The emergence of prediction markets has sparked debate about whether traditional sportsbooks are heading for trouble. But according to one industry expert, this isn't a winner-take-all battle.

Dave Mazza, CEO of Roundhill Investments and manager of the Roundhill Sports Betting & iGaming ETF (BETZ), spends his days tracking sports betting companies. His take? The competition from prediction markets might actually be a good sign for the broader industry.

Why Sportsbooks Still Have the Edge

Here's the interesting part: both DraftKings Inc (DKNG) and Flutter Entertainment (FLUT)-owned FanDuel are working on launching their own prediction-style products. That's not exactly the move of companies worried about being wiped out.

"That tells you the industry is evolving, not being displaced," Mazza explained. "Sportsbooks still win on product depth, user experience, media reach and regulatory positioning."

The regulatory landscape has become a critical battleground. Some states are actively trying to block platforms like Kalshi and Polymarket while allowing legal online sportsbooks to continue operations. That's a significant structural advantage for established operators.

Mazza acknowledges that prediction markets bring something valuable to the table: simplicity and different pricing mechanics. But he doesn't see this as an either-or situation.

"Regulation will determine how fast this converges, but it's not a zero-sum game," he said. "Ultimately, we see innovative disruption as an indication that the sports betting and gambling markets have longevity."

Think about it this way: new competition often signals a healthy, growing market rather than one being carved up. The question isn't whether prediction markets will destroy sportsbooks, but how quickly the two models will learn from each other.

The Year Ahead for Sports Betting

It hasn't been a great year for sports betting stocks. DraftKings (DKNG) and Flutter (FLUT) are down 26% and 34% respectively over the past 52 weeks. The two companies represent the second and fourth largest holdings in the BETZ ETF at 8.7% and 6.4% of assets.

Mazza's outlook for 2026? "It looks like a consolidation year. Operators are focused on profitability, states are still interested in tax revenue and we'll likely see more partnership reshuffling and selective M&A."

State legalization continues but at what Mazza calls "a measured pace." The wild card? "How prediction markets are treated relative to traditional sportsbooks will be an important swing factor."

The bottom line is that both models can probably coexist and even strengthen each other. Traditional sportsbooks aren't sitting still, and their regulatory advantages aren't trivial. Meanwhile, prediction markets are pushing innovation that could expand the overall market. Sometimes the best outcome isn't one winner, but a bigger pie for everyone.