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Banker-turned-bookie is World Cup betting king

it3sXD9HfkkEInside a nondescript office building in central London, a roomful of men and women sit at computer screens and talk over Skype with people in faraway places. Sharp-edged Cantonese fills the air, and a flat-screen TV emits a continuous din. It’s the chanting, singing Midlands crowd at Birmingham, England’s Villa Park Stadium: Liverpool at Aston Villa. The match has just kicked off.

The name of the company, Samvo Entertainment Ltd., offers little insight into the business being conducted here, Bloomberg Pursuits will report in Summer 2014 issue. Samvo is a brokerage firm — a bet brokerage firm — whose clients are among the richest professional-sports-gambling syndicates in the world. Four screens rise from each desk, with lists of prices updated in real time. And right now — 3 p.m. on a Saturday in late August, the second week of the English Premier League’s 2013-to-2014 soccer season — Samvo’s brokers are filling orders from the firm’s clientele.

Founded a decade ago by a former Hong Kong investment banker named Frank Chan, Samvo acts as a middleman. It seeks the most-favorable odds at bookmakers around the world, places bets on behalf of its customers and takes a fee for its efforts. The average bet of a Samvo client is perhaps 25,000 pounds ($42,000), according to Yan Tang, the firm’s general manager. However, bets often exceed one million pounds, Chan says.

That kind of action requires a market liquid enough to swallow it. Forget Las Vegas. Forget Ladbrokes Plc (LAD) or William Hill Plc (WMH), the traditional bookmakers that operate chains of betting shops all over Britain. Forget even the innovative British betting exchanges, such as Betfair Group Plc (BET), that allow punters to post their own odds on a sporting event and bet among themselves.

What Samvo and a handful of other Western bet brokerage houses are truly selling is access to the Asian markets, bookmakers operating out of places such as Ho Chi Minh City, Vietnam; Jakarta; Manila; Phnom Penh, Cambodia; Taipei; and Vientiane, Laos. During the past decade, the Asian markets have become among the largest, most liquid bookmaking operations the world has ever known.

The three biggest — IBCBet, SBOBet and Singbet — each handles north of $2 billion in wagers per week, estimates Chris Eaton, a former head of security for the Federation Internationale de Football Association and now director of the International Centre for Sport Security, a body set up by the Qatari government in advance of the emirate’s 2022 World Cup.

It’s not unusual for globally popular teams in high-profile tournaments — the Champions League, the World Cup — to draw more than $1 billion in bets for a single match, says Eaton, who, as FIFA’s former and Qatar’s current top match-fixing investigator, is in a position to know.

To put that in perspective, the Asian markets handle more money in several days for soccer alone than does the entire sports-book industry of Nevada in a year for all the sports in which it deals. Given the growth rate of sports betting globally, when the World Cup opens in Brazil on June 12, the Asian markets will likely see more action than at any previous time in their history. Samvo’s ongoing mission is to harness all that liquidity with technology as sophisticated as that which abets today’s financial markets.

In 2003, Chan began hunting for a new career. Thirty-two at the time and an investment banker at Core Pacific-Yamaichi International (H.K.) Ltd., Chan had grown tired of his chosen field. The SARS epidemic had spooked international investors, and liquidity on the Hong Kong (700) stock exchange had dried up. On an extended trip to the U.K., Chan recalls, he encountered one of the country’s hottest sectors at the time: online gaming. A slew of such businesses had recently gone public, making headlines.

“When I look at the financial page, I find one industry which was still growing,” Chan says in his thickly accented Hong Kong English.

After further research, Chan had a flash of recognition: The odds on English Premier League soccer matches differed considerably from bookmaker to bookmaker. Like the spread between the prices of a dual-listed company’s shares trading in London and New York, the discrepancies represented market inefficiencies and, hence, arbitrage opportunities.

For Chan, however, gambling “was not a glorious thing to do,” he says.

His father, Peter, was in the 1960s a back-alley horse-race bookie in the dense warrens of Hong Kong’s Kowloon district. The senior Chan went on to become a prosperous operator of junkets that shepherded China’s avid gamblers from the mainland to Macau. The younger Chan, then disdainful of his father’s vocation, took a different route: boarding school in England, undergraduate studies at the University of Manchester, a master’s degree in management from the University of Bristol, a master’s in economics from the renowned Ecole des Ponts ParisTech and a career in high finance.

As a banker, Chan cut his teeth at freewheeling Hong Kong financial house Peregrine Investments, where his crowning achievement was to help persuade China’s Politburo to list the shares of state-owned companies on the Hong Kong stock exchange.

“Why not?” Chan tells me, recounting his sales pitch in Beijing. “They would be owned by the public!”

Whatever distaste Chan may have felt toward gambling evaporated in light of the profits he then envisioned. At first, he conducted his arbitrage by placing bets under his own accounts at competing bookmakers.

“By phone, I would call everywhere, just like Wall Street in the old days,” says Chan, who, with his oblong eyeglasses and wonkish bearing, at times resembles a Chinese Bill Gates. “I would pick up the phone and ask everybody I knows, ‘How much you offer Manchester United to win?’”

Soon, Chan realized he could do the same thing on a much larger scale by placing bets on behalf of high rollers while still collecting the arbitrage spread for himself. Big gamblers in Britain quickly grasped the value of Chan’s service: a block trader who could, in effect, conceal their identities and disguise their intentions. Staking too large a sum would, after all, alert the bookmakers, as well as the wider betting public, that a so-called whale was making a move.

Chan was also selling something more: By exploiting his old Hong Kong connections, he was the first aboveboard bet broker in the U.K. to offer access to the Asian markets, whose high volumes allowed for bigger bet sizes and lower transaction costs, Chan says.

Chan called his new firm Samvo, an English transliteration of the Cantonese characters for harmony and three — a name borrowed, Chan says, from a family business run by his great-grandfather and two grand-uncles a century ago.

To help him get started, Chan hired the former head of information technology at Sun Microsystems Inc. in Asia. The IT manager, who had specialized in building computer platforms for financial-trading firms, did the same thing for Samvo, creating a partially automated system that would seek out the best prices at different bookmakers.

To handle clearings and settlements, Chan borrowed the same logbook and order-fulfillment documentation used by brokerages to record their trades. He appropriated the same vocabulary, too: Samvo doesn’t use words such as bet, odds or gamble. Employees refer instead to prices, value and expected rate of return.

Weekend days during soccer season are by far Samvo’s busiest, and the action always starts precisely at 5 a.m. London time; that’s when the Asian markets lift the limits on bet sizes. All is quiet, and then, as if responding to some imaginary opening bell, the instant messages start piling up from clients across the globe.

By midafternoon on this day, the talk has turned to the match at Villa Park. Earlier, several syndicate clients had instructed Samvo to bet on the underdog home team, Aston Villa. This time, however, the company won’t be passing these wagers along to other bookmakers.

Instead, Tang, 31, announces nonchalantly, “We’ve decided to lay those bets because we prefer Liverpool.”

In other words, Samvo has taken the other side of the wager in its entirety. Tang (who has since left the company) won’t reveal how much is at stake, except to acknowledge that it’s in the hundreds of thousands of pounds.

In a room adjacent to the brokerage desk, as well as at a satellite office on the Channel Islands tax haven of Guernsey, teams of proprietary traders make decisions on how and where to allocate Samvo’s capital (which is carefully fenced off from client funds in accordance with British gaming regulations, as Victor Gomes, the company’s chief of compliance, is quick to point out).

Similarly, a predictive model of Samvo’s own creation directs a sizable program-trading operation. Like those of the big sports-gambling syndicates, Samvo’s model processes reams of historical performance data on players and teams and then runs tens of thousands of game simulations for each future matchup. Samvo’s research division gathers some of that information; the rest comes from providers that have sprung up to serve the U.K. sports-betting industry. Information goes in; probabilities come out.

Overseeing it all is Tang, who essentially serves as chief executive officer to Chan’s chairman of the board. Petite and trim, the Hong Kong–born mother of two received her undergraduate degree in economics and mathematics from the London School of Economics and Political Science. On game-day weekends, she’s a fixture in the office. Today, casually dressed in skinny jeans and ballet flats, she’ll help manage more than 10 million pounds of bets.

That Samvo has decided to face off against a quant syndicate doesn’t concern Tang or anyone else in the office. For one thing, she says, Samvo is careful to spread its risk across many bets in many matches in many leagues; its portfolio, in other words, is diversified. For another thing, Tang has an abiding faith in the Samvo model, which has predicted that Liverpool will cover the three-quarter-point spread.

To put it in Tang’s terms, the model believes that the market has mispriced the value of a Liverpool victory. As Tang is explaining this, Liverpool scores. A proprietary trader named Sam Fleming, who has been at his desk for the past 14 hours, whoops in celebration. The goal came off the foot of striker Daniel Sturridge, and Fleming effuses, “He’s a genius!”

Fleming’s excitement isn’t entirely because Samvo is now likelier to win several hundred thousand quid: He’s a native Liverpudlian. As for Samvo’s stake, the result of any one prediction is insignificant, Fleming says. What matters is the model’s total performance across thousands of matches and tens of thousands of wagers during the full course of a season — the ability to exploit mispriced matchups over the long term.

“It’s just about being right more often than you’re wrong,” Fleming says.

On this occasion, at least, the model delivers: When time expires in Villa Park, Liverpool is on top, 1 to 0. Yet the victory elicits only silence: Samvo’s brokers and traders, intent before their terminals, have already moved on to other action — as has their boss.

Despite his success, Chan believes the bet-brokering business as it now exists is past its prime. In its place, he wants to build a high-volume electronic trading platform that would transform Samvo into the sports-gambling equivalent of ICAP  — the giant digital middleman that swaps trades between big investors and thus greases the gears of some of the world’s most important financial markets.

Chan, who today frequently shuttles between London and his home in Hong Kong, says he’s already taken the first baby steps by hiring computer programmers equal to the task. His hero, he says, is Michael Spencer, ICAP’s CEO.

“He created one of the biggest electronic brokerage services in the world,” Chan says admiringly. “And he become so rich!”-Bloomberg