Bowlers Journal International - November 2008 - (Page 98) Business Industry Updates and Insight HALL MARKS BY WALLY HALL { wallyh@bowlersjournal.com } Defaulted Mortgages, Federal Bailouts, The Uncertain Financial Markets Oh, My! THE CALAMITOUS EVENTS on Wall Street and the uncertainty of the world’s financial markets cause grave concern to most of us, but especially business owners. Not only is there a financial liquidity shortage triggered by defaults of subprime residential mortgages, but there is the additional complication of a slowdown of all business activity. Compared to many business owners, bowling proprietors are fortunate. Bowling is not a high-ticket expenditure, so in tough times, people have continued to bowl. Also, contracted league business gives some assurance of minimum revenue streams. Another advantage is that there are few receivables and relatively small inventories; consequently, revenues are available immediately to pay operating costs such as payroll, utilities, etc. Does this mean that bowling will not be affected by the financial crisis? It will be, but perhaps not as bad as many businesses. Although bowling center linage and revenues have held up remarkably well so far, it is likely they will come under pressure as the slowdown continues, and the U.S. experiences an increase in layoffs. There will be less overtime and paychecks will be smaller, which means less money to spend. Smart proprietors will monitor results diligently and have plans to operate on a leaner basis if they have not done so already. Credit is difficult to obtain at the major banks, but local and regional banks are making loans. However, they require more security and higher down payments, and have tightened up on terms and conditions. As a consequence, we can expect a slowdown or postponement of some modernization and expansion plans, as well as acquisition activity. The fact that the crisis started as a consequence of unrealistically high appreciation in real estate values in both residential and commercial property means that these assets now will experience and suppliers — as well as distributors and pro shops — are likely to have the most difficulty in coping with these tough financial times. Those that are highly leveraged will be most challenged. In normal times, the United States Bowling Congress and the Bowling Proprietors’ Association of America, as well as the International Bowling Museum and Hall of Fame, would not be greatly impacted by a national financial crisis. This time they might. The crisis and the resultant drop in equity values (30% at this writing) means that credit if needed. It was originally anticipated that funds spent on the new building would be covered by the sale of the USBC headquarters in Milwaukee. In today’s market, this may take longer than anticipated, while the property may suffer some loss of value. Sale of the IBMHF property in St. Louis is still on track for settlement this month, and hopefully this will occur. Alas, almost everyone has experienced losses in the value of their investments, 401K plans and pension schemes. With time, these will recover, though those already retired or close to retirement may lose out. Bowling center owners are cautioned to batten down the hatches, and to ensure that their bank deposits (including prize funds) are BOWLING HAS SEVERAL ADVANTAGES. IT IS INEXPENSIVE, HAS LOW INVENTORIES AND FEW RECEIVABLES. FINALLY, IT IS A CASH BUSINESS IN A TIME WHEN CASH IS KING. declines. The result will be a loss of value in bowling center land and buildings. Accordingly, acquisition prices are likely to decline, and sellers may have to provide some financing assistance to buyers. Within our industry, equipment manufacturers their investments have taken a hit, just as they are in the process of consolidating their operations into bowling’s new campus in Arlington, Texas. The project is being built with funds from the various organizations, backed up with a one-year bank line of covered by FDIC and do not exceed the insured limits. Until we weather this storm and business returns to normal, perhaps bowling has one big consolation. It very much remains a cash business and, in times like this, cash is king. 98 Bowlers Journal International | November 2008 www.bowlersjournal.com http://www.bowlersjournal.com
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