Staying power: Has Football Index found itself a profitable niche?
The so-called stock market for footballers has enjoyed rapid growth in recent years and attracted investment from industry heavyweights. But can the concept attract and retain enough users to stick around?
Most in the gambling industry will likely have a vague idea of Football Index. Its branding adorns football pitch ad hoardings around the country and is frequently blasted out on social media. However, relatively few will have anything more than a basic understanding of how the so-called ‘stock market for football’ actually works.
On the surface, it’s relatively straightforward. Punters ‘buy’ a player at a certain price and receive dividends for that player based on daily events like a media buzz score or match performance grades from Opta. As a player rises to stardom, receives better grades and more media coverage, his share price rises. The actual mechanics are slightly different below the surface, however. When a punter ‘buys’ a player he is actually placing a three-year fixed-odds bet for that amount, with the bet being paid out in small amounts in the form of dividends.
“We’ve reversed betting in a way,” says Football Index CEO Adam Cole. “The pay-out is fixed, and you’re paying different prices to get the same odds. Say you’ve got Neymar for £15; you’re paying a high price for a chance at a 12p dividend but, of course, you get that more often.” You are also hoping that his price rises so you can cash out or sell the bet at a profit. The obvious question with the concept is: who is playing? The educational barrier to entry seems quite high, and what percentage of football punters are well-versed in the mechanics of the stock market?
“I can tell you 76% of our users are fantasy football enthusiasts,” explains Cole. “There’s big crossover between the two products. Our customers tend to be more analytical and more patient perhaps than your average punter who is whacking an acca on at the weekend. They are less focused on instant gratification and are focused on long-term engagement with one individual product. Bettors can hop around for bonuses without much loyalty, but with us there is no real alternative. If you want to trade footballers, you stick with us.”
Staying power
Cole argues the concept has more staying power than daily fantasy sports, which barely made a mark on these shores, because once customers have got to grips with Football Index, they are “extremely loyal and extremely engaged”, leading to a dramatically lower CPA than the rest of the fixed-odds betting industry. Part of the loyalty stems from a kind of micro-community that has sprung up around Football Index, with content outlets and people creating podcasts and articles dedicated to finding value in the markets.
It would be great to know a bit more about our customers and how we can best serve them. At the time you joined #FootballIndex did you bet?
— Adam Cole (@AdamColeFI) October 11, 2018
“If you type #footballindex into Twitter there’s a huge amount of material out there,” Cole says. “It’s a very engaged and passionate community around us, and to some degree we see those customers switching out of betting.” His claim is backed up somewhat by the data. Cole ran a Twitter poll from his account asking: “If you had £500 earmarked for betting, what percentage would you put into building your portfolio on Football Index?” Almost two thirds (61%) said all of it, 29% said three quarters or more, meaning just 10% said less than three quarters.
What’s more, around half of those same customers said they bet regularly before joining Football Index, suggesting there is a genuine redirection of spend from betting to football trading. Of course, the sample of people responding to the poll all follow Cole so are likely to be die-hard users, yet he would argue that that’s the point; Football Index creates these die-hard fans. How many Ladbrokes punters are ardent Ladbrokes evangelists?
Against the spread
Perhaps the most obvious comparison to the product is spread betting, where there are significant barriers to entry, but customers who stick around are relatively high value. Cole, however, rejects the comparison, saying that the economics are vastly different, starting with the fact that punters can’t lose more than their stake. He also points out that 62% of accounts ever opened with Football Index are profitable compared to spread betting firms where 80%+ of accounts can be net losers.
Of course, if 62% are net winners, how is Football Index making a profit? Several industry commentators questioned the model, saying social media was overwhelmingly populated by winning traders. “People plough tens of thousands into this,” said one commentator. “I wonder what happens if they suddenly wanted to cash in their six-figure portfolios; could they sell all those futures? There’s got to be a catch somewhere.”
Not so, according to Football Index, who argue that as the user base and the amounts traded grow, players and operator can profit. Football Index makes a small commission as users buy and sell players, but the firm also makes money from new issues or IPOs. Imagine, for example, shares of PSG’s Kylian Mbappé IPO before the World Cup at £5. That’s £5 per share for Football index. However, he blows up at the World Cup and his shares are suddenly worth £15. That’s profit for the Football Index player as well.
Of course, there’s a delicate supply and demand balance to be found in the market to keep prices stable, but it’s been managed so far at least. As for fears about a Ponzi scheme ‘crash’, where everybody tries to sell of their shares, that’s arguably true for just about any market.
Today, if you had £500 in your pocket ear-marked for betting, what percentage would you be likely to spend on building your portfolio on #FootballIndex?
• 100%
• 75%
• 50%
• 25%
• None— Adam Cole (@AdamColeFI) October 11, 2018
It’s also worth noting Football Index is currently in the midst of a second funding round for some £5m, and has attracted investment from the likes of Burlywood Capital, whose partners include Mark Blandford. Blandford in fact was recently appointed as an adviser to Football Index, along with fellow industry veteran Brian Mattingley, who was appointed chairman of the board, suggesting the concept isn’t just some flash in the pan.
“I think this is an example of genuine innovation,” says Blandford. “It’s been a long time since we’ve seen something as different as this. That’s what I like finding and that’s what I like investing in. Conversely to any criticism, I think the company has a bright future. I can’t discuss trading numbers but let’s just say we’re doing very well.”
Another criticism you could level at Football Index is that it could almost be too engaging, with users on social media 24/7 constantly scanning football news outlets to stay abreast of the never-ending news cycle. One exec described followers as “cult-like”. “That’s a backhanded compliment,” Blandford says when the objection is presented to him.
“I think of it more like the stock market, and I’ve never heard any concerns about compulsive share trading on the London Stock Exchange. Remember, this isn’t gambling where you put £100 down and it goes to zero on the kick of a ball or the spin of a wheel.” Blandford points out the product is regulated by the UK Gambling Commission and the Jersey Gambling Commission and has “all the necessary safety nets” in place.
Next steps
What next then for Football Index, as it tries to break more fully into the mainstream? Its starts with further TV and radio advertising, with commentator John Motson enlisted to do the voiceovers, and a major advertising contract with Sky Sports for the 2018/19 football season. There are also some minor tweaks to the product ongoing, with Football Index in the process of applying for an intermediary licence which would allow it to become more of a pure exchange and let users buy and sell stock with each other rather than from the house.
The operator is also trialling a new form of dividends which rewards shareholders every time a player scores or assists a goal, which could help attract more recreational fans. Likewise, there’s also talk of expanding into new sports, or even reviving one of the original concepts of the company: trading in celebrity shares as well as footballers.
“Celebrities may well reappear,” says Cole. “It would really reinforce that concept of recreational markets. Being able to buy Prince Harry or sell Theresa May; it’s a high concept idea that could attract a lot of attention. In the meantime, though, Cole is content on acquiring football punters and converting them to the church of the football stock market. If the early years of the company are anything to go by, it’s going to be a bull market.