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Why Pennsylvania’s Limits on Skins Could Stifle Online Gaming Before It Starts

Why Pennsylvania’s Limits on Skins Could Stifle Online Gaming Before It Starts

Pennsylvania finally legalized online gaming this past October. Now comes the hard part.

Even though the plan to legalize online gaming in Pennsylvania had been in the works for years, H 271 was passed quickly. As a result, the lengthy bill is still a bit vague on a few points, lacking certain vital clarifications it needs to fully govern the reality of online gaming.

Now, the Pennsylvania Gaming Control Board is left to iron out the details.

One of the major questions on their plate right now: just how many skins (customer-facing branded websites) each online gaming organization will be permitted to operate? Sources close to the Board suspect a decision may be in the works limiting each operator to one skin.

This kind of restriction could severely hamper the opportunities for legalized gaming in Pennsylvania before it even fully gets off the ground. Here is why such a limit could stifle online gaming, and why Pennsylvania should consider New Jersey’s model instead.

Limiting the number of skins squelches competition
If each operator is allowed just one skin, Pennsylvania has already decided to side with its largest casinos while knocking smaller organizations out of the game.

Since the licensing fee to set up a skin can cost up to $10 million plus taxes, smaller operators may only be able to afford their own online offerings by subsidizing some of the license expense and high tax rates through revenue sharing skin agreements. Of course, this option is no longer available if only one skin per operator is permitted.

Even if smaller casinos can justify the eight-figure licensing fee to set up an online gaming offering, they will still face the struggle and cost of marketing it (compared to larger organizations with bigger budgets).  And since they only get one shot to set up a skin, there’s no room for innovation either.

If a restriction must happen, Pennsylvania should follow the New Jersey model
How can we be so confident that a strict one-skin limit will hurt smaller casinos? Because New Jersey has already made the case for allowing operators to offer multiple skins.

New Jersey limits each operator to five distinct online gaming brands, but it has no limit on skins. Currently, it has five online gambling licensees with 17 skins total. Each time a new brand or skin has launched, it has expanded the market. Now, online casinos in New Jersey generate in excess of $20 million in revenue—every month.

Since there are no limits on skins in New Jersey, the state’s online gaming offerings have expanded to fit the market, foster competition, and encourage innovation. If Pennsylvania would like to experience similar gains, it only needs to look to its neighbor to the east.