The Decline of Chuck E. Cheese's...What Happened?

[Music] you know I can always count on my audience to keep me up to date on the latest bankruptcy filings I don't think any of them get past me it can actually get a little depressing sometimes but I still appreciate it this one in particular I used to love this place Chuckie Cheese is a combination of pizza in arcade games what else can you ask for as a kid in 2019 that 56 percent of their sales came from entertainment and merchandise and the remaining 44 percent came from food and beverages which is good because they prefer to sell the entertainment in merchandise because they have a higher profit margin they say it's intended for families with children between the ages 2 and 12 especially for birthday parties 16 percent of the revenue came from reserved birthday party packages and the buildings are far bigger than your average pizza place that's because they have seating for over 400 guests in addition to about 75 games rides and attractions including the ticket blaster you go inside this windy area and try to catch all these tickets flying around I don't remember seeing this one back in the day but I have to admit that I would still not mind giving this one a try now as someone who hasn't been there in probably more than 15 years now I have to ask the question what is this is this will kids today think of when they hear the name Charles entertainment cheese yeah that's his full name and it happens to be the funniest name I've ever heard but this new guy he plays guitar wears jeans and wears his hat I don't know how I feel about this I guess they changed him in 2012 this right here is the Chuck E Cheese that I know I can't even tell you how many commercials I've seen with him running around that arcade as I say all of this the bankruptcy is very new but it's looking like they're going to survive hopefully they're just gonna close a few restaurants and come back from it stronger than ever as far as the reasoning behind it simply put they've been in a financially dangerous situation for a while now and then when this pandemic happened they were forced to close locations and the loss of sales proved to be too much I'll talk more about it later I have all these graphs made but I have to say that this bankruptcy is just the latest addition to a pretty eventful history it's technically not even the first bankruptcy and how about this cheese was started in 1977 by Nolan Bushnell who believe it or not is also the main guy who founded the video game company Atari chuck-e-cheese actually started as a division of Atari and it was Bushnell's experience with video games that gave him the idea he had sold so many of them to businesses would set them up in their tavern or restaurant and recognized how they were the ones making the real money he said he was selling these coin-operated games for fifteen hundred dollars and then over their lifetime it they would earn 30,000 to 50,000 from all the people paying quarters to play them so he thought that he would be better on that end of the situation but he also knew it that he needed to be unique about it he had the idea of serving food especially pizza because it took time to prepare and that way time it was the perfect opportunity to play some games he also had the idea of using animatronic entertainment he had previously worked at carnivals so we knew that once the characters were created it was a cheap and effortless way to keep people's attention at first it was going to be called coyote pizza but then when making the animatronic at the coyote costume that they ordered turned out to be a rat costume Bushnell's immediate response it was to just run with it and instead call the restaurant Ric rats pizza which is not great for obvious reasons ultimately because it sounds chipper and forces you to smile when you say it the name was chosen to be chuck-e-cheeses pizza time theatre of course the designs and the details have changed over the past few decades but the general principle is still the same today the issue for Bushnell here it was that this was a division of Atari and he had recently sold Atari to Warner the previous year so though it was his idea and he was the driving force behind it he did not own it luckily for him I don't think Warner really wanted it they weren't too interested in running in her Kaede themed restaurant so they were willing to sell it to him for the very reasonable price of five hundred thousand dollars which he paid them over a five-year span Bushnell was forced to separate from Atari soon after and that's when he started dedicating his full-time efforts toward chuck-e-cheese that first restaurant was a massive success from day one so without hesitation he opened an even bigger second location that was quickly followed by many more they were such a hit that he was getting approached by people that wanted to open their own chuck-e-cheese franchises the notable one here is a deal that he made with Robert Brock he owned this hotel company and was looking to own a bunch of Chucky Cheese franchises the two made a deal to make it happen then soon after Brock wanted out of the deal because he instead wanted to work with someone else to start his own chain of similar restaurants Bushnell then sued him for breaking the contract and the end result was Brock being able to open and operate his own chain of similar restaurants called showbiz but he had to give a small percentage of the sales to Bushnell through the first half of the 1980s and the two competed with each other both expanding just about as fast as they could they were going into debt Chuckie Cheese had a public stock offering it they were hustling to get the money from all angles so they can keep up with each other and continue growing 1984 is when everything went bad back in the 1980s when there was a new Chuckie Cheese in your town it was unlike anything you had seen before so you're gonna want to bring out the family and check it out there's a bit of a novelty aspect to it meaning they're much more likely to get more business when they first open and then you can expect that to slow down over time well Bushnell was in a rush to open a bunch of these so we didn't have time to wait and see whether or not the sales would fall meaning he was opening new locations based on sketchy information which led to many of the new ones being placed in less-than-ideal areas the same thing happened with Brock in to further complicate things it's a great video game crash of 1983 they really dropped in popularity and it was not a good time to be involved with them in any way just to put this all together if they had gone into debt to open dozens of restaurants and many of which were in poorly chosen areas just before people stopped caring about the core of their business I think we can see where this is headed the poor sales meant Chuckie Cheese couldn't keep up with that high debt so they were forced into bankruptcy which actually marks the end of that original chain showbiz however was able to navigate through it they refinance their loans and sold off about 15% of the company to raise money not only did they survive they were able to put together thirty five million dollars to buy the assets of Chucky Cheese through that bankruptcy so that right there that is a strange turn of events the imitator ended up beating at the original to me that's like if Lucky Charms were to fail and then be acquired by marshmallow mateys well the end result was a much larger company that now either owned or franchised almost 250 restaurants under both of the names showbiz and chuck-e-cheese that's how they existed for the rest of the 1980s some tricky transfers of ownership happening but the to change remained together but as separate brands then in the early 1990s they decided that it would be more efficient to simply combine them they started converting all the showbiz restaurants into chuck-e-cheese restaurants because they figured that it would be smarter to have one powerful brand rather than two weaker ones so oddly enough for the next five years or so the company itself was called showbiz pizza but all of the restaurants were called chuck-e-cheese then in 1998 they changed the name of the company to CEC entertainment finally marking the end of the name showbiz after a pretty crazy 18 year run alright getting back to the recent issues they have had trouble attracting customers they even implemented this whole revitalization strategy to try to breathe some life back into it so some of the highlights would be an emphasis toward parents I don't think parents like this place very much they never really have because it can get pretty chaotic so they've been making this effort to focus their marketing toward them and they changed their menu to include more items that they would like they've been implementing this play past card system where you use points as opposed to tokens just to make things simpler and quicker they have remodeled 82 of their 612 locations that they now have Wi-Fi it's hard to tell but it looks like these may have helped a little but in addition to the unpredictable revenue they've been dealing with these rising expenses it's just a bunch of smaller things that have been adding up a higher ingredient cost changes in minimum wage laws causing their labor costs to go up stuff that you might expect but when you combine these higher expenses with the lower revenue it results in a consistently lower operating income meaning while operating these restaurants they're making less and less money from it each year but honestly even with the pandemic complicating things I would never expect these factors to lead to a bankruptcy this operating income has been going down but it's still very much in the positive they've been making tens of millions of dollars every years so here's the real issue and you might see where this is headed I think you'll agree that in 2014 their total debt took a pretty major leap practically tripling to over 1 billion dollars and that's because in 2014 chucky cheese was bought by a private equity firm called Apollo Global Management for the price of nine hundred and fifty million dollars and that same year chucky cheese spent 113 million dollars to acquire a smaller Arizona based pizza chain called Peter Piper Pizza which I think happens to be another really good name after those deals they were loaded with dead and over the last five years have not paid very much of it all when you're making 50 million dollars a year that's really good unless you have a billion dollars in debt you will never pay it off that way you're kind of living on the edge at that point and there's also one more layer to consider that's been making the situation even worse nothing of what I've said so far has accounted for interest when you are a billion dollars in debt you have to pay a lot of interest that operating income is what they have before the interest expense is included which is almost always greater meaning once everything is included they're actually losing money each year they've reported losses five of the last six years since the acquisition they are really never going to pay off the debt that way with this trend I don't see how they would ever really pay it off without something big happening like maybe a bankruptcy to summarize chucky cheese has had some trouble as far as lower sales and rising costs nothing that I would consider too threatening but then they went ahead and race that debt to over a billion dollars which I don't think they can afford for the last five years they've been living payment - payment and then when something happened to enter up their cash flow that was it I think of chucky cheese as a person that was living so far beyond their means that a temporary pay cut led to the bank foreclosing on their house let me know in the comments do you agree with that assessment it is hard to deny that the billion dollars in debt added in 2014 through those equity is their main issue but is there more to it that I fail to mention also what do you think of the early years of the company it started as part of Atari and then went bankrupt and was bought by a competitor that was almost an early part of the business there is some cool stuff happening there and how do you envision mr. chuck-e-cheese this guy right here will always be the true one in my heart but maybe it's different for you and any other thoughts concerning any of this leave them in the comments I'd like to hear what you have to say thank you for watching [Music]

Channel: Company Man

Views: 3,653,346

Rating: 4.9307265 out of 5

Keywords:

Id: u6L65O4YC08

Length: 11min 45sec (705 seconds)

Published: Sat Jun 27 2020

Reddit Comments

[u/Sbudno]

People didn’t want to pay money to be around a bunch of screaming, poorly behaved kids just to eat shit tier pizza and watch a rat animatronic? Who would have though.

[u/winmag300]

It all went downhill when they stopped serving beer.

[u/costlofobic]

I’m a show biz type of guy...

[u/trackofalljades]

There’s a great podcast on this, was it 99pi? I forget...it was all about how they’ve become crappy trailer trash fight clubs instead of safe fun places for kids.

[u/ekjohnson9]

If his idea was a way to better monetize his coin-operated games he should have started charging a licensing fee or provided the machines to restaurants for no upfront cost in exchange for a healthy share or revenue over the lifespan of the device.

[u/n00bvin]

I'm pretty sure COVID is going to fuck over ole Chuck for good. These child casinos suck anyway. Just ticket games now. When I was a kid, these were legit arcades with good games with some ticket games.

[u/One_pop_each]

Something about this dude talking is unbearable. He needs a graph for his intonation. M

Great content but don’t leave a .2 second gap between sentences since they’re all recorded separately and pasted together.

[u/DillBagner]

Tried. Got 2 minutes in. I just can't handle the way he enunciates the end of every sentence.