Cedar Point closes roads for first time in history as the park reaches capacity

As a family of 4, I decided to downgrade to a Gold Pass. I didn't see the value in platinum passes for 2020. If attendance continues to be high next year I will simply pull back on my number of visits. I am at a point in my life where I value my time, sure money plays a role but it mostly comes down to my time and the experience.

My last visit to the park was the 2nd last Sunday, I left after 2 rides in the morning, keep in mind that I live within 45 mins and decide I was better off doing something else. From a business stand point I didn't spend a penny. One could argue that I took-up a valued parking spot.

They undervalued the platinum pass, lets see what 2020 is like. This pricing structure just scream SF!

Gary Dowdell said:

The first half hour of early entry next year is likely going to see a decrease in numbers because there won't be as many Platinum passholders next year. The last half hour of early entry is going to see a lot more people (i.e., Gold passholders), and therefore won't be as valuable as it has been in years past.

That's assuming that CP actually enforces the times for Platinum and Gold. I've heard mixed stories of the park enforcing the Gold Pass times in the morning.

GoBucks89 said:

Without the financial meltdown, Six Flags refinances its debt and doesn't file for bankruptcy. Seems like that is an important part of the movie.

I seem to remember that very differently. Six Flags was selling off or closing parks (SFWoA and European parks sold in 04; SFAW closed in 05, SFDL, SFEG, and a bunch of water parks sold in 07) due to crippling debt before the meltdown in 2008. I remember their stock steadily falling until it was essentially worthless. I remember their debt load was crippling, their bonds were trading at as little as 14¢ on the dollar because investors thought they wouldn’t be able to maintain their debt payments. I also recall them not being able to secure financing to restructure their debt. This was all before the economic meltdown. Remember all this was during a strong economy... Six Flags was circling the drain for quite a while before the economy tanked.

No doubt Cedar Fair stock was down in the great recession. S&P 500 was down about 50% I believe. And Cedar Fair ran into a similar issue in terms of the credit markets. They had debt coming due and they didn't think they would be able to refinance it (after discussions with lenders) in large part because of the problems in the credit markets. Choice was to default or file a bankruptcy petition. Management decided to pursue a sale of the company as a third option. Looking back in hindsight its easy to say they should have just waited. But at the time, that wasn't clear at all. We discussed that ad nauseam for months and what seemed like years actually.

I was looking more at their operations. In 2007 and 2008, Adjusted EBITDA increased. It decreased in 2009 about 15%. In 2010 it increased to slightly above 2008 levels. From 2011 through 2016 it increased each year. Coming out of the biggest economic downturn in 70 years, I would say that is doing well.

As for Six Flags bankruptcy: https://dealbook.nytimes.com/2009/06/13/six-flags-files-for-bankruptcy/

Six Flags, the big theme park operator, filed for bankruptcy in early Saturday morning in Delaware after failing to reach an agreement with lenders over a plan to reorganize its debt outside of court.

Because the credit markets remain largely frozen for troubled companies, Six Flags was unable to refinance its massive debt load. The moribund real estate market also precluded the company from selling off property, like unused land in Maryland and New Jersey, to raise additional cash.

None of that to say that Six Flags didn't have significant issues/challenges. Just that without the credit crunch (and recession in which it occurred) I don't think they file (and I don't think Cedar Fair talks to Apollo). But those are very deceased and well whipped ponies.

So none of that is doing well in the recession though, right?

Of course their EBITDA was up in 2007 and 2008, they just bought the Paramount Parks. I don't know how they would have to screw that up right after the acquisition.

EBITDA is a pretty crappy metric to measure the health of theme park companies. It's a crappy metric for any company that isn't growing or can't demonstrate continued growth, because it ignores exactly the thing that could sink them. It was used to defend countless dotcoms with middling to insignificant growth, and we know that didn't turn out well (I worked for one that eventually died). "Is it weren't for the credit markets..." is that not always a risk? Even in a stable economy, one company's debt can be undesirable and no one will buy it.

It seems to me that Cedar Point is also devaluing the resorts with the gold pass. The resort guests have the 1 hour of early entry, as well as parking (if not at express). With the very inexpensive gold pass including parking and half an hour of early entry, they almost might as well not offer those perks at the hotel.

I have thought that a good purpose of having the water park there is to get hotel guests to spend the extra money to stay another night. The platinum passes having access can help get a few more people into the water park on the slower days to make it worth keeping the water park open. On the nice warm summer days, the water park has been fairly crowded as it is. Now that they have given everyone access to the water park, where are they going to put all those people? I know this is going to sound a bit over-dramatic, but I think on the hot summer days, the water park is going to be a disaster next year.

Fair point on 2007 EBITDA. 2006 results included about six months of Paramount results. 2007 included a full year. But growth in 2008 was compared to a full year including Paramount results in 2008.

Great recession officially ran from December 2007 to June 2009. GDP decrease from peak to bottom was about 4%. But that is the economy as a whole. Entertainment companies tend to get hit much harder in downturns because they are non-essentials and can be cutback when income decreases. And once the recession officially ended, it wasn't the case that everything was back to pre-recession levels. I would say one year of declining EBITDA with a full recovery to pre-recession levels the following year is doing well.

I recall you don't like EBITDA. We have discussed that as well. Its used by investors, analysts, lenders and a host of other people evaluating company operating results. Companies (including amusement parks) use it in evaluating acquisitions. Not the only measure but that doesn't mean it isn't valid.

Debt is a risk for companies. If your performance suffers, you may not be able to refinance even in a good economy. What made the great recession different was the credit markets froze. There were companies that were healthy who couldn't refinance. Not because there was a problem with the company's health or performance but because banks weren't lending. People were looking for assurance from banks that they had the ability to fund (that is just an assumed prior to the freeze). Companies were making SEC filings to demonstrate they had sufficient liquidity (again not because the company had any problems other than possibly having one or more banks that may not be able to lend and the market was looking for some assurances the company would be ok if that happened). Some companies were even putting in place lines of credit as a hedge: if any of our bank group members don't fund, we have another lender who can. Loan documents for multi-bank credits now have defaulting lender provisions in them which was something prior to the credit meltdown just wasn't a risk people cared about. Very much different than our company's debt isn't desirable.

But stepping back from the Cedar Fair is doing well comment, do you think it is (even if only after the recession)?

Yes, that's why a race to the bottom for admission is so bizarre.

GoBucks89 said:

I recall you don't like EBITDA. We have discussed that as well. Its used by investors, analysts, lenders and a host of other people evaluating company operating results. Companies (including amusement parks) use it in evaluating acquisitions.

I get that, because it's a good proxy for establishing product market fit and ability to reduce spending and be a real business, for sale.

But theme park companies? They only grow by acquisition. It's disingenuous to hide the "ITDA," because you can't cover it without growth or consistent margins. I mean, the big parks spend $25 million on cap ex every few years. In the SaaS world, we like to talk about the 40% rule, meaning growth + profit, or often EBITDA depending on where you are in the funding stages. If your profit is under, but your year over year growth is 70%, cool, fund that future. If your margins are 40% but you're not growing, probably don't go nuts spending. Theme park companies have a vastly different structure that's capital intensive, but if your margins are 15% and your year over year is 5%, I wouldn't celebrate that as safely outpacing inflation.

I am surprised by the gold pass for the reasons I noted yesterday. But I am not sure I view it as a race to the bottom necessarily. Checking passes for a few other parks in the chain, looks like they offer similarly priced passes with similar perks. I haven't seen anyone stating that those parks are in a race to the bottom, giving away the gate, losing gate integrity, etc. I get that Cedar Point offered a pass that was more expensive with fewer perks. But I have no idea how well it sold/was used. Park may have determined that for perceived value, that pass is overpriced. Just not clear to me that this move evidences a race to the bottom. Still surprising to me but I keep coming back to the park has a ton more data than we do.

Sounds like you should be a fan of fixed charge coverage ratio. Uses EBITDA and measures a company's ability to cover its fixed charges. Leverage ratio is also helpful in terms of measuring how much debt you have compared to operating cash flow (EBITDA). Different industries have different ranges which are considered healthy. My recollection is that the Cedar Fair credit agreement has both covenants but its been a while since I looked at it.

No one is calling out the other parks because, as many of us have been arguing, Cedar Point is not the other parks. It's an hour or more away from half of its primary audience, two hours from the other half, in a resort town, with thousands of hotel rooms that wouldn't exist without the park. It's a fundamentally different scenario. There's no public bus line to the gate. I can tell you with reasonable confidence that the park does not have an attendance challenge, and per the context in John Hildebrant's book, there is a generally accepted ceiling for attendance. If you can't meaningfully increase attendance, and your lever is spending, why would you start by charging less?

Some of those tick in favor of lower prices for Cedar Point than other parks in chain. But ultimately its another overly flogged and not breathing equine. We shall see what next season and beyond brings.