The Times They Are A-Changing

By George McAuliffe, President, Pinnacle Entertainment Group

Since the “great recession” of 2008-09, arcade and FEC sales have been on a steady climb with the exception of the Covid interruption, of course. Even with Covid, the industry came back strong with record sales from mid-2021 through the end of Q3 2023 when we saw a softening begin. That softening has become a clear decline in the first quarter of 2024.

Sales

Our company, Pinnacle Entertainment Group, tracks sales weekly for our clients. The table below includes only those that were open the full period both years. That’s a total of 58 “comp” sales locations from all over the country and in different business categories. (Bowl­ing entertainment centers = BEC, Casino BEC = casino locations with bowling and arcade, cinema entertainment centers = CINEC). We only track and report the arcade and some attraction sales, and we are reporting what we call “game play sales,” the dollar amount of all credits played on games, including “cash credits” and “bonus credits.” In other words, this is not straight revenue. We do this because many clients use bonus play for parties and group sales.

The declines are being felt in every sector with hotels showing the least and (a single) sports facility showing the greatest. The largest groups – BECs and pizza arcades – are both in the -13% average per month during the quarter.

Our friend, Adam Jaffe of Solomon Partners in New York, shared his company’s analytics in several entertainment verticals including FECs. Solomon Partners is a leading financial advisory firm with a legacy as one of the oldest independent investment banks. Here’s their look at same store sales for four larger chains (they include TopGolf in the Family Entertainment category). This look is a little different than our numbers, showing 2023 vs 2022 by quarter.

This confirms that the softening began in 2023, our closer look shows that it deepened somewhat this year.

What’s Going On?

Our industry always had its ups and downs. It’s affected by the greater economy and consumer behavior, and it is dependent on technology. We’ve been fortunate to have a steady series of hot, hit-caliber games and entire categories of games (think self-contained, collectible card pushers and VR) to drive sales in our arcades. The new games we saw introduced at IAAPA and, more recently, at Amusement Expo have been good, but so far very few clear hits that will drive incremental sales.

Saturation is another factor. As locations proliferate, the novelty of the arcade is harder to maintain. A little bit of “been there, done that” sets in. The arcade industry has had one of its best growth periods in my 45 years as an operator. A steady supply of great games, incredibly cheap money with which to acquire them, and a huge expansion of the audience are a big part of why. So is the discovery of new business models by combining the FEC with bowling, cinemas, restaurants, hotel resorts and even sports facilities.

Finally, the macro economy. Segments of the consumer market are being pinched and they are cutting back. The number of visits to FECs are being reduced just like other consumer expenses.

Let’s Keep It In Perspective!

So, what’s an arcade or FEC owner to do? As always, the keys to profitability are to drive sales and control costs.

• First, don’t panic. Your business is established, presumably financed below current rates, and in position to evolve.

• Remember, a big part of current sales is a correction of the post-Covid sales boom, so most locations are still ahead of 2019 sales and healthy.

• Buy smarter! You still need to buy games. One truism of our industry is that if you don’t introduce new games on a regular basis, sales will decline further. But choose carefully and by the numbers. Think about doubling some games in your Top Ten and replacing high-mileage (high maintenance cost) pushers and staples, just to name two possibilities.

• Manage your redemption! Your vendors can help but don’t think you can abdicate redemption management. It’s 70% of the mix for Pete’s sake! Understand your pricing, from item cost to how you set ticket values. Understanding redemption can help drive sales and control costs.

• Utilize your player card system. Understand how reports can help you drive and control. Point of sale pricing, bonus management, games and attraction packaging, payout management and individual game sales tracking are all a part.

We are in a great business that entertains the world. There will always be a demand for fun and exciting venues to entertain guests. Our business is still stable and prosperous and it’s in times like these that the best operators double down on, well, operations! The good ones will find ways to attract guests, deliver fun when they get there, build memories for them to cherish and value to keep them coming back!

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George McAuliffe has helped hundreds of businesses large and small develop and execute arcades and FECs. He has personally operated family entertainment centers from 2,000 to 150,000 square feet as a corporate executive, entrepreneur and consultant. He is the owner, with his partner and son Howard, of Pinnacle Entertainment Group.

George lives on the Jersey Shore with his wife, Julie. They have three sons, two daughters-in-law and a grandson.

Readers can learn more about Pinnacle at grouppinnacle.com or contact George at [email protected]; phone: 314-422-7197.