TD Ameritrade Mulls Sports Betting as Avenue For Filling Revenue Void Created by Commission-Free Trading

Posted on: November 14, 2019, 12:32h. 

Last updated on: November 14, 2019, 02:03h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

TD Ameritrade Holding Corp. (NASDAQ:AMTD), one of the largest discount brokers, could turn to sports betting to bolster revenue after the company and its rivals recently shifted away from commission-driven models.

TD Ameritrade CIO Vijay Sankaran says the brokerage is exploring sports betting as a way of juicing revenue after eliminating trading fees. (Image: Wall Street Journal)

Chief Information Officer Vijay Sankaran sees potential synergies between the trading and fantasy sports businesses.

We do feel like there are interesting analogs in applying market constructs to fantasy-sports-type things,” said Sankaran in an interview with Business Insider.

Nebraska-based TD Ameritrade has not formally introduced sports betting-related products. But the company has conducted focus groups to gauge clients’ appetite for fantasy sports-inspired games that could include trading shares of high-profile athletes.

The brokerage house has some fantasy sports experience through a partnership with ESPN, where it provides analytical tools to fantasy players that helps them create stronger lineups and gauge team performance.

Searching For Revenue

In early October, Charles Schwab Corp. touched off a brokerage battle by announcing it would eliminate commissions on equity, exchange traded funds (ETFs) and options trades, forcing rivals such as TD Ameritrade to follow suit.

Shares of Schwab, TD Ameritrde and rival brokerage firms plunged following those announcements, but have recently rebounded. The Nebraska broker famous for its “Green Room” advertising campaigns is higher by almost nine percent over the past month.

“We expect this decision to have a revenue impact of approximately $220 million-$240 million per quarter, or approximately 15-16 percent of net revenues, based on June Quarter fiscal 2019 revenue,” said TD Ameritrade CFO Steve Boyle in a statement released last month.

As such, the brokerage firm is looking for ways to foster new revenue streams in a new commission-free environment, and sports betting, in some fashion, could be one way of accomplishing that goal. That said, Sankaran was careful to note in the Business Insider interview that his company isn’t planning on becoming a sportsbook operator.

The executive said the company’s focus groups centered around participants “valuing” elite athletes from the major domestic sports leagues and trading those names among each other.

Similar Concepts

Other companies are engaged in similar endeavors. For example, the All Sports Market (ASM) features stock-like trading on various professional sports franchises. Fantex offers investors an avenue for buying securities that are levered to professional athletes’ contracts, including some well-known NFL players.

Interactive Brokers (IB), a direct rival to TD Ameritrade and one of the firms that also recently eliminated client commissions, made its own foray into the sports betting space earlier this year.

In July, IB unveiled a simulated sports betting exchange where wagers are quoted like stocks, with a bid and ask price. For example, in a hypothetical NFL game involving an excellent team, say the New England Patriots, and a poor team, such as the Miami Dolphins, the Patriots could be bid at $69 and offered at $70 prior to kickoff, while the Dolphins could be bid and offered at $30 and $31.

As the game goes along and one team’s odds of winning increase, so do its prices in the IB market. The IB game is played in increments of virtual $100. Real money isn’t at stake, but winners can receive up to $1,000 in commission credits.