CoasterBuzz recently sat down with Dick Kinzel, CEO of Cedar Fair, LP, to talk about the business of running parks and the state of the amusement industry. Cedar Fair owns several amusement and water parks, including Cedar Point, Knott's Berry Farm and Dorney Park.
CB: What is the difference between running a private and publicly traded amusement park company?
DK: The main thing is that everything you do is public. You have a board of directors you’re responsible to, and you’re also responsible to your investors. I think the big thing is the public knowledge that has to be out there. Your capital items are public and you lose a lot of the little things from a competitive standpoint that a private company can do. In other words, you have to announce your capital expenditures; you have to announce earnings and things like that. But other than being responsible to your share holders, the basic business decisions are the same. When you say you’re public you are just that. You have to meet certain SEC regulations and you have to disclose so much information that everyone knows your business.
CB: Is it necessary in the current landscape to make aggressive capital improvements at small and large parks to stay competitive?
DK: The way we look at that is purely on an ROI [return on investment] basis. Last year, for example, we put in about $110 million in capital investments. While the big one was Millennium Force at Cedar Point there were a lot of small capital items that showed an excellent return on investment. For example, we put about $15 million in to a hotel at Cedar Point because we knew it was going to fill up due to the impact of Millennium Force, so there’s almost a domino effect.
All of the capital we do has to show a good return on investment. We feel that you have to put in the capital dollars to keep people coming back year after year, but we have to justify it with either increased guest attendance or with increased per capita spending. A lot of people think we put the rides in because of ego, to say we’re the biggest and the best, but that’s not really the truth. The truth is they’re good business decisions to put those rides in, and the timing has to be right. Notice we don’t put the world’s largest or biggest rides in the smaller parks because we’re very careful about our strategic planning as to where we place our rides and how our capital dollars are spent.
CB: So capital expenditures in the form of hotels are a part of Cedar Fair’s strategic planning?
DK: All the hotel rooms we build, at Cedar Point for example, we fill those up and it turns out to be an excellent investment for us. We know what the key costs are for each room we build and know that if we can build for “x” amount of dollars that we can make a profit on that investment.
The main reason we can do it at Cedar Point is that we already own the land, so we don’t have to calculate the land costs in our ROI. Other locations like the Radisson Hotel at Knott’s, the old Buena Vista Hotel, was right on the same sector of land that the park was on, so it was only a matter of time before we tried to buy it and make Knott’s a total resort area like Cedar Point because we have a good population base to build off of there.
CB: That leads to the next question of expansion. As a publicly traded company, there’s obviously some pressure to grow the business. Is Cedar Fair’s strategy to do that through acquisition?
DK: We certainly would love to expand the business. There are two way of doing that, through internal growth and external growth with acquisitions. If the right opportunity presents itself, we’ve stated publicly all along that we’d like to expand our business. We also have an obligation to our unit holders now that the acquisition has to be paid for in a certain amount of time. We’re traded on our distribution, and right now that distribution is over 8%. We certainly can’t make an acquisition that we don’t feel can, in a relatively short period of time, contribute to that distribution. The acquisition has to be the right price. We can’t say that 25 years down the road this will be a good investment for us.
CB: How many years out do you plan for capital expenditures?
DK: We’re usually on about a rolling three-year growth period, with a fourth year for a financial growth plan. Right now we know what we’re going to do in our parks in 2001, of course and 2002. 2003 is subject to industry changes and changes in what people’s needs and wants are. We’re always at least two years ahead of the curve.
CB: The industry has seen aggressive spending for capital improvement lately, given the strong economy. Do you think the industry will continue to thrive as it has?
DK: Boy, I sure hope so! The last nine years have been great for the economy and certainly for our industry. Across the industry, our per capita spending has increased, we’ve been able to raise gate prices, we’ve put in a lot of capital that has made nice dividends for us, we’ve spent a lot of money and we’ve made money.
The economy is cyclical. As we’re talking today, it’s been six months that retail spending has been down. There are signs on the horizon that things may level off a little bit and we as an industry have to adjust for that.