Lending to Bowling Centers: Bowling Facilities Have Redefined Themselves as Family Entertainment Centers, Which Allows Them to Compete More Effectively for Consumers' Discretionary Dollars. Many Lenders Have Not Been Enthusiastic about These Businesses, but They Can Present Good Lending Opportunities

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Although still one of the most popular forms of entertainment, bowling seems to be one of the least popular businesses for commercial lending. Bowling attracts a remarkable customer base: More than 70 million people bowl at least once every year, and about 3 million of them actively participate in league play.

By improving their facilities, launching aggressive marketing programs, and adding complementary activities, many bowling centers have redefined themselves as neighborhood family entertainment centers, allowing them to compete more effectively for their customers' entertainment dollars and scarce spare time. Yet lenders are not enthusiastic about these businesses, for the following reasons:

* Bowling centers require special-purpose buildings.

* It's difficult for lenders to find qualified appraisers for the buildings.

* Lenders perceive problems in selling bowling collateral.

* Lenders lack an overall knowledge of the industry. Despite these misgivings, bowling centers can present good lending opportunities.

Industry Background

Ownership of bowling centers is remarkably diverse. The majority of them are individually or family owned. And indeed, as a business, bowling is unusually family-oriented. Compared to similar small businesses, a disproportionately high number of bowling centers are passed down from one generation to the next. It is not unusual to find second-, third-, and even fourth-generation owners actively involved in this business.

This industry also is marked by fragmented ownership. The two largest companies, AMF and Brunswick, own only about 400 centers between them, while the next three largest companies (Bowl New England, Bowl America, and Strike and Spares) together own only about 50 centers. As of November 2011, approximately 5,200 centers with a total of about 110,000 lanes were operating in the United States. Of that group, about 4,650 facilities were commercial centers. The others were operated by the military, colleges, fraternal organizations, and private clubs. Based on these figures, the five largest bowling-center chains had a combined market share of only 10%.

These small-center owners generally are prompt on their loan payments. The SBA reports that the default rate on SBA loans to bowling centers between 2001 and 2011 was 16.4%, and the charge-off rate was 1.35%. Of all industries receiving at least 100 loans during this period, bowling is in the 26th percentile for default rates and in the 13th percentile for charge-off rates.

Meanwhile, RMA Annual Statement Studies shows the expected default frequency for bowling at a median rate of 5.5% for the year ending in April 2009. This rate subsequently dropped to 3.44% in April 2010 and to 1.82% in April 2011. Moody's percentages for effective default frequency were 16.34% for April 2009, falling to 11.32% in April 2010 and 8.73% for the year ending April 2011. Both RMA and Moody's show a declining default rate over this three-year period, which would indicate a healthy industry gaining financial strength.

Although primarily a small retail business, bowling can generate substantial revenue ($1 million or more per location) and considerable cash flow before debt service (25% to 35% of revenue). Because many costs are fixed, or fixed within a range of activities, additional incremental revenue from food service, bar, parties, vending, and arcade games will have a larger impact on a bowling center's bottom line compared to many other retail businesses. Conversely, a relatively small loss of revenue can devastate cash flow since it's hard to adjust fixed costs quickly to offset a decline in revenue.


Several national studies have shown that bowling participation dropped 10% between 2007 and 2011, based on the number of people who bowled at least once a year. Most of this decline was attributed to the "avid bowlers" who participate in the sport more than 12 times per year. …