In early December of last year I saw a post from Netheads that they were closing their doors after 13 years in business. LAN centers have always come and gone all over the world, but this one hit pretty close to home for me. I visited Netheads before we opened eBash to get an idea of how some people were running game centers and it was quite a surprise to hear they were closing.
I noticed that they were soliciting their equipment/business for sale and so I shot an email to Bill Noel the owner/founder to get more details. We started talking on the phone and I scheduled a meeting to go view the store and see what kind of shape everything was in. I was amazed when I arrived to find probably the nicest LAN Center that has ever been built in the highest income area in the entire state of Indiana.
So why did they decide to close? After talking with Bill in those first few meetings it was apparent that there were quite a few factors. Their original store was located in the biggest bar area of Indianapolis (Broad Ripple) and Bill had a restaurant make an offer he couldn’t refuse to buy the building he owned. So he took the proceeds from the sale and moved Netheads from Broad Ripple to main street in Carmel, IN which is just north of the 465 loop around Indy.
At their first location, Netheads was frequented primarily by older gamers who wanted to grab a beer and a burger from their in-house kitchen. They had some younger gamers playing, but the average age was easily over 21. For the majority of its life in the first location Netheads only offered PC gaming also.
When they moved they also built a new kitchen, but that side of their business had slowly decreased from all kinds of prepared food offerings to more of a pizza oven and a pre-cooked burger warmed in a microwave. Also in the new location they were not able to get a liquor license because there was a church in the same strip center and in Indiana you cannot obtain a permit within 100 yards of a church.
The city of Carmel has the craziest laws for signage that I have seen anywhere. The new location did not have a sign by the road, but the landlord claimed that they had approval from the city to build a sign that would allow each tenant to put their panel out by the traffic. That was never done in the 5 years Netheads was in the current location. But no signage by the road was only half the problem. The parking lot has large trees that completely cover the front of the building from the road so you cannot see the business signs on the building.
The game center portion of Nethead’s business was down 85% from its prime days in the old location. The lease was finishing up in April of 2013 so Bill just decided to close the doors, finish the lease and liquidate the equipment. That is when I came in and after analyzing the business I made Bill an offer to purchase the assets and assume the remainder of the lease.
At the same time I was in discussions with Eric Osar who owned Crazy Penguins Gaming in Rockford, IL. They had announced also that the store would be closing at the end of 2012. I made him an offer and we agreed on a price to purchase his customer list and assets. At this point I went to 3 banks to finance the purchase of the stores. One of the three banks was extremely interested because they had branches near all of the stores and we could also move our merchant processing (credit cards) to their bank at those locations.
The next 3 weeks we spent getting together all sorts of documentation and plans for the financing of these two stores. To make a long story short, the bank led us to believe the financing was always “almost finished” and in the end someone higher up at a building in some other city finally denied the entire thing. We were only asking to borrow 25% of the liquidation value of the equipment and could not get financing.
I was devastated. Eric up in Rockford had kept his store running an extra month for nothing expecting me to buy the store and keep it running. He began the closing and liquidation process a month later than he wanted. Bill at Netheads was ready to walk away from our agreement. At the last moment my wife and I cleaned out our savings account and I took a cashier’s check over to Indy to purchase Netheads and give the landlord a month’s deposit, another month’s rent and sign the assumption of the lease agreement.
At this point, most people thought I had gone mad, and that was probably partially true. The lease was only good for 3 more months, but the entire time I had been discussing with the landlord the details on what I expected him to do so that we could sign a new long-term lease. The space to the east of the Netheads location had 3000 sq feet that wasn’t rented the entire 5 years that Netheads was in that location. We signed the purchase agreement on Thursday February 7th.
Before I explain what happened next, let me defend my insanity for a bit. Netheads as a video game center location did not make money. The store sales were around a measly $6k/month for regular business. Our store model requires a minimum of $15k/month in sales. But they had a summer camp program that was developed over 4 years and sells out every single summer (www.createandplaycamps.com). THAT was the main reason I put everything on the line to purchase this business. The camp teaches basic video game design to kids ages 10-14 and is an outstanding program. The landlord knew that the summer was the bread-and-butter for this purchase.
The bomb was dropped on me 4 days later, on Monday February 11th. I was at the new store, calling around and getting utilities transferred into our name and made a call to a sign location to contract the installation of our eBash sign on the front of the building. They wanted me to ask the landlord who was responsible for removing the old sign and repairing the front of the building where it was mounted. I emailed the landlord the question and about 5 minutes later the phone rang. It was the landlord.
He suggested on the phone that I probably shouldn’t spend the money to get our sign mounted because the church next door had been given a lease option the previous Friday (the DAY after I signed the assumption of the Nethead’s lease). The church would be taking over our location as of June 1. I was dumbfounded. My wife to this day has no idea what happened to me, because I am pretty intense and sometimes can be hotheaded. Instead I just sat there and couldn’t believe was I was hearing.
So I put everything I had into buying the equipment in this store so that we could open a new eBash in Indianapolis and I was counting on the summer camp program to cash flow the purchase. And now we had to move the entire store somewhere else in 3 months if we wanted to be able to host the camps that summer. There were all sorts of other pressures at the same time also. For example the main advertising for the camp program was in a mailing that had a deadline the next day for their “summer camp” issue. They needed my commitment to run the ad, which was the primary source for filling their 171 spots the previous year of camp.
I spent 10 hours the next day sitting by the window of the front of the store hoping to catch the pastor of the church in person to ask them about their plans. I had his cell number and left multiple messages and called the church number and left him messages at his office. Finally around 5 PM he called me and agreed to meet me at the church at 7 PM that night with his building manager.
I explained the entire situation to him and told him how crucial the summer camp program was to my purchase of the Netheads equipment and location. I told him the landlord gave me no indication of talking to them about taking over the space and basically begged them for the ability to sublease from them through the summer. They were very nice and had a building meeting that coming Friday, they would meet about it and call me to let me know what they decided.
Throughout the next two weeks we came to find out that the church’s main sanctuary was right next door to our store. They were growing and needed to knock down the wall and make their sanctuary bigger. However the wall between our spaces was not only a load-bearing wall but also a firewall. Even still today there is still no word on if the project can even happen or not.
The great news is that while they have had engineering firms checking the space out they gave us permission to extend our lease through August with the landlord. I signed the amendment to the lease about 10 days ago. The camp program is a go for 2013 at that location and we opened up early registration for camps. Already we have booked 23 spots.
Throughout this month we have also been opening on the weekends to regular customers and I have been extremely surprised at how many customers we are drawing with no advertising at all. Simply through social media (www.facebook.com/ebashterrehaute and www.facebook.com/ebashindianapolis) and our website (www.eBash.com) we have promoted these test weekends.
Because of the need to move the store I have been talking with other property owners around the area and we have some leads on locations that are even better than the current one. I have met someone who I feel could become a HUGE asset in building out more stores over the next few years. Now we are in discussions for not only moving the new store in Carmel but also maybe opening up a store in the Noblesville and Castleton Square Mall areas in Indy and perhaps even on the south side in Greenwood.
Some of the details of why I think the stores like Netheads (13 years) and Crazy Penguins Gaming (8 years) rode the wave of success years ago and have been slowly declining I will go into in later blogs.
Max Kaftanati you asked for the story about Netheads, so this is for you. 🙂