Interim Chief Executive of the UK Gambling Commission (UKGC) Andrew Rhodes has published a blog post discussing the collapse of BetIndex, operator of the Football Index sports betting brand, earlier this year.
In the statement, Rhodes aimed to tackle questions that have arisen in relation to the Gambling Commission’s role and responsibilities and the brand's actions since the publication of a report published by the Department for Digital, Culture, Media and Sports (DCMS) last month.
“There are some incorrect interpretations of the actions we took or did not take and there is a degree of misinformation and misunderstanding I want to address,” said Rhodes.
The Chief Executive said the Commission did not license a Ponzi scheme, with the independent report concluding Football Index was not operating one. “There was nothing about Football Index’s operating model when we first licensed it that made it different to other operators, except its reliance on a single product rather than a diverse portfolio,” states the blog post.
Rhodes goes on to explain that a company collapsing with money lost does not automatically make that a Ponzi scheme. Moreover, at the detailed financial assessment in early 2020, BetIndex was able to cover the liabilities in bet dividends for at least 12 months and potentially for three years if it made significant reductions to its overheads. Therefore, the company did not need to rely on new customers to meet its obligations, which is why it was not a Ponzi scheme.
However, BetIndex did two things during the pandemic without notifying the Commission, as required to do, which created “a much larger exposure for its customers.”
As customers became concerned at the lack of football activity to drive dividends, BetIndex increased its dividends by 50% and, when this did not satisfy customers, it then increased them to 100%. The company ran several promotions to boost returns to customers.
In doing this, it depleted its cash reserves at a much faster rate, reducing the longer-term protection for its customers. BetIndex also changed its cash holding requirements from 12 months of dividends to just one month.
BetIndex essentially doubled the speed at which it was paying out money and reduced the money it held to just one month’s worth of liabilities while not recruiting enough customers to compensate for depleting its financial position. This ultimately led to its collapse.
The Commission does not oversee gambling operator’s businesses on a day-to-day basis or monitor the financial health of operators directly in real-time, remarked Rhodes. However, had the UKGC been made aware of the company’s actions, suspension of its license would have come much sooner.
The interim Chief Executive further said the Commission cannot offer redress, and it does not have statutory powers to do this. “This is not a choice the Commission is making,” further clarified Rhodes. Gambling is a sector that does not have a statutory compensation scheme, and as such, there is no fund from which any redress could be provided after an operator's collapse.
The executive further said the UKGC did not license a product it didn’t understand, as concluded by the independent report, but he did admit that what BetIndex operated was only partly what had been licensed by the Commission: these include the sale of bets between users, the Instant Sell function and Market Maker. The ability to sell bets between users, for instance, is a feature that sits outside gambling regulation and would have been refused.
Despite Football Index compliance failings from 2018 onwards, all operators are given the chance to improve and bring themselves back into compliance before the Commission considers license suspension or revocation. It is because of this that the company was not shut down earlier after problems in BetIndex’s operating model were identified. Had the Commission suspended BetIndex’s license at this time, it would have caused its customers significant losses.
“We were always conscious that any steps we took could negatively impact on consumers already active on the platform and create a ‘cash run’,” said Rhodes. “Our focus, therefore, was doing what we considered was best for consumers.”
Rhodes also addressed the frequent question of why the Commission did not inform customers of the Football Index investigation. According to the executive, the UKGC cannot talk about individual cases being investigated. However, sanctions are published once the business involved has been informed.
Moreover, he clarified the misunderstanding that the Commission “endorsed” the product: as a regulator, this is something the UKGC cannot do. “What we do is grant a license to operate; this does not mean the company is backed by us,” said Rhodes.
“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,” he concluded.