State of the Industry Report, is it really so?

Each year, the International Association for the Leisure & Entertainment Industry (IALEI) publishes a State of the Industry Report touted as containing benchmarks for the industry. IALEI just published the 11th Annual Report. Unfortunately, the organization's claim isn't exactly true, and many location-based entertainment (LBE) owners and developers are getting into trouble using the report's statistics.

The first issue: it is not a true survey of the industry. It represents only the results of a self-administered survey conducted each year at the FunExpo trade show and convention. Electronic survey kiosks are set up at different locations at the show for attendees to use to take the survey. It is self-selecting, meaning only attendees who decide to take the survey on their own complete it. Also, this year, IALEI solicited surveys from IALEI members, 2004 survey respondents and on the home page of the website. So, the survey results don't represent a statistically valid, random cross sample of the industry, due to its self-selecting methodology. Results are only from those in the industry who decide to attend the convention and use the kiosks or people who choose to answer the survey on-line.

It is not reasonable to assume that survey participants are a true cross-section of the industry. For example, Chuck E. Cheese's, a major player in the industry, does not let any of its employees attend FunExpo. It is likely there are many small LBE owners who can't take time away from their business to attend or can't afford to attend. Many small facilities don't belong to IALEI, so it is unlikely they would have visited the home page and answered the survey there. Results may very well be skewed to larger facilities. As a result of all the above, the sample of surveys used in the report cannot be considered a statistically significant cross-sectional sample of the industry.

In the organization's June Fun Extra, IALEI said, "The report can help you manage your business. For example, should you have a single admittance price or pay-as-you-go pricing? What do most businesses like yours do?"

There is no way to tell what most businesses "like yours" do from the survey results. Suppose you are in a major metropolitan area where single admittance price has become the expectation with customers. The report doesn't break out who is doing what into any specific area in which you can compare your LBE.

IALEI says the report can also help you answer the question, "Am I holding enough birthday parties?" Well, if you are an X-size facility in an M-size market and you have D, E, F, and G attractions and one major competitor, there is no way that the report can give you any guidance on this question.

Where we have seen this State of the Industry Report do the most damage is with new LBE developers. We have actually seen business plans where developers are using averages from the report. The average elevation of a rollercoaster is a straight horizontal line. The average doesn't tell you anything about the rollercoaster. Averages can get you in a lot of trouble, as they don't reflect the specifics of a particular project in a particular market. Prices in New York and New Jersey are much higher than in Arkansas and West Virginia. Average prices do not reflect any of these situations. Using a report average in New York could result in significantly understated revenues, which could indicate a project is not feasible when in fact it is. Using an average price in Arkansas would probably significantly overstate revenues, resulting in a developed LBE that goes broke.

Another problem with the survey is that at FunExpo, survey respondents are answering the questions on percentages, per caps, attendance, etc., for their facilities from memory, not from actual numbers from their financial and other reports.

There is nothing wrong with IALEI conducting its annual sample survey each year. It can indicate some possible trends, at least amongst each year's attendees (the composition of which can vary year to year). The effort to gather information for purposes of comparison from the same participants over several years is a good step in the direction of more accurately identifying trends. The problem is that IALEI gives the report to its members, touting it as a great benchmark tool, and thus a member benefit, and sells it to non-member developers without being intellectually honest on what the report truly is -- and how statistically, it is not what it is presented to be. There is no clear disclaimer about its validity for use.