Issue 004 | ‘New Dividend Structure’ and Share Split Announcement

Well, 14 days have gone by yet again and I have to be honest- the last 2 weeks have been absolutely bonkers. Huge rises, massive falls- but above all some incredible positivity in the Index community. As usual, I’m joined by both co-authors, Liam and FI Trader!

Share split announcement

Liam

The share split saga continues to roll on and it seems a long time ago now since we found out the share split would be happening. If you’re still unsure of what the share split is, or you want to know how the previous one worked and its results, you can read the article I produced on the subject earlier this week here

As someone that made the trek down to London on Thursday, it has to be said that despite a good evening, we didn’t get loads of concrete new information. We were given the date of the next information release (18th of March) which further drags out the process of the announcement which supports a point I’ve made a couple of times about them trying to squeeze as much out of the announcement as possible, which I can’t blame them for but I did think we would have found out a bit more. Also, it’s no surprise the date of the split is set for late March.

Although we weren’t given a share split factor, and we were told that, in fact, football index themselves didn’t even know yet, a four-way split looks likely after Mike said “it’ll be more than two because of growth” and Adam loosely said “around four.” but that is by no way confirmed. Mike also confirmed on Twitter recently that by no means would that mean we need to buy 400 shares to move prices one penny, which is an interesting point. If it’s less than that then prices will in effect move quicker than they currently do and it may accelerate the market again, putting the market back in the same position as they are now. If they increase that number, it could reduce the volatility of the market so it is clearly a big part of this split decision that has possibly gone under the radar.

FI Trader

Apart from Adam Cole’s little flirt with a dividend increase (the focus of this week’s other topic) the share split announcement was pretty much as expected. Dull, even.

But, that’s just fine. We now know two things. One is that the share split falls on the 26th of March. Second is that we get more details on the 18th. Anything else you hear is pure speculation.

I make a point of that because the same thing often happens in the build up to any kind of rule or platform change. Traders whip up a frenzy of gossip and speculation and it gets talked about so much it almost becomes “fact”. People then make trading decisions based on that “fact”, and then cry bloody murder when FI don’t do something they never said they would do.

If you want to guess what FI will do and try to position accordingly, do! I enjoy it and consider it to be part of the game. We can read into the hints and the tone of the announcement and sometimes we can get pretty close. But others, FI end up surprising us.

But it’s also fair to say that if we get our guess wrong, it’s our fault and we will have to eat up any consequences (unless FI have explicitly said they will do something and then don’t, but in general, I find when they have confirmed something it happens).

From those hints, it sounds like a 4x split is looking likely. That makes sense and has been my guess for a while — it seems to put the prices in the right place. Top end players like Neymar and Pogba will be around a fiver, and you don’t have to go too far into decimal places for dividends — no marketing people want to be trying to sell payouts of 0.25p!

So the question I am getting asked most is: what does this mean? Should I buy things before, or after!? In reality, it means nothing. At all. Players are not more or less valuable just because of a share split.

But this is a market full of humans not machines and so yes it will affect prices in some way. There are high expectations around the share split even if not all of them are sensible.

In my view, given that we have known a share split is coming for months it is probably already priced in to the market. I can see a risk that many will be trying to flip players in the run up or after the share split and trying to exploit the high expectations and excitement. I would therefore be wary of any player that is being loudly talked of as a “must buy” before the share split.

You can either be one of those trying to flip or you can try to ensure you don’t fall victim to it and instead, look elsewhere for your gains.

I have decided not to do much at all. Most of my holds are in quality players with current or potential performance dividend suitability in the £3–7 range. There is good evidence to suggest that whenever the premium players rise, they always pull up the value of the cheaper players up behind them shortly afterwards. So I think I may profit without having to do much differently.

With the chatter of a dividend increase as well, I believe the focus is finally returning towards players who win, rather than the hype and frenzy of recent months. And I really welcome that because it is good for the sustainability of the platform.

FIG

So I guess we know two things. Details on the 18th of March, and the full implementation on the 26th of March. I didn’t expect more from an announcement standpoint, but I did from a general a trader meet standpoint.

I’m a content guy, I do it for a living so I’ll start off with that. The stream was dodgy, at best. I also don’t really understand why it’s hosted on FaceBook because:
1. FI don’t have a massive following there
2. It’s not really ‘built’ for streaming….

A tip to the guys at FI HQ…..use periscope for the next one. Aligns well with Twitter, where the bulk of the index community is based- and you can post the link directly on to Facebook and easily distribute it via email. If you need a hand….you know who to call haha!

The venue wasn’t ideal, especially for an announcement. I was with Liam, and we couldn’t see a thing. Now granted I’m 5'10 and Liam is 5'9 on the best of days, but we couldn’t see a thing. We had to be content with the voices of Adam Cole and Mike Bohan alone. Speaking of voices, the audio was poor. Constant mic erruptions, and people on the stream complained they couldn’t hear. I truly believe that small things like this really make a difference. I met guys working at massive companies on the night, people working as professional traders etc……..some of which, worryingly were doing their due diligence on FI as a platform. To summarise, it’s not a good look. It needs to be improved. I’m gonna play devil’s advocate to myself however. They can’t have expected this many sign ups in January….so I suppose we can cut them a bit of slack on this one.

RE: the actual split, it sounds like it’ll be a 4x split. Could that be pushed to 5 or 6 if there’s enough growth by late Feb? Maybe. My preference would have been FI to just come out and say what it would have been on the night, and suspend trading for maybe 4–12 hours just so people could digest it.

If you want to know more about the share split and what it actually is, I have the video for you.

‘New Dividends Structure’

Liam

Dividends are always a hot topic and the split has increased the rumours of an increase yet again. Of course, all individual wouldn’t be upset if dividends were increased, but personally, I don’t think they will do it right now. I think we may see dividends rounded up, like Media for examples and maybe In play dividends divided by less than the share split factor to make them more appealing but I think when the money continues to flow in it would be an odd time to increase dividends. I think they will do it evenutally but that it will be held back as a stimulus to throw in once the market starts to stagnate.

I think an increase may help restore some more rationality to the platform, with more money going into potential dividend winners than those who are less correlated to dividends, which could be good to help move the index back towards its original model but as I said I don’t see too much change right now.

Mike also recently mentioned opening up media to all players rather than just the top 200 and compensating with a dividend increase. This could simply be the rounding up I mentioned above. Personally, I think it would be a good move because not too many players outside the top 200 would win the media (presumably) apart from during transfer season, where I think it would have a more significant impact. The main reason I think it’s a good move is because it adds more simplicity to the dividend structure and hopefully helps the onboarding process.

FI Trader

This was the rabbit out of Mr Cole’s hat.

When you split the dividends (and we’re going to assume by x4 but again, that is an assumption) you create problems for the marketing guys. Taking treble media day for an example, you end up paying out half a penny for 3rd place. That’s weird. And nobody wants to try to sell that idea, it will become a joke.

So, if you share split you have to also reallocate dividends somehow. Adam Cole said that his intention (to be signed off by the Board) was that dividends will get rounded up to the nearest penny rather than down. That’s a dividend increase.

So, from here on this is all wild speculation. I don’t know, but I am guessing what they will do with the money they have and what I know of their intentions for the platform. They may do something entirely different.

We’re going to have to do some maths. But readers are in luck, for I happen to have a GCSE in maths. Hold my beer.

I think FI think in terms of the total they pay out per day, not necessarily in the decimals. So for example, at the moment 15p gets paid out in dividends on a treble media, which will be 3.75p after dividing by 4.

My guess would be that Adam Cole was implying that he was going to generously round that up to a 4p total pay out to keep the numbers round. But they then will have realised they need to reallocate exactly how much you get for being 1st, 2nd and 3rd.

If you did not do that, your 1st 2nd and 3rd placed payouts would be 2p, 1.25 and 0.5p respectively. And Adam says he wants 1p to be the minimum dividend. So you need to reallocate that, to something like 1.75, 1.25, 1. I’m guessing that because I think they like the “big win” so will give more to 1st place.

That would mean that the total payout on a treble media day would increase by 6.6%. Which would seem to me to be significant but potentially affordable and not outrageous.

However, there are holes in that because proportionately, you are doubling the 3rd place dividend and decreasing the 1st play payout by 14% in order to accommodate a 1p minimum dividend for 3rd. You either scrap that idea and accept a 0.75p dividend, or you add another 0.25p to the daily payout to avoid reducing the pay out for 1st place.

Fixing the “1st placed payout is reduced” problem however results in a 12.5% increase in total dividend payouts, which starts getting serious. The Board may have something to say about that.

Now, interesting as it might be to try to work it all out. The fact is, we don’t know. They may end up doing something entirely different once their Board get their teeth into it.

I think the only thing you can really do with this is say “Hey, dividends are probably going to increase. And it’s probably going to be by a modest but decent amount. So people will expect players who win dividends to be worth more if there are more dividends to win.”

I think from there, we see another reason to calm down the hype of the last month and start returning to players who actually win dividends. Dividends will always be the only source of real value on the Football Index.

FIG

So this was slightly unexpected.

I’m gonna talk about the negatives first. But wait FIG….they’re increasing dividends mate? That’s not what I’m down on…..I’m more discouraged by the fact FI alluded to the idea that decimals are too complex. If this is a problem on their end, that’s unnaceptable. If they think it’s because the platform will be too complicated…..I think I disagree. In general, FI have insinuated that eventually- to stop the Dividend increase, share split cycle- they’ll go to decimals of shares. We do it with betting odds, you can buy decimals of futures contracts or actual stocks and you can buy decimals of crypto. Even FPL prices go up in 0.1! Decimals will in my opinion be big part of FI in the future. Now, I’ll caveat this with the notion that FI have currently got a LOT of new users on the platform, so I guess suddenly introducing, or creating decimals of dividends may have worried them.

I’m of the opinion that FI will use the ‘rounding’ element that FI trader and Liam have explained to open up the squad. But, I actually think- to alleviate concerns, MB will get a bump in general- and that current MB holds will yield larger amounts. They can’t do the opposite, or too much money will flow out. If they weigh it too heavily in MB favour that’s also detrimental- it needs balance. Overall, I think we’ll see a div increase of maybe 15/20% overall……who knows though, I only know as much as the next guy!

Research, Resources, Tools & Tips:

• Since Fekir was in the limelight last night I’ll plug this again. I was joined by Jonathan Johnson on my other podcast: The state of play to talk all about French Football and Ligue 1.
• Sick to death of SofaScore at the moment. Really slow notifications! I’m starting to use Flashscore….if anyone has any better shouts let me know! Prefer the SofaScore design and layout….but slow notifications!

Content, Reading & More:

• FigCast Ep 62 was with FI CEO Adam Cole, CMO Mike Bohan and Product Lead Ciaran Rowan! I thought I’d plug this just as there may be some new users reading who haven’t done so before!
• FigCast Ep 67: The Big Don returned. He’s got a 250k portfolio with over 1000 players….check it out!
• FigCast Ep 68: This is mandatory listening. I was joined by £600k Portfolio man ASP again. He says some really, really wise things about the index.
• This video all about ‘exit strategy’ on Football Index. Got a lot of questions about it on the podcast so thought I’d make a video!
• Episode 13 of the Bank Builder series is up on YouTube!
• Our very own FI Trader launched a members area to his site this week, packed full of fresh, original and easy to use performance scoring scouting information and market analysis and insights. All constantly updated throughout the week! Check it out here
• In a new series of articles looking at different types of trading techniques, Liam got the low down on @IndexBig’s 1000+ player portfolio. You can read it here
• Keep an eye out for Liam’s weekly blog, “the week ahead” which gives you a headstart on things index related for the next seven days. Out every Tuesday here

Still loving medium. Way more user friendly, and the blog just looks better. I think the better aesthetic, makes up for my poor writing!

Thanks so much for reading everyone!

Have a great couple weeks trading.