Six Flags in the red but expects to be over the hump next year

Quoth the 2002 Cedar Fair Annual Report:

Management believes that a very meaningful measure of operating results and the Partnership’s ability to generate cash flow for distributions to unitholders is adjusted EBITDA, which represents earnings before interest, taxes, depreciation and non- cash and non-recurring charges.

True, it's not the only thing they meausre, and the conference calls don't focus on it, but it's not unimportant.

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http://www.eecs.umich.edu/~bnoble/

This might help put it into context:

link

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"SOME people have NO class!" - Mom from the Whizzer queue*** This post was edited by Jeff 7/16/2003 5:54:33 PM ***

I honestly think that they say that in case they do have a bad year. As the article jf linked to shows, there's a lot of debate not only about whether or not it's a useful measurement, but to whom.

When I worked at Penton Media, they used EBITDA constantly as a measure of the company's success, all the while expanding and growing wrecklessly. In the end, the company employs probably half the people it did when I left, and they were recently delisted. For those of us who went through that, EBIDTA is about as useful as a measure of future success as British intel is to George W. Bush. If you grow too fast and your markets don't respond, things can get ugly in only a short year or two (such was the case for Penton).

One thing that stood out in that article was this:

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"EBITDA is inappropriate for many industries because it ignores their unique attributes, according to Moody's. It's a poor measure of cash flow for companies undergoing a great deal of technological change or for firms that have short-lived assets (those lasting, say, three to five years) and need to keep upgrading their equipment to stay up-to-date."

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Amusement rides might last decades, but unless you're building gee-whiz attractions, three or four years is about all you get out of them as a marketing vehicle. That said, in the context of this news item, that's good news for SFOT I think because Titan and the Superman tower are pretty amazing gee-whiz rides. As an investor in the local park I'd be happy with that.

Will that happen to Six Flags? I doubt it, only because they many of their markets don't have significant competition (outside of FEC's and movie theaters, anyway), and they seem to be making a sincere effort in some markets to improve the guest experience.

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Jeff - Webmaster/Admin - CoasterBuzz.com - Luau II Cam 7/19
DELETED! What time does the water show start?

And as I think you alluded to earlier, perhaps someone will figure out that they could probably make decent money by marketing to whole families instead of providing daycare for their adolescents.

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"SOME people have NO class!" - Mom from the Whizzer queue

How about they focus on customer service and give people quality for their money....then maybe people will actually return....think about the non-enthusiasts. I'll bet most of them never go back after their negative experiences....and probably tell everyone they know not to go. Change that and success will follow....

Is SF only revenue stream from parks? Do they have other divisions etc?

I suppose one way you can determine the success of a park is to count the number of basketballs being bounced by kids in the park as you walk around from ride to ride, or how many stuff animals is being carried out. How many souvenier soda mugs people have in their hand etc...

All I know is SF looses money on me each season. I have bought a parking pass, season pass and visited my local park approx every other week. Not to mention before the end of the year I will have been three other SF parks and possibly a fourth.

But guts, how are they "losing" money on you? I mean seriously, even if you never spend a dime after buying the two passes you're not costing them money. Because if you come everyday they are open or only once a season, they are still incurring the same operating costs.

I suppose if there were enough peopl like you, the costs of you all going to the bathroom and getting free waters could add up, but I would argue that is more than offset by the advertising they can sell because they can point to your attendance of the park. If you keep coming so much, SFI can charge "Corn Nuts" more money as they can say that the ads will get viewed by so many eyes, yada, yada, yada...

The funny thing is, I read so many enthusiasts on these boards harp on customer service. But I personally think that the claims chain wide are overstated. I do not disagree that there is room for improvement in this vein, but I simply point to the *second* most derided Six Flags park as is comes to customer service, SFA. People here and on other boards will swear on a stack that SFA has consistently poor operations. However, the fact remains that SFA is one of the parks that, last season, performed very well, WITHOUT benefit of a new major attraction. This is in a market also served by the likes of BGW and Hershey, two of the more well respected 'large' parks among enthusisats. This leads me to believe that enthusiasts seem to have a sensitivity to c/s that is different from the the so-called 'general public'.

Personal opinion, SFI has everything that they need in front of them to make it over the long haul. They have regional, national, and indeed international exposure. With the possible exceptions of maybe Houston and Cleveland, people generally *like* Six Flags. They are close, entertaining, and relatively affordable. What *I* would like to see them do is to take a chainwide look at the "best practices" of all the parks and come up with more standardized operation. But of course, I have no idea what hurdles are impeding that process.
lata, jeremy
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My current favorite home video game!

I'll tell you my Six Flags America experience now that I work there. I had ride operator training a couple of days ago, and orientation a few days before that. I can honestly say that there is a great effort put forth in the reading literature to emphasize the values we'd all like to see in every Six Flags. Such things as smiling at customers, picking up trash while walking the midways, being courteous etc (for some reason, we totally skipped over the page about ride effeciency:)...). So why doesn't it happen at all Six Flags? It's the employees, who at SFA are mostly teenagers who are probably on their first job, and have no real world experience dealing with John Q. Public. I think the key to turn it around would be to spend more time on guest interaction in training, but I also understand that it's probably hard enough just to get warm bodies to work out in the oppressive heat of Maryland. By the way, if you're in the park, I'll either be at The Skycoaster or at the go-carts over by Wild-One.
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If you have a problem with clones, the solution is real simple—Stop traveling.

My saying is that companies who can't E, EBITDA.

EBITDA is a joke of a standard that really isn't used much in financial analysis anymore. That's been replaced by the more coherent "free cash flow."

Go over the ITDA and you begin to realize what a con job it is as a metric. The "I" is interest. In other words, by EBITDA standards any company that has a ton of cash stashed away earning interest is penalized for that while the leveraged company making debt payments is rewarded with an inflated EBITDA figure.

You then have "T" for taxes. But since the companies harping on EBITDA are usually doing so because there is no "E" to speak of, this one is typically empty.

Then you get to the "D"epreciation and "A"mortization. The article mentioned that Six Flags buries its ride expenditures here, but the company also writes off its acquisitions here too. That's why this is flawed. It's burying new expenses deeper into future income statements with every passing addition.

The best gauge is to hold the company to its actual performance. How much money is coming in? How much is going out (operations and capital expenditures -- or capex).

The article did not mention that the company would wipe its debt plate clean in a year as someone else poste, only that profitability was around the corner. With the company's free cash flow you'd be roughly a decade away before it can wipe its debt clean BEFORE any new acquisitions or meaty investments were considered.

But some of the company's issued bonds are convertible, so that would dilute the value of the shareholders but knock out some debt if the stock rose to the point to make conversion attractive. And some of the callable bonds can be financed at lower rates these days. So the company may have ways to improve its finances but don't bank on a clean balance sheet in your lifetime.

If a park has a high relative amount of season pass holders i don't think that per cap spending is all that accurate either. Because even though i have a pass to a park and i only spend 10 or so bucks a visit compared to 40 or so on a one time visit the park will get more money out of mein the long haul because i will come more often. Ya i hurt the per caps, but like it was stated earlier, they are going to be open anyway and i help the bottom line.

Now don't get me wrong, I HATE the EBITDA! It's what is killing the chain if you ask me. They live and are dieing by it. Personally i think running percentages and attendance are the key stats for a park. If you keep one in line and grow the other the park will be just fine for a long time. Which is what a park like Geauga Lake did for decades.

As for getting over the hump... Perhaps we'll see some for sale signs hammered into the front lawns of some of these properties soon. I think it's inevitable. The company doesn't have the right personell or infrastructure to overlay a set of brand standards/operation policies across all properties branded at this time. Furthermore i can't see the company holding onto GOOD personell long enough or spending the capital to fully develop the concept as it should be done. To many practices within SFI are suspect.

Per cap spending is a perfectly reasonable metric. It doesn't matter if the person coming through the gate bought a ticket or is a season pass holder. That's not even considered in calculating the amount. Every person who comes in is peeing in toilets and riding rides, so in some fashion there is an expense attached to that person.

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Jeff - Webmaster/Admin - CoasterBuzz.com - Luau II Cam 7/19
DELETED! What time does the water show start?

2hostyl, Good Post. However, even though as a seasaon pass guest at SFA it would appear on the surface I don't cost the park money. However, I still cost the park money in the form they have to staff the park, they have to provide utlities, and maintenance of the rides. Everytime I ride a ride, the park comes one tick closer to having to perform "routine" maintenance or in the case of Two Face the Flip Side major diagnostics on the ride. If I don't spend money at the park then they loose money. Granted, it may be pennies per guest but all of those pennies add up.

I worked in a management at a local movie theatre chain in my wild 20's. One of the fiqures management looked at from concession sales was an average of what each customer spent on concession sales (I believe the term was concession sales per ticket). You take your sales for a particular hour, divide it by the number of tickets you sold to get a avg of how much each customer spent on concessions. I'm sure the theme park industry has the same figure. How many guest turned the turnstiles on a given day divided into the amount of total "add on item" sales (concessions, games, upcharge rides) etc..

I'm sure the park even has a goal for each year to what they need to make.

It sounds like Mr. Danehauser has set some performance targets for the company and they are meeting those performance goals. Therefore he is confident that the chain can pull out of their financial wows by this time next year. One last point, after he states that, if the chain doesn't turn around next year we will probably beging seeing some heads roll.

OK, let's get off the whole season pass cost discussion. Parks want to produce as much revenue as they can off gate, and they figure that 99% of people will only buy one one-day admission per year. Anything they can get over that is frosting, so when they charge 1-1/2 to 3 days times the one-day price, they see the extra 1/2 to 2 days worth as a revenue enhancement, which they should. On the other hand, the excess cost of having season passholders in the park on any given day is a negligible amount, since they only make up probably 5% max of the total attendance. OK?
Now what about PKS and FUN? When you have as much capital investment in your business as either company has, you're not looking six months down the road (at least not if you know what you are doing). You're looking five, ten, maybe even twenty years ahead. You have to position your enterprise today for the vision you have for that time frame to the best of your ability. From my point of view, both PKS and FUN have done an admirable job of this, albeit using two highly different strategies. FUN has decided to keep the identities of its "satellite" parks unchanged and unrelated to the Cedar Fair or Cedar Point names; most GP (using the term to contrast with geeks like ourselves) who attend those parks have absolutely no idea that their park is in the Cedar Fair chain. FUN has decided to grow slowly and carefully, not extending its debt too far in expanding the chain. In fact, given its conservative approach to expansion, one must question whether that is one of the firm's major goals.
On the other hand, PKS has gone out of its way to make its brand name known. Let's face it: if you asked most GP to name an amusement park chain, they'd most likely answer "Six Flags" (I know, Disney would be up there too). They've been very aggressive in expanding their chain and the availability of their brand, in a way that is reasonably seen as risky by many investors.
Eventually, it leads me to believe that the two have different visions. Cedar Fair wants to ensure that they are able to provide an excellent guest experience at their few parks well into the future. Six Flags wants to be in everyone's backyard, and they are taking the actions, despite their apparent risks, necessary to achieve that goal. It will be interesting to see how it all works out, especially for PKS.

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Projected count for 2003: 32 parks & 110 coasters. Actual as of 7/15/03: 20 parks & 78 coasters.
http://home.earthlink.net/~boyydz/index.html

Luke: Why get off the season pass discussion? It's a valid subject. Furthermore, if you think 99% of guests buy a single ticket at the gate, I can only assume you haven't been to many theme parks. Even if passholder attributed to 5% of operating expense as you suggest, "negligible" is hardly the word for it. If my profit drops 5%, I'm going to freak out, not accept it as a part of doing business.

And don't kid yourself... all businesses want to grow, especially if they're accountable to stock/unit holders. PKS and FUN both want to grow, but one takes fewer risks and it happens to be the one paying $1.76 per unit.

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Jeff - Webmaster/Admin - CoasterBuzz.com - Luau II Cam 7/19
DELETED! What time does the water show start?

Jeff, if it's income you want, check out the Six Flags PIERS. They're yielding 8.8% right now. The conversion is a joke though (with a 1.2 shares of PKS conversion ratio the preferred income securities is fetching triple its conversion value) but it is one way to take a stake in Six Flags and get paid every quarter until they get it right.

And Luke, the reason that Six Flags went with the branding strategy was because it worked -- at first, at least. I remember places like Kentucky Kingdom reported a 30% attendance boost the year after being rebranded.

Cedar Fair doesn't do this with their parks. Why? Well, because it would use up a good deal of capital to add the 2 or 3 thrill rides that Six Flags tends to do before tagging a park with the Six Flags moniker. However, Cedar Fair had no problem slapping Soak City onto all of their water parks and going with Camp Snoopy for the kiddie areas. Those moves didn't involve major outlays of green.

Speaking of season passes there's one benefit (to the park's bottom line) that no one has mentioned. Sure, the regulars are the ones who won't buy the t-shirts while they choose to eat outside of the park and hit the water fountains or ask for free cups of ice water.

But as an extra body in the park, in the lines, on the rides, it makes the Lo-Q ride reservation system a more attractive purchase for someone else. I know that not all of the Six Flags parks have paid FastPassesque offerings but it's something to think about.

Besides, with what Six Flags charges for parking I'm pretty sure the park turns a profit on you even if you and the folks you came with just come for the rides and wear out a few urinal cakes. If you bought the pass? Well, that's $25 right there.

Now that I've had two days working the upcharge attractions at SFA, I can tell you they are almost constantly busy, especially the go-carts, and I don't have to tell you that the Skycoaster is expensive. So some people are definitely spending money beyond the entrance price. It's not too far fetched to believe that people are also spending a lot of money on games and food, even those with season passes. Jeff and others, I would have to disagree that Six Flags is the only park that "babysits" kids. If you've ever been to Dorney you know that Wildwater Kingdom is mobbed during the day. I would bet that the great majority of the patrons are locals, most likely kids dropped off by their parents.

Genghis, I strongly encourage you to compare pricing with other entertainment. Ever been to a concert recently? Parking is just as expensive as Six Flags and the ticket prices are similar or far much higher for a two to three-hour concert. And they want $25 for a t-shirt. How about a movie? $8-$10 for a two-hour movie? And how about those concession prices? A sporting event also has high prices, high parking costs, and extremely high concession prices. My point is that you get a lot more bang for your buck at Six Flags whether you want to admit it or not.

I've been to two of the other competitors, Hershey and DorneyPark, and I can tell you that the food prices are just as expensive, and the food quality questionable. The question is, do you want the hypercoaster (hypothetical) or not? Someone has to pay for it, and it's going to be you.
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If you have a problem with clones, the solution is real simple—Stop traveling.

You don't have to disagree, because no one said Six Flags was the only company to babysite. Virtually any park that has a water park included with admission does the same thing. The difference though is that they don't give away their season pass. I mean, Holiday World is $120, Michigan's Adventure is $90, Dorney is $98. Compare to $50 and sometimes less at Six Flags parks.

Higher pass prices, the way I see it, serve two purposes. One, the barrier of entry is higher. I don't care if it sounds "classist," but people willing to spend more on a pass are a higher quality guest and are more likely to spend in the park. Lower prices mean you might sell more passes, but in the long run get lower per cap spending and more people putting an operational burden on your park (not to mention the babysitting problem).

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Jeff - Webmaster/Admin - CoasterBuzz.com - Luau II Cam 7/19
DELETED! What time does the water show start?

I can't see how season pass holders are a bad thing. Yes per cap spending in lower, but annual spending is much higher. Which is why i said that per cap numbers aren't the most accurate incdicators for parks with high numbers of pass holders (like old GLP). Yes the per cap is always a good tool to compare different size parks, but in some cases won't give you the full picture. Would you rather have a park with a per cap of $10 and an attendance of 2.5 mil or a park with a per cap of $9 and an attendance of 2.8 mil? The costs of running said park should be pretty darn close percentage wise. So would you rather 50% of 25 mil or 50% of 25.2 mil? Sure the higher per cap is nicer on paper, but the lower one gets more money in your pocket in such a case.

All economic tools must be examined to give the complete picture of the park. Attendance, operation cost ratios, per caps and profit. No one number is the "key".

If i were to run my section of food stands in the park at a one dollar per cap compared to the other supervisors $.80, i am certainly not doing a better job if i can't keep the labor in line.

I imagine that parks like WOA still have pretty decent per caps. It always had without trying in the past. But it's in the lack of attendance and poor cost controls that killed that park.