This educational post was provided by Bruce Nussbaum from Trifecta Management Group.

About the Author: Bruce Nussbaum is a founding member of Trifecta Management Group. He brings a unique combination of a Harvard Law-trained lawyer with extensive transactional experience and a seasoned retail entertainment executive with deep operations expertise. With this diverse skill set, Nussbaum divides his time between identifying and structuring Trifecta’s new business endeavors with partners and supporting the day-to-day functioning of the company’s location-based operations/consulting projects. Bruce is actively engaged in the real estate and retail entertainment industries via frequent speaking engagements at national and regional conferences.

Traced to the Middle Ages (but without attribution), the adage ‘Measure Twice, Cut Once’ is as applicable today as it was then, perhaps more so given the investment required for designing, building and opening an entertainment center in today’s market. With total costs ranging from seven to eight figures, it is imperative to think twice, and spend once.

With all the factors that must come into consideration before committing to the expense of bringing an entertainment center to your market, your assumptions should be checked and rechecked by a viable third party who is experienced in assessing markets and creating concepts targeting specific demographics and who has actual experience in operating entertainment centers. This is achieved by completing what is sometimes called a ‘Market Feasibility Study.’ Doing so will increase your confidence in any decision, regardless of the outcome. Remember, sometimes the best answer is ‘no’.

A proper Market Feasibility Study does not look just at what can be built – e.g., how big of a building can be built on a lot or how much programming can fit within an existing building – it seeks to determine what should be built. Think of the process as that of building a house, with the Market Feasibility Study being the foundation. If that foundation is not secure the soundness of the entire house is in question.

The first step in the process is understanding the demographics of your market, a fancy way of saying who lives in the market and is available to become a guest. Then one tries to figure out who from that available audience will actually visit and how often. In doing so one should balance the risk of trying to be ‘all things to all people’ while still developing a venue that appeals to a wide range of potential guests and can be active during multiple day-parts.

As you would imagine, this can be a tricky task, requiring the ‘slicing and dicing’ of the information in multiple ways in order to:

  • Identify and measure positive sectors such as families, millennials, and socially active adults, bearing in mind that each sector will have specific expectations for what the venue should offer
  • Identify potential for lucrative corporate and other group events
  • Identify and measure key metrics
    • Disposable income vs. cost of living
    • Population density
    • Average age and percentage of targeted age groups
    • Propensity for dining and entertainment away from home

There are also things to consider beyond the people who currently reside in the market, such as:

  • Market growth potential, i.e., are the local population and/or the level of business development growing, stagnant or declining
  • Seasonality
  • Tourism
  • Alcohol restrictions and prevailing attitudes towards alcohol consumption, e.g., Salt Lake City vs. Las Vegas

Once one is comfortable with the available audience and the subsets within that group who are likely to become users, one should factor in where and how those people are currently getting their entertainment. That is, what does the existing competition in the market look like? Considerations include:

  • If the project is to include bowling, is there a lane deficit or surplus within market?
  • Are the bowling centers within the market contemporary or ‘old school’ traditional?
  • What are the age and condition of existing facilities?
  • What is the level of quality and consistency of execution at these existing facilities?
  • Are there unfulfilled niches within the market that can be exploited?

If the project is focused on a specific plot of land or building, one should also weigh site-specific factors such as:

  • Traffic counts and roadside visibility
  • Synergistic nearby traffic generators such as sports facilities, shopping malls and tourist attractions
  • Market congestion and ease of travel
  • Ingress, egress and parking
  • Signage opportunities / restrictions

After compiling this data set and considering all of these factors, the market analyst then needs to convert this information into a proposed concept and a financial model. The proposed concept defines the revenue centers, recommends the type and quantities of the entertainment features and suggests the amount of square footage for these and the supporting front and back of house components such as circulation areas, restrooms, kitchen, storage and office space. The financial model should include, at a minimum, a pro forma operating model (revenues and costs) and projected costs to build, equip and open the venue.

Whether you are an individual, partnership or corporate entity, completing a Market Feasibility Study will help you gain confidence in your decision, as well as more accurately assess risk and reassure banks and investors. Regardless of who you choose for your market study, do the due diligence to ensure they have the experience in both operating FECs as well as completing marketing studies for contemporary entertainment centers. Real world experience counts when ‘measuring twice and cutting once.’

To learn more about what it takes to open an entertainment center, read our blog So, You Want to Open a New Entertainment Center.