Business Insider recently published a fascinating piece on Britain’s most successful gambling operation.
Starlizard is as a company that treats gambling the way hedge funds treat stocks and is reported to earn between 40m and 200m AUD each year.
Oscar Williams-Grut wrote that expose and he joins us on the podcast this week.
- The story behind Britain’s biggest gambler
- Why the company operates as 4 very separate business units
- Where and when they bet
- The potential of sporting hedge funds
David Duffield: Oscar, thanks very much for joining us. A lot of people down here in Australia have read your recent piece on Britain’s most successful gambling operation and in it Star Lizard was described as a company that treats gambling the way hedge funds treat stocks. I was wondering how you came across the story?
Oscar : Pretty much by accident, to be honest. I come from a business journalist background. I’m more familiar with the world of hedge funds than I am with gambling and sports betting. Just through my journalism career came into contact with a PR at one of the high-street bookies here in the UK and he just mentioned off hand this company, I think a couple of years ago now.
He just said, oh yeah there’s this secretive company in Camden that make absolutely millions betting on football every month, they’re not that well known. I just thought it sounded like a great story that would be good to dig into.
David Duffield: As you did the digging and I think you mentioned in the piece that they have pretty strict NDAs, so there’s probably some other people that you’d have to speak … It’s difficult to get in touch with people who are currently there, but you managed to piece together a very interesting story.
What similarities were there for their operation as compared to the hedge funds that you’re typically dealing with?
Oscar : I think the big similarity is the reliance on algorithms to try and spot patterns in the market that you wouldn’t necessarily be able to see with the naked eye. Their whole philosophy is they want to try to overcome that sort of natural bias that you have you know, you root for the underdog or you’ve got your favourite.
Whereas they say no, let the numbers speak for themselves and we can find an edge in the market by just being very clinical. Which is typically what hedge funds do as well.
I think also in the way they deal with very thin margins, which similarly hedge funds … They’re a volume game. They put big bets on that come good, but they need a lot of volume to really make it viable.
David Duffield: The head of the operation, or the biggest client and the biggest gambler, is Tony Bloom. How would you describe him and what did you learn about him?
Oscar : It’s funny, once a friend of mine who read the article said, “As I was reading it I was thinking there was going to be some massive foible or something that would make you hate him,” because you think secretive gambling operation, there must be something dodgy going on here.
But everything I learned about him, everybody I spoke to about him … Everyone’s got nice things to say about him. He’s seems like quite a quiet, just a nice guy. He’s very generous, he’s the patron of a charity that supports Multiple Sclerosis, he runs marathons for fun, he loves football and gambling as well as does it for his sort of professional life.
I finished the article thinking, “I wish I could meet him,” because he seems like the type of guy you’d enjoy going for a drink with.
David Duffield: There’s two aspects to their operation, one is the consultancy side of things, and the other one is their own betting. How does that work?
Oscar : Star Lizard in itself don’t do any proprietary betting. They only do betting on behalf of the syndicate. All their revenues come from just consultancy fees.
But, the syndicate, it’s a sort of weird almost false distinction as far as I can work out. For everybody I spoke to, they sort of spoke about the syndicate and Star Lizard as more or less interchangeable. People thought they were playing with Tony Bloom’s money and the sort of understanding was that it was all the syndicate’s money and maybe a little bit of outside client’s fees.
I don’t know why they have that sort of distinction, but they do sort of separate it out so they are distinct bodies and a lot of people who work for Star Lizard are actually members of the syndicate, most in fact. They do get pay outs as if they were bonuses from the gambling activities. I looked at the filings for Star Lizard in Companies House, which is a UK company register, and I think they have something like 13 million pounds in revenue in the last year?
Compared to what everyone was saying about the amount they bet, the amount they win, it’s clear that there’s some sort of distinction going on there.
David Duffield: Those 13 or 14 million in client fees, a lot of that is actually, or you believe to be, from Tony Bloom himself?
Oscar : Yeah, the business itself is very split up. Everybody I spoke to said there’s probably only a handful of people who know how everything works. Everyone knows their job, and they know who to pass on their job to in the next rung up, so to speak.
But it’s not like Tony Bloom is gathering everyone around every Friday to sort of do a nice company roundup and tell them how everything fits together, where it’s all going. So it’s hard to really know how much is Bloom’s money in terms of the fees, and how much is outsider money.
The consensus was that the vast majority were from Bloom.
David Duffield: You mentioned in the story that the company is split into the four areas that you just touched on there. One generates data, another crunches that data into odds, another division basically decides what bets they take based on those odds and then a fourth division are actually the bet placers themselves.
Oscar : Yeah, it’s quite stratified and they’re split up. So the data guys who build the computer models and sort of maintain that are in a completely different office in Exeter while everyone else, all the sort of people who watch the football, place the bets, all that sort of stuff is in Camden in North London.
It is a very stratified operation and I think that’s because they had trouble in the early days with people basically … It was common knowledge what the value bets were going to be that week, so they’d just take them for themselves and if enough people put enough money on that could sort of erode the value.
David Duffield: Which is interesting, because I know they decided to bet later than they used to a few years ago and typically the closing line is more accurate or more efficient than earlier in the week, whether it’s the big football codes obviously UK and Europe or the big sports in the States. The closer it is to the game time, the closer that line is to being accurate… Basically it’s a more accurate line at that time. They have managed to overcome that, bet late and still do quite well although as you mentioned before, we’re not talking about massive margins here.
Oscar : No, no. It’s only sort of possible because Tony Bloom is independently wealthy. I mean, he made a lot of money in the noughties from setting up online bookmakers and online poker companies. That’s where the bankroll comes from really. It’s not that he is just a genius here who’s made something from nothing, rubbing 2 pennies together and now he’s a billionaire. He had to get rich first before this model could work.
David Duffield: A couple of former employees had said that as time’s gone on that the margins have become thinner and thinner. Was that a recurring theme amongst the people you were speaking to?
Oscar : Yeah, I mean it seemed to be an idea of what used to be the sort of secret sauce within people like Smart Odds and Star Lizard has gradually seeped out and people have cottoned on a bit more to the idea of statistical modelling and using computers to try and find an edge. Whereas before, perhaps it was a bit more paper and pens, just jotting down your observations. I think there is a bit of professionalisation of the world of professional gambling, even though it sounds like a bit of an oxymoron.
David Duffield: They also try and incorporate some of the subjective factors so, when it’s a heavily quant-based model, how do they factor in morale or change of managers and things like that? So the less obvious or less quantitative factors, how do they incorporate that into a model?
Oscar : You know, I’m not actually sure. Because the computer model itself was a sort of a closely guarded secret within … I think they see that as the sort of Crown Jewel, so they try and keep that as secret as possible. In terms of how they exactly model that and what weighting they give, I can’t be sure. But I imagine it would sort of shift day on day or sort of maybe hour on hour even.
In terms of the more sort of qualitative factors, I know they do basically employ a lot of people to generate that sort of data so they can have their own internal data on, you know, is the weather going to be good, bad? What would you rate the morale? 7? How significant is that? I think they’ve got their own sort of internal system of attributing value to more sort of touchy-feely factors. Then how they weight all that, that’s the sort of secret source where they really get their edge.
David Duffield: So there’s these different divisions and there’s a lot of work going into it, do you know whether Tony himself overrules any betting decisions? Or gets heavily involved in the decision-making himself?
Oscar : No, I don’t think he gets heavily involved in the decision-making. I think, as far as I could tell, he’s got some sort of key lieutenants who make the calls for the big bets, so Premier League and La Liga, all the sort of major European leagues where they’ll be staking the most money.
But I don’t think he’s involved in sort of day-to-day … Former employees said he is a presence around the office, obviously, because it’s a lot of his money so he wants to make sure it’s all ticking over, but I don’t think he’s micromanaging the operation.
David Duffield: Even though they are based in Camden, a lot of the activity takes place in Asia in terms of the bets being placed?
Oscar : Yeah, so they only bet through the Asian Handicap system, and they bet with various bookmakers throughout China and Thailand and Indonesia, places like that. They work themselves through series of brokers out in the Far East, because they want to conceal their identity and break up the bets into smaller chunks that may not move the market so much as it sort of trickles through. But obviously, the effects of that are limited on match days and things like that, when they are putting on huge sums.
David Duffield: You mentioned Matthew Benham in the article, and there’s … I’m not sure if it’s a friendly rivalry, but there’s a rivalry there amongst Bloom and Benham?
Oscar : Yeah, so they seem to be the two big figures that everyone talks about, at least in the UK, in terms of professional betting. You couldn’t make it up really; it’s the classic 2 biggest figures are the biggest rivals, they used to work together and they had a huge falling out and haven’t spoken since. And they both own football teams who sort of play each other regularly.
In terms of what they fell out over? I’m not entirely sure. I never got to the bottom of that. I put the question to Tony Bloom through press representatives, saying can you give any more detail, but he never replied. That’s a feud that will, for now, continue to be mysterious.
David Duffield: You probably need to go to one of his press conferences at the football club and just stick your nose in there.
Oscar : Yeah, exactly.
David Duffield: One of the things he said was interesting, well I suppose a couple of things. One was … And you quoted from previous articles, I don’t think it’s a direct quote because you struggled to get a hold of him as you mentioned.
He said, I believe in betting aggressively, and occasionally to win big you have to risk losing. But then he also said, at university I made myself a promise that I’d become fiercely disciplined.
Did you learn much about his balance between aggression and backing the work they’ve done versus what all punters try and limit, which is the variances or drawdown when you may have an edge on the market, but that doesn’t mean over a shorter period of time that you will be winning?
Oscar : Yeah, I mean I think they sort of show two sides of his personality those two quotes.
On the one hand, he’s a gambler at heart and he wants that sort of go big or go home mentality, let’s go all in sort of thing. But then on the other hand, he’s also a very rational, statistical, driven personality and it’s a bit of a paradox. You’d think those two things maybe can’t go together, but I think in building Star Lizard he’s managed to find some sort of mechanism that can encapsulate those two ideas.
On the one hand he can bet a lot of money, and he can use this sort of aggressive betting strategy, but he takes the sort of emotion out of it by separating himself from the betting process and separating the decision making from the betting. All these sort of ways of lessening the gut feeling in the process.
I think he’s basically evolved over time and this is his pinnacle where he’s managed to come up with a strategy that allows him to do both the yin and the yang of his personality.
David Duffield: Your background’s in finance, there’s Benham and Bloom but do you think we’ll see further sporting hedge funds pop up over the coming years? Or do you think that it’s mainly based around a couple of key personalities with strong skills that take advantage of that time in the market and then over the longer period, their edge may dissipate?
Oscar : Yeah, there’s certainly a lot more betting consultancies around these days. I don’t actually know whether they’re all as Star Lizard are, syndicates, or whether they’re just purely consultancies in that they just do it for rich clients.
It seems to be an increasingly crowded field. I think it’s unlikely that people will start to … Now is not the time you’d want to be setting up a new hedge fund, because with the increasing globalization of football, I think people are getting smarter and smarter, people are cottoning on to these statistical models. I think it is perhaps a moment in time and we’re not going to now see a boom in new hedge funds. But hey, I could be wrong.
David Duffield: We’ll leave it there for now. I wanted to congratulate you again on the article, because I found it very interesting and so have a lot of other people I spoke to. For a non-gambler, you did really well.
Oscar : Fantastic, thanks very much, David. Thanks for having me.
David Duffield: Thanks, cheers Oscar.
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