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Thoughts and questions on ShowBiz's finances leading up to the merger
Topic Started: Feb 8 2015, 11:32 PM (849 Views)
80sgirl
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Electroidal Animal Doctor
There's one thing about the merger I don't get...

What made the ShowBiz people think acquiring PTT would be the answer to their financial problems leading up to the merger? It was a huge risk. Since the company survived it was obviously the right call, but they were deep in the hole and spent money they could barely afford. In 1985 the company lost almost $60 million.

Going by what Aaron said in the Rock-afire documentary, ShowBiz was in a lot of financial trouble even before the video game crash. Everything was going like gangbusters until they opened the 100th store. Around that time the accountants figured out in spite of having a lot of income the company was losing money. They basically stopped building locations except for those that were already approved and in the works until they could figure out where the money was going.

From what I understand most of the financial problems came from expanding too quickly and underestimating the upkeep costs. At that time the whole FEC concept was only a few years old, so no one had a handle on what the costs would be like over the long haul. It's actually a pretty common pitfall with aggressive growth that has claimed many, many businesses over the years. The same thing killed Discovery Zone in the 90s. Some people blame CEC Entertainment for that since they bought many of DZ's closed locations, but they really just picked up the pieces.

Anyway, as ShowBiz was trying to figure out what was going on the crash happened and PTT was in much, much worse financial shape than they were. I think it had a lot to do with how Bushnell was spending the company's money hand over fist on his unrelated pet projects like Sente and Kadabrascope when times were good, but regardless they had very little capital to whether the financial downturn. Also a really common business problem, unfortunately.

Here are some articles written about the merger at the time:

http://business.highbeam.com/409700/article-1G1-3811056/brock-completes-merger-pizza-time-show-biz
http://business.highbeam.com/409700/article-1G1-3477089/showbiz-acquires-60-pizza-time-units

You have to have a Highbeam account to view the whole thing, but it looks like they're short articles because it seems most of the important information is readable. Basically, Brock Hotel Corp. paid off PTTs debts with $35 million in cash and stocks. It's not clear whether the money came from the business or from Robert Brock's personal finances. They did not actually begin to recover until 1986 and began cautious expansion in 1987:

http://business.highbeam.com/409700/article-1G1-4273858/showbiz-pizza-has-86-turnaround-increase-unit-sales
http://business.highbeam.com/409700/article-1G1-5281808/showbiz-pizza-time-tries-expansion-drive

So both companies were in big trouble. In the RAE doc Aaron (who was part owner and had the power to block the merger) said Robert Brock came to him and said it was the only thing that would save them and begged him not to stand in the way. He said in the doc and on a web comment page on CU that he did try to block it, but it's not clear whether he finally acquiesced or was somehow overridden. I'm not sure whether this had anything to do with the worsening relationship and eventual split between ShowBiz Pizza Time and CEI, but it wouldn't surprise me.

Anyway, what are your thoughts on why they decided to merge with PTT rather than try going it alone? Was it the judgement PTT had against them for the broken franchise deal (which another company may have inherited if they didn't scoop up the name)? Something else?
Edited by 80sgirl, Feb 9 2015, 12:57 AM.
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Cyberhawk
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maybe they thought they acquiring the stronger ptt stores could help them those sales from the stores that where doing well could offset the losses from their weaker showbiz stores they could also close the underperforming locations of both ptt and showbiz
Edited by Cyberhawk, Feb 9 2015, 12:19 AM.
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PaulKTF
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They saw it as a way to get out of a bad situation.

If Showbiz hadn't bought PTT, then

A). PTT would have been done by '84.
B). Showbiz would have been done by '85 or '86 at the latest. Showbiz just barely survived and didn't actually start turning a profit until the late 80's (I want to say '88 or '89).

Both chains were just bleeding money.
Edited by PaulKTF, Feb 9 2015, 01:16 AM.
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80sgirl
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Electroidal Animal Doctor
Well, obviously they were both losing money like crazy.

Maybe cutting the dead weight of unprofitable ShowBiz locations wouldn't have left them with enough of a base of stores to keep the company going. I suppose it makes sense that they hoped adding the PTT stores that were still profitable would give them the number of stores they needed to stay afloat long enough to recover.

As much as I disagree with some of the moves the company has made I have to give them credit... They're the only FEC of any size and given the number of closed FECs that litter the business landscape it must not be an easy market to be successful in.
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PaulKTF
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Yeah, it's some small miracle that Showbiz managed to survive. Even after the merger, they were still doing really badly and it all could have fallen apart as late as '87.

A lot of Showbiz and PTT locations closed just before, during, and after the merger. There were some really small locations in dodgy areas that I'm sure were not turning a profit.
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