Sega’s old arcades are making money again as new owners announce 3.175-billion yen profit

Game centers are back in the black after a 2-billion-yen-plus loss just a year earlier.

A year and a half ago gamers in Japan were saddened when Sega left the arcade management business, selling off its nationwide amusement facilities. Though it had been almost 20 years since Sega had stopped producing its own home consoles, the company had remained a stalwart of the arcade scene in Japan with over 190 branches, and its departure seemed like a blow not just to Sega, but to Japan’s game center culture in general.

So it’s heartening to hear that Sega’s old arcades are now once again making a profit under their new owners.

Sega’s exit from the arcade management industry took the form of selling the stock of Sega Entertainment (the Sega subsidiary in charge of arcade management) to a Tokyo-based company called Genda. Genda first changed the company’s name from Sega Entertainment to Genda Sega Entertainment, and then to just Genda GiGO Entertainment. The important thing to take away here is that Genda GiGO Entertainment is specifically the Genda subsidiary that’s managing Sega’s old arcades today, and in its most recent financial report, Genda GiGO Entertainment has posted a profit of 3.175 billion yen (roughly US$23.7) for the year, a major reversal from the 2.308 billion-yen loss it suffered the previous year, nine months of which the arcades were still being managed by Sega for.

People must be swarming to the arcades under Genda GiGO’s management, right? Well, not exactly. Genda GiGO released its most recent financial report on May 26, and it covers the period from March to December of 2021 (it’s not quite a full 12 months because Sega Entertainment used to start its business year in the spring, but Genda GiGO has chosen to start its in January). Compared to March-December 2020, when Sega was still in charge, the arcades’ sales, i.e. their earnings from customers coming in and putting coins in the machines, were up 5.1 percent for 2021.

That’s a nice increase, but not nearly enough to account for the nearly five billion-yen turnaround the company reported. So what does account for it? Accounting.

Arcade game machines aren’t cheap, which means their deprecation costs, calculated as a proportion of their listed value, can be enormous. Following the transfer of ownership, Genda GiGO began reevaluating the value of those assets and taking what’s known in accounting as an impairment loss, according to Japanese financial portal Dime. In simplified terms, an impairment loss is a reduction in the value of a company’s assets that can be triggered when its fair value is considered to be less than the value listed on its balance sheet, which begins as the full purchase price of the asset. By taking impairment losses that lower the listed value of their assets, Genda GiGO can now enjoy the benefits of lower depreciation costs (again, since depreciation costs are calculated as a percentage of asset value), making it much easier to turn bigger profits off of the machines even without a significant increase in revenue.

For reference, in March of 2020, the last full business year with Sega in charge, the company’s fixed assets were listed at slightly less than 24.8 billion yen, while in January of 2022, the first all-Genda GiGO management period, its fixed assets were listed at less than half of that, roughly 11.5 billion yen.

So boiling down all of those numbers, Genda GiGO hasn’t so much ushered in a renaissance for arcades in Japan so much as extensively restructured its expenses while achieving a modest uptick in convincing people to come in and play some games. Still, arcades are, after all, businesses, and being back in the black is itself an encouraging sign of life right now for the ones Genda GiGO is running.

Sources: Dime via Hachima Kiko, Genda GiGO Entertainment
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