Fear, uncertainty and doubt… and hope?

I’ve held off writing anything about Football Index for a while. Let’s be honest, times are tough right now and I didn’t really want to just rehash things I’ve said before or add to the anxiety swirling around us. I wanted to wait until I had something more positive to say.

In July, I wrote at length on my concerns about the direction FI was moving in. I was concerned that FI had shown little understanding of their own product and their constant mistakes, large and small, were at risk of causing irreparable damage to confidence in the platform.

I was also concerned that the move to order books would turn things into ‘trader v trader’ and that this was not really a space I was comfortable to operate in.

Since then, I’ve managed to withdraw around two thirds of the money I had invested but I still have a fair whack of cash in there and I care about what happens. I’m still in profit overall. I don’t want FI to fail.

Not only that but I don’t think this can fail, even now.

Where did it go wrong?

I’m going to say it – the current issues were entirely foreseeable. If we didn’t see them, it’s only because we had been blinded for so long by the money we’ve been able to make, and also because FI haven’t entirely been straight with us about what was going to happen.

The lack of attention to detail on an established product (5 years old!) should raise serious alarm bells. A broken app that flashes up ‘something went wrong’ with every click, the lack of proper player biographies, Team of the Month not appearing on the app and the dividends coming through unnamed, typos in press releases, the media monitor picking up the wrong players, FI changing the payout time for dividends but still taking the midnight scores and then having to payout twice… I could go on.

Individually, these are small things, but together they show a product that is nowhere near as mature as it should be right now. They absolutely have to get on top of this shit. It’s not good enough for a a product ranked second in the Sunday Times Tech Track 100.

Another concern I have is that FI doesn’t seem to know who it wants to target. The marketing seems to flip-flop between aiming the product at ‘average Joe’ punters who want an alternative to the weekend acca, and the high-flying city types who are looking for an ‘alternative asset class’. Can FI really appeal to both? I’m remain to be convinced.

The piecemeal approach to introducing order books was always going to be a risk as well. I don’t think that many of us in the community took into account the difficulties with transferring from one type of platform to another. This was never going to be straightforward.

The lack of clarity about Nasdaq’s and their role in all of this hasn’t helped (clue: it’s probably not as big as you think) and there was also very little education provided to traders to help them to get ready for the changes ahead.

Then going ahead with launching offers without the key parts of a functioning market in place… well that’s unforgivable in my eyes. No proper liquidity, no depth, no circuit breakers and a mechanism that puts endless downward pressure on prices? Who in their right mind would sign this off? Did they even test this? If not, this is nothing short of negligence.

So yes, it’s an utter shit show right now, let’s be honest.

How do they put it right?

I fully expect a statement from FI on Monday. They will be as aware of this as we are and I think we can have confidence that they will act.

I would expect the statement to be a comms piece to reassure us that they are taking this seriously, listening and are working hard on solutions. We have to be realistic about what they can do quickly – there are no easy solutions to any of this and we need to be patient. Continuing to shout at them probably doesn’t help now but if you stop trading, they’ll get the message that way anyway.

The good news is there are so many things wrong with the current set up that there are just as many ways that they can put it right! It really can’t get any worse than this so I find it hard to believe that they won’t stumble on the right solution eventually.

Some potential things they could look at for starters:

  • Changing the VWAP calculation so that it’s harder for a small group of traders to drop the prices (either deliberately or accidentally) – perhaps to a percentage of total shares in circulation rather than a fixed number and perhaps with some sort of ‘snap-back’ to higher bids when some of the lower ones are removed, as others have suggested.
  • Reduce the bid zone/floor until additional liquidity is in place.
  • If liquidity isn’t coming anytime soon, I’d even consider scrapping sell offers and going back to the sell queue to be honest.
  • Show actual market depth so we can see how thin/thick the market is and make decisions based on that. Information about share supply is also needed for us to make proper decisions.
  • Finding a way to rapidly increase scarcity, either by forcing share expiry, buying back shares to remove from the market or doing a reverse share split.
  • Allowing traders to place total multiple bids in excess of the money in their balance.
  • Only paying out IPDs on players bought via the market, not bids.
  • Providing a ‘back-stop’ IS on all players at a low price, with all bidding having to take place above this but ensuring that all players (or at least the top 200) have a sell value at all times.
  • Clarify what support/tech Nasdaq are offering and how far along we are with the integration of this (I suspect further than we realise).
  • Clarify the issuance curve so we understand at what price points FI will be minting new shares (as this information is still missing).
  • Provide some trader education which, as a minimum, works through some examples of how a player’s price can rise and fall on the new system – this is needed to build trader confidence as well as understanding.
  • Consider moving the dividend deadline again, perhaps to 6pm, to encourage more day trading.

The two most important things, for me, are dealing with scarcity and getting some proper liquidity in place – which are two sides of the same coin really. More liquidity is something we were promised a while ago and I presume is something that FI are finding difficult to attract, and perhaps isn’t realistic until some of the other issues are resolved now.

The issue of scarcity isn’t something that has been acknowledged by FI up to this point and is only just being discussed by traders but it’s absolutely crucial in my eyes.

Under the old mechanics, the number of shares in circulation grew as demand increased and reduced (via IS) as demand reduced. Under order books, the number of shares never reduces, it can only grow. I don’t think having 72 million shares in circulation is viable, not without an absolute ton of money being chucked at this thing. It’s basic market mechanics of supply and demand, and it’s completely out of kilter at the moment.

REASONS TO BE HOPEFUL

90% of the issues we’re seeing are caused by FI getting stuff wrong but let’s not forget that they also got a lot right at the start of COVID-19 and perhaps we would be in an even worse position now if they hadn’t acted the way they did back then. If nothing else, this shows that they are capable of moving swiftly and decisively when the shit hits the fan.

Removing IS back then means that this current slump is hurting us far more than it is hurting them. So, as bad as that is for us as individual traders, it means that they are not in any imminent danger of going under and can take their time to work out the best possible solutions to this mess. That’s a good thing for us all.

In the meantime, they doubled dividends remember? If you’ve set up your portfolio to win divs, that’s a decent chunk of money that will be dropping into your balance each week that you can reinvest or withdraw as you choose to. The yields are simply incredible at the moment. Maybe that will be the thing which eventually attracts the liquidity providers that we so desperately need.

Think about those yields in the context of all the football we have ahead of us – Euro 2021 heading straight into the 2022 World Cup…

And, despite the fact that everything is broken at the moment, we’re all still glued to this product. There are still nearly 4,000 active traders every day and around £1m changing hands – that’s not wavering. The concept of FI is fantastic and will succeed – whether under the steer of the current management or in another guise. It’s addictive, it’s disruptive, it’s unique and, when it works, it’s non-stop fun.

Some closing thoughts

I said a long time ago that we needed to be careful not to think of FI as some sort of ISA or savings account. I’m aware that some traders will be really worried right now, with money trapped in the platform and seeing their profits gradually dropping away.

It is so important that you manage your own risk in a way that works for you. There are a lot of people talking about how there are ‘bargains everywhere’ right now and that ‘now is the time to invest’, and they may be right.

Equally, they may be wrong. It’s quite plausible that we’ll never see the sort of prices we saw before, certainly not across the breadth of the market. Do you know how you’d manage if you aren’t able to get that money out? Or if you can, but you have to swallow a 50% loss to do so? These things are worth thinking about and you have to make your own decisions in the end about what you feel comfortable with. No one knows where we go from here (so don’t believe anyone who says they do).

Personally, I’ve de-risked a lot already but I still have money in there that I had earmarked for stuff in the future (a new roof) so, yesterday, I had the conversation with my wife about where things are at. Being able to talk about this openly with my other half was a weight off my mind. I gave her the worst case scenario (we lose it all) and the more plausible one (the roof will have to wait another year).

So talk to someone, especially talk to other people who might be dependent on any finances you’ve got invested in this thing. We’re all going through this together so there’s plenty of avenues to talk/vent about this in the FI community too.

It’s easy to turn against each other in times of crisis but now, more than ever, we need to support each other.

Take care everyone x

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