e-KMI.com Inside Info

CLICK HERE

International Karting Industry Buyer's Guide

Kart Expo International
ExhibitorInformation and Show Directions

INDOOR INFO

DEVELOPING INDOOR KART RACING CENTERS – WHERE TO START?
By Robert McGuffey

A very successful real estate developer said recently that every major problem on all of the company’s unprofitable deals could be traced back to the first 3 decisions. I would submit that creating an Indoor Kart Racing Center (IKRC) that has the potential to achieve long-term positive cash flow is no different from that developer’s shopping centers, office buildings and industrial parks. So instead of the old clichés about location and high net worth, let me suggest three initial steps which can help you prevent the most common problems. The first step is to know your target market, the second is to determine you maximum net justified investment, and the third step is to compile a statistical database of comparable operations.

Even if the majority of your business will be created using other people’s money, I recommend that any serious consideration of investing several million dollars should begin with an honest appraisal of the demographics of the resident market. Since the qualified feasibility consultants that are retained by successful developers begin with a complete Demographic Profile, you will probably find it beneficial to have the same statistical data that they use.

The basic 2000 Census (readily available at census.gov) is getting dated, but you should at least verify your business model assumptions with the dominant age group figures in the primary market area. Greater detail and user-friendly data is available from sources such as Claritas and PCensus. Consumer expenditures or retail trade potential modules may be an additional cost, but can be particularly enlightening with respect to the dollar volume and spending patterns of the local resident market. I am not suggesting that you can become an overnight feasibility expert, but I’ve seen several IKRC developers avoid overly optimistic estimates of attendance and revenue by analyzing market density and required penetration rates.

The second step is understanding how to control your total capital investment and pre-development budget. I would submit that there are valid reasons why many of the most profitable domestic indoor karting centers were created as renovations of existing big-box retail or industrial buildings. Constructing a new building can take 12 to 24 months, which is more than enough time for a competitor to open. And the existing IKRCs have proven the value of being the first in the market, building brand awareness and customer loyalty. On a weekly basis, I receive a listing of several hundred big-box stores throughout the country that are available as sub-lease or liquidation. Your local brokerage firms can provide access to these buildings as well as valuable expertise in the complexities of real estate transactions.

Equally important are realistic budget numbers for shell building construction and interior fit out, which should be provided by a local contractor. For example, your Performa should include “soft costs” such as General Conditions and utility connection fees to avoid unpleasant surprises. And with indoor karting proving to be a niche attraction in domestic markets, I would suggest that if your lease or debt retirement exceeds 20% of gross sales, you should probably seek a lower cost facility so the funds available for construction meet guest expectations in your market.

The third step that I recommend relates to the fact that serious investors and major lenders require real statistical data from comparable operations. This is a real challenge for IKRC developers since most of the existing IKRCs were created with cash and/or private equity sources. Frequent visits to the karting center which most closely matches your development program is a dependable way to derive realistic projections for attendance, revenues, costs of operations and seasonality. If your business model is based on adults and corporate meetings, local event planners and catering companies can be invaluable resources for an independent appraisal of utilization rates, average attendees per event and per cap revenue. On the other hand, if you are assuming kid karts and birthday parties will be a significant percentage of sales, you should establish how many competitors are currently offering party packages in your local market. It doesn’t take long to establish what these facilities are charging, what is included in the basic package price, and most importantly, how many parties are they actually hosting each month. This data is critical to calculating how many parties are required to generate a profit and cover your operating and personnel costs.

In summary, the terrific guest response to the excitement and authenticity of indoor kart racing is the reward for your investment of time and effort to make your initial business decisions on the basis of the real results of comparable domestic centers.

ABOUT THE AUTHOR
Robert McGuffey is president of Entertainment Architecture, which has provided development, design, construction and operations consulting services for indoor karting centers, theme parks, retail centers and foodservice venues for over 16 years. He can be reached at 317-255-8875 or via email at entertainment@Iquest.net.

END

View Past "The Inside Info" Articles

Kart Marketing Group, Inc.
Post Office Box 101
Wheaton, IL 60189 USA
Telephone: 630-653-7368
Fax: 630-653-2637
Email: karting@msn.com

Back to Home Page

Neatconcept, Inc