In recent years, private equity (PE) firms have increasingly turned their attention to a growing sector once considered niche: entertainment complexes. From large-scale family entertainment centers (FECs) to mixed-use developments combining retail, dining, cinemas, arcades, esports arenas, and even indoor amusement parks, entertainment complexes offer a unique blend of real estate, hospitality, and experiential investment.
The question many investors are asking is: are the returns worth the risk?
Why PE is Betting on Entertainment Complexes
Private equity firms are traditionally attracted to sectors that offer:
- Scalability
- Recurring revenue
- Fragmented ownership ripe for consolidation
- High barriers to entry once developed
Entertainment complexes check most of these boxes. As consumers increasingly seek experiences over goods—especially post-pandemic—PE sees an opportunity to capitalize on the rising demand for “destination entertainment.”
In 2023 and 2024, PE investments in this space have targeted brands such as Topgolf, Dave & Buster’s, Main Event, Punch Bowl Social, and numerous regional players offering immersive experiences that appeal to a wide age range.
Key Drivers of Returns
1. Multiple Revenue Streams
Entertainment complexes often pull in income from a mix of:
- Admissions/ticket sales
- Food and beverage
- Merchandise
- Sponsorships and advertising
- Private events and corporate rentals
- Loyalty programs and memberships
This diversification creates resilience against cyclical downturns in one category. For instance, even if arcade revenue dips, event bookings or food and beverage sales may rise.
2. Consumer Stickiness & Data
Consumers tend to spend more time and money per visit at entertainment complexes than at traditional retail. Many operators now integrate mobile apps, digital ticketing, loyalty programs, and interactive gaming, creating a treasure trove of customer data. PE firms increasingly value these platforms for their long-term monetization potential.
3. Real Estate Appreciation
Many PE-owned complexes are on valuable parcels of land. The underlying real estate provides a safety net or an avenue for long-term gains through redevelopment, sale-leasebacks, or refinancing.
Recent Returns: What the Numbers Show
While returns vary based on the scale, geography, and concept of the complex, average internal rates of return (IRR) in PE-led deals range from:
- 14% to 20% for stabilized properties and proven concepts
- 20% to 30%+ for roll-ups, distressed acquisitions, or new-concept development
For example:
- Topgolf, before merging with Callaway Golf, had shown EBITDA growth of over 25% annually, driven by rapid unit expansion and high per-visit spend.
- PE-backed investments in regional FEC chains saw 2x to 4x multiples on invested capital (MOIC) within 5–7 years, especially when real estate was part of the acquisition.
Risk Factors
Returns don’t come without risk. Key concerns for investors include:
1. High CapEx Requirements
Entertainment complexes require significant upfront capital to build or renovate, and ongoing reinvestment to stay relevant and competitive.
2. Economic Sensitivity
Discretionary entertainment spending is among the first to be cut during recessions. While post-COVID demand surged, that enthusiasm could cool in the face of inflation or economic slowdown.
3. Operational Complexity
Running an entertainment complex is not like managing a traditional store. It demands expertise in food service, hospitality, events, and technology, and small operational missteps can quickly erode margins.
4. Changing Consumer Tastes
Trends in entertainment evolve fast. A once-hot concept (like escape rooms or VR lounges) can quickly become passé if not refreshed or rebranded.
The Outlook: Consolidation & Innovation
As the market matures, private equity is expected to focus on:
- Consolidation: Rolling up smaller regional operators to achieve economies of scale.
- Tech Integration: Using AI, mobile apps, and VR/AR to personalize experiences and boost spend per visit.
- Multi-use Synergies: Blending entertainment with co-working, retail, and residential elements to maximize asset utilization.
In short, PE is betting that entertainment complexes can become the anchor tenants of the experience economy—drawing in foot traffic, generating cross-platform revenue, and creating long-term value.
Conclusion
Private equity returns on entertainment complexes are promising but nuanced. The right investments—backed by strong management, brand loyalty, innovative experiences, and savvy real estate strategies—can yield outstanding returns. However, the space remains operationally intensive and sensitive to consumer behavior shifts.
As the economy continues to evolve, so too will the playbook for success in this dynamic and exciting sector.
