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Business Observer Friday, Nov. 7, 2003 15 years ago

A Fair Count

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Two Clearwater entrepreneurs say they have come up with a smarter way for state fairs to get all the money coming to them.

A Fair Count

Two Clearwater entrepreneurs say they have come up with a smarter way for state fairs to get all the money coming to them.

By Francis X. Gilpin

Associate Editor

Want to steal from a state fair? Let Donald G. Turner count the ways.

The Clearwater amusement-industry consultant says concessionaires can neglect to report all the cotton candy and corn dogs they sell. Turner says fairs suspect vendors hold back as much as 25% of the revenue they are supposed to share.

Ride operators can pocket coupons collected from fairgoers and resell them later during meal breaks, a practice known as "rehashing." Estimates of lost revenue from rehashing fall in the 8%-to-10% range.

Turner, 69, and Richard E. Kermode, 55, say their new company could eliminate this and other pilfering. Using a combination of smart-card and wireless-broadband technology, K-Tix Inc. claims to provide fair officials with instant Web access to data showing sales volume for every concessionaire, ride operator and souvenir booth on their grounds. "The guesswork is gone about how much money you took it in," says Kermode.

The key is a smart card dispensed from ATM-like machines outside the gates. Inserting cash or credit or debit cards, fairgoers are issued a plastic card with the paid amount captured on a tiny memory chip. Terminal readers around the fairgrounds deduct the cost of rides and food for cardholders.

Most fairs currently operate on a cash basis or, at best, with bar-coded coupons. Turner explains their predicament: "They need some type of a device that would take the cash out of their midway. Anything you do today that is done truly with currency, with money, there's going to be some corruption in it."

K-Tix doesn't have to charge fairs directly for the service. An extra dollar or two could be tacked onto fair admissions, Ticketmaster-style.

"So the fair is looking at less labor, better control, more money, really all good things," says Kermode. "And if they're convinced that the patron will pay for the smart card, they get all those things without spending any money for it."

K-Tix smart cards got an initial tryout at the 2003 Florida State Fair. The cards were used exclusively in the Tampa fair's Thrill Zone, home to expensive rides such as the bungee jump.

"We've been very satisfied," fair controller Giles Ellis told the trade journal Amusement Business. "The public seems very adept at utilizing it."

Ellis prefers smart cards to bar codes. Unlike coupon machines, K-Tix's battery-powered wireless readers don't rely on hard-wired access to a central computer. If a server goes down, K-Tix readers still work for fairgoers at the remote locations.

K-Tix and a Kansas software developer have sunk $600,000 into a prototype. Turner founded a Clearwater company that did bar-code ticketing for sports events. It sold for $2.5 million. Kermode says a business-telecommunications company he started in 1986 sold 10 years later for $8 million. But K-Tix's capital needs are beyond their combined means.

Turner and Kermode are talking with venture capitalists about investing $5 million. After a projected 2004 loss of $1.9 million, the K-Tix pro-forma indicates the company turns a profit in 2005. By 2008, K-Tix anticipates net income of $38.6 million on revenue of $146.4 million.

The K-Tix system is set to run again in the Thrill Zone at the 100th Florida State Fair in February. Turner and Kermode hope the state adopts it for the entire midway in 2005.

So far, VC firms haven't conditioned an investment on seeing the system in action. But Kermode invited investors to Las Vegas next month for K-Tix's pitch to 4,000 members of the International Association of Fairs and Expos at their convention.

Smart cards and wi-fi aren't new anymore. But Kermode believes their integration by K-Tix presents a significant barrier to others wishing to compete in the fair market.

Partnering with software developer Kansys Inc., K-Tix has computer geeks who understand encryption and wireless protocols. K-Tix will dispatch a roving hardware crew to ride the fair circuit in a mobile home outfitted with the latest satellite gear, beaming sales data back to Kansys for compilation and distribution to clients via the Internet.

If somebody else has all this, says Kermode, plus "the craziness that Don and I bring to the party that we can market to the outdoor amusement industry, then they will also enter the market and be successful. But I'm telling you, my best guess is no one is going to be able to put those three unique things together."

Turner has been modernizing event ticketing since the 1980s, when the engineer adapted supermarket bar codes to stadium admissions following a frustrating experience at a football game. When laser reading of bar-code tickets became widespread in the 1990s, Turner turned to possibly more convenient smart cards.

Until recently, smart cards were too costly for fair use. They were $6 a piece in 1997. But the price has since dropped to below 30 cents and could go lower.

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