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Movie Theater Financing Terms
Posted on 5/26/13 at 5:19 pm
Posted on 5/26/13 at 5:19 pm
Where do movie theaters get their financing, and what kind of terms do they usually get?
On the surface, providing a loan for a movie theater seems like a good way to lose your shirt.
The movie technology changes so often that the theaters are quickly outdated. So it would be nice to have the loan paid off in less than 15 years. But how good is the net cash flow with so much of the take from tickets going to the movie companies?
They basically need enough concessions to cover the expenses then have enough left over to cover the cost of building the actual theater (i.e. the loan principal, plus interest).
And if the theater defaults on the loan, you are stuck with a useless, out of date building that will most likely be bulldozed to make room for something else. So if you feel good about the possible real estate footprint appreciating in value, that may help.
On the surface, providing a loan for a movie theater seems like a good way to lose your shirt.
The movie technology changes so often that the theaters are quickly outdated. So it would be nice to have the loan paid off in less than 15 years. But how good is the net cash flow with so much of the take from tickets going to the movie companies?
They basically need enough concessions to cover the expenses then have enough left over to cover the cost of building the actual theater (i.e. the loan principal, plus interest).
And if the theater defaults on the loan, you are stuck with a useless, out of date building that will most likely be bulldozed to make room for something else. So if you feel good about the possible real estate footprint appreciating in value, that may help.
2
Posted on 5/26/13 at 7:02 pm to Bayou Tiger
Are you trying to start a movie theater or just a casual interest?
Posted on 5/26/13 at 9:46 pm to GenesChin
Jusr curious
Posted on 5/27/13 at 7:42 am to Bayou Tiger
Tinseltown off Siegen comes to mind
Posted on 5/27/13 at 8:33 am to TigerRob20
Since most movie theaters are part of a larger development, the real estate company is the one taking on the high risk. They probably finance the whole development together, so the risk is diluted.
Posted on 5/27/13 at 8:34 am to Bayou Tiger
I used to work at a theater back in the day, that hardly makes me an expert, but very little of the theater's cash flow comes from actual ticket sales.
Concessions is where the profit comes from. Almost 90% of it. For example:
Large soda sells for $5.50, it costs the theater < $.10 to make. Profit of $5.40, or 5,400%.
Popcorn is actually the largest profit maker if I remember correctly, even bigger than soda, slushy.
Nachos and candy by comparison suck, barely 100%-200% profit. But it is still profit, and it's essential to keep the theater in business.
They also make money on advertising, and the arcade machines, but not that much. If the concessions die, the theater dies.
Concessions is where the profit comes from. Almost 90% of it. For example:
Large soda sells for $5.50, it costs the theater < $.10 to make. Profit of $5.40, or 5,400%.
Popcorn is actually the largest profit maker if I remember correctly, even bigger than soda, slushy.
Nachos and candy by comparison suck, barely 100%-200% profit. But it is still profit, and it's essential to keep the theater in business.
They also make money on advertising, and the arcade machines, but not that much. If the concessions die, the theater dies.
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