore financial services, particularly trusts, the secretive legal structures which have helped make Jersey rich.
The office on Wharf Street is an unremarkable rabbit warren of small offices, with other clients including hairdressers, lawyers, and, naturally, obscure financial services firms.
At the end of a corridor on the second floor is Room 32, which for years was the global headquarters of Football Index, which became ubiquitous in the English game, advertised on Nottingham Forest and QPR shirts, London taxis, Sky Sports TV and Talksport radio, as well as some of The Athletic’s podcasts.
Nobody answers a knock on the door but a look at the publicly available floor plan reveals that the office is just nine square metres, with room for one desk and one chair.
Company documents reveal that Neil Kelly is the chief executive of BetIndex but there is no evidence that others associated with the company conducted business on the island or set foot in the minuscule headquarters.
These offshoring arrangements are largely used to minimise tax burdens and they also create some regulatory distance, making it harder for lawmakers to place restrictions on firms in a supposedly tightly regulated field like gambling.
Advertisement
Deputy Steve Ahier is one of the few on the island to take an active interest in the case, raising questions in the Jersey Assembly about the island’s role in the crisis that has devastated so many lives.
“My concern is that the Jersey Gambling Commission have not done their job here,” he says over coffee in St Helier. “My question is, are the Jersey Gambling Commission competent?”
With just a handful of staff and only a handful of operators under its remit, he raises concerns about the regulator’s ability to deal with such a complex and large business.
The same question could be asked of its UK equivalent, which a government-backed review a fortnight ago revealed had made spectacular failings in regulating a product that blurred the lines between “gambling” and “investment” before imploding.
The Jersey Gambling Commission did not respond to a request for comment.
After Football Index was put in administration, insolvency practitioners were tasked with redistributing users’ “cash balances”, which were held in a protected account.
This has happened and some funds have been redistributed but these cash balances — effectively money that had not been spent on player shares — totalled only around £4 million, compared to £120 million in “open bets”.
Users are hoping that a proportion of this money will eventually be compensated by the government but that is not in the terms of reference for this review.
One route still open is redress via a group action lawsuit carried out by the law firm Leigh Day, which would require sourcing assets related to the company and its directors.
This story is certainly far from over.
(Top photos: Getty Images; design: Sam Richardson)