What it's like running an arcade in 2015

Many say arcades are dead. We check out a handful of locations that are keeping them alive.

When arcade game manufacturers produced cabinets in the '80s, they made them to be placed in all sorts of arcades, malls and other areas of young-skewing entertainment. Fast forward to 2015, and while arcades aren't as prevalent — or as popular — as they once were, they're still hanging around.

And within these locations, new business models are developing. Many traditional arcades are changing their ways, moving away from the coin-based business model that has long been part of the arcade ecosystem.

Meanwhile, combination arcade bars are springing up across the country, bringing their own methods of monetizing games with them, along with other changes to pull the machines in line with more adult — and modern — usage.

Like cupholders. Early arcade manufacturers didn't quite have the foresight to include a place for people to set their beers, and adding the cupholders hopefully convinces patrons that those expensive machines aren't the best place for setting (or potentially spilling) your drink.

"People will do crazy things, obviously, when they are drinking, and I guess there's no difference when it comes to playing video games and drinking," says Chris Horne, Kung Fu Saloon's chief game curator.

For many arcades, though, it's a balancing act between old technology and modern business models. To stay afloat, the money has to come from somewhere, and arcades are adapting in different ways to continue to survive in the ever-changing economic landscape. By looking at four arcades — a traditional arcade, two arcade bars, and a national chain — we were able to see how well that balance is maintained, and how sometimes it isn't quite balanced at all.


A traditional neighborhood arcade

Some arcade owners prefer to keep things old school. Game Galaxy Arcade started in November 2008 in the Hickory Hollow Mall in Antioch, Tenn. Now, with three locations (Huntsville, Ala., opened in 2012, and Chattanooga, Tenn., reopened in 2014), the arcade chain has nearly 400 different games with 315 on location at any given time.

Jason Wilson (favorite arcade game: Konami's Mikie from 1984), Game Galaxy's owner, started with a dream and a drawing before turning his passion for arcade gaming into the business it is today.

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"I've always loved arcade games," Wilson says. "I grew up in North Las Vegas as an arcade rat, going from place to place from age 5 to 10 almost daily. I even drew how I wanted my future arcade to look room to room."

Wilson is far from the only one with nostalgia for arcade cabinets. And to him, it all comes down to the arcade generation bringing its children back to the types of places that were popular in the '80s and '90s.

Some arcades may stick to the quarters that nostalgically — and originally — filled the machines, but the Game Galaxy Arcade operates on a "Free Play" model, where people pay one fee to play for a certain amount of time. Currently, Game Galaxy Arcade charges $5 for 30 minutes of play, $7 for an hour and $10 to play all day.

Game Galaxy Arcade avoids using quarters, and Wilson also strongly advises anybody who thinks they are interested in running an arcade from using coins.

"Don't do quarters," Wilson says. "Local and state licensing and taxes are geared from the 1980s which makes it impossible to make a buck that way." The laws aren't up to date, and owners still have to pay the same amount to register arcade machines, even if revenue is much smaller than it was in the '80s. Wilson adds that customers often think a quarter should hold the same 25-cent value in 2015 that it did in 1983.

"No one is getting rich here off this stuff."

Wilson projects to bring in, across the three locations this year, approximately $155,000. Last year, the three locations brought in $165,000, with no profit — all of the money went back into the business and toward purchasing new games.

Rent varies across the three locations: $1200 to $2800 for the 3200 to 5000 square foot arcades. Game machine prices run the gamut, depending on auctions and prices on sites like eBay. Upkeep for the pinball machines alone comes in at over $200 a month, and Game Galaxy has over 100 pinball machines between its three locations.

It's a costly business, and it's no secret that many arcades have been looking for other ways to supplement that income, including combining arcades and bars together. "[Most people] have illusions that beer and arcades are a perfect gimmick," Wilson says. "If you don't love video games or know anything about repairing them or how to maintain them, you will lose your hat faster than the few minutes it takes to sign the lease on your new spot."

But, at the end of the day, even if the arcades are a business, the money flow is secondary to the idea of keeping arcade gaming alive in today's world.

"It's more of a hobby that creates jobs for us, and we like video games," Wilson says. "No one is getting rich here off this stuff, so if you think of it as 'We need to open an arcade for xxx reason,' it probably will not work. It is a labor of love, nothing more — strictly so Nashville has an arcade and a place for players to enjoy gaming the way it was in the '80s at inexpensive prices. Think of us as the Pinball Hall of Fame, but in Nashville."

Brewcade script

Booze and quarters

Operating an arcade isn't easy, and adding a giant variable — drunk people — can make things even harder.

Tiffny Chung and her brother Shawn Vergara opened Brewcade, San Francisco's first arcade bar, on Dec. 10, 2014. It was Chung's second bar, having previously opened the nearby Blackbird six years earlier.

The main hurdle before they could open? Arcades were prohibited in the district where they wanted to run the business.

Arcade prohibition in San Francisco dates back to the 1930s, when the city lumped arcade gaming together with gambling. It got worse in the 1980s, when local politicians thought arcades contributed to truancy and problems with school-age kids, and San Francisco added rules that arcades couldn't be placed within a specific distance of certain public locations, such as churches and schools.

"It started off with Shawn and I just rattling off the games we played when we were younger."

Chung worked with her district supervisor to get the restriction lifted, and after a year-long process, the amended legislation passed. Other districts across San Francisco are similarly looking into lifting arcade restrictions as well.

"The concept just was so fun and amazing, and it was just something that we don't have over here. And it's by no means a new concept," Chung says. "But we thought it was super cool and we thought it would work here in San Francisco."

The siblings paired with "Video" Bob Albritton of the now defunct Starbase Arcade, which closed its San Rafael location in 2013.

"He just ended up with all of these games and nowhere to place them, and that was at the time that we were deciding to open up the arcade bar," Chung says.

To flesh out the arcade lineup, the team started by picking out personal favorites.

"It started off with Shawn and I just rattling off the games we played when we were younger," Chung says. "Of course we wanted the classics ... I wanted Pac-Man. And Sean wanted Frogger and Galaga and things of [that] sort."

Working with Albritton also gave them a unique advantage: He already had all the machines and knew how to maintain them. By partnering with him, Chung didn't have to go through the process of locating or purchasing machines outright.

"We've been well received, and it's pretty much in alignment with our expectations."

"It was meant to be," Chung says.

While mixing alcohol and games is a newer experience in the long history of arcades, the Brewcade sticks to tradition with the payment system: It's still quarters, no different than people would have pumped into the machines if they were walking into the bar and hadn't touched a machine since the ‘80s.

"We wanted to keep it really nostalgic, like true to the old school," Chung says.

A lot of places use payment cards, and the card-swipe machines can get expensive. Brewcade charges 50 cents for each of its games (with no cover charge for the bar), so it takes quite a few rounds of getting stomped by Goombas in the arcade world to equal what a person would spend on drinks back in the real world, where Brewcade makes most of its money.

Just over six months into the bar's existence, things are going well, and while Chung declines to mention specifics, she says San Francisco's first arcade bar is off to a good start. "We've been well received, and it's pretty much in alignment with our expectations," Chung says. "The ability to play upon that nostalgia and play those favorite games that you played as a kid — and enjoy your other favorite pastime, which is drinking? Hey that's like the best of both worlds right there."


Drinking: Round two

Texas's Kung Fu Saloon opened its first location in Austin in 2009, and it did so well, the bar-arcade combo expanded to Houston two years later. A year after that, it brought a third to Dallas. Its fourth location is set to open in North Austin later this year.

"We thought this was kind of a quirky idea and we thought it'd be a fun place to hang out," says Chris Horne, Kung Fu Saloon's chief game curator. (Horne's favorite arcade games are NFL Blitz, NBA Jam, skeeball and Mortal Kombat). "We didn't have expectations of getting rich or being super busy or anything like that, so it's always been, you know, very enjoyable, but it's also surprised us with how receptive people have been to the concept."

"I've always been a game enthusiast, but I didn't really have a lot of background in the ins and outs of vintage arcade games until I started the project," Horne says. "It's something I've enjoyed immersing myself in and learning about."

Mario Kart

As game curator, it's Horne's job to track down all the machines for the locations, and as the demand for these machines increases — while the supply continues to shrink — it's a job that has some unique challenges.

"It's fun tracking these down, [but] frankly they are getting harder to find and getting more expensive all the time," Horne says. "It is a concern of ours that, if we continue to expand ... at some point accessibility to these is going to get tough."

Finding the machines can be a trick with sellers often wanting to be paid in cash and buyers hoping the machines show up in workable condition. For the next location, Horne has games shipping in not only from other spots in Texas, but from as far away as Pennsylvania, Ohio and New York.

And after all the work that goes into finding these machines, they are then introduced to a world very different from the arcade homes they once knew. It's akin to taking fragile dinosaur fossils from a museum collection and throwing them into the middle of a party.

"We have 20-30-plus-year-old video games in a very high-traffic, kind of high-energy environment," Horne says. "The games tend to get pretty beat up."

To help combat this, KFS has a technician at each location who comes in as needed — at least a few times a week — to do repairs on machines and keep everything running.

And while technicians can fix most of the machines, that isn't always the case when you are working with technology that dates back to the '70s and '80s.

"It's very important to have a very good video game repairman ... Probably the number one thing."

A motherboard fried on KFS's Off Road cabinet, and Horne has never been able to find a replacement. Some of the early Nintendo titles, such as Super Mario Bros., have systems that won't work with newer monitors.

"There really is an obsolescence factor with these things," Horne says. "There's going to come a point where they're just going to get more and more rare."

That just reinforces one of the most important points Horne stresses when it comes to opening an arcade bar.

"It's very important to have a very good video game repairman," Horne says. "It's very important. Probably the number one thing. And bring your patience when it comes to sourcing the games."

Prices for the cabinets can wildly vary, on average costing around $1,000 a unit. For example, Mario Kart can run $2,500 to $3,000. Mike Tyson's Punch-Out!! can run $1,500. Mortal Kombat 2 has doubled in price since Horne started buying machines.

KFS runs most of its games at their original quarter-per-game price, with some of the cabinets costing 50 cents. Charging by the game ensures that each machine regularly becomes available to new players, where with free-to-play models, people could sit on a machine all day, leaving other customers waiting for a machine they wanted to play. Requiring people to pay for each play keeps that flow a little smoother.

Food and alcohol make up the majority of the company's revenue. Games are a small fraction of the overall stream, making up only four percent of the bar's overall revenue.

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"We never really tried to monetize the games," Horne says. "The bar itself was the monetization of the concept. We just thought, these games were 25 cents in 1980, so let's keep them at 25 cents."

It's a far cry from a classic arcade model, where the games are the only things bringing in money. KFS bases its success on the bar, not the games. Given that, KFS pulls in per-location revenue ranging from $3.6 to $6 million a year, with a total combined revenue of around $13.5 million. The venues range from 4200 to 6500 square feet, with a capacity range of 200 to 350 people.

Rent varies from location to location — $10,000 to $30,000 a month — with utilities costing $15,000 to $35,000 a month.

A location's arcade cabinets runs anywhere from $30,000 to $50,000, depending on the number of machines. Horne expects KFS's newest location in North Austin to cost the company upward of seven figures before the doors even open.

After this fourth location opens, the company is planning to continue to expand, with some of that future growth targeted outside of Texas.

"The concept competes well within the bar space," Horne says. "People have a short attention span; they like to barhop. I think that it competes well within people doing that just because it's different. The games are an element that most other places don't have, and so I think it always kind of puts it into the mix as maybe a stop on a night out."


On the national level

While arcade bars are growing in popularity, they still make the majority of their money from the bar side of the business, not the arcade machines. But this may only be true of smaller local and regional arcades. The reverse is true for at least one player on the national field: Dave & Buster's brings in a majority of its revenue from games and entertainment, not the food and drink side of the company.

Dave & Buster's opened in 1982 in Dallas, Texas, and as of April 7, operates 72 different locations in North America. The company is publically traded and combines food, drinks and gaming in a national-chain setting. D&B has an average comparable store (a "year-over-year comparison of sales at stores open at the end of the period which have been opened for at least 18 months as of the beginning of each of the fiscal years") revenue of $10,793,000 for each location.

(A representative of Dave & Buster's did not return requests for comment on this story, but all figures are taken from SEC documents D&B files.)

Dave & Buster's brings in a majority of its revenue from games and entertainment, not the food and drink side of the company.

For fiscal year 2014, food and beverage revenue accounted for 48.1 percent of the company's total revenue. This accounted for revenue of over $369.1 million.

On the gaming side, a typical D&B location has around 150 games, including both redemption games (games that players win tickets to trade in for prizes), video and simulation games and traditional games such as bowling, billiards and shuffleboard. The gaming category accounted for a majority of the company's overall revenue during FY 2014 — specifically, 51.9 percent, which is in stark contrast to the other companies Polygon talked to for this piece.

These are, of course, company-wide margins, but they are much closer than smaller-scale companies that are doing the same thing, where the gaming element accounts for a smaller part of the overall revenue.

Broken down even further, redemption games made up the largest portion of this category. Redemption games accounted for 79.7 percent of D&B's "amusement and other revenues" for D&B in FY 2014, while video and simulation games only accounted for 16.3 percent of that same category.

D&B also employs several different ways to pay for its games, including eat-and-play combo options, unlimited play Power Hours, free-play game promotions and the usage of Power Cards (magnetic swipe cards) which players can load and reload with "chips" that they then use to play the various games.

Total amusement and other revenues for FY 2014 were over $387.6 million. The overall percentage that amusement and gaming made toward the total bottom line also increased, growing to 51.9 percent of the company's total revenue ($746.8 million in FY 2014).

Looking ahead, for FY 2015, Dave & Buster's is projecting a further revenue increase, with a projected revenue of between $808 million and $822 million.

"We also face competition from increasingly sophisticated home-based forms of entertainment."

Also, it seems that while the company is growing, there is still a continued fear in the arcade space about its place compared to home console and mobile games, enough so that the company made note of it as a risk factor in its 10-K annual report:

"We also face competition from increasingly sophisticated home-based forms of entertainment, such as internet and video gaming and home movie delivery. Our failure to compete favorably in the competitive out-of-home and home-based entertainment and restaurant markets could have a material adverse effect on our business, results of operations and financial condition."

To those ends, D&B has started in the mobile app market with the release of three free mobile games.

And while arcades may not be everywhere anymore, the experiences — and the legacy — of arcade games is still very much alive, even as it moves into different types of businesses and combines itself with different fiscal strategies.

But no matter the monetization, there's still enough room for various models of arcades to exist, and while the methods of payment are continuing to change and gaming is ever moving forward, there are still people willing to shell out their quarters to spend a few hours looking back. Babykayak