Sharing the Wealth
Is Revenue Sharing With Small FECs a Worthwhile Endeavor?
by Jack Guarnieri, Jersey Jack Pinball & PinballSales.com
Last month, I wrote about a street location and operator relationship. This month, I want to focus on what can happen when an FEC is revenue shared.
There are some smaller FECs (say 100 games or less) that don’t own all of their games. Some have more than one operator who revenue share the location; sometimes the location itself may own some games and might have more than one operator supply the rest.
It sounds confusing and I wonder how they decide who gets to buy what’s next. I guess if they run their game room like that and all parties are relatively happy, that’s great. But I have to think it’s not the best solution.
Years ago when I was an operator, I remember getting a call from a smaller FEC in New York that revenue shared with two operators. The location was responsible for stocking and staffing the redemption counter, plus filling the instant-win and merchandise games with prizes. The operators were at a 35/65 split with the location getting the 65 percent.
The biggest complaint from the FEC owner was that he was not getting new games from his operators. He owned many of the good redemption and prize machines and they operated along with many of the novelty and video games. As the FEC made money, they would buy additional redemption or merchandise games, but never video.
Of course, this type of location is unusual with two operators providing equipment, but it shows how operators are sometimes willing to accept slim pickings over nothing. The video game category is certainly different from redemption, but remains a vital part of the entertainment experience. An FEC needs video games, especially as a part of birthday party packages.
In this case, I had only one or two conversations with this FEC owner because with two operators in the location already, what would be his future plan? To buy all of the “good” games and have the operators fight over placing video games?
Plain and simple, it wasn’t worth it for the operators to buy the latest and greatest games only battling for a bigger share of the shrinking category of play in the location. And guess what: there were no contracts or operating agreements in place. What a mess.
Additionally, the location had its own service tech to repair the FEC’s games (but not the pieces owned by the operators). I guess whatever works works until it doesn’t, right? At some point, it didn’t and from what I heard, the location finally ousted the operators and now buys all of their own equipment. That was likely the location’s plan all along.
In the big picture, there are advantages and disadvantages on both sides when it comes to revenue sharing vs. owning the games. Many factors go into those decisions and while the case I write about is unusual, I suppose sharing ownership of equipment within an FEC can work, at least for a while anyway.
When everyone is making money, little bumps in revenue go pretty much unnoticed. When locations slow down a bit, regardless of the reason, every little bump becomes the Grand Canyon and something to take notice of and act upon. Always make sure you have a good contract in place. Be proactive and find ways to increase your value to the location. If you’re getting nothing for your efforts after factoring in your expenses (collections, service, etc.), have the fortitude to walk away.
Jack Guarnieri started servicing electro-mechanical pinball machines in 1975 and has been involved in every phase of the amusement game business since then. He was an operator in NYC, then began a distributorship in 1999, PinballSales.com, selling coin-op to the consumer market. In January of 2011 he founded Jersey Jack Pinball (named after his RePlay Magazine pen name), which builds award-winning, full-featured, coin-op pinball machines. Email Jack at jack@ jerseyjackpinball.com.