Family succession planning can be tricky. While Jerry and Matisun Barton would like to move toward retirement, they have experienced many challenges with leaving their company, Las Vegas Mini Gran Prix, to their son, Taylor. A former Nascar driver with high expectations and a short fuse, Taylor struggles to fit in with the staff. Aside from the inter-personal issues with Taylor and the staff, there is also a matter of debt that Jerry and Matisun are in for the business. They took out a $2 million loan to buy out the business from their partner while also paying a land lease.
The Las Vegas Mini Gran Prix sits on 7 acres of land which makes it an attractive investment for Marcus Lemonis. Although he is interested in the family fun center business because he loves Nascar and go-carting, he is most interested in the real estate portion of the company. Jerry and Matisun own 100% of the business but have a $2 million loan for this investment. They also have a land lease that they are paying to the trust of their former partner. Every month, they are paying $18,000 to the trust for the land lease while simultaneously paying on their $2 million business loan. Because they do not have the capital to buy the land, they need to consolidate their debt and get a mortgage to buy the land. By doing this, their $18,000 payment would be going towards ownership rather than just leasing the land with nothing to show for it.
As he learns more about the actual business, Marcus learned that the Las Vegas Mini Gran Prix made $2.4 million in revenue last year. Their revenue stream was 60% go-kart revenue, 10% video games, concessions were an additional 5% and the remaining 25% of revenue came from kiddie rides and other attractions. The Las Vegas Mini Gran Prix is the self-proclaimed birthday party capital of the world, attracting a lot of revenue from parties, however, they do have other competition such as indoor go-kart tracks and chain companies such as Dave and Busters. On the $2.4 million in revenue from last year, there was only a $44,000 profit which does not seem like enough profit to Marcus. He would like to see the Las Vegas Mini Gran Prix work to increase their profit by reallocating space in their facility. If they removed unused tables and added more games and merchandise for sale such as t-shirts, they could definitely increase their profit.
One of Marcus’ major concerns is Jerry and Matisun’s son, Taylor. It is clear that he does not know how to treat his staff or properly manage a business. Taylor often yells at a demeans his employees publically. He also shows no respect for his parents because he does not agree with their past business decisions. The way that Taylor talks to both the staff and his family is unacceptable and Marcus makes him apologize. He would like to work with Taylor to make him appreciate people and their contributions more than he currently is.
After reviewing the whole company, Marcus decided to offer to invest only in the real estate portion of the company. He does not want equity or ownership in the Las Vegas Mini Gran Prix. As long as there is a good operational business sitting on the land he invests in, he knows that he will get a good return on his investment. To do this, Marus suggests that they retire the $2 million loan. He proposes they call the landlord/property owner and offer them $3 million to buy the land and get rid of the note. This will allow them to pay a mortgage payment instead of a rent payment. For a $3 million loan, the bank will require them to put 20% down which is $600,000. Marcus will provide them the cash they need for the downpayment or his will provide the financing. Jerry and Matisun agree to Marcus’ proposal.
Real Estate = Solid Investment #TheProfit
— CNBC's The Profit (@TheProfitCNBC) December 18, 2019
Although he is not directly investing in the business, he wants to help them increase their profits to get a healthy return on his investment. He feels that the family fun center looks tired and could benefit from some modernization. By adding more video games to the 12,000 square foot building, Marcus thinks they could easily add $200,000 in revenue per year. He also would like to spruce up the outside portion of the business to give it more curb appeal. With real estate investments, Marcus always suggests that businesses conduct what he calls “4 corners and 4 walls.” This process allows business owners to walk the land corner to corner to make sure that it’s making a good first impression and have good curb appeal. They then do the same thing with the building and make sure the structure is modern and visually appealing.
In looking to help find additional revenue streams, Marcus arranged for a meeting with a marketing and merchandising company that would help them to refresh their logo. After showing them many t-shirt designs, Marcus predicts that by adding memorabilia sales, they could increase revenue by over $250,000. Unfortunately, Jerry is very resistant to change and every change that Marcus suggests, he pushes back on. Marcus begins to question why he is trying to help when it’s clear that they are not open to change.
Although Marcus is impressed with the growth that he has seen in Taylor and with the outside of the property (repainting, clean-up, and refurbishment of the go-karts), he is growing increasingly frustrated with Jerry’s reluctance to change anything with the business. Jerry has not implemented any of the changes such as adding new games or memorabilia to increase revenue. He also will not consider any aesthetic changes to the inside of the building. Marcus would like to meet with Jerry and Matisun to better understand if they want to move this business forward if they want to stay where they are.
When they meet, Marcus learns that Jerry has contacted the trustee of the land, and they are on board with them offering $3 million for both the land and the remainder of the business loan, however, it appears that they are cutting Marcus out of their previously agreed-upon transaction. Jerry tells Marcus that they are working with the bank to get the money for the loan and they no longer want to partner with him on the real estate transaction. Marcus parts ways with the Las Vegas Mini Gran Prix feeling like although an investment opportunity could not be reached, he left the business better than he found it.
— CNBC's The Profit (@TheProfitCNBC) December 18, 2019
What did you think of this episode of “The Profit?” Would you have partnered with Marcus if you were Jerry? How do you feel about Jerry backing out of the deal after Marcus already invested a lot of time into helping them establish a path forward to increase their revenue and revitalize their business? Do you think Taylor will remain changed and more respectful of his employees? Start the conversation in the comments below!!