Industry sector: Leisure

Amusement arcade: Estimating machine takings

You will already have given some thought to how many machines you will install in your arcade. Arcades are restricted to three types of gaming machine - Category D, Category C and Category B3/4. Unlicensed family entertainment centres are allowed unlimited numbers of Category D machines, licensed family entertainment centres are allowed unlimited numbers of Category D and Category C machines and licensed adult gaming centres are allowed unlimited numbers of Category D and Category C machines and a limited number of Category B3/4 machines. (A set maximum of four, or 20% of the total number of machines on the premises, depending on when the licence was granted.) Although the licensing authorities do not limit the number of machines you can operate (apart from Category B3/4 machines), you may find that the terms of your planning permission specify the number of machines you can have in your arcade. Of course, you will also be restricted by the size of your premises.

To work out your annual sales figure, the first step is to make an estimate of how much money each of your machines will take. This will be affected by:

  • how busy you are, not only at different times of the year, but also at different times of the day
  • how popular the machine is. A newly introduced machine will attract lots of players but takings will fall after 10 weeks or so once the initial appeal has worn off. Some of your machines may only appeal to a certain proportion of your customers
  • the value of the stake
  • the rate of play. A game that is over quickly allows more games to be played during any given period
  • the rate of return set. A typical amount of money (or the payout) returned to players over time is 70% although the rate may be set higher (for example 90%) in order to attract more players. (Remember that if you operate any legacy machines, their minimum payout must be 70%)
  • the number of machines which are out of action at any one time. Machines can be handled very roughly by players and it would not be unusual for 10% of your machines to be out of action

It can be difficult to estimate how many players you will have and how much they will spend per session. It may be worthwhile visiting one or two existing arcades to get a feel for how busy they are throughout the day and how long individual customers spend playing machines.

If you are buying an existing arcade the annual accounts will give you an indication of each machine's level of takings. New machine suppliers may also be able to give you some guidance and may be able to advise you on the most profitable machines for your particular business type.

You might consider spending some time in arcades which you consider are similar to the business you propose to run. Note when are the busy times, how long players remain at each machine and whether some machines are much more popular than others.

It may be that, to reduce your initial capital investment, you are intending to get some or all of your machines on a share basis. A 50% / 50% split of the net takings is usual, in which case you'll need to halve your estimates of machine takings. (Your net takings are the amount charged to play minus the amount paid out in winnings). Although the share basis is more common in businesses like pubs that have just one or two gaming machines on their premises, you may find that it could work for your arcade business - at least in the early days.

Don't forget that you'll have to pay Machine Games Duty (MGD) on your net machine takings. There are two rates of MGD that apply to machines that can be sited in arcades, the standard rate of 20% and the lower rate of 5%. The lower rate applies to all Category D machines only and the standard rate applies to all other machines. (The higher rate of 25% from March 2015 only applies to Category B2 machines which arcades are not able to offer.)