Tuesday, July 24, 2012

Strategizing Fun: Theme Park Divestitures - A Necessary Evil or Just a Necessity?

Over the years, the theme park community has lost several parks.

Geauga Lake.
Hard Rock Park.
Freestyle Music Park.
Six Flags New Orleans.
Six Flags Kentucky Kingdom

In addition, many parks have changed hands.

Six Flags Europe.
Busch Gardens Theme Parks.
Sea World Ohio.
Six Flags Worlds of Adventure.

So what do these cases have to do with each other? They were divestitures, which is the topic for this month's Strategizing Fun.
Companies use divestitures for several reasons. It could be that the asset is worth more to a different company (such as the land under Six Flags Astroworld), or it could be that the asset is eroding away overall company performance (such as the case for the amusement park side of Geauga Lake). In any of these cases, divestiture was the only option.

Of course, no theme park operator actually intends to shut down a park, or to see a park shut down by another operator.  But what they are counting on is a nice influx of cash to pay off high debt. You see, without shareholders making a return on their investments, they will either sell their stock, or vote in a new leadership team poised to lower costs – at any cost (forgive the play on words).

Either one of those scenarios is far worse to theme park enthusiasts than selling individual parks. Plus, the economics of the matter is that if another operator believed it could profitably run a divested park, it would indeed purchase it. Outside of the owners of Holiday World making a play to operate Kentucky Kingdom, that has failed to materialize in any of the parks in that first list. But for the second list, the outcome was far more fortunate. Another operator indeed felt the asset was lucrative enough to continue operating as a theme park.

Former Astroworld Park (Credit: Jakizle, TPR)
But back to that first list. To local residents, it’s a bitter pill to swallow to see a park close down – no matter how good that decision might be from the perspective of shareholders. For example, many Houston residents might not ever make it to another Six Flags park after the closure of Astroworld. Although the land was sold to developers, a planned multi use master planned community has not been realized. As recently as last year, the land was used as spillover parking for a special events.

Similarly, there are some in Cleveland who wouldn’t be willing to make the 1 hour and 9 minute drive to Sandusky, OH, to enjoy rides at Cedar Point.

Helicopter images of SBNO rides at SFNO.
(Credit: The Mystery World) 
It’s an even worse thing for residents of New Orleans. Although they’ve certainly had other things on their mind the past few years – between the costliest natural disaster in U.S. history (Katrina), and the largest accidental marine oil spill in the history of petroleum industry (the Deepwater Horizon oil spill) – the loss of Six Flags New Orleans in 2005 means the nearest park is 1 hour and 24 minutes away, in Baton Rouge (i.e., Dixie Landin’). An even more extreme case is for residents of Memphis, TN. After losing Libertyland in 2005, the nearest park is 3 hours and 11 minutes away, in Hot Springs, AR (Magic Springs & Crystal Falls).

But at the end of the day, most of these divestitures allow the company to continue to operate. Ask any one of Six Flags’ nearly 24 million guests, or Cedar Fair’s 23.4 million guests, and they’ll say they are happy that they can continue to visit their local parks.