Should I own games or have a game vendor supply them?

It is estimated that about 45% of Family Entertainment Centers (80% of bowling centers) have the games supplied by a games vendor on a revenue share basis. The other 55% believe that it is better to own the arcade games and keep 100% of the revenues. In order to be successful these owners acknowledge game ownership means: They need to have the ability to repair the games (plus the cost of parts), pay the cost to employ a game technician, know what games to buy/sell and when is the best time, and have the capital for not only the initial game investment, but also for the continuous updating/changing out of new games. A good relationship with an experienced game operator can provide you with up-to-date games, quarterly game rotations (changing out 3% of the games every 3 months), and top-notch service. In general, family entertainment centers that own their own redemption and video games maintain an average gross revenue of $125/game/week while the top ranked redemption game operators usually average $175- $200+/game/week due to their many years of experience. [Note that average revenue/week can be misleading as owners tend to want to ‘fill up the space’ with games and not generate any additional revenue and use more space than is necessary for their games area-over- crowding actually causes a decrease in game revenues].

Of course there are both pros and cons to owning your own games. The decision depends on how much time you and your staff are willing to devote to learning the game business and staying on top of it all day, every day. In general, an experienced game operator who knows the fine points about redemption can play a huge role in assisting you generate much more money from the games and also help increase overall facility revenues through value discount packaging and creation of two or three tiered loyalty programs that increase the frequency of repeat visitations.

Advantages of Revenue Sharing the Games with a Qualified Vendor

1. No cash layout for the games (cost can vary from an average of $6000/game to $7500/game depending on the number of very high-priced new games are in the games mix, the quality of the games selected, and the percentage of NEW vs. Reconditioned games (at half the cost) are included to save as much as 33% overall.
2. Game technician(s) not required. Salary for a game technician will vary from $500/week to
$1000+ per week depending on experience and your total number of games. You will most likely require 2 full time technicians to operate a 100-unit arcade games center that will be operational 12-14 hours per day (80 hours per week), perform weekly collections, fill out merchandiser games reconciliations reports and perform on-going preventative maintenance and reconditioning. Figure on at least 1 full time technician to do all of the required work for 50 games generating $10,000/week. You will still need trained floor staff to learn to clear token/bill & ticket jams and perform minor repairs when the game vendor’s technician is not on-site or is busy repairing a game(s) while you are open so they can concentrate on what they are doing and not be distracted.
3. New game purchases (or rotations known as new games in/old games out) at least every 3 months as games are rotated in/out on a contract mandated quarterly bases. Games rotated out are sold or traded-in and have a current value, so the cost of new games is the difference. Estimate that approximately 12% of the games are changed on an annual basis.
4. Vendor pays for all parts. Parts costs average $300-$500/game/year.
5. Vendor pays for all of the latest upgrades, game modifications, and service techniques for more efficient operations and enhanced revenues.
6. Redemption tickets, tokens, prizes, game licenses, and debit cards, are usually costs that are shared between you and games vendor.
7. You can concentrate on your core business: running the entertainment facility.
8. You don’t have to utilize your best talented people to spend an excessive amount of time oversee the daily game repairs and stay on top of and make game purchase/sell/trade-in decisions as well as redemption prize orders every week. When you own your own games the GM usually falls into this position by default.
9. You have a ‘free consultant’ with an experienced games operator who should also have vast experience in helping you choose the best prizes at the best prices and help market the entire facility using the arcade game zone as the ‘hub’ of the marketing program.
10. Your game revenue will be higher if you choose an experienced redemption games operator.
11. You always have someone to complain to and blame for anything that goes wrong with the games or if business is down.
12. The games vendor pays for liability insurance for any accidents that are game related (with exception for gross negligence on your part) and vendor should be required to name your legal entity as an ‘additional insured.’ You pay for premises liability.
13. You get to go to IAAPA, Amusement Expo, Bowl Expo, DEAL, EAG and other industry trade shows and brag to your colleagues about what a great deal you were able to negotiate with your games vendor.

Advantages of Owning Your Own Games

1. You pay 100% of all expenses but you keep 100% of all the revenues.
2. You can provide as many free tokens/e-credits as you desire to your customers, family, and friends and discount any amount and any time you desire.
3. You are the recipient of any tax savings in depreciating the games and related equipment.
4. You own an asset that is constantly losing value and get to retain the salvage value at the end.
5. You get to go to IAPPA, Amusement Expo, Bowl Expo, DEAL, EAG other industry trade shows and brag about how much money your games are making (even if they are not) and show other family entertainment center owners how they too can make more money. You are by definition, an expert!