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Clearing the confusion over Magic Mountain....

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Published: July 23, 2006 at 2:27 PM

A reader writes:

Magic Mountain is a place that all of the teenagers like to go. It is like their home and they would be so depressed if Magic Mountain was going to be torn down. My first question is, why don't they just tear down Hurricane Harbor? I mean, the reasons that they are not making enough money [are] because they are spending so much on the water and they are only open in the second season (spring and summer).

My second question is that why did they just build about a million dollar ride if they are thinking of closing Magic Muntain now? I just don't understand. I hope they sell the land to someone who will understand that teenagers need this park and keep it standing for as long as they can!

Let's clear some confusion: Magic Mountain's making plenty of money. So is Hurricane Harbor. Both are popular parks (though MM could make even more money with a few long indoor or flume rides.)

The reason Six Flags is selling Magic Mountain and some other parks is because the managers who used to run Six Flags borrowed billions of dollars to expand the company in the late 1990s. And, despite the money Magic Mountain and the other parks are making, the company isn't making enough to pay off that debt.

So Six Flags needs to raise cash. And the fastest, easiest way for it to raise cash to sell off the incredibly valuable real estate that Magic Mountain sits on.

The desicion to build Tatsu was made years ago, by Six Flags' old management team, the one that created this financial mess that the current managers are trying to clean up. Even if the park does close, though, Six Flags could make back much of the ride's cost by selling it to another park, which would love to have a year-old B&M roller coaster.

Sure, Six Flags would be happy to sell the whole park to another theme park company. But there aren't many around that would have the cash to buy and operate the park. Disney and Universal never have bought another company's park in the United States. Cedar Fair already owns Knott's Berry Farm and just spend over a billion dollars to buy the Paramount Parks (including Great America in Santa Clara.) Busch used to have a park in L.A., in the San Fernando Valley, but an executive with the company told me that "the cost of rendering that park into a high-quality family attraction in the model of Busch Gardens or SeaWorld is probably beyond our means."

That's it. There are no other companies in this country with an established track record of running a park the size of Magic Mountain.

Still, closing Magic Mountain is not a done deal yet. Six Flags could choose another option to raise cash. Local politicians are thinking up ways to throw millions of dollars of incentives (or, as I like to call them, "corporate welfare") at Six Flags to keep Magic Mountain open. And if real estate values keep dropping in the L.A. area, Six Flags might decide that it's not worth letting go of the park at this time.

But if Six Flags does sell Magic Mountain to someone who closes it, trust me, theme parks and developers around Southern California will race each other to capture the loyalty (and dollars) of Magic Mountain fans. Universal Studios Hollywood and Knott's Berry Farm will introduce new rides to attract those fans. Local water parks, malls and theaters will try to lure them to hanging out at their properties as well.

And even if Magic Mountain closes, I wouldn't be surprised to see a deal where Hurricane Harbor remains open (though under a different name) as the anchor of a new retail/entertainment complex built on Magic Mountain's land.

In short, it's not the park's fault. This whole mess is the fault of a bunch of managers in Oklahoma City, who gambled by borrowing more money than they possibly could afford, under the mistaken notion that the value of the property they were buying would continue rising in value forever, eliminating the crushing burden of those loans.

Not those the Six Flags managers (who don't work for the company anymore) are the only people to make that mistake. Heck, many of the folks who bought homes in the L.A. area over the past four years might soon find themselves in the same situation....

Readers' Opinions

From Adrienne McDonald on July 23, 2006 at 10:36 PM
I bettah hurry up & get there to ride & visit that park! :(. Mannn, first Astroworld, now MM?! Mannn, they should sell Oklahoma City six flags. It REALLLLY is not worth the $20 to goto. Well, maybe $20 & $6 parking but they REALLY need a better coaster than Silver Bullit & Diamondback. I was HOPING they'd put up Xcalibur by now but as far as I know, it's still in the field, laying there, rusting away, well dunno 'bout the rust part. But they have several rides that need ta just go. What about that indoor coaster they had there?! They could do something w/that, like open it back up w/a newer, better coaster, similar to Mayan Mindbender at LEAST. They cudda transferred the standup coaster there from Astroworld but who knows where that one ended up. :(.
From KD Younger on July 24, 2006 at 7:51 AM
Busch.
From Patrick Sayre on July 24, 2006 at 10:11 AM
I have to agree with that financial assesment of Six Flags. But I feel the true key to why Six Flags failed is found in the readers comments; teenagers.

Six Flags did the worst thing any park can do, they focused on those people who demand the most resources and provide the lowest return on that investment. Sure, amusement parks can keep the lights on with admission revenue (excluding MMs non-stop 2-for-1 admission promotions), but their profit structure depends on in park spending and keeping their guests for more than a day of riding rides and sharing $5 sodas. The era of single day/babysitting amusment parks is over, economics do not allow them to pencil out anymore.

Today a park needs more than coasters and a few teens with the 50 bucks mom gave them to survive. They need to be a destination, they need Families. Families stay longer, spend more money, and require less resources (security,promotions,maintenance) than do teens alone. Look at the Disneys and Universals..complete parks that appeal to every demographic, especially to those people who fund the visit...the parents. Parents in many cases do not care about mega coasters, they want safety, cleanliness, and variety to appeal to teens as well as younger children and themselves..none of which a park like MM can provide.

Having families also creates order within a park as no longer does the park have to dedicate so much to corraling run amok teens, in short with family visits parents provide much of the security and pay for the privilage of providing it.

So the potential passing of MM was inevitable..you could see it 10 or 15 years ago. Packs of teens there on Pepsi can 2fers, sharing sodas, litter everywhere, line cutting, spitting, no theming, small souveneir stands as nobody was buying anyway,S.Cal gangsters, crappy food, understaffed rides, and not a parent in sight...it was a scene out of Pinocchio, all that was missing were the tails and ears.

If they had just followed the Model of Busch,Universal,and Disney and created a well rounded park instead of leveraging hundreds of millions to built coaster after coaster, we would not be having this discussion.

From Darrell Shimel on July 24, 2006 at 3:43 PM
In 1998, Premier Parks bought Six Flags from Warner Brothers for $1.9 billion. This one burchase is where Premier Parks (now Six Flags Inc.) aquired the $2 billion in debt that it still has.

Poor management did not run up that debt. The purchase of Six Flags from WB, along with DC and Loony Toons usage/merchandising rights, is where they got their debt.

They've gone up a couple hundred million, they've gone down a couple hundred million as they've bought and sold parks in Europe and such, but have pretty much been sitting right at the $2 billion in debt.

Problem is, the plan was to increase profitability, and eventually pay down some of that debt.

What the prior management did was add thrill rides, which would drive up revenue for a park for a couple years. Then, when that thrill ride was a couple years old, and everyone had had their cheap thrill, and stopped going back, they'd have to add another thrill ride. Spend $20 million to make $20 million over the next 2-3 years. Then be forced to spend another $20 million.

As a company, they'd bring $1 billion into cash registers, spend $700 million on operations, $100 million building new rides, and $200 million in interest on their $2 billion debt. That $100 million a year on new rides was just keeping the $1 billion revenue, not increasing it year over year. This is just running in place.


The new management is trying to get off the treadmill. Focus that $100 million a year on capital investments that will bring people to the parks for decades rather than just a couple years.

First step was to raise annual pass prices. Drive away the free loaders and make more money off those that return. This pretty much worked.

Second step was to up spending on family friendly items. Characters, shows, cleanliness. This is taking longer to bring back the families than originally hoped.

Next will be to start building family friendly rides. Unfortunatly, previous management has the company committed to $80 million a year in new coasters for the next several years. Doesn't leave much of that $100 million budget for other stuff.

Long-term goal will to be to branch out of theme parks into other entertainment industry areas. Movies, music, television? Pull a Disney/Universal and use parks to drive other areas, and use other areas to drive parks. Lots of luck.

In the mean time, Six Flags sees a bunch of bidders for Paramount Parks. They see those parks go for well more than originally planned. 10x income before tax, interest, and depreciation. Well, Six Flags has income before interest and depreciation of over $350 million. 10x that would be almost double their debt.

If it could sell off a few parks for close to 10x pre-interest, depreciation.... wow, it could really pay down that debt, drop the interest, make some profit, get out of junk bond status, reduce its interest rate on the remaining debt, further reducing interest payments.....


So, the company did a long look at its parks. Which are most likely to sell for the highest price. Which are going to be the hardest to convert from thrill park to family friendly theme park. Which are going to best get them off the treadmill of just running in place.

The answer set included Six Flags Magic Mountain. Partially because the land is worth so much. Partially because it would take so much investment to bring back families. Partially because the reputation is SOOOO damaged that the families may never return. Partially because there is already so much competition in the SoCal market.

As for calling tax breaks corporate welfare... I hate that term. It isn't like the county/city is going to write a check to Six Flags for $1 million or $10 million, or whatever. They are just talking about tax breaks.

If Six Flags closes, a lot of other business would close. Hotels, restaurants, gas stations, etc. Let's say those companies pay $20 million in taxes. And, let's say Six Flags is paying another $20 million in taxes.

In this example, if Six Flags closes, the government loses $40 million in taxes.

So, they decide to reduce Six Flags taxes by $10 million a year. Now the government has $30 million more in tax income than they would have had if Six Flags closed.

This isn't corporate welfare. This is government working in the best interest of its citizens. This is government protecting jobs, protecting property values, and working with business to the benifit of all.

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