Markets respond to possible Six Flags property sales

Posted Friday, June 23, 2006 10:06 AM | Contributed by Jeff

Facing mounting losses and declining attendance, Six Flags wants to reduce its $2.1 billion in debt by selling parks in Buffalo, N.Y.; Denver; Seattle; Houston; and Concord, Calif., in addition to Magic Mountain.

Read more about Elitch Gardens from The Rocky Mountain News and about Magic Mountain from The LA Times via The Orlando Sentinel.

Friday, June 23, 2006 10:15 AM
This is quite amazing. I've held SF stock now since before the take over and in recent months have been encouraged by the changes but selling SFMM is jaw dropping. Is the land around Valencia really THAT valuable? I fully understand that 2.1 billion in debt is alot to manage but removing a major revenue stream for a one time payment seems like a huge gamble in the long term. Selling the smaller parks like SFEG or DL I can understand but what's next SFOT?

I guess we investors can either sell or ride the wave. How many others own stock?

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Friday, June 23, 2006 10:49 AM
Because of teenagers?

That is a sad basis for selling off a park that is making you money when you are 2 billion in debt. I think he is pushing the "family" angle a little too much.

If there is such a big problem with teenagers at the park, hire more security and maybe have a curfue for teens in the park without there parents.

Sfmm, and six flags nj(forgot the park initials) are the 2 flagship parks for six flags. By selling off one of the biggest money makers you have, that is not going to help pay off your debt that will continue to grow without the park.

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Friday, June 23, 2006 10:55 AM
Just think of it as the Soviet purges between 1929 and 1945. These parks just dont fit the new ideology.

I love history.

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Friday, June 23, 2006 11:02 AM
So to summarize, Shapiro's ideas for the chain have failed?Increased prices, no new attractions (at most parks) to lure new "family" customers, and driving away part of your old customer base isn't a formula for success? Who would have guessed that?

Maybe the board should find a CEO that would be able to guide the chain through their transition and not look at doing quick fixes that would permanently damage the chain's ability to earn money over the long term.

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Friday, June 23, 2006 11:45 AM
The Mountain should stay. It is their only park that they keep open year-round, so it's pretty much the only one bringing in money year-round. It's also the second-most attended, so why would they sell that?

Let's not jump the gun here. Perhaps they will just sell some of the land around the Mountain. FWIW, they look like they are putting in some sort of shopping center or something across MM Pkway from the front gate.

SFMM could definitely use some work, though. They have some old stuff sitting around the park that's not being utilized, such as the monorail and Orient Express. They have a lack of flats as well. What they should do is kick maintenance into high gear, add another children's area, along with some flats, and combine SFMM with SFHH. SFGam is doing well--perhaps they can use that as a pattern for SFMM (included waterpark, more than one kids area, more flats).

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Friday, June 23, 2006 11:56 AM
They should have announced this before Cedar Fair spent so much money on the Paramount chain.
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Friday, June 23, 2006 12:11 PM
I don't understand why so many think Cedar Fair would be interested in Six Flags Magic Mountain. They already own the superior property, Knott's. Maybe they will step forward, but I doubt it. When they bought Knott's there was so much more to the transaction that is missing here.
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Friday, June 23, 2006 12:45 PM
Just because a park is second in attendance means it is a very profitable park. Im guessing that SF wantsa to hold on to the parks that make the company the most money. Its not good if a park brings in alot of people who visit via season passes but spend little money once in the park. They would perfer alot more occasional visitors who pay more to get into the park and buy more food/trinkets once they are in the gates.
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Friday, June 23, 2006 12:57 PM
"So to summarize, Shapiro's ideas for the chain have failed?"

That's not what he's saying at all. What he's saying is that the park, as it stands today, does not fit within the bounds of the company's strategy. They're redefining their customer, which is a radical and risky thing to do. It's also the right thing to do, if you ask me.

Selling the park seems a bit too radical to me, but in a market the size of LA, they probably are starting to think about how the brand is perceived. If the comments on this site are any indication, the brand suffers a lot at the hands of Magic Mountain.

Not sure I get how you'd want to give up a park like Darien Lake though, which doesn't have significant competition. No idea how it is viewed in Buffalo, and what kind of numbers they see.

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Friday, June 23, 2006 1:07 PM
We can think about it like this...assume that SFMM generates $150M a year in revenue (which after learning both KI and CP's revenue numbers this week, seems fairly realistic). Based on SF's EBITDA margins of approximately 17%, that means the park would generate around $25.5M annually in operating income.

Now assume that they can sell the park's land for similar per-acre price as they sold the Astroworld site (and that's probably a pretty low estimate considering the land price differences between Houston and LA), but based on those numbers they could sell the MM land for $175-200M. $200M dollars today is worth a lot more than $200M over eight years (which is the approximate time it would take to earn the same amount in operating income). So, I can definitely see how that would make sense from a business standpoint...emotional feelings about the park itself set aside.

Or, assuming they could sell the park as is for a similar multiple (10.7 X EBITDA) as CBS sold Paramount Parks, SFMM itself could bring in around $250M. Either way, there's a lot greater potential current value in divesting the park than there is in keeping it operating as a SF.

They've announced that their goal is to get their debt down to around $1.6B (which, will actually be less than CF's...even after the announced equity offering). They are going to need some "big bangs" to make that happen. (Selling Wyandot Lake or other small properties for $2M a pop just isn't going to cut it...)

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Friday, June 23, 2006 1:13 PM

Sfmm, and six flags nj(forgot the park initials) are the 2 flagship parks for six flags.

Look at the numbers (specifically, look at attendance vs operating days per year). The only thing that backs up the "SFMM is a flagship" argument is the fact that the former management constantly screamed that. The park's piss poor attendance speaks for itself.

-Nate

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Friday, June 23, 2006 1:20 PM
I am more surprised about the question mark next to Darrien Lake than I am the Magic Mountain threat. But, if Magic Mountain closes we can finally put to rest the most tired argument of the theme park fanboys (SFMM vs CP). That I wouldn't miss.

What a complete turn around two companies are facing at the same time. Cedar Fair grew it's holdings smartly, with due diligence, etc. Six Flags bought up parks like bottled water before a hurricane. Six Flags threw coasters up like they were pennants. Cedar Fair made slow, precise captial investments each year concentrating on all areas of their business and not just coasters.

Now look at the corner these two companies are turning. I would say it is amazing but the writing was on the wall back in the mid-90s.

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Friday, June 23, 2006 1:25 PM
I don't follow Six Flags that closely but have been to Magic Mountain and would say that park has received an unfair bad rap.But to ask a stupid question, was Tatsu construction began before Shapiro became VP? I don't think the coasters there are crap at all; half the people on here who think they are are crazy.
*** This post was edited by ophthodoc 6/23/2006 1:25:55 PM ***
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Friday, June 23, 2006 1:44 PM
This should speak for itself, from the LA Times article.

"Magic Mountain attracts 2.5 million to 3 million guests a year and is considered a profitable property, said John Cora, a theme park consultant and CEO of Palace Entertainment, which owns Raging Waters in San Dimas and the Boomer's chain of family entertainment centers."

That ranks MM as 2nd or 3rd any given year. If they sell of MM, they lose chain wide a huge chunk of their admissions! Which park in the chain could compensate for that loss?

Even if they cleared 300 or 500 million off a complete sale, the debt drops to 1.8/6 billion, and they also lose a profitable park in the process. They can't pay off the remainder of the debt with less money coming in. The CFO (ex Euro Disney guy) should figure out a way to refinance the debt.

I don't think Shaprio's ideas are universally flawed, but the execution of them, the travel expenses promoting the parks as family friendly and the insulting message to teens that they are not welcome, have clearly backfired. It would have been a better solution to actually place value on the customers they had while pursuing other demographics.

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Friday, June 23, 2006 2:05 PM
2.5-3 million guests a year for a park that is open year-round in the second largest metropolitan area in the country... and SFGAm and SFGAdv can get the same attendance in six months. That would be "underperforming."

$2 billion in debt is a lot to erase. You're not going to erase it by continuing to dump $20 million rides into an underperforming park.

Amusement parks aren't charities open for the good of the public. They're businesses, and they need to be profitable.

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Friday, June 23, 2006 2:16 PM
Exactly!

Here are some fun facts:
-Divide the park's attendance by the number of operating days each year to get an "average per day attendance" figure.

SFGAm: 20,500ppd (people per day)
SFGAdv: 18,500
SFoG: 15,200
SFStL: 12,500
SFMM: 10,500
SFEG: 10,200

So SFMM basically performs at the same level as SFEG. That's really great for a park three times that big with a significantly larger operating budget. I don't care what some consultant at another park says. Those numbers are dismal!

-Nate


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Friday, June 23, 2006 2:22 PM
I wouldn't say that Shapiro's plans have backfired. There were plenty of teenagers at SFGAm last week. I don't think Mark doesn't want teenagers. He would just like them to be attached to some parents, or a school group with chaperones. He doesn't want his parks used as babysitters, and that's what we've all been advocating for years. Almost every enthusiast has been saying the same thing for years that the season passes were too affordable, that parents were just dropping their kids off the park, and that they didn't spend money and were causing trouble.
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Friday, June 23, 2006 3:02 PM
Think about it... if the teens he's talking about don't spend any money, why do you want them as "customers" anyway? I forget which bank it is that actually "fires" customers that cost them too much in order to maintain a relationship.
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Friday, June 23, 2006 3:25 PM
Astute observers have seen this coming for years! Frankly, there was no way Shapiro could make SFMM fit into their new business model. He is correct in saying that the "family" market is already well-served in California. Why take the time and effort to convert SFMM to something that is already done better by the competition?

Add to this the fact that this land is much more valuable as mixed use and this decision is a no-brainer. I see no way anybody steps up to save this place from becoming a shopping mall or like.

P.S. I could go into the reasons that it would be almost impossible...especially in California, to clean up the place, but I'm in no mood for battle. I'll let somebody else take that heat...

P.P.S. The demise of this park falls on prior ownership. The fact that they let this place get the reputation it so rightfully deserves is a tragdy of epic proportions. This indeed proves that customer loyalty has limits...even in something that seems so inelastic like top line roller coasters! People...especially grown-ups who spend their own money...will only take so much crap before they decide to go elsewhere.

I have felt saddened at the loss of every park and every coaster that has ever went away. As for SFMM...good riddance! I can only hope it comes sooner rather than later...
*** This post was edited by Jeffrey R Smith 6/23/2006 3:31:51 PM ***

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