When a game center is set up properly, the revenues produced per square foot will be the highest in a leisure entertainment facility, and that includes hotels with indoor waterparks.
There are four game categories that make up a game center: redemption (ticket dispensing), video, merchandise dispensing (cranes, prize vendors), and novelty. In today’s family game centers, redemption games can generate 5 times the revenues of the video games. Merchandise dispensing and novelty games (air hockey, pinball, kiddie rides, and other non-video games that do not award tickets or prizes) also now generate as much or more revenues as the video games. The general breakdown as a percentage of total revenues is approximately redemption 65%, video 10%, merchandise dispensing 20%, novelty 5%.
Note that as far as floor space is concerned, the video games (which include the large simulators and driving games) take up almost as much floor space as the other games. In fact, the number of video games may approximate the number of redemption games even though the redemption game revenues are much greater.
How profitable can redemption games be? Redemption is one of the greatest marketing concepts ever invented. Everyone loves to win. One of life’s greatest thrills is watching children playing with their parents, all of them jumping for joy as they collect their tickets – especially when they are playing well-maintained redemption games that frequently dispense a fair amount of tickets. (We who work in this industry do indeed have it all.)
A well-run game center will average $200-$300 per week per game during regular attendance weeks and could increase to as much as triple that amount during peak weeks. There are, however, many game centers that own their own games or deal with a vendor who is not experienced in operating redemption games whose weekly averages are more in the range of $100-$150 per week per game. In most cases, understanding the concepts of redemption can greatly increase game revenues.
Prize Redemption Concepts For Indoor Waterparks
Learning the fine points about redemption is the most important aspect of running a profitable game center. The following is glossary of some of the keys terms and concepts:
BASIC OVERALL WIN % FORMULA
Win Percentage (Win %) = $ Cash Value of Tickets Awarded X 100 / $ Total Gross Revenues of all Redemption Games
There are actually three different redemption percentages and, it seems that everyone mixes them up. It is important to calculate each one for every collection period:
Individual Game Ticket Payout % (also known as Ticket Payout %) = $ Cash Value of Tickets Awarded for a Game X 100 / $ Total Gross Revenue of that Game
Average Ticket Payout % (of all of the redemption games) = $ Total Value of all Tickets Awarded from all Redemption Games X 100 / $ Total Gross Revenue of All Redemption Games
Redeemed % (at the Redemption Prize Center for a weekly period) = $ Value of All Tickets Redeemed (Value of All Prizes Given Out) X 100 / $ Total Gross Revenue of All Redemption Games
Hit Frequency % (of an individual redemption game) = Number of Wins* X 100 / Total Plays (Attempts)
A *win is anytime one or more tickets are won. It is recommended that every children’s redemption game be set at a 100% hit frequency. This is known as awarding a ‘mercy ticket’ for each game played so everyone is always a winner! Some jurisdictions require the awarding of a ‘mercy ticket’ for each game play of a token pusher game.
“Entertainment Value” of a redemption game – the sum total of the attributes of a game which include: average time of play, physical nature of play (throw or roll a ball or coin), competition factors, lights, sounds, color, activity. The predominant attribute is ‘time of play.’
“Golden Rule of Redemption” – A game’s ticket payout % is the inverse of the game’s entertainment value.
Redemption games with high entertainment value such as Skee-Ball must have the lowest ticket payout % and the games with the lowest entertainment value (some of the quickly played token action games) must have the highest ticket payout %. The best balance that can be obtained to end each week with an average ‘Redeemed %’ of 25% is to use a range of Average Ticket Payout % from a low of 15% to a high of 35%.
Perceived Value of a Prize – The retail price that your customer would expect to pay for that item in a store. Our industry purchases prizes at ‘wholesale’ prices. The key is to search for prizes that have a perceived value of 4 times the wholesale price. This is not always possible, but if your average redeemed % is 25%, the players will receive the same perceived value of prizes as they actually spend in the redemption games. As you will not realistically be able to always purchase items with a 4-to-1 ratio, the difference between the money the customer spends playing redemption games and the perceived value he/she wins in prizes will be the ‘fun and excitement value’ that the player experiences. When this difference between the amount of money spent per visit (per capita spend) and the perceived value of the prizes won is increased, it is well known that the redemption games gross revenues will decrease. this is because the player feels ‘ripped-off’. The result can be devastating to your overall business.
Purchase Cost of Games: The Average Redemption Game = $ 6,500-$7,000 (combination of new and reconditioned).
Recommended Redemption Ticket Payout Percentages
|Very Low||35%||Older Quick Play Games|
|Low||30%||Quick Play Games|
|Medium||25%||Token Pushers & Kids Games|
|Very High||15%||Alley Games|
Overall Average Redemption Ticket Payout % for All Redemption Games = 25%
Redemption and merchandise dispensing games require 40 sq. ft. per game. Video games require 50+ sq. ft. per game (sit down driving games are larger). When combined with video and novelty, it is best to use 50 sq ft. per game (including aisle space and space for redemption prize center and small storage area).
Frequently Asked Questions
How is the best way to set up a game arcade?
Let’s look at two basic game space layouts:
- Rectangle where the entrance is somewhere along the length. This layout provides the most benefits because the front wall can have glass sections and glass doors so that the customers can see the entire Arcade as they walk up and down in front of it. Depending on where the traffic comes from, it is best to place the low redemption games in the front section right after the entrance. In a perfect world you want the customers to walk through the games with no barriers, but in a waterpark you must control the environment and therefore a separate enclosed arcade is utilized.
- Rectangle where the main entrance (or only entrance) is at one end of the short width. In this case, you want to place the redemption prize center either to the right or left front section and all of the redemption games in the front half of the room. Locating the video games in the back half will keep the male teenagers in that section and have the front section open to parents with small children, female teens, and even older couples.
What are the lighting, music, and theming considerations?
Having a well-lighted game zone is very important to attract and keep families. Families are now defined as parents with young children. Teenagers are not normally included anymore in the definition of a family. However, an indoor waterpark is one of the few entertainment facilities that teens are willing to go to with their parents and younger brothers and sisters. To keep the teens separated from families, the lighting in the video game section can be somewhat less bright than that of the redemption section. After 9:00 pm when the smaller children should be back at the hotel, some facilities turn down the lights, turn on the neon, crank up the music and become a teenage and young adult game center. This is not easy to do but can be done. The best performing game centers also provide two different sound systems simultaneously playing different styles of music that are comfortable for the teens in the video section and for the families in the redemption and merchandise dispensing areas of the game arcade.
How do I determine what size to make my game center?
As a general rule, 50 square feet per game is used when utilizing a mix of games that include large driving simulators, air hockey(s), Skee-Balls, basketballs, a minimum of 3-foot aisles, and also includes the redemption prize center and bill change machines, ticket eaters or debit card kiosks. Each game should generate a minimum of $200 gross revenue per week assuming an average asset value per game of $6500. As the average asset value of your games mix increases, make sure that the average gross revenue per game also increases. (Please refer to an article titled: ‘The Most Important Number An Operator Can Have’ by Frank “the Crank” Seninsky from RePlay, September 1996 to learn more about using the ‘Rubber Band Ratio’ to determine profit and loss of any game mix).
How does per capita spending relate to the arcade games?
Per capita spending is the average amount of money that each patron spends during a single visit to your facility. Each revenue-generating attraction and service included in your facility will have its own per capita rate, with the sum of all of the attractions and services (including food & beverage and retail) equaling the per capita rate of the entire facility. Each local market area has a pre-determined per capita spending rate for an out-of-home leisure entertainment experience. An indoor waterpark attached to a hotel would be best served to measure ‘the average revenue per occupied room night’ (APOR) that is spent in the game room. Ranges are running from $15 to $40 in the premier facilities. Of course, each facility will be different depending on how many persons/room are permitted, the average room rate during each season, the number of rooms, and what guest group is present for that weekend.
What are the most important items for an indoor waterpark to consider?
- What per capita expenditure and/or APOR will the game center generate and how will this affect the per capita expenditure and/or APOR of the other revenue components of the facility? If you charge a high rate for a waterpark pass, less money will be available for the customers to spend in the arcade. In some cases, you will generate less overall revenues with a high waterpark pass rate. One of the unique qualities of having an arcade is for the customers to start playing the games and find out that they are having such a good time that they willingly spend additional money. Had they made a decision not to go to the arcade than this opportunity is missed, as is the ‘repeat’ visitation factor due to the saving of redemption tickets.
- Where is the best location for the games arcade within an indoor waterpark? The best location is one where the guests must walk past the game center as many times as possible during their visit to your facility. Having the game center on the main level is always best, but it will also work on a second level where many patrons will gather to overlook the people enjoying themselves in the water attractions. One successful facility has placed the bar adjacent to the arcade with an open entrance way so parents can watch their children playing in the arcade from their relaxing seats within the bar area.
- Choose your game center location with a plan for the future. Make sure that you are going to construct and lay out your facility for future growth (expansion). Often times a facility will not correctly determine beforehand the proper size of the game center. If it is too large, it will not be profitable to fill up the floor space with the proper mix and quality of games and patrons will surely notice this. If the game center is too small (including the redemption prize center), then you will not be able to properly provide your customers with an exceptional experience. In either case, your game revenues and overall business will suffer.
- How are you going to operate the game center inside the facility? Will you let in guests off the street utilize the game center or are you going to allow only hotel guests to use the game center? What about day passes for locals? Some indoor waterparks with hotels/lodges only permit their hotel guests to use the game center and the other waterpark attractions. The belief is that if a family is paying $300-400 per night for a room/waterpark package, they want to feel that they have an exclusive deal. Decisions must be made on whether to allow local and daily drive in customers access to the waterpark when the hotel and/or waterpark is not at capacity. The problem here is that customers will not read the rules or pay attention to them even over the phone and will drive from hours away only to be turned away. This is not a good business practice.
- Are you going to create birthday party and group packages exclusively for the game center or is the game center going to only to utilized for parties/groups as just one component of bigger packages for the entire facility? A lot of money can be made from arcade/food parties and group events that do not include waterpark activities. Very few waterparks take advantage of the many profitable marketing opportunities that a well-operated games arcade can provide.
- Are you going to own your games or use a qualified games vendor well versed in redemption games? There are both pros and cons to owning your own games. Much depends on how much time you are willing to devote to learning the game business and staying on top of it every day and how much you are willing to pay for experienced technical staff. In general, a game vendor who has experience in redemption games can generate more revenues from the game center and also help increase overall facility revenues. This is accomplished by discounting the games’ price per play for all groups, parties, and high perceived value discount packages and making the games center as the ‘marketing hub’ of the facility. (See article titled ‘Profiting from Redemption in an FEC – “Priming the Pump” by Frank “the Crank” Seninsky, in Tourist Attractions and Parks Magazine, December 1993/January 1994, for more details on how to create value packages that will drive facility revenues.)
Advantages of Revenue Sharing the Games:
- No cash layout for the games (cost can vary from $6500-$7000/game.)
- Game technician(s) not required. Payroll cost for an experienced game technician will vary between $500-$750 per week. You will most likely require 2 full time + 1 part time technicians to operate a 100 unit game center that will be operational 12 hours per day (80 hours per week), plus collection and preventative maintenance time.
- Don’t have to make new game purchases every 6 to 8 weeks and dispose of the games that are rotated out.
- Parts costs are very expensive. Vendor pays for all parts.
- Vendor provides the latest upgrades, game modifications, and service techniques for better operations.
- Redemption tickets, tokens (debit cards), prizes, game licenses, and any gross receipt taxes are usually costs that are equally shared by your games vendor.
- You can concentrate on your core business, running the indoor waterpark and hotel complex.
- You don’t have to utilize your best talented people to oversee the daily game repairs and make all purchase-sell-trade-in decisions.
- You have a free consultant with an experienced games vendor who should also have vast experience in helping you choose the best prizes at the best prices and help market the entire facility.
Advantages of Owning Your Own Games:
- You pay 100% of all expenses but you keep 100% of all the revenues.
- You can provide as many free tokens (unit credits) as you desire to your customers.
- You make all of your own decisions regarding the games, prizes, pricing, win %.
- You get the depreciation and all related tax benefits.
- You can stay on top of the market by changing out only 10% of the games on an annual basis (1-2 games quarterly). [The Redemption & FEC Report lists the ‘Top 60 Redemption & Merchandise Dispensing Games’ on an every other month basis to help you make the best timely decisions.]
Quarters, Tokens, or Debit Cards? What are the advantages and disadvantages of each?
Most leading game centers operate their games on tokens or debit cards rather than quarters. Tokens not only provide security from cashbox break-ins, but also provide the ability to offer promotions (free tokens and bonus tokens) and discount their value for high-perceived value token/attraction/food packages. The only disadvantage is the possible loss of the impulse quarter as the customer would have to go to a bill changer to exchange the quarter for a token and then return to the game of his/her choice.
Until very recently, debit card systems have been viewed by industry professionals as very expensive for games, compared to the return on the investment. But as with other technologies, competition has increased and prices have dropped. Several years ago, it cost $100,000 or more to install a cashless system for an 80-100 game arcade. Today a system can fulfill the same requirements for as little as $60,000 or even less, while offering unprecedented levels of flexibility and reliability. Count on it, we will continue to see this cycle working in our favor. In the next few years, systems will be offered that cost less and less, but do more and more.
Cashless payment systems offer several advantages for waterparks and fun centers, although to date they have been less effective for street locations (that may well change soon as costs continue to drop, however). The benefits of card systems include flexibility of pricing, marketing functionality, data management, and increased security and convenience (after all, there is no collecting of cash from cash boxes). The basic technology is a data chip and this can be embedded in a plastic card or a room key card or a wristband (or anything else for that matter). Many indoor waterparks are using old RFID technology with room key card readers placed on their token dispensing machines and not taking advantage of a full debit card system. In the future, I can see a majority of waterparks upgrading their RFID key cards to new cashless payment technologies that will incorporate cell phone and wristband full debit systems, with game vendors playing a leading role.