Originally Posted By mrichmondj <a href="http://www.orlandosentinel.com/news/columnists/orl-miket0306dec03" target="_blank">http://www.orlandosentinel.com /news/columnists/orl-miket0306dec03</a>,0,6470951.column?coll=orl-dp-classifieds Interesting article stating what has been obvious for some time. The myriad Universal owners really have no desire to stay in the park business. GE would love to sell the parks if there was anyone interested in buying. Unfortunately, the secret is out on the theme park business -- cash flow is horrible and unless you are Disney and can bring in the massive attendance from overseas and out of state travelers there isn't a whole lot of money to be made.
Originally Posted By wahooskipper Well, as a Cedar Fair unit holder (and former employee) I can say the amusement park business is doing just fine. The probely with the big boys (like GE) is that they don't know when enough is enough. Greed.
Originally Posted By mrichmondj One problem with Cedar Fair is the same problem GE has with Universal. They don't have adequate cash flow to reinvest across all of their parks. So, the option becomes to scale back on park additions/improvements or take on additional debt to finance. Disney has the same problem, too, but has managed to beef up the cash flow with DVC sales and property sales at Celebration. When the real estate well dries up, Disney has a tough road ahead in theme parks, too.
Originally Posted By brotherdave Cedar Fair has THREE coasters planned for 2007 (Maverick at Cedar Point, Renegade at Valleyfair, and Sierra Sidewinder at Knott's Berry Farm). These coasters were planned before the Paramount acquisition, but, I feel that more rides for all their parks (with possibly the exception of Geauga Lake, which is currently downsizing) will certainly occur. It's just that you won't see a new ride EVERY year at any given park. Even Cedar Point, their flagship park, tends to add a new ride every other year as opposed to every year.
Originally Posted By wahooskipper Cedar Fair has plenty of cash flow. And, the invest wisely. That is why Cedar Fair was in the position to buy the Paramount chain for $1 billion while Six Flags is still looking to offload parks. Cedar Fair is in the amusement business...and only the amusement business. I think that is their greatest strength.
Originally Posted By mrichmondj That's great news. I'm just pointing out that as a business model, there are difficulties in the theme park business right now. It's not particularly easy being a theme park enthusiast and knowing that the business side of things isn't all that great, particularly for public companies that have demanding shareholders to please. Unless cash flow improves dramatically, I expect you will see the new rides decline further unless the company is willing to add more debt. You already see this at Universal and Disney. Disney, for one, has made a commitment to not going cash flow negative in theme parks for the past 2 years. Disney used to routinely be cash flow negative as a result of massive construction projects.
Originally Posted By wahooskipper The real problem lies is the short term investor that seems to be prevalent in today's economy. Folks who own Cedar Fair Units are largely drawn by the distribution rate that has gone up steadily over the past decade and shows no sign of changing. Folks who invest in Cedar Fair do so for a long term commitment because the company has proven that it can provide steady, consistent management. If you are looking to make a quick buck then I agree, the amusement business isn't for you. But, for steady growth I don't plan on bailing on Cedar Fair and I will continue to reinvest.
Originally Posted By SuperDry <<< The real problem lies is the short term investor that seems to be prevalent in today's economy. Folks who own Cedar Fair Units are largely drawn by the distribution rate that has gone up steadily over the past decade and shows no sign of changing. >>> I was just going to say something very similar. One of the biggest effects of such a focus is that there isn't the incessant drive to Increase Shareholder Value like there is at companies that have little or no dividends. With Cedar Fair, the shareholders (er, unit owners) still benefit almost completely from a quarter or year where earnings are the same as the last one, as most of the earnings are paid out. But with a company like Disney, where most of the money is to be made through share appreciation, there is this very odd situation of shareholders potentially not making any money in a particular period, no matter how much money the company earned, if those earnings do not reflect growth from the previous period. It's what makes the questions like "Aren't they making enough money? How much more do they need? Will they ever make enough to satisfy them?" much more than rhetorical. The answer is No, There Never Will Be Enough. For a company like Disney, it puts the shareholders in a very odd situation: even if the company is making a gazillion dollars, unless they make a gazillion + x% next period, the shareholders (the owners of the company) may see hardly ANY of that money, since so little is paid out in dividends. This is what leads to the incessant drive to Increase Shareholder Value that causes what otherwise would be silly decisions to be made, as earnings must not only be maintained but increased each and every period, even if there are external forces beyond the company's control that, say, might make leisure travel be stagnant or go down slightly in a particular year.
Originally Posted By Jim in Merced CA Companies created the system, and now they feel pressured to maintain the Shareholder Value in the system they created. It's like the car business. You still have to go in, dicker around with some low-on-the-totem-pole sales person, who takes my 'offer' to 'the manager' and then comes back with a counter-offer. Where else in business do we buy things this way? And yet, they still try to sell cars this way, and still cry and moan about how their business is down, and no one is buying their cars. Anyway, regardless of how well Cedar Fair might be doing, Theme Parks, as a business, are not easy to run, maintain and keep going. If it were so easy, there'd be a lot more of them around the world, right?
Originally Posted By wahooskipper Well, there are a lot of theme parks around the world but there is a saturation point when there can be too many in a region of the country, no doubt. I'm interested in the Garden Grove project out in California. With Universal, Disney, Knotts (and Sea World, Magic Mountain, etc not too far away) I'm wondering at what point the saturation point will be met in Southern California. There are companies doing it right. Anheuser-Busch, Cedar Fair, Kennywood Corp are some examples.
Originally Posted By RoadTrip Wow!! Did you take the time to read the message board entries at the end of the article?? After all the blasting the Disney parks take on this board it was rather refreshing to see them held up as the shining beacon of all that is good and holy. Heck... they were even saying how the MGM Studios was an example of what a studios theme park SHOULD be. I guess it all depends on your point of view.
Originally Posted By mrichmondj Sort of shows how skewed the perceptions can be on a narrowly focused fan site vs. a mainstream newspaper with broader circulation.
Originally Posted By Inspector 57 <<Anyway, regardless of how well Cedar Fair might be doing, Theme Parks, as a business, are not easy to run, maintain and keep going. If it were so easy, there'd be a lot more of them around the world, right?>> *sigh* Man, I miss Mrichmondj's Enchanted Household. Sorry. That may not be a relevant comment to this money/shareholder/reinvestment discussion, since I guess we may never know if it closed for financial reasons or was finally shuttered due to its many safety-related "incidents."
Originally Posted By Inspector 57 <<But with a company like Disney, where most of the money is to be made through share appreciation, there is this very odd situation of shareholders potentially not making any money in a particular period, no matter how much money the company earned, if those earnings do not reflect growth from the previous period.>> SuperDry, that model isn't used exclusively by theme park corporations, is it? Isn't that a fairly common business arrangement? How do other industries deal with this situation? Have any of them found a viable solution to the conundrum of the ever-more-consuming spiral? Could Disney or Universal adapt such strategies?
Originally Posted By mrichmondj I picked up the Enchanted Household and moved it to Southern California this year. Unfortunately, the cost of doing business in California is a lot more than Tidewater VA. I've implemented some cost cutting measures to keep the cash flow positive. ;-) But taking a play from the WDW playbook, I cashed in on my real estate holdings this summer to make a nice tidy profit. It makes the bottom line look a lot nicer than it might otherwise be considering all the money exiting my account just to keep the enchanted cupboards full of food and the enchanted roof over my head.
Originally Posted By RoadTrip My wife and I had planned to spend a day at Universal Studios during our upcoming January trip. I just went to Universal's website and the only one day ticket they had was a one day - two park ticket priced at $77. Is that really all they have available for a one day ticket? If that is the case goodbye Universal. My wife won't go on coasters so access to Islands of Adventure is a complete waste of money for us. If there is a one day - one park ticket they better not force us to stand in line at the park to purchase it, because we won't do it. The worst queue you are ever in at Universal is at the ticket window. I can't believe a park that apparently is suffering financially would drive away people who want to go there for a day. Somebody PLEASE tell me something else is possible!
Originally Posted By SuperDry <<< If there is a one day - one park ticket they better not force us to stand in line at the park to purchase it, because we won't do it. The worst queue you are ever in at Universal is at the ticket window. >>> I don't know about Florida, but at USH, they have ATM-like machines where you can purchase tickets with a credit card, and I'd be surprised if there is ever a line at those.
Originally Posted By Mr X ***How do other industries deal with this situation? Have any of them found a viable solution to the conundrum of the ever-more-consuming spiral? Could Disney or Universal adapt such strategies?*** I believe the boys at Enron had some thoughts on the matter. Really, though (and I, too, would like to hear SD's take on things), it comes down to CEO's getting paid exhorbitant bonuses that come attached to lofty expectations that are near impossible to provide quarter after quarter. There is one company that I've been watching that has attached almost all it's CEO bonus monies to the stock price rising to $18 (it's at $10 and change now, was $7 2 months ago) and staying there for 90 days. Talk about short term thinking! Plus, there any number of factors that could keep the price down which may be completely out of the guys control. But, if it doesn't happen...he'll probably get forced out (with a nice Umbrella, of course...rich bastard!). I think that if dividends were more in favor, things would improve. Stock holders whos stock is stable but doesn't go up much are much less likely to bitch about it if they're getting a nice chunk of cash every 3 months. Oh, by the way SD, Baidu closed at freaking $122.72 today. Ugh.
Originally Posted By SuperDry <<< SuperDry, that model isn't used exclusively by theme park corporations, is it? Isn't that a fairly common business arrangement? >>> It's extremely common. <<< How do other industries deal with this situation? >>> In many cases, not very well. It's one of the things that drives public companies into difficulties, sometimes involving illegal acccounting activities. Although some of the accounting scandals have involved greedy executives, in many cases I think they were just responding to the incredible pressure put on them to deliver the goods in the earnings report. Especially with the large amount of shares held by institutions these days, many of these executives faced the situation of delivering the expected number each quarter, or being fired by the board of directors. If something happened to interrupt this (whether or not it was under their control), some executives are tempted to be just a bit looser in accounting standards. <<< Have any of them found a viable solution to the conundrum of the ever-more-consuming spiral? Could Disney or Universal adapt such strategies? >>> It's something that our economy/country will have to address at some point (and I'm not exaggerating my opinion on this). There are several things that could be done. One thing would be to raise the capital gains tax back to where it was and to eliminate taxation on dividends. For one, this would eliminate the "double taxation" issue that is one of the reasons that many companies like to minimize dividends (and Cedar Point avoided by being a limited partnership rather than a corporation). The more that companies passed earnings along to shareholders via dividends and the less through share price appreciation, the less demand there would be to constant and neverending earnings increases even when outside factors might dictate otherwise for a short period of time. I think that businesses such as a Disney theme park are particularly vulnerable to problems over time because of this, both because so many of the cost elements can't be reduced into a traditional cost analysis, and because some of the problems take a long time to manifest themselves.
Originally Posted By mrichmondj The dividend model doesn't work very well for Disney -- at least for the parks business. When you look at the corporate earnings report, you see that Disney regularly reinvests nearly all or more than all of their operating profits into new capital expenditures for theme parks. These capital expenditures include building new parks, new hotels, and the major rehabs on attractions. The capital requirements to keep the theme parks current are very extensive. Up until 2 years ago, Disney spent $1B to $1.5B each year on capital projects at the parks. Only in the past 2 years has Disney spent less than $1B annually on upgrading the parks business. In a perfect world, all of these expenses would contribute to growing revenues in earnings -- so you would achieve a return on your investment. However, in the theme park business, you have to invest large sums just to keep the exact same number of guests coming back each year without any gains at all. So, if you ramp up the dividends to shareholders there is the consequence to bleeding off cash flow that would otherwise be earmarked for capital expenditures and you end up in the same boat that parks find themselves in now. It's a tough business model, particularly in today's environment where there are a large number of inflationary pressures that make the cost of business that more expensive.
