A mix of Wall Street's biggest trading companies are pushing further into the sports-betting industry, a space that has long drawn comparisons to the financial markets.
Today, sports wagering is undergoing a wave of change driven by loosening regulations in the U.S. and a transformation in how bets occur. That, industry participants say, has created a rush of new opportunities for financial services companies to deploy their trading knowledge and technologies in the evolving sports-betting business.
"The potential in sports is huge," David Rothschild, an economist at Microsoft Research who has studied the links between sports betting and financial markets, said in an interview. "The more legal it becomes, the more legal money that'll flow into the pockets of the people who control the back-end infrastructure, as well as the front end."
Most recently, Nasdaq Inc. revealed a new partnership with U.K. sports-betting company Football Index. Nasdaq agreed to provide the company with a trading engine, not unlike the one that underlies its signature stock exchanges. Football Index allows its clients to place bets, called shares, on the future success of professional soccer players.
It is not the New York-based exchange giant's first foray into sports betting.
The exchange has been providing its technology to sports-betting organizations including the Hong Kong Jockey Club for several years. Those institutions use Nasdaq's technology in their betting platforms, letting them facilitate more transactions faster. That has become increasingly important in recent years as more bets are being placed during games and races, rather than beforehand, according to Scott Shechtman, Nasdaq's head of new markets.
Nasdaq's roots in the industry trace back to its 2016 acquisition of the International Securities Exchange, which included a business called Longitude. After starting as a platform designed to run certain types of auctions for economic statistics and other illiquid products, Longitude was eventually redesigned to calculate odds and payouts in horse racing, said Shechtman.
"We're the heavy-duty plumbing that can sit underneath [betting systems]," Shechtman said in an interview. "We are not taking peoples' bets. It's a matter of providing technology."
Just weeks before Nasdaq's announcement, Interactive Brokers Group Inc. launched a simulated sports betting platform that allows users to place bets on real games using virtual credits provided by the company. The company is using the platform as a tool to convince users to open up brokerage accounts, as they can win up to $1,000 in actual commission credits through the simulated platform. Users are not able to place real bets on sports games or races through Interactive Brokers' platform.
The company has been toying with the idea of a simulated sports-betting platform for "some time," founder, Chairman and CEO Thomas Peterffy wrote in an email to S&P Global Market Intelligence. But it took a 2018 Supreme Court decision that effectively ended Nevada's monopoly as the home of legal sports betting in the U.S. to convince the company to launch the platform.
"As more and more states legalize sports betting, there will be a growing opportunity," Peterffy wrote. "Since we already have much of the required infrastructure, it is easier and less expensive for us to enter into this field than it would be for a newcomer."
With their announcements, Nasdaq and Interactive Brokers become the latest Wall Street institutions to dive headfirst into sports betting.
Susquehanna International Group LLP, the Pennsylvania-based quantitative trading company that centers much of its trading strategy on game theory, has operated a sports-betting business for several years, according to prior media reports. Cantor Fitzgerald LP also entered the space several years ago before spinning off its sports-betting arm into a separate company. Now called CG Technology, the company has faced regulatory scrutiny in the years since concluding a 2016 settlement with the U.S. Department of Justice requiring it to pay $16.5 million in penalties and fines over claims it was involved in illegal gambling and money laundering.
Susquehanna did not respond to a request for comment. A spokesperson for Cantor Fitzgerald declined to comment.
While more Wall Street firms entering the space could mean a more crowded operating environment, Nasdaq's Shechtman does not view the exchange operator as a chief adversary of legacy sports-betting companies.
Instead, he said many of those companies are now seeing "the writing on the wall" that they need to enhance their betting systems, a shift that financial companies may be particularly well suited to help with.
"They're going to need to strengthen their technology," he said. "They're facing problems that were solved in the capital markets five to 10 years ago."