United States?

[Robbo]

We might think we got it hard over here in the UK with regard to the financial straits we find ourselves in but take a time-out to consider the plight of our paintball cousins across the pond in the US.
They got it bad, and it’s getting worse; we all know they have undergone a turnover contraction that lies somewhere between 50 and 75% dependent upon which company you are or whatever section of the paintball market you inhabit.

Downturn figures of this order of magnitude drastically resculpt our sport’s landscape, be it from the site side of our industry, all the way over to the pro team event leagues .... nobody is immune from the effects of this recent financial phenomenon.
I have been hearing unsettling tales from the US and as the shadows assemble on the horizon, I’m not sure what’s coming, but sure as sh!t, something ominous is looking to come our way.

The recession we have undergone has had the effect of putting hundreds of stores out of business in the States and the industry has responded by down-sizing, aggregating or in some cases, withering away.
I’m hearing unrelenting rumours regarding some of the companies we still have that are left standing; whispers of take-overs, buy-outs, assimilations and imminent demises, all of which prove unsettling for the marketplace.
What we can say is, Kee are big ... and getting bigger.

They are fast becoming the behemoth of paintball and already have their first tentative fingers wrapping themselves around the control of our sport.
We must remember though.... the more competition we have in our sport [in any sport for that matter] then the more competitive is the pricing of products, this a basic economic truth but one that is also being eroded.
Paintball’s lifeblood is the sale of paint, this drives our industry, and on the back of these sales, companies have coupled many a product to widen the sale’s remit.

One of the big problems our sport has had over the past few years is the ridiculously low price of paint, and this situation is the result of a desperate quest to gain or hang on to, market share ..... problem being, this strategy was dragging the whole of the industry down.
Kee has for years, effectively controlled the price of paint, and in doing so, exposed a lot of other companies to pressures that slowly but surely, have conspired to drag these other companies toward the abyss.
In desperate times such as these, some people tend to follow suit and do desperate things; ‘back stabbing’ and ‘betrayal’ have thrust themselves forward into the rhetoric of these times and even in Europe, there are instances of this unfolding ... and all for the sake of money.

It’s actually greed by any other name .....

I’m not naive, I fully realise the influence money has on some individuals but these selfish acts of betrayal have only gone to undermine the fabric of our industry.
Some people often remark that ‘money is evil’, this actually subverts the truth of the matter, 'people do evil things' is a more accurate description of what’s going on and most certainly applies to every other instance of outright greed we witness in life.

And so, what are we left with?
Well, as for the European side of things?
Whilst important as an addendum to the US sales sheet, we won’t play a much of a role in determining the ultimate directions of the big guns in the US.
The important factors are:-

a) The present state of the market place in the US
b) The nature of the companies left standing

We all know the present state of the market is at the nadir of the worst decline we as an industry have ever undergone ... and what’s more, the negative slope is steepening.
As an indicator to just how bad things are, historically, the Christmas period quarter is the best quarter of the year in terms of turnover, the worst quarter is always the summer quarter that includes July.

This has always been the nature of the US market but ... this last year bore witness to the Christmas period being worse than the July quarter .... this may not mean much to Joe Paintballer on the street but to anybody who is even mildly interested in the state of our industry, it is a desperately unique and unwelcome phenomenon.

The present situation is bleak and foreboding, the future is unsure and looking ominous, all in all, people in the industry are experiencing an era of unrelenting pressure and doubt ....

And as to the nature of the companies we have left standing?
Kee stand like a monolith, hoovering up strategically identified companies such as JT, XO, WPN [Taiwan] and of course, they already own the old RPS plant in Florida.
All of these companies produce paint ..... it would seem as though the American paint producing industry is slowly but surely aggregating into a massive shape looking a helluva lot like the behemoth that is Kee.

But Kee don’t have it all their way, in theory at least .... a shaky opponent across their northern border with Canada stands Procaps.
Richmond Italia created that company and with him at the helm, it grew at a phenomenal rate and rightly became one of the very big hitters in the world of paint producers.
Unfortunately for Procaps, Richmond sold the company and since the day of Richmond’s departure, that company began to struggle.

But, it’s still there ... just.
The guy who runs Procaps now, Rob Molyneux, has all the financial finesse of a rather large three-legged hippoo.
Everything that made Procaps has been jettisoned in favour of a supposed business orientated strategy of operation, problem being, paintball is unlike a lot of industries.

Conventional models of operation don’t apply to paintball, Richmond created and developed that company, and sold it for over 100 million dollars, this must tell us something significant about the way he operated.
He developed that business with his personality and grew it by getting out there and networking with his customer base; basically, the financial fate of Procaps was intrinsically linked to the way Richmond went about his business, Richmond developed Procaps personally .... and that was his ‘magic’ formula.

The present state of affairs with Procaps has a strategy of operation that may well correspond with the business rule book but the reality of their operation is somewhat different; the Procaps’ profit landscape looks like a big dollop of Semtex has been shoved up it and let off ... it’s a fackin' mess!


Unfortunately, our marketplace didn’t read that business rule book and responded accordingly when Molyneux began his quest for salvation.

His quest has now morphed into a desperate struggle of survival ... but with Kee in ‘hoovering up’ mode, I think Procaps has now had its legs splayed wide open and the time for the subsequent raping and pillaging is upon them .... Procaps is well and truly prone to a buy-out.
The problem with buying Procaps though is the outstanding lawsuits it has running against it and this may well prove to be a very real deterrent to any prospective buyer.
It certainly makes financial sense for Kee to hoover up Procaps because it consolidates the North American paintball manufacturing base in one fell swoop; the power that manoeuvre creates is enormous and in a practical sense borders on potential problems such as monopoly trading.

Even so, this is maybe what’s needed to create the genesis of our recovery, after all, wasn’t it the fact that too much competition created the problems in the first place?
The Kee behemoth will be hard to stop in whatever it tries to do but maybe it’s something the marketplace needs, time will tell but it would be interesting to hear what you guys think about the consolidation that is going across the pond ... is it good or bad?

Will it help paintball over here or not?
So many questions, so many possibilities ........ hmmmm.....we live in interesting times it seems.

 

[Mark Toye-Nexus]

Isn't competition, even in a restricted market more healthy than a monopoly? If a monopoly develops, as you have suggested, then what is the medium to long term outlook? I wouldnt want to see the market dominated (strangulated more like) by one huge conglomerate that will set prices without reference to all the usual market forces.

But maybe paintball is pretty unique in terms of the fact that the industry and the game are intertwined irrevocably. As a consumer game the health of the industry affects the game and vise versa. I cant think of many other sports that have that over reliance on each other, after all football doesnt stop being played because Adidas and Umbro go out of business (and they have their fingers in so many pies that they wont die if football died). I know its way more complicated than that of course but basically if Kee and Procaps ceased trading, paintball would fall over in a very short period of time and we'd all be airsofting quicker than Piper can consume a Happy Meal. In those terms maybe it is 'healthy' that a large element of the competition is removed and that sustainable pricing is reintroduced.

What concerns me is that we could move back to the situation as it used to exist where access to paintball becomes more expensive to the point of restrictive to a large proportion of those that do play regularly at present (or at least just prior to our current economic difficulties). The business model may look better by ditching volume but that reduction in volume in terms of reduced numbers of fingers behind site guns could also be damaging in the long term surely? We have lost so many participants because they cant afford to play at current pricing levels. Increasing them only excerbates that situation.

But, if industry cannot sustain those pricing levels than in the short term we need stability and the industry will balance itself as necessary, in the long term I would personally like to see high turn over/volume due to a return of the players and a corresponding reduction in cost.

Access to more not restriction by cost has to be a goal.

 

[Missy-Q]

It's moving to 2.

The big players by the end of the year will be Kee and Tippmann.

The questions are - when will Tippmann buy Procaps, and will Posterivo get there first?

 

[Piper]

It's moving to 2.

The big players by the end of the year will be Kee and Tippmann.

The questions are - when will Tippmann buy Procaps, and will Posterivo get there first?

I heard KEE were looking at Procaps and Tippmann.................

 

[Missy-Q]

KEE can't afford Tippmann right now.

 

[Robbo]

Just How Low Can We Go?

Mark, I think to some degree we have to abandon the standard business 101 rule book when assessing today's plight.
The paintball industry is an extremely peculiar business and the usual models that are applied in a general sense to different industries, are not really appropriate for paintball.

That said, we have to acknowledge that the competition we endured when companies were all scrambling for the acquisition of market share for paint consequently sentenced us to a dark era of recessive pressures; paint prices were ridiculously low and whilst players, teams and sites enjoyed this low pricing, it was slowly but surely sounding the death knell for the industry.
For whom the bell tolled?

Nobody knew who was for the long walk at the time but as time went by, company after company took that unceremonious walk to the paintball dead-box.
It was obvious that all of the companies weren't about to collapse but it was gonna be a torrid time for the majority, that's for sure.
I think our industry needs some sort of cash transfusion and whether it comes in the form of 50 cal, or Kee buying out Procaps and elevating paint prices, I don't give a monkeys; The bottom line is, if we don't get cash flowing again, this slide is gonna steepen again and who the fer-huk knows where the end of that slope is?

Paintball will always be with us ......but, how low can we go?

 

[Robbo]

Missy, Gino will certainly be sniffing in the background that's for sure, but I'm not sure whether he could raise enough capital to buy Procaps bearing in mind what he was left with when he sold up NPS.

If Gino does look as though he is in the race to buy Procaps then he would have had to borrow the money from the bank and I think that would be extremely difficult for him to raise that sort of cash in today's financial climate.

However, if Kee didn't have the cash at hand to buy Procaps, then they would have a lot more chance to raise that capital than Gino could.
This is because the banks would more likely lend to Kee than to Gino, I think you would agree with this.
And so, Kee know full well what would happen if they bought Procaps and the emerging monopoly would have a window of operation for at least 6 months before any legal curtains would be drawn around them; And in that time, if they nudged the price of paint up by a couple of bucks a box, then they would earn themselves millions.
Generally speaking, if the price of paint were to be raised by a couple of dollars [making the selling of paint a lot more profitable] then there would be companies coming back into the marketplace to take advantage of the new pricing.
This wouldn't really be a problem for Kee in that their strategy of that 6 month window of operation wouldn't be compromised by other companies because it would take months for other companies to set up and market themselves to a point where they became serious competition for Kee.

If I were Kee, I would adopt this strategy and when the cash trolleys are full to the brim after that 6 month period, I would get my ass out of paintball and sell up.

Think about it Missy, you are an extremely smart lady, would you play the game this way or would you countenance a longer game whereby Kee remain in paintball and leech as much out of the monopoly game as possible?

After buying Procaps, it would be just a matter of time before the hammer came crashing down, but for that time, they hold paintball's balls in their grip and can squeeze as much cash out of our sport as is humanly possible during that period.
This is truly a unique period in paintball's history book and possibly the most fightening times of all for everybody who is left standing n the field of play.

 

[Tony Harrison]

Let's hope Planet isn't being looked at for a takeover.

 

[Missy-Q]

I see what you're saying Pete.
Kee will raise the price of paint this Spring anyway, and I know Procaps will happily follow suit.
I think the money that Gino got from Kee would easily be enough to buy Procaps right now, their value has dropped about 50 points, and they have been trying to sell for 3 years (that I know of). Also, Gino has a lucraticve commercial property enterprise that eclipses the Paintball operation, so he has access to funds if he wants them.
I think Tippmann is more likely. Tippmann and Kee stand on opposite sides of a divide caused by the BT brand. I think Tippmann, now that they have JT's walmart deal, will need a solid North American paint manufacturer, and Procaps are pretty much the last one now.
The othe thing is, if Kee wanted to sell-up, who would they sell to? I think they have a longer term strategy in place that a quick smash & grab.
I'm not saying Kee 'can't' acquire Procaps, but Procaps would definitely 'rather' sell to Tippmann, and Tippmann definitely will not want Procaps to fall to KEE. Tippmann are a giant. They will show incredible growth this year. A paint plant is a natrural acquisition for them.

 

[Robbo]

I was hoping you would respond to this Missy, and as always, an insightful take on proceedings and certainly better informed than my own.
I agree with everything you say and maybe this next 3 months is gonna signal the pan-out that you described.
I would also like to hear Baca's take on this [Paul?] because there maybe a few extra pieces to this industry jigsaw I haven't identified and yet I feel as though Missy has pretty much nailed them all to the board.

As the industry shuffles for its preferred position either consolidating or acquiring, it remains a question as to whether or not this end -game will be beneficial for the teams and players or not.

My own take on things is that as soon as the shuffling stops, the prices then begin to increase, this is a natural consequence of these industry moves and so I suppose the players will only view these machinations as detrimental to their pocket, which in fact it will be.
But, the very fact the end user [retail customer] is paying more isn't such a bad thing for the industry as a whole though the major buyers, the sites, will be buying paint at an increased rate also and so this will have a dramatically increased effect overall on our industry welfare, much more than the retail side of things.
I realise this has always been the case but it sometimes needs restating lest we [tournament players] adopt a disproportionate opinion of ourselves; in fact, historically, that's what we have always done anyway and this latest recession has rammed that point home more acutely than at any time previous.

A hard lesson is being learned by many a pro team lately .... and if they are finding it hard, every non pro team who received sponsorship will be finding it harder, much harder.