The brokerage firm is exploring a bold new play.
Topline: As it looks to make up lost revenue from slashing commission fees to zero, brokerage firm TD Ameritrade is reportedly testing different ways it can tap into the sports gambling business, Business Insider first reported.
- The brokerage’s chief information officer, Vijay Sankaran, told Business Insider that TD Ameritrade is already conducting focus groups to test customers’ interest in sports gambling.
- While still in very early stages, with no specific products yet in the works, the focus groups were “very engaged” and results indicated that sports gambling “may be a space we can play in,” Sankaran said in the interview.
- The sports gambling market is rapidly growing, and could be a prime opportunity for TD Ameritrade to offset lost revenue from eliminating trading fees last month.
- Completely nixing commissions on trades resulted in a revenue impact of $220 million to $240 million per quarter, or around 15% of overall revenue, according to Steve Boyle, TD’s chief financial officer, so it makes sense that the firm is looking for new business.
- It’s not the first time brokerages have explored tapping into sports gambling or fantasy sports: TD Ameritrade earlier this year collaborated with ESPN to provide fantasy football players with a digital tool to assess team performances, while rival firm Interactive Brokers launched a simulated sports betting exchange last summer.
- “Sports gambling is an emerging market—it’s a big revenue opportunity if played the right way,” says Jake Williams, vice president of legal and regulatory affairs for Sportradar. “With the state by state set up, there are a lot of legal and regulatory challenges that do exist and could make it challenging,” he points out.
Crucial quote: “We’re in the early stages of exploring this space, and although we won’t comment on any specifics, we are always evaluating potentially innovative products and services that may attract new customers,” TD’s Sankaran told Forbes when asked for comment.
Key background: TD Ameritrade was hard hit by the low-fee wars among big brokers. Firms have been slashing fees and commissions for years in an effort to stay competitive, resulting in a price war to meet growing demand for cheap investing products. Rival Charles Schwab kicked off the movement toward nixing trading fees altogether, prompting its rivals like E-Trade and TD to follow suit. While brokers cumulatively lost billions in revenue, it especially took a toll on TD, as trading fees still made up a large part of its overall business.
Tangent: Based in Omaha, Nebraska, TD Ameritrade manages around $1.3 trillion in assets across some 12 million client accounts.