As the sports betting sector continues to develop, an important dynamic is emerging between traditional sportsbooks and the newer prediction markets. Far from a straightforward displacement, this competition appears to be more nuanced, offering opportunities for both sides to coexist and potentially expand the overall market. Insights from Dave Mazza, CEO of Roundhill Investments—the firm behind the Roundhill Sports Betting & iGaming ETF (NYSE:BETZ)—underscore how sportsbooks are not being edged out but are instead evolving to incorporate elements of the prediction market space.
Mazza, who closely monitors daily activities within the sports betting industry, explains that leading sportsbooks such as DraftKings Inc (NASDAQ:DKNG) and Flutter Entertainment’s FanDuel platform (NYSE:FLUT) are developing prediction-style offerings themselves. This strategic move highlights an industry adapting to meet consumer interest in simpler formats often provided by prediction markets. Mazza notes, "That tells you the industry is evolving, not being displaced." In other words, the integration of prediction markets is seen as a complementary innovation rather than a threat to traditional sportsbooks.
Traditional sportsbooks, Mazza emphasizes, still hold significant advantages. "Sportsbooks still win on product depth, user experience, media reach and regulatory positioning," he states. These factors contribute to the established operators’ competitive moats, allowing them to maintain strong footholds despite emerging alternatives. The complexity and breadth of sports betting products offered by sportsbooks remain a draw for many users seeking diverse betting options.
The legal and regulatory environment further complicates this competitive interaction. Several states have taken measures to restrict operation of some prediction market platforms—such as Kalshi and Polymarket—while allowing licensed online sportsbooks to continue. This regulatory differentiation plays a sizable role in shaping market composition and could influence the speed at which these betting formats converge.
On the user side, prediction markets offer appealing simplicity and alternative pricing mechanics, potentially attracting new types of bettors. However, Mazza sees the trend not as a zero-sum game where one side’s gain is the other’s loss. Instead, he interprets the innovative disruptions as signs of a healthy, long-lasting betting market with room for multiple formats to thrive, stating, "Ultimately, we see innovative disruption as an indication that the sports betting and gambling markets have longevity."
Looking ahead, the sports betting industry faces a gradual maturation phase. Stocks of major operators DraftKings and Flutter have declined by approximately 26% and 34% respectively over the past year. These two companies represent the second and fourth largest holdings in the Roundhill Sports Betting & iGaming ETF, together accounting for 15.1% of its assets. The depressed valuation of these assets signals the challenges currently facing the sector.
Mazza expects 2026 to be characterized by consolidation. Operators will likely prioritize profitability in response to market conditions and regulatory landscapes. At the same time, states continue to view sports betting as a source of tax revenue, encouraging the legal expansion of such activities but at a measured pace. "Operators are focused on profitability, states are still interested in tax revenue and we'll likely see more partnership reshuffling and selective M&A," he remarks. These developments suggest ongoing portfolio and market adjustments among key industry players.
The path for legalization of sports betting in new states remains positive but slow. An additional factor influencing this trajectory is the regulatory treatment of prediction markets compared to traditional sportsbooks. Mazza identifies this as "an important swing factor," emphasizing how future legislative and regulatory decisions could significantly alter competitive dynamics and market structure.
In summary, the sports betting market is undergoing a period of transformation shaped by burgeoning prediction markets, evolving consumer preferences, and shifting legal frameworks. Established sportsbooks demonstrate resilience by adapting and broadening their offerings, while ongoing regulatory uncertainty introduces an element of risk regarding market expansion and format convergence. These complex pressures underscore a critical junction for the industry as it moves toward greater consolidation and profitability refinement.