Written by Russell Meyer
Published: August 10, 2005 at 6:59 PM
In a time when Enron, Adelphia, and MCI/Worldcom executives are being sent to jail for overstepping their bounds, former Disney executive Michael Ovitz was granted his $140 million severance package by a Delaware court. It seems that hiring someone, and then forcing them out 14 month later without any sort of shareholder approval is just fine. Disney shareholders were trying to get some reciprocation from Ovitz in this case, but the court felt that the Disney board had the right to make executive moves, and to construct contracts for fellow executives. The $140 million severance after a mere 14 months of work with Disney does seem rather absurd, and the lawyers arguing on behalf of the shareholders alerted the court to this ridiculously generous “payout.” However, the court again stood on the side of the Disney board, and their right to make decisions regarding the hiring, firing, and constructing the contracts of executives.
Did the court make the right decision? Legally speaking, it seems they did. There was no evidence of impropriety, and despite how “fishy” the severance package of Ovitz looks on paper, it was well within the right of the board to structure his contract in any way they saw fit. This case did not involve a financial blunder, poor accounting, or document shredding. Ovitz was clearly not the right person for the job, and the Disney board clearly made a huge error in hiring him, only to let him go 14 months later. However, should the board of a corporation be held responsible for every bad decision it makes? If that were the case, corporations would never grow, because their boards would be so scared to make bad decisions that risks would never be taken. The board of a corporation needs to be given some flexibility and autonomy to be able to run the company without having to defer to shareholders before moving forward.
While ruling in the board’s favor, the court still reserved a few stern words for Michael Eisner, who was blasted for being the “omnipotent and infallible monarch of his personal Magic Kingdom” and not keeping shareholders informed of his decisions. Still, in the court’s eyes, Eisner and the Disney board were absolved of making this very expensive mistake, and in turn have set a precedent for corporate law. This case has given some power back to corporations, and has dealt a blow to shareholders. While this decision does not give corporations carte blanche, it does reduce the chance of shareholder lawsuits over every single bad decision, in turn affecting the value of stock.
It seems that the two largest owners of regional theme parks in the US are moving in two different directions, and it’s not what the theme park community would necessarily expect. Six Flags reported a profit of $5.6 million for the second quarter of 2005, versus a $12.3 million loss for the same period in 2004. Six Flags has continued its slow return to profitability, and let’s not forget that the second quarter of 2005 included the incredible public relations nightmare of Kingda Ka’s extended downtime. Meanwhile, Cedar Fair’s report was not so rosy. While Cedar Fair experienced a net revenue increase of 3%, attendance at its theme parks was down 2%. Cedar Fair blames its attendance decline on a poor economy, but the last time I checked, the economy was on an upswing, so much so that the Federal Reserve continues to make quarter-point increases in the prime interest rate. Cedar Point and Geauga Lake appear to be the biggest culprits contributing to Cedar Fair’s overall weak performance. Cedar Point had a 4% attendance decrease while Geauga Lake had a less-than-expected 7% attendance increase.
Can this be real? Six Flags is outperforming Cedar Fair? Six Flags has focused its resources on its new flagship Great Adventure, and provided just enough enhancements at its other parks to maintain attendance numbers. Cedar Fair’s flagship, Cedar Point, has not lived up to its reputation as the “roller coaster capital of the world,” and has not added a new coaster since 2003’s Top Thrill Dragster. However, Cedar Fair has made major investments in its other parks with major coasters. Knott’s Berry Farm (Silver Bullet), Dorney Park (Hydra), and Worlds of Fun (the soon-to-be-announced B&M invert rumored to be called The Patriot), have all received coasters, while Cedar Point has been left with a flat ride (maXair). In fact, Cedar Point is reportedly losing a coaster. While the sale of an unnamed coaster (probably Wildcat) will likely pave the way for the addition of a new coaster or coasters, Cedar Fair may have a hard time reversing its fortune, as Six Flags continues its upward momentum. Of the four Cedar Fair parks I’ve been to, all of them are superior to the many Six Flags parks I’ve been to, so it’s difficult for me to fathom how Six Flags is flourishing, while Cedar Fair is floundering. Analysts predict that the trends will continue through the third quarter, and this reversal of fortune may extend through the winter months as well. Maybe we’ve been a little hard on Six Flags, and not hard enough on Cedar Fair.