Six Flags' New Owners Face a Capital Challenge
Whoever buys the struggling amusement park chain will need to bring a new model, and a lot of cash, to turn around the ailing company.
Written by Robert Niles
Last month's news that the Six Flags amusement park chain is going up for sale should not have surprised Theme Park Insider readers. We broke the news of Six Flags' financial troubles years ago and TPI readers have documented the sorry state of some of the chain's parks – poor perfomance which has led to declines in attendance and revenue for the company.Tweet
But will a new owner be able to improve the quality and financial performance of the chain? Or will consumers see a repeat of the fiasco when an undercapitalized Premier Parks bought the brand from Time Warner a decade ago?
Whoever buys the company, Six Flags executives must find a way to get money from their properties 24/7, 365 days a year. Unfortunately, only Southern California's Magic Mountain does not close for the winter, and that park only opens on weekends during the school year.
Capital-hungry parks also need the spending power of entire families, not just the teenagers who seem to have become Six Flags primary customers. The multi-billion dollar U.S. theme park industry has grown too competitive for a company to expect significant revenue growth on a business model that extends little beyond selling deeply discounted season passes to teenagers for parks that open just a few months out of the year.
Disney and Universal have established a far more successful business model with mixed-use resorts that can operate year-round, from morning to late night. Six Flags does not need to create follow the Disney and Universal in building destination resorts in established tourist areas. But it would do well to adopt the CityWalk model and mix movie theaters, restaurants, arcades and clubs with its amusement rides.
These amenities can operate late into the evening, after most folks are done riding roller coasters for the day. They can also stay open year-round, bringing revenue into Six Flags properties even when the weather turns too cold and snowy to keep the coasters running.
Within its parks, Six Flags must create new attractions with family visitors in mind. Mothers provide the world's best security force. By promoting its thrill rides at the expense of building family-friendly attractions, Six Flags altered the mix of visitors to its parks beyond a tipping point where an abundance of unsupervised teens overwhelmed park security, creating uncomfortable and sometimes dangerous environments that drove away many of its previous customers.
Six Flags new owners would do well to lay off the coasters for a few years, and instead concentrate on building themed dark rides along the lines of Disney's Haunted Mansion and Universal's Men in Black: Alien Attack. The park's new owners would also help by investing in new themed flume rides, which appeal to both thrill seekers and to coaster-adverse kids and adults.
The company has done well in building and promoting water parks adjacent to many of its theme parks. Water parks provide a relatively cheaper way to build attendance and customer loyalty during the summer months, padding the company's numbers and helping the bottom line. But water parks cannot return the profits that Six Flags investors demand. The company needs a model that works during the other three seasons of the year, as well.
That's why Six Flags ought to design its new attractions with the CityWalk model in mind. Build the dark rides near the new theaters and shops, so that they and other weather-resistant attractions can stay open year 'round, even when the roller coasters and the rest of the parks close. That way, Six Flags can sell limited admission tickets even in the colder months, earning at least some revenue from the parks 52 weeks a year. Better design would also allow Six Flags to create and aggressively market seasonal Christmas and New Year's events in their parks, which chains such as Disney and Paramount have found quite lucrative.
A partnership with an adjacent hotel offering meeting and event facilities is essential. Six Flags must employ event management staff at each of its parks that will target weddings, reunions and corporate events to supplement its amusement park visitors in providing revenue for the company.
For this model to work, a Six Flags park must lie no more than a half-hour's drive from at least one million people. And probably more. It's time for the chain to dump parks too small for Six Flags branding: Oklahoma City's Frontier City, The Great Escape in Lake George, N.Y. and Enchanted Village in Seattle. Six Flags Darien Lake and Six Flags New England also lie a significant distance from major metro areas.
Unless a new owner brings significant outside capital to the parks, Six Flags will need to sell properties to raise the funds needed to expand and renovate the parks it retains. Which is why a new owner also might consider the seemingly radical option of selling Magic Mountain, perhaps to Viacom or Busch, the nation's two largest theme park operators who do not have properties in the key Los Angeles market.
The sale of Magic Mountain would provide a major infusion of cash, as well as relieving Six Flags of the expense of competing in one of the nation's top two media markets and top two theme park markets. Even if Viacom and Busch are not interested in the park (which was originally designed by SeaWorld, in the days before Busch bought that chain), Six Flags ought to consider scuttling the park, movings its prime attractions elsewhere in the chain and selling its land for its possible nine-figure real estate value.
Of course, a renovated, family-friendly Magic Mountain, with an adjacent shopping/entertainment district, could become a cash cow for a rejuvenated Six Flags. But debt from the Time Warner purchase and late-1990s expansion of the chain is drowning this company. It can't afford to borrow the money to build Magic Mountain to that level. If a new owner can't put up the necessary cash, the company would do better to sacrifice its Southern California park for the benefit of the remaining properties in the chain.
Six Flags is ailing not just from a lack of talent in theme park management. Its primary ailments remain a lack of financial management talent and proper investment capital. Whoever buys this amusement park chain must either put up the money necessary to run this company in a highly competitive billion-dollar industry, or shut up and face the same fate as its current owners.
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