Looking Back, Moving Forward:

Key Takeaways from 2024 for FEC Operators

by Howard McAuliffe, Partner, Pinnacle Entertainment Group

As the final credits roll on 2024, it’s time to reflect on the year that was and, more importantly, set our sights on the exciting possibilities that lie ahead. This year has been a wild ride for the amusement industry, a dynamic mix of challenges and triumphs. We saw the continued rise of immersive experiences, a modest decline in sales for most types of facilities, and continued consolidation of operating companies as Bowlero, Tripleshift, Five Star Parks and others continue to buy independent locations.

Immersive Experiences: The Next Level of Fun

The redemption arcade has been a primary driver of profits across multiple types of facilities. Arcades have been added to bowling centers, movie theaters, restaurants, malls, resorts and more. The combination of arcades with these anchors has proven remarkably powerful. The challenge is that tremendous growth of the sector will lead to saturation, and we believe we are starting to see this in certain markets.

The good news is the overall market for out-of-home entertainment has grown and we expect it will remain strong. It will be increasingly important to differentiate ourselves from the competition and develop new models for out-of-home entertainment.

One of the most exciting developments this year has been the continued rise of immersive experiences. We’re talking about cutting-edge technology that transports players to entirely new worlds. AR darts have taken the classic pub game to a whole new dimension with interactive targets and crazy challenges. Racing simulators are getting so realistic, you can practically smell burning rubber. And free-roam VR? Forget those clunky headsets, now you can roam around a virtual world, battling zombies or exploring alien planets for a lower cost than ever before. Even the old-school game of golf is getting a high-tech makeover with AR experiences that bring the course to life.

These immersive experiences are attracting a whole new generation of players and giving seasoned gamers a reason to come back for more.

Sales Slump: A Bump in the Road?

While the industry is buzzing with innovation, we can’t ignore the elephant in the room: that pesky decline in sales at many existing locations. The sales data this year has been generally down, roughly 10%, however the trends are not totally clear. Many locations are up this year, some are up one month and down the next, but when analyzed in the aggregate, sales are clearly lower in 2024.

It’s time to take a hard look at what’s driving this trend. Clearly consumer spending is down overall, which does impact our industry. Additionally, new facilities impact existing locations open in the same market. What’s important to note is that those are external factors that are beyond our control, but we can control is how we are operating. Frankly, the biggest reason locations are down is that most are lacking operationally. Many facilities that opened in the last 10 years, especially on the bowling side of the business, have been able to make great profits even though their operations were lacking.

Here are the areas where we typically see the ability to improve: tracking crane profitability, keeping games working through preventative maintenance and other processes, correct pricing structures and redemption management. With management focus, improving these areas often leads to 10-20% increases in profitability.

Consolidation: The Big Fish Get Bigger

It seems like every time I turn around, another independent FEC is getting scooped up by one of the big players. Bowlero, Tripleshift and Five Star Parks are on a buying spree! Consolidation can bring benefits like increased efficiency and access to capital, as well as an exit for long-time operators without a succession plan. But what happens to the little guy, the mom-and-pop shops that are the heart and soul of this industry? If the mom-and-pops are dialed in operationally, keep their debt under control and work hard, they’ll be fine. Remember, it is nearly impossible for a national operator to deliver the same quality experience as an independent owner, all things being equal.

So, there you have it, folks. The out-of-home entertainment world is strong, but increasingly challenging. To stay in the game and rake in the profits in 2025, we have to embrace and prove out new immersive experiences, tighten up our operations and find ways to stand out from the crowd. Whether you’re operating a mega-center or a cozy mom-and-pop fun center, remember that giving folks an unforgettable time is what keeps them coming back for more.

Howard McAuliffe loves to imagine and implement new products, business models, and ideas, and is a partner in Pinnacle Entertainment Group Inc. He’s an industry veteran who got his start in the business when he was just 16 and has 20 years of expertise in product development, as well as FEC and route operations. Howard’s wife Reem and young son Sami are the center of life outside of work. When he’s not working, Howard can be found enjoying the outdoors, hiking, fishing and mountaineering. Traveling anywhere new or to old favorites like the American West is a passion. Readers can visit www.grouppinnacle.com for more information or contact Howard at howardmc@grouppinnacle.com, he welcomes positive as well as constructive feedback and counterpoints.