Bowlero IPO: CEO details ‘growth vectors’ for bowling in North America

Bowlero CEO Tom Shannon joins Yahoo Finance Live to discuss the bowling center company’s public debut and runway for growth in North America.

Video Transcript

BRIAN SOZZI: The country's biggest pure play bowling center Bowlero is going public today after merging with a SPAC called Isis Acquisition Corp. The transaction values Bowlero at $2.6 billion. Bowlero was founded in 1997 when entrepreneur Tom Shannon purchased the original Bowl-Mor Lanes in New York City, which opened in 1938.

Today, the company has hundreds of locations opened across the US that offer way more than bowling. Bowlero founder and CEO Tom Shannon joins us now from the New York Stock Exchange. Tom, congrats on the debut. I should say, full disclosure, longtime bowler here. So I understand what you do.

Take us through the investment thesis on Bowlero here.

TOM SHANNON: OK, great. Well, we are the largest owner and operator of bowling centers in the world. And most people don't know, but bowling is a growing business. The industry has been growing at a steady clip. But our same store sales over the last eight years have been growing at more than 5%, which is far, far beyond most leisure and hospitality businesses.

It's a very high margin business. There's no variable cost to 2/3 of our revenue. So bowling and shoes have no cost of goods sold. And that results in about a 50%-plus EBITDA margin at the center level and a mid-40s, let's say, EBITDA margin at the center level. It's very high margin, very high return business.

We are eight times larger than the number two bowling player in the world. And yet we only have about 7% US market share. So we have a long runway of growth and fantastic economics that will propel us there.

BRIAN SOZZI: I mentioned to you in break, Tom, I have several Bowleros by me where I live on Long Island. And I noticed on the weekends, the parking lots have started to fill back up. What are you seeing right now in the business in terms of sales and profits?

TOM SHANNON: Well, we came away back out of COVID. Once the restrictions were lifted, we saw record sales on a retail basis, up more than 20%. That's the walk-in casual bowler, which is by far the largest share of our revenue segment. So sales are the strongest they've ever been.

We've also acquired and built a number of centers in the last six months, I think on order of about 30 new locations, and a pipeline of probably 30 more behind that. So record sales. We're doing more volume on a lower cost basis. So our margins have expanded dramatically. And we're growing the business through acquisitions and building new locations.

JULIE HYMAN: Hey, Tom, it's Julie here. Also avid bowler. My mom was a duckpin bowler way back when, although most people don't know what that is. But in any case, on the acquisition front, tell us more about that As you said, you only have 7% market share in the US. It's a very mom and pop business. How many bowling alleys are you guys going to buy and build in the next year, two years, three years?

TOM SHANNON: Well, we only have about 7% US market share. There are 3,500 independently owned and operated bowling centers in the US. And so I think that we could easily go from our current-- and I think we're right around 320 locations. It's always moving. So it's hard to keep track. I think that number could be 700 in North America in the next five years.

There are a lot of mom and pop proprietors who are elderly at this point, who are looking to exit. And there's also probably 200 new build opportunities in various markets around North America. So the combination of the two give us a lot of growth vectors.

BRIAN SOZZI: Tom, at the height of my bowling career, I bowled in a couple leagues a week. And I didn't like to be bothered. I wore a special shirt, very loose-fitting, wore the right pants. I just wanted my game to be perfect. I didn't want to be bothered on the lanes by flickering lights.

I mean, what do you tell league bowlers like me as you transition of the business to just, I think, broaden your total addressable market? I mean, how do you keep those league fans coming back every week?

TOM SHANNON: Well, the league bowlers bowl in the normal conditions, white light, no music. There are social leagues that bowl with black light, videos on the walls, and music. But those are the minority of the leagues. Traditional league still bowl in the normal environment that you probably grew up in and are referencing.

So we still do a lot of league business. I think pre-COVID, we were doing about $92 million just of league revenue. Plus there's ancillary food and beverage. So it's still a meaningful part of our business.

We own the Professional Bowlers Association, which is the televised sport bowling that you see on Fox, Fox Sports channel, and CBS. So we've invested a lot into content and prize funds, et cetera to really sort of increase viewer awareness and the production quality of the sport. So that's one way that we're showing our commitment to the sport side of bowling, the league side of bowling is through our ownership and promotion of the PBA.

BRIAN SOZZI: Tom, how did you get involved in this?

TOM SHANNON: Very randomly. I was invited to a birthday party at a bowling alley in New York. I had moved to New York City after business school. And a girl invited me to her friend's birthday party. And I went down to the original Bowl-Mor Lanes location on University Place in Greenwich Village. And I looked around, and I said, wow.

I always loved to bowl as a kid. I thought bowling alleys were cool. But they were pretty run down. Let's face it. They hadn't had a lot of investment in decades. And Bowl-Mor in Union Square was a great example of that, literally no investment in decades.

And so I bought it. It was actually losing money, which is frankly hard to do, given the margins in our business. But it was losing money and actually slated to close. I bought it. I reinvested in it heavily. And we took that one location from a million dollars a year in revenue to 15 million in revenue. It was the highest grossing bowling alley in the world for a long time. It became the Genesis of the company.

Everything that we learned there in our test kitchen, we applied. And it was really the DNA of our footprint, which now is well over 300 locations and growing.

BRIAN SOZZI: Tom, real quick before I let you go, what's your high game?

TOM SHANNON: 236. And it'll never happen again.

BRIAN SOZZI: Every true bowler knows their high game. We'll leave it there. Bowlero founder and CEO Tom Shannon, good to see you. Congrats on the debut.