Adding a new redemption arcade has increased revenues for many bowling centers. Some proprietors tell me that they are reluctant to take on the expense of a new game room because the rumor mill says that while initial revenues are terrific, they plummet after a year or so. Could one of the reasons that this myth prevails, be that once a new game room is set up, very little effort is put into rotating games on at least quarterly basis.

I recently spoke with a group that owns several bowling centers. They are considering adding a full redemption games operation to one of their current video/crane arcades that is currently grossing only $30,000 per year on 20 games. Their potential game revenue is easily $200,000, maybe $250,000 with 20 games that would fit into the existing 1000-sq. ft. space. They told me that they have heard from several of the proprietors they have visited that these kinds of revenues were initially seen but then dropped off.

I couldn’t believe what I was hearing. Game revenues across the country have not only been holding steady, but actually have increased during the past recession years. Redemption is king, and for some companies game revenues are now the highest in over 45 years. What factors could be responsible for such a decline in game revenues at some of these bowling centers? Even if the new game spaces were not set up correctly and the initial revenues were lower than the real potential, they should not be experiencing such declines. But wait a minute! Maybe there are valid reasons why this is happening?

We all acknowledge that small business owners are a very dedicated and hardworking group, but some may not quite understand that there are a few critical aspects involved in running a top-notch games operation. Here are the 5 main reasons why game revenues decline after the honeymoon period:

Lack of rotating games.

Players are always curious about new games, or those new to them. They crave them and they tend to visit facilities that regularly change their selection. Our rule of thumb that is always followed at Alpha-Omega Amusements & Sales has been to annually rotate a minimum of 10% of the total number of games on a quarterly basis or at least semi-annually. For a 40-game arcade, this would equate to at least one game every three months (quarterly) for an average of four games per year. A casual bowler is defined as a person who bowls four times per year. Our goal is to have our casual game player visit and play at least four times per year and get them use to seeing and playing a different new game on each quarterly visit. The game industry makes it very easy for bowling center managers to know exactly which new games are performing the best, as the top 60 earning games along with actual revenues and payout percentages for many test games are listed in The Redemption & FEC Report, a free publication (which I write, by the way) produced bimonthly. It’s critical to keep up-to-date with the best-earning games; just rotating in as few as four games per year is enough to keep any game room at the top of its game.

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Not tracking ticket payout percentages for each redemption game every week.

Redemption games are the highest earning game category, generating 60%-70% of all game revenues. Each game has a specific ticket payout percentage that is based on the opposite of its entertainment value. When a game’s ticket payout percentage is too low, the players will stop playing this game and consider it too difficult to win. If even one game in an arcade has too high of a ticket payout percentage, players will gravitate to this game and shy away from playing other lower ticket payout games. Total game revenues decline when the ticket payout percentages are out of range, high or low, and it is critical to keep them all in the proper ranges relative to each other. The concept is to balance the sum of each games entertainment value and ticket payout percentage so that all of the games are equal. It is unrealistic to have the game technician on his own be responsible for tracking and correcting ticket payout percentages each week unless there is someone supervising the process. Game technicians love to fix games and this is usually their first priority. If a manager spends just 15 minutes a week going over each game’s revenues and ticket payout percentages with the game tech, the game tech will fully understand that tracking the ticket payout percentages on a weekly basis is one of his priority job responsibilities.

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The Redeemed Percentage is too low — not enough perceived value in prizes won for amount spent.

The Redeemed Percentage is the actual cost of the redeemed prizes won each week. The industry average is about 25% of the redemption game gross revenue. This includes the actual cost of the redeemed prizes plus shipping and any sales tax—nothing else. If the players (or their parents) do not perceive that they are winning a fair amount of prizes for the money spent, redemption game revenues predictably decline. The same is true for merchandise dispensing games. There is no reason to try to make a profit on the prizes redeemed by increasing the points for the prizes. Receiving $1.00 and having an average cost of sales of 25 cents is by itself a great and profitable business model.

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Price/play is too high on many of the games.

Each city has its own unique average per capita spending amount per visit. Games in a bowling center with no other FEC attractions usually can generate a $3-$4 per capita rate. For this amount of money spent on games, it is fair to assume that a player should get at least a 20-minute experience. Many top earning games are priced at $1 or even $2 per play. To balance this out, there needs to be other games priced at 25 or 50 cents so a large majority of players do not spend their per capita in less than a few minutes. In some instances, price/play of certain games needs to be reduced after they have been in operation for many months and their revenues have decreased. The same can be true for increasing a redemption game’s ticket payout by 5% when that game has shown a revenue decrease over several months.

Redemption Prize Center is not fully stocked with desired prizes.

The Redemption Prize Center is the “eye candy” of any redemption operation and is a key factor in developing repeat customers. It must always be well-lit and look not just inviting, but full. The RPC should be seen instantly by anyone entering the game space. Customers are always looking for the latest and most popular prizes. If a prize is not frequently chosen, it needs to be replaced. Learning the best methods of displaying prizes is also critical. Understand that young children first see only the front display case prizes and these should consist of the low- and medium-range prizes. Teens and adults first see the back slat wall prizes and these should be the medium and high point value prizes. Game techs are overworked as it is, so it’s important for someone else to stay up-to-date on ordering replacement prizes for those redeemed that week.

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Many game operations never even start out near their true potential revenue level not only because of the five reasons listed above, but also because of poor game choices, bad layout or poor lighting, too many games, not enough free traffic flow in/out of game space, low ceilings, ineffective marketing, and value packaging.

Many bowling center owners are hesitant to add a redemption game operation due to the rumors they have heard about their fleeting novelty and eventual decline in revenues. However, if owners are aware of the many pitfalls that have plagued previous operations, and how to avoid them, redemption arcades can be a profitable addition to many bowling centers.

Bowling Center Management – Entertainment Center News (4th Quarter 2014)

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