This week I had a few requests to check out Caan Berry’s recent video (link here) on the “5 Major Risks for FI Users” and share some thoughts. 

This has caused a bit of a storm on social media and has its share of shall we say “passionate” critics and cheerleaders.

Whatever view we pick – Caan is a well known professional gambler respected in that circle and so his video, done from his perspective as an experienced bettor looking into joining FI as a new user matters. He’s influential. FI want to be attracting people like Caan and turning them into advocates, not the other way around. They clearly have some way to go!

On the video there are some good ideas in there where his experience on platforms like Betfair really comes through. There are some areas where you can see how he got to his point logically but knowledge of the often complicated (or quirky at best) mechanics of FI leads me to a different conclusion.

I also add in my own comments on what FI needs to do to improve. These are things not covered in Caan’s video but I think they are the two most crucial and specific short term changes that are really needed in this market.

Apologies in advance that this is long. I watched the video yesterday then started typing and suddenly found I had created a small thesis. Too much coffee, maybe. But there is a lot to say. 

Expiring Bets

Caan’s first concern is over the nature of expiring bets. 

As he points out the bets are not physical assets. You aren’t buying a piece of Ronaldo as he says. What you are buying is a “3 year contract”. Essentially, a promise from FI to pay you in the event that a dividend is earned as per the game rules, for as long as you own the share.

This isn’t troubling in itself. I don’t think anyone joining FI really believes they suddenly own a slice of Ronaldo! Nor do they need to.

As long as FI stand behind that promise to pay a dividend, your share has real world value. They have always honoured that over the last 5 years – but whether you trust them to continue to do so is a personal choice we’ll discuss more later.

Caan’s main issue here is that in the 3 year window you need to earn your purchase price back in dividends and then some more in order to get your value in a 3 year period. 

Logical enough – but this over focus on the 3 year window is easy to get to in a raw reading of the terms. It’s not actually how trading has worked in practice. Very few people are trading on the basis of a 3 year “set and forget” bet. I would be surprised if the average hold was as long as 3 months in reality.

In the main, we’re trading based on form, fashion, fixtures and whatever events are ahead like Champions League nights. Players come in and out of fashion and dip in and out of form all the time – there are plenty of reasons why reasonably active trading is superior to “set and forget” approaches. 

And that will create liquidity. I’m not talking about “day trading” which some enjoy – someone trading weekly or monthly can do perfectly fine for themselves and also create liquidity along the way.

It is difficult and challenging to predict what a player’s returns over a 3 year window might be. But it is possible to do it with a respectable level of accuracy given reasonable skill and effort. 

And, there are various methods traders have devised over the years for factoring in depreciation for age and the likelihood of being able to resell. Given two players of exactly equal ability with one being 24 years old and one being 31 – you will obviously pay more for the younger player as he will retain resale value. There is less pressure on him to make back all of his value in dividends, you may be happy with 50% knowing you can probably sell him on.

The veteran, you’ll be on the hook for him to return more quickly and so he is more of a high pressure trade. But, generally the price will be lower to reflect that as people instinctively factor this in. And players tend to reach a performance peak at 28-31 anyway, meaning you get an increased reward for your risk often.

It’s an FI quirk that the current best players at their peak in the 28-31 range won’t always be the most expensive – but a manageable one and often the biggest profits are available on these veterans if you are content with the added risk.

The concern he has with Order Books now is that there is no longer FI backed Instant Sell available. What if you cannot sell your player? 

Well. Then you have lost your bet. There is no way of sugaring that pill. 

What if you bet on a horse and it falls at the first fence? What if you bet on Liverpool to win the title in pre-season but they are mid-table at Christmas? What if Tesla mire themselves in a scandal and your shares suddenly tank? This is no different.

The implementation of Order Books has been long expected. I recall writing “what would OB’s mean on FI?” guides over two years ago now as FI widely publicised this as the direction of the platform.

You wouldn’t know it if looking at social media today. But Order Books have long been a popular requested feature and were widely welcomed at the time of introduction.

It is very unlikely there will be a reverse gear on this although many traders want one. Achieving OB’s is the holy grail for FI as a company. The long term viability of FI depends on it – the old model where FI picked up unwanted shares was effectively a very long introductory offer.

There is however no reason Order Books cannot work in principle, though it will require changes to the mechanics we’ll discuss later on. 

In current conditions – we may rightly feel hard done by because lots of players are dropping with no rhyme or reason. But that’s the nature of a crashing market – it is not necessarily how things will always be. As we know, the mood changes very quickly on FI.

If FI can get those changes right and we see a more stable market – then the onus is on us as traders from there to ensure we are not making bad bets that we are unlikely to be able to sell later for an acceptable price. Speculating wildly on higher risk players like youth and veterans may bring high reward but can also bring significant losses.

In the middle of the pack, you’ll have your established players in the 21-27 age group where we’ll know a lot about them and they have plenty of time ahead. But no player is safe – they’ll hit misfortunes along the way and that is part of the game. 

There will be situations where we have to sell at a big loss, or perhaps even never be able to sell. But in a portfolio of 30-40+ players, properly structured and risk managed – we should never be in a situation where the wipeout of one player destroys our portfolio value. 

A player hitting bad luck can and will happen to every trader – if we have over exposed ourselves to it – that’s bad trading. This is within our power to control through good risk management strategies. 

There is fundamental risk attached to FI, as well as the huge gains most have seen in recent years. And it’s something we have to accept if we want to play. 

As things stand, right now we currently have a range of players sitting at £1-2 that have a clear rational value of £4 or more on a very conservative estimate. Often it is higher. They can credibly earn their purchase price back in a single season. There are some strong and reliable players currently so cheap they may well earn 25-50% of their purchase price in a single day.

I see how when reading the terms you could get stuck on the three year bet issue – but this is not how it really works in practice – 3 year bets are the extreme exception not the rule. 

I would stress again here that when talking about our personal responsibility for good trading above – I’m describing how it should be in more “normal” market conditions. 

In this current market? It’s often difficult to see the logic in anything this market has been doing in recent weeks and it’s hard to sort skill from bad judgement in any recent short term results.

Dividend Terms are Subject to Change

Another area of concern for Caan. 

They can change the terms and yes this is a risk. In practice – this power has only ever been used for the benefit of traders – dividends are changed once or twice a year but this has always been in the favour of traders. It happens when the pricing of players has exceeded the ability of dividends to compensate for them. 

And yes – if they were to ever reduce dividends for any reason – this would cause a ruckus and people would indeed try to sell.

This would be really bad. But it would not just be bad for traders – this would be a disaster for FI too. They’d lose trust. They’d lose customers. This is just the last possible thing FI will want to do unless in a total emergency where they had to bring dividends back in line with prices. 

In practice it has only ever been used for the benefit of traders. Without this line in the terms – they couldn’t even raise the dividends at all. So traders do not want it to be removed. 

But it does look pretty frightening and I can see how this spooks people – especially when you are already fixated by the idea of the “3 year bet” elsewhere in the terms.

Do I personally trust them never to lower dividends? Well trust isn’t the word – but I believe they will act in their own interests – and it would be a disastrous move to lower dividends for both FI as a company and for traders.

If prices do not recover and remain at current levels reducing payouts to be in line with market prices could well be considered – but it really does not feel like something they would do unless as an absolute last resort if the company was in serious financial difficulty.

In many ways – with the OB system – FI have never been less exposed to market volatility than ever as they are no longer on the hook for buying unwanted shares. (I’ll discuss the stability of the platform further below.)

Not that they don’t care about the fate of the market – of course they do. In the long term they need positive sentiment. But shorter term volatility is much less of a danger to them than it was. 

And, if they want a rapid bounceback in 2021 – the best weapon they have is their currently extremely generous value proposition – dividend returns versus prices have never been better. 

Overall – whilst I can see why this idea of “changing the terms” is a concern on face value – the reality is FI are just as bound up in this as traders are and changing the terms unfavourably to traders is not in FI’s interest.

There has to be changes as we go along – the platform would not grow without them. Most changes have been in the favour of traders. Clearly, OB’s in the short term at least, have not been. The concept can work, and if well functioning is likely better for good traders, but the implementation has been clumsy and rushed.

This is FI’s fault, though the pressure of coronavirus did not help. OB’s were on the way – they chose to bring them forward as corona had the market on pause anyway. If they hadn’t done that, we could well be introducing them right now in the middle of a season which would also cause disruption.

They made the call to get it out of the way early – we’ll never know which option would have turned out best in the longer term. But we can be damn sure we’d still be having the same debate with some people missing FI backed Instant Sell.

Caan also mentions players whose career comes to an end and what happens to those shares. Indeed, a player whose career ends effectively becomes worthless. Exactly the same way it does if your horse does not finish the race or a company liquidates. You can lose your bet this way – and it’s important traders are aware of that.

FI have in the past shown a bit of grace – in the tragic example of Emiliano Sala Caan highlights – they did provide refunds. They do not want to be seen as profiting from tragic events – much in the same way that players who get in the media for the wrong reasons like sexual misconduct aren’t paid out on either. 

But that can’t be relied upon – this is at FI’s discretion. I have no problem with this personally – I accept we live in a world where there is not always someone to come in and pick up the pieces for us when we hit bad luck. It’s just the nature of trading or betting. 

If this troubles us we probably shouldn’t be betting at all – so it’s important FI make this clear – and they probably don’t do this well enough.

Diluting Market Value

Caan focuses a lot on FI minting new shares – and he is not the only one. This has been heavily discussed recently by many. It’s really complicated so I’m not surprised it causes a ruckus whenever it is brought up.

He starts with highlighting standard supply/demand economics. Often, to have value you need “scarcity”. If gold was abundant it wouldn’t be valuable. 

However, I don’t believe you can copy and paste lots of traditional market theories straight over to FI. The supply/demand reference is right in traditional markets. But FI is not a traditional market – it’s best viewed as a football betting game with market elements. It’s got game rules that make it different from a truly free market. 

There is not necessarily a requirement for “scarcity” in the same way you might need it in Gold or Bitcoin. The value derives from the contract with FI to pay the dividend in the event of a player qualifying for one. As long as FI stand behind that which they always have to date there is no hard reason why there has to be a finite supply.

Of course – if the supply got massively out of hand it could create problems. If there were a billion Messi’s and FI had to pay out every other week as per his current form – that might be financially unsustainable for FI as they have to pay out on so many shares.

But in reality that is unlikely – price will limit the number that get minted. Eventually, when a player gets popular he hits a ceiling where the potential dividend return outweighs what you are paying. Often, traders being traders, they get a bit over excited and start paying beyond a rational price. But that burns itself out eventually.

So there is a limit to how many shares can practically exist – even if it is a soft limit.

Caan says that when FI mint shares “existing holders lose out because they don’t get the inflated price”. Not so. Existing holders get the option to sell at a higher price as more shares are bought and minted and the price climbs.

Existing holders benefit the most as higher offers get accepted. When have we ever seen an existing holder discouraging anyone from buying their shares? Generally FI are going to be minting when trader demand to sell is exhausted – they aren’t going to be pushing themselves to the front of the queue leaving traders unable to sell. I’ll come on to why minting is not a free lunch for FI later.

New buyers are taking a risk if buying players at a higher price, but that is true of any trader buying any player at any time – new market entrants aren’t being mugged in particular. Most of us buy a player most weeks. 

A trader buying Bruno for under £3 just over a year ago was taking that same risk and will be pretty happy even after this abysmal year. It’s really up to us to get those calls right – that’s the game. And yes we can lose if we get it wrong – that’s ok.

Caan identifies some definite issues here when it comes to selling.

This sparked my thoughts on something I’ve noticed in the current mechanics recently. It is often the most popular players that can drop the most sharply – and it feels like their very popularity is working against them.

Let’s say just 10 people hold shares in Player X. And 100 people hold shares in Player Y. Say every holder has 300 shares for simplicity.

In a general loss of market confidence sentiment on both being equal – I’d suspect that Player Y is hit the hardest. As we know, it can only take one even medium size trader to drop a price since the price shown is only the average of the cheapest 900 shares.

With 100 people rather than 10 – it is far more likely that 1 of them loses confidence and sells. So this gives an odd situation where the most popular players, who should in theory be the most stable because of increased liquidity – actually appear to be the most volatile. 

I say appear because it may well be that the other 99 traders are standing behind their player. But that 1 big trader who has lost confidence can push the price down for everyone. And that might make another 5 medium traders think “he’s going down, better sell”. And then you get the death spiral.

To counter this FI tried an experiment with “Average Offer Price”. I think this failed, for the reasons I said on my Live Blog within minutes of seeing it. They even caved to social media pressure to increase the ceiling further – allowing traders to pump the price by setting unrealistically high sell offers. The result is self defeating – traders have zero respect for the Average Offer Price. It is still Blue Button prices that are influencing sentiment. 

This must be fixed quickly and it’s on FI to do so. I’m an advocate of personal responsibility in trading – we are part of the solution but FI need to create the conditions where enough people can rationally be confident.

Caan goes on to say that with more shares comes more competition to sell shares. True. But it’s hard to draw a strong conclusion of what that really means outright.

For a popular player, the competition to buy them could be equal or worse/better than that. Competing forces. Popular players should in theory have more wanting to sell but also more wanting to buy. 

It would be incorrect to say “Sancho is doomed just because there will be too many shares in him”. Not so – he’ll be doomed if he fails to live up to the FI hype and deliver enough dividends versus his price. And that’s our responsibility to judge that correctly if we want to profit.

As traders we need to make sure we don’t overreach and get ourselves into situations where we are holding players at unrealistically high prices that they may struggle to justify. 

If we hang out on that narrow tree branch for too long, and said player does not meet the hype, that is definitely not going to be pretty and Caan’s fear will come true. Huge demand to sell – not many willing to pick up the pieces. But that’s not because there are too many shares per se, that’s because of the player’s performance.

We’ve lost our bet in that scenario and that’s fair. I don’t consider it FI’s job to bail me out of that scenario. 

In the past traders have gotten away with this behaviour in a rising market but when a market gets a bit more mature errors like this will be exposed more frequently. And eventually more and more traders will learn not to do it, or if they can’t they will be wiped out and leave the platform, leaving their money in the hands of traders who did navigate that more sensibly.

The real worry with “oversupply” of shares that I’d identify, not covered in the video, is what happens in the event of a price collapse.

Let’s say 100k shares exist in Player X at £3. Then he wins a few times in quick succession and becomes very popular and people buy heavily and rapidly. Traders quickly exhaust any demand to sell (because not many were selling a popular player) and then burned through some new FI minted shares too. As a result he rises to £5 and there are now 150k shares in the player.

So we had 100k shares at £3. Then 150k shares at £5.

Next week, Player X breaks his leg, and the Blue Button price tumbles back to £3.

We’ve now got 150k shares at £3. The week before we had 100k shares at £3. 

Long story short – 50k more shares exist now after all that but the price is the same. 

What’s the impact of this? 

Do FI care? Yes – they got an immediate cash injection when they were able to mint 50k more shares, straight in the bank. But this isn’t free money or profit necessarily as it is often made out to be – they sold 50k more promises to pay out when that player wins. 

So if that player recovers in a few months, then comes back and wins, they are now paying out on 150k shares rather than 100k. There will be trading around that – people will buy more of course as the player returns from injury etc as they’ll remember he has quality since he won before. 

So it’s not all one way – FI will be taking a 2% slice in commission as people trade the player again. But the fact remains – the more shares in circulation the more FI are on the hook for bigger payouts. 

You can see how this could become a problem – and we are yet to see any detail about how FI plan to manage and control this. They could choose not to mint shares if they are worried about this – no reason they have to. You could let traders set the highest offer alone but this might mean traders find they can’t buy quickly which could cause frustration. 

This is a problem we have not yet encountered – and I don’t have a solution – it would take a lot of working out with better information than I have. But it’s interesting to think about – and puts the idea of FI just “printing money” into perspective. They also take on significant risk and will have to manage this. 

It will be in FI’s interest to keep the number of shares at some kind of manageable level. At some stage, I think FI would want to stop issuing shares in a player if it was becoming too big of a hit whenever they won – but I don’t think we are anywhere near this being a real problem for them.

That’s FI’s perspective.

Do we care as a holder when there are 150k shares in our player rather than 100k?

For the dividend – no. We’ll get it no matter how many shares there are in total.

When you consider the trading mechanics – it starts to get real complicated real fast. 

Caan’s point about the rush to sell shares is definitely true here. I’ve long said that in an Order Book system we must be much more careful with hyped and popular players at high prices. And this is why. If Player Y is hot in 2020 and reaches a massive price in the top 5 players, putting him under huge pressure to deliver dividends – that’s going to be a big red flashing risk.

If he gets the wrong transfer or does not perform in 2021 at all – he’s going to be under the spotlight as a popular player and if there is an obvious bad news event you are going to struggle to sell him for anything like what you thought he was worth.

In the old system – this was no big deal. FI would take most of the hit. This is not so much a fundamental flaw in the platform – it is a flaw in current trader behaviour as traders have been taught previously that this reckless behaviour was often good. It would get rewarded. 

Under Order Books – it’s going to be rewarded at times but it’s also going to be punished, sometimes heavily. And we’ll have to adapt to that and make sure we do not put ourselves in these weak positions if we want to keep making progress on FI.

Contrast that with a lower key £1-2 Serie A player. He’s not so under the spotlight. Any failure won’t be so obvious. He may already justify his value by doing nothing more than playing his usual level. If that declines – with diligent scouting – I’m probably going to spot that before most others do and be able to get out for a reasonable price.

Where we are paying premium money for the top players in future – we’re going to have to be really sure they are worth it. They will be proven, reliable returners. And this is how it should be and how it should always have been. Premium price status should be for reliable picks – not for wild speculation. 

Even the most promising young players carry big uncertainty as so many will fail to meet expectations. And this has not been respected or reflected in FI prices in recent years. It will have to change in Order Books when you know you need someone else to buy your bet later.

This is all fine – it might be tougher than most are used to. But FI will get more competitive over time there is no escaping that.

Then you can consider other supply issues. 

In traditional market theory – the more people who have shares in the player the more stable it should be. 

If 10 people hold all the shares in an asset with 1,000 total shares in circulation in an even 10% split – then just 1 of them selling 10% of all shares is a big deal.

If 1,000 people hold 1 share each of the 1,000 shares – 1 person selling is barely going to register.

So if you were to copy and paste traditional market theories over to FI – the most popular players should be more stable because there are more shares split between more people. But this doesn’t ring true based on recent experience. Why?

The way the OB is setup where the Blue Button represents the cheapest 900 shares available gives an individual large (or even medium) trader the power to crash the price of any player on the platform. 

This price crash may be phantom – it in no way reflects the judgement of the group of holders at large. The collective view may well be closer to the “Average Offer Price” although I have my issues with the way that is calculated too. 

This trader could be doing it out of panic or a genuine need to sell because life circumstances changed etc. Or, and this will be happening, they can do it because they know it will cause a panic and they can sell and buy back cheaper later. 

The FI market has grown exceptionally but it is still not big enough to resist the gravity of a large portfolio holder or worse a group of them. Whenever a market can be gamed – it will be gamed. 

And even if it’s not deliberate gaming – it’s currently set up in a way that just fuels panic. People are still very emotionally reliant on that number on the Blue Button – and at present it is dragged around far too easily.

I do not have a perfect solution to this – if you just lazily cast the net wider and say the Blue Button will represent the cheapest 10,000 shares then you increase price stability but it will mean that the price you see is not the price you will really pay when buying.

But there is no doubt that the way prices are presented needs to change – this is a major cause of current volatility and negative sentiment.

One suggestion would be to increase confidence in Average Offer Prices by reversing the (in my view awful) decision to allow people to artificially pump average offer prices by making unrealistically high offers that will never be matched. Some traders thought they wanted this – but it is utterly self defeating as nobody cares about the Average Offer Price as they cannot trust it. 

If there was trust in Average Offer Prices they could be leaned on more rather than the very volatile “cheapest 900 shares” measure.

The other reason why more shares is not leading to more stability like it should in theory is the immature market. It is very heavily governed by short term events and swings in social media sentiment. When a player is hot, they are hot. And when a player is not they are not.

There are not currently enough “smart money” traders who are countering this by picking up the bargains that are being sold. They do exist, and these people quietly do very very well over recent years. But it’s an immature and amateur market still and it will take time for traders to improve and learn some hard lessons. 

We’ve had a market in recent years where if you were a “good” trader and put time and effort into learning you could clearly outperform others. But you haven’t needed to be good to turn a respectable profit. You could make profit with all kinds of crazy behaviours and it has led to over confidence.

It’s a bit like early online poker – at first even an average player could bully very weak players and it was very easy to make cash. But as it matured, competition intensified and those weak players got eaten up. Soon, average players found they were suddenly the weakest. And now you need quite a high level of skill and practice to make even a modest profit in online poker.

I expect FI to follow a similar path, although it will take years to reach that level of maturity. We may not even get all the way there in 5 years from here.

Tougher markets like we have seen in 2020 do speed up the process of learning. My observation on the market is that traders are collectively better than they were a year ago – less likely to put themselves in crazy positions based purely on hype. Just generally a little bit more cautious and sensible and I expect this to continue even in a more settled market. 

This could be because more reactionary people have left the platform, and probably because people have learned to be more cautious too. Rough seas make for good sailors as they say.

How Safe are Player Funds?

Good assessment from Caan here – at a medium level of protection some customer funds may be returned if FI were it to go under. But I wouldn’t count on it. At a guess I would say that money in the balance would have a good chance of being returned but money in shares would not.

This is not uncommon in betting though. It’s the same on Bet365. William Hill. Ladbrokes. Skybet. All medium protection. Betfair, Coral, Paddypower – all High protection. But most companies tend to offer Medium.

I wouldn’t call medium protection a red flag on a company per se – lots of established platforms far bigger and better known than FI share the same status. But it is definitely something to be aware of and consider for yourself before using FI.

It would be a real boon if FI were to offer “high” protection – a big win they could deliver to reassure users right now. If you are reading FI – do not underestimate the good will and big investment this could buy you. 

This could be the single biggest game changer FI could pull. I won’t pretend to understand what it costs to get that status I could be asking for the impossible – but it’s worth considering. 

It’s also difficult to know how well FI are doing financially – we don’t get access to the books as Caan says. What you can access is Credit Reports and this is something I follow through a company called Endole.co.uk. I might get in trouble for copy and pasting it so I won’t. But you can access these reports yourself and it’s not expensive, I think around £8.

Endole give a company a Credit Score based on the accounts submitted to HMRC and Companies House each year.  

This score looks as follows as of today: 

I’ve been following the FI credit rating for a few years and for almost all of that time FI has lived in “Caution”. It had large loans on the books, not uncommon for Start Ups, and they had even told us they had taken loans for marketing pushes etc. 

But, as Order Books were brought in in 2020 they jumped swiftly into “Stable”. And, interestingly, last week they moved further along into “Secure” for the first time. That may strike some as a fine irony given what we see on the market!

You get high level numbers in the credit report. Assets. Liabilities. Employees. Cash on hand. Debt Ratio. Who holds the shares. Whether they have any CCJ’s etc. 

The Credit Score is primarily based on the company accounts (as submitted to Companies House/HMRC) plus knowledge of the Director’s and Shareholders – and then they cross reference similar companies to look for warning signs of firms that may be going bust.

So, as far as we can see in the accounts, there is nothing alarming going on, quite the opposite. Are they fiddling the accounts? Well if they are, they are also lying to HMRC and possibly going to jail. This is just amateur sleuthing – I can read accounts from previous management roles but I am no accountant. 

Important edit: There are big limitations to this Score due to the murky nature of betting which is almost always registered offshore – these are company details but almost certainly do not contain “the book” on money in the market. We won’t get the full accounts on FI or any other bookmaker. But it’s just something I follow, and worth keeping an eye on.

It might seem odd that the Credit Score is better than ever. But it’s totally logical – they are no longer on the hook for buying unwanted shares – which removes a massive liability from their balance sheet. FI are simply less vulnerable in the short term to market volatility than ever.

Of course, they still have to care. They need to attract customers and keep existing ones happy. So a struggling market is very much a problem for them. But not one that necessarily puts them in huge financial difficulty like it would have done previously. Imagine a crash like we have seen recently where FI are having to pay out anyone who wants to sell? That would be very dangerous for them. 

As it stands, I’d suspect they have a fair amount of breathing room before they get in real trouble. Trading is still going on and they are still taking commission. More commission than ever in fact.

They have to service dividends and pay their staff and costs out of that. But they don’t have any immediate risk anymore where traders can suddenly demand all their cash back. For traders who want to sell that is bad – but overall – we may also be a bit relieved to know they are no longer living life on the edge.

Liquidity

To paraphrase Caan: “FI is designed so we put money in and hold for long periods of time. It does not incentivise the user to trade – which is needed to increase liquidity.” 

I can see how that conclusion can be reached – and in many ways this is FI’s fault for the way some marketing materials are presented. There is a lot of focus on the “3 year bet”. But this is not how trading really happens. As I said above – I would be surprised if the average hold was 3 months. 

The 3 year bet or something like it is needed. Imagine being FI and promising to pay dividends for an entire career on a 16 year old. You can’t take that bet – that 16 year old may well be the next Messi (Probably not, but one of them eventually will be!). You’d be selling a potentially 20 year contract to pay dividends for pennies. You’d be crazy to do it.

So the 3 year limit gives an acceptable time frame where FI aren’t on the hook for a career of dividends in one purchase. And we have a reasonable shot at predicting the players potential over that period.

It’s hard, but in that window and with skill and good judgement it can be done with a reasonable degree of accuracy and getting say 7 out of 10 such predictions right will be enough for a trader to do very well.

So there has to be some kind of limit here and 3 years is generous if anything. What is really silly is that after all these years of FI we still do not have visibility on how long we have left on our shares. It is rare that people hold this long but some people will. So notifications at minimum are needed here, and it’s a bit embarrassing for FI it doesn’t exist already.

And possibly some setting you can check to “auto refresh” the player at a cost wouldn’t go amiss either.

In reality though this is going to impact a minority of users. Most people would instinctively understand that whilst 3 years is the technical limit of the bet – it is foolish to “set and forget” for that time. 

I for example scout through every matchday every week to check on the continued viability of my players and spot new opportunities. That’s extreme – I do it as a content creator so I have that luxury – but it would be manageable for most people to keep an eye on things at least monthly. 

It would be a mistake to get distracted by a “3 year bet” mentality. Longer term holds are viable but you’ve still got to pay attention to what you have as things can change. And that’s the bet – there isn’t a risk free option here just like any trading or betting. And nor should there be.

The fact that Caan as someone new looking into the platform highlights this 3 year bet concept repeatedly suggests there is a problem with presentation here – the 3 year bet is not how the platform really works most of the time. Shares generally change hands much more frequently than that primarily sparked by form, fashion and the events coming up ahead. 

The exceptions are often the premiums. But then the old days of what I call the “Buy 10,000 Neymar, Sit Back, Open Beer” strategy are not what they were. The reliable premiums are still the best players for longer term holders to target but I would never just set them for a year and forget about them either. Everything needs at least some monitoring and making money will require effort and skill.

What would I fix?

Caan has given his perspective as a pro gambler and someone looking into the platform with fresh eyes. But what would I change as someone in the opposite situation? I’m no pro gambler (my background is project/risk management) and I’ve been around the block on FI.

It feels like an ironic statement given the market has been on fire – but I was drawn to FI because it is generally more slow paced and less volatile than traditional betting. For years that has been true – looking at the recent market – not so much.

It’s a very rough market no doubt – the worst it has ever been in the life of FI. So anyone looking in now for the first time is going to see a car crash. 

Though things can change very fast and we have seen that many times on FI. These same mechanics that make prices drop fast can also make them rise fast – with the right nudges.

Liquidity is the buzzword of 2020. So we’d better start there. It has been a big issue in large parts of 2020 – but if you look at the top 200 liquidity often isn’t the top issue right now.

Rock bottom prices and price drops are the main thing upsetting us at the moment. 

A month or so ago prices were kept artificially high but you couldn’t sell. But now you can sell most well known players and spreads are often reasonable. Far from perfect – but it’s better. Some of those Red Button prices are too thin. But overall, this is actually preferable to the previous situation in my opinion. Bear with.

Narrowing spreads is an important market goal. Essential for recovery. And it’s on the way to being achieved – just in a way traders definitely did not want. 

Blue Button prices have in many cases dropped to meet the Red. But liquidity is often there for many players and you can trade – which is crucial. We can see now that millions is still changing hands most days and lots of trades are going through.

Low prices are awful to see but what would be worse longer term is the inability to sell at all.

People have struggled with the implementation of Order Books. FI have implemented them in a clumsy way. The mechanics need some significant fixes in places and fast.

But there is no fundamental reason why traders cannot be the main liquidity provider. The main problem this market has is a lack of confidence. The value is clearly there. In fact, it is more generous than it really needs to be versus prices.

Certainly at these prices traders have more than enough financial muscle to provide liquidity if they weren’t bereft of confidence. And FI have said more background third party liquidity provision will come, and no doubt they are working on it. But it is not proving to be a switch you can flick – it takes time to put this in place, longer than they thought clearly.

There are two things I would do as short term priorities that I think would get this market going in the right direction.

Firstly, the way prices are presented and calculated needs to change. The Average Offer Price needs to be made less susceptible to gaming so that it becomes a number with credibility behind it. The Blue Button buy price could be made less vulnerable to the whims of individuals – it is this price that dictates sentiment and it is currently far too volatile. I’ve discussed this above.

Secondly, FI need to remove the perverse incentives. 

Even normally “good guy” traders who hold for reasonable periods of time and trade without deliberate manipulation are discovering something that is very unhelpful to the market: it’s good to be bad.

The market is eating itself because it appears to be in a traders interest now to sell and crash prices for a number of reasons. This is actually awful for everyone but you cannot blame people for trying to take their quick buck it’s human nature.

1) You might try the “sell and buy back cheaper” move. It’s been working. It won’t work forever. But recently, the more you see prices dwindling – the less risky you think selling even good players is. You aren’t fearing the price running away, and even if it does, you have a dozen other players you could pick. 

2) You can refresh your 30 day IPD window by selling and rebuying your player or a different player if you wish. IPD’s were doubled which seemed a fair decision at face value as all the other dividends were recently doubled too.

But what I think FI failed to factor in was that in this season we can often see 8-10 games in a 30 day spell where as before it might be 4-5. That in itself roughly doubles the potential return from IPD. 

Combine that with dropping prices and IPD’s have very quickly become far too muscular. They are too strong an incentive for this market to handle. It’s providing a reason for good traders to behave badly. 

Quick and dirty fix? Chop IPD in half and stick that money onto Team of the Month which rewards longer term thinking. Some people will scream but people are screaming now. Something simply must be done about the overreach of IPD. It doesn’t have to be that exact solution but the market needs one for it’s overall health.

Then we can come onto “dilution”.

There is a really good point here from Caan where his experience on Betfair clearly shines through. It’s great, in theory, to have a platform of thousands of players where you can pick up some South American teenager and then see him win the Champions League 3-5 years later.

I was thinking just last week that maybe it would have been better if FI started life as an “EPL” only platform – introducing foreign leagues later on.

It’s quite intimidating for most fans in the UK to suddenly need an in depth knowledge of foreign leagues too. 

But you can’t put that genie back in the bottle. But there are things you can do to address this “dilution” issue.

Whilst there may well be thousands of players we know in reality – with the nature of the scoring system there are maybe 300 who have a credible regular shot at winning. It isn’t as wide a pool as people make out. 

I have harsh standards granted. But if I try to list 300 genuine contenders, I’d be surprised if I got that far without getting into fairly obscure punts.

IPD extends that much wider but a lot of people like that. That’s ok – it’s just that right now IPD is too powerful and again, it drags money away into too many markets as Caan says. It makes players who would otherwise be forgotten into viable picks – preventing money from concentrating in elite players. Another reason IPD should be brought back into line.

It’s ok that there are 2700+ underdogs who may well come through to get an occasional win. These “spoiler” players – players who you’d never pick but can occasionally have their random once in career hatrick and win Star Player – are fine. The scoring system means they don’t win all that often. 

It’s always been an acceptable ratio of popular winners to spoilers in previous seasons. Recently, we’ve probably had more than our fair share of spoilers. It happens sometimes even in normal seasons. Just the nature of probability. 

And this season big teams are struggling under the strain of the fixture calendar which adds to that. But that is temporary – and I did some analysis last week on winners and even this season the big hitters are still overwhelmingly taking the lion’s share of dividends. The system is set up that way. 

There are some quick wins for FI here that wouldn’t really cost them much.

They could quite easily chop 500 or even up to 1000 random players from the platform, paying them out if needs be for pennies. The type of player who was added for the last World Cup so people could punt on Iranian Messi but is now utterly irrelevant. This would give traders confidence and address this “dilution” issue. 

The dilution issue is overstated and not just by Caan. But you can’t blame anyone for thinking that when there are thousands of players in action. You’d have to really understand the scoring system to know that it is heavily biased in favour of the bigger hitters.

And with that done – you could then operate a “one in, one out” policy. Every time an exciting player is added at IPO, you remove another who has retired or drifted into obscurity. This wouldn’t actually change much – but it would make people feel better. And in a market, feeling better can count for a lot.

Final Thoughts

Whew. I did not expect to get through all that in just a few hours. And if you persevered this far, thank you! I hope you found it useful. 

Hopefully it came across in the spirit I wrote it – as a constructive contribution to the debate. I think it’s great that people like Caan are showing an interest in FI, even if that attention isn’t all that warm. 

If someone like Caan is reviewing FI a year ago, he probably gives a very different answer. But can you blame anyone new coming in and looking at the market right now for having reservations? Even with thousands of hours of FI experience to draw on and ice in our veins it’s been a horrible year and I don’t think anyone has been immune to all this volatility. 

As I say I’m an advocate of personal responsibility so I’m not up for burning down FI HQ quite yet. Reactionary trader behaviour is definitely a big part of what has happened recently. Over the years, FI have generally shown they will listen without us needing to set Twitter on fire first. They might be a bit slow but they generally get there.

FI have to take the lead and give people reasons to be confident with some well targeted and smart fixes for these issues that are currently making it pretty much impossible for prices to sustainably go in the right direction. 

In my suggestions, I’ve tried to target things that can actually be changed now. Obviously third party liquidity providers are part of it – and we know FI are working on it – so me battering them on it again is not going to make a difference.

But fixing Average Offer Prices and the way the Blue Button prices work is within their gift. This makes such a difference. What is sentiment guided by if not seeing numbers moving on the screen? And the way these numbers are calculated is just a mess – they are currently divorced from rational value or even just overall opinion.

That has a huge impact on confidence and a more sensible way of showing value could make a real difference. They tried to fix this once – it didn’t work. But they should keep trying.

The overreach of IPD has to be addressed as a priority. Some will be upset – we’ve made bets on that basis. But this is causing the market to eat itself. When IPD’s were first brought in my view was basically “This is fine, but if they ever get too powerful this is going to cause big issues.” I wasn’t alone in that.

Here we are – they are just too strong and need reining in. Move that money to something that incentivises positive behaviour instead. This is not entirely FI’s fault – it is circumstance that has caused this as much as anything. But it still needs fixing.

And as a stretch target – if FI could move into that “High” protection status which would guarantee funds would be returned it would just be an overnight game changer. It would give people so much more confidence and attract much bigger investors. 

I’ll not press too hard on that because I don’t know what that costs – but it’s worth highlighting what a big deal that could be. FI often like to be the “better than the bookie” platform – and not without good reasons behind that. But this would really show a gold standard of care with traders money.

If they can come up with some solid practical changes like this, combined with increased third party liquidity providers, I’ve got no doubt there are plenty of people ready and willing to go for the value that is undoubtedly out there.

Finally, whilst all this stuff is interesting to think about I always try to remember that the worst thing we can do as a trader is slip into the mindset where we are waiting for someone else to fix everything. FI need to make changes, sure.

But there are things we can do with our portfolios, there is better liquidity now than there was for most of 2020. It’s not all bleak. 

Some players have been recovering quite nicely in recent days. I’ve had big wins recently by using match data to winkle out some dividend winners – when people sell good players too cheaply then an informed trader can take that on – the best profits are made when you correctly disagree with the majority of others.

As always, focusing on our own game is the best thing we can do. Even if we do have half an eye on FI hoping they get a shift on.

Best,

FIT

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