Tuesday, June 16, 2009

Mark Shapiro Reaches Out to the Blogging Community

As part of Six Flags' continuing efforts to keep the lines of communication open in the wake of their bankruptcy announcement, President and CEO Mark Shapiro held a special conference call yesterday to discuss the company's past, present, and future with the blogging community. (Hey, that's us!) Following a brief presentation in which he recapped all the information that's hit the press over the past several days, Mr. Shapiro opened the floor for questions and let us pick his brain to our hearts' content. The discussion which ensued was quite enlightening, as Mark shared his thoughts with great candor and obvious enthusiasm. We'd like to share some of the highlights with you.

The Right Thing to Do
"Bankruptcy" is an ugly word. Nobody likes to hear it let alone utter it, and that includes the Six Flags management team. But as Mark explained--and as I'm sure you all know by now--it simply was the only feasible solution in this case, given the company's debt load and the current state of the economy. "The decision to restructure our debt was difficult for management and the board of directors, but I know it's the right thing to do for Six Flags," he told us.

Six Flags has reached a point where interest expenses total nearly $200 million a year, making it impossible for the company to climb out of the financial mess it inherited--even in a good economy. If the management team's pre-negotiated reorganization plan is approved by the court, much of this outstanding debt will either be converted into equity or erased altogether, leaving Six Flags with a much more manageable balance sheet.

While the team has received unanimous support for its plan, Mark admits that the court process will be necessarily convoluted. Many different factors (including the chain's performance this summer) could ultimately influence the final decision. However, the team remains optimistic and hopes that the proceedings will conclude by the end of this year.

In the meantime, it's business as usual for the parks, which--according to Mark--will be running at "full throttle" all season long! He also stated that Six Flags "will not be closing any parks whatsoever" or cutting any staff as a result of the restructuring process.

Out, darn debt. Out, I say!
"Not only for the three plus years that I've been here, but really since Premier Parks bought Six Flags from Time Warner, the word 'debt' has been associated with the Six Flags name," Mark lamented. "We're looking to disconnect that." As enthusiasts, we're all painfully familiar with the general mismanagement that accompanied the Premier era. Mark broke the mistakes down into three key areas in an effort to illustrate how the company managed to rack up all this debt.

The trouble began with the very act of purchasing the Six Flags parks from Time Warner. The fact is, Premier overpaid for many of the properties. They then began expanding at an aggressive pace--particularly internationally--which they could not support financially. But the final nail in the coffin was capital expenditures. While the current management team is spending about $100 million in capital each year, the previous team was approaching $200 million at times through their lavish spending habits, which frequently included the installation of multiple roller coasters at one park in a single year or bank-busters such as Kingda Ka.

"In short, you overpay for the company, you expand internationally and maybe domestically as well at a rate and a pace and a financial level that you can’t afford, and then just overcapitalizing, really at all of the parks each and every year," Mark explained. "The return just wasn't there."

Show me the capital plans!
"This restructuring process will not in any way slow down or hamper our capital plans," Mark assured us. And yes, that includes the previously announced plans to do it up big for the chain's 50th anniversary celebration in 2011. But he stressed that the nature of Six Flags' capital expenditures will vary from park to park and from year to year, with the primary criteria being the specific needs of each park in the family. Thus, in some cases big new attractions will take a backseat to much needed deferred maintenance.

That being said, Mark also stressed that Six Flags strives to bring a new and exciting attraction of some form to all of the parks each year. Whether it be something as significant as Terminator Salvation or a more entertainment-focused attraction such as the Glow in the Park parade, the goal is to always have something new and different for families to enjoy. He saw this as being particularly important in today's economy, where many of Six Flags' competitors are scaling back. "We saw that as an opportunity," he told us, noting that they hope to see many more families come out to "sample" the new Six Flags this year.

The best news is that Mark tells us Six Flags will continue to focus on themed, immersive ride experiences, so I think we have much to look forward to!

A Financial Roller Coaster
In what was perhaps one of the most interesting discussion topics of the call (to me, anyway), Mark opened up and spoke very frankly about the financial impact of installing blockbuster new roller coasters as well as his own personal take on these thrill machines. "I don't want anyone to mistake this. When you talk about my favorite rides, they are rides like El Toro and Nitro at Great Adventure and Goliath out at Magic Mountain," he said, adding that he's very grateful to the past management team for bringing these high-caliber rides to Six Flags. "It's easy for me to say 'We don't have the money to put those in' because I already have them, and I don't forget that."

But according to Mark, the "harsh reality" is that today's industry can no longer afford such rides, particularly if you are a regional park operator with a seasonal business. He illustrated his point by breaking down a mock budget for us using Six Flags' $100 million target, which he believes is the maximum figure a chain can support while still remaining healthy. If Six Flags were to install a $25 million coaster at one park and then proceed to spend $25-30 million on deferred maintenance across the chain, that leaves only $50 million of marketable capital at best for ALL other parks. Looking at it this way, it's easy to see why many parks--including Six Flags--are forgoing the gigacoasters these days. Mark also noted that the ROI just isn't there for such rides, and that the parks which continue to install them will most likely never see a full return on their investment.

However, this does not mean that we won't see rides like Bizarro and Terminator Salvation popping up across the Six Flags chain from time to time. These smaller, more affordable attractions round out the parks' existing line-ups nicely while still providing a thrill for families. Mark fully understands that the die-hard thrillseekers may not be 100% satisfied with such additions, but hopes that they will view them within the context of the "full package" of rides and attractions offered at the various Six Flags parks.

Close But No Cigar...Yet
Surely anyone who has visited a Six Flags park over the past couple years would have noted many obvious improvements across the spectrum, from cleanliness to ride maintenance. But Mark still sees a lot of room for improvement. "It's really clear to me that we're not where we need to be," he told us. "I think if someone could hand me a check for $200 million, that’s how much these parks need to get back to the days when I grew up in these parks, where everything's got a fresh coat of paint, where you don’t see cracks in the sidewalk or the pavement, where roofs aren't leaking, where your maintenance cars aren't falling apart."

He cited the deferred maintenance "hole" left by the previous management team as one of Six Flags' greatest challenges, and stressed that it will take time to fully rectify the situation. But you can rest assured that the current management team is under no illusions in that department, and they will continue to work hard to bring all parks in the chain back up to the Six Flags standards of old.

Be Our Guest
One of the most refreshing qualities of Mark Shapiro is his obvious concern about the happiness of Six Flags' guests. Time and time again during the call, the issue of guest satisfaction came to the forefront of the discussion. "A great and entertaining season for families everywhere is first and foremost on our priority list," he stressed. He especially enjoys reading all the comments and stories submitted by park patrons who are making their own family memories at the "new" Six Flags. This positive feedback "keeps us all motivated and inspired," he told us.

Image Is Everything
Six Flags' restructuring is a delicate subject for many parties and for many different reasons, but Mark feels that the media have been doing a good job of covering it. "I think it's being covered with the kind of sensitivity and detail that is right for the story," he told us, adding that he feels the press have been very accurate and very fair in assessing the situation. Of primary importance to him is getting the point across that park operations will in no way be affected by this action, and he feels that this message is coming through loud and clear. Nevertheless, we can expect to see a heavier than normal marketing blitz this summer to reinforce that notion.

Looking Ahead
Mark Shapiro's energy and enthusiasm are undeniable. We all read about it on a daily basis, but to hear the man himself speak about his company in a frank and candid manner really drives this point home. He is extremely optimistic about the future of Six Flags. "I'm excited to grow this company," he told us. "Once we get out of this restructuring process, I really believe that with the ingenuity of the employees at this company, with the creativity of the employees at this company, with the passion of the employees of this company, I truly believe we’re going to be off to the races."

Well Mark, we certainly hope so and we wish you and your team the very best!

NPN would like to sincerely thank Mark Shapiro for hosting this call and taking the time to connect with our community on such a personal level. It's wonderful to meet a CEO who's willing to make himself this accessible and speak so frankly about both the challenges and the possibilities which lie ahead for Six Flags. Yesterday may have been the first ever Six Flags "blogger conference call", but we certainly hope it is not the last! We look forward to seeing what the future holds for this reemerging chain. If nothing else, I think it's safe to say that this ship has the right captain and that goes a LONG way.