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.

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Published: September 9, 2005 at 11:41 AM

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.

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.

Readers' Opinions

From Arthur Cashin on September 9, 2005 at 5:45 PM
You do have to give SF credit for one thing. They finally woke up and realized the benefit of capital expenditures at Great Adventure, a park that draws from 2 major metro areas (NYC and Philly), at the expense of Magic Mountain where there is a lot more competition for theme park dollars.

The old school thought to put new rides in a park that is open most of the year in order to generate more potential ticket sales. The new school realizes that at seasonal parks, you need to generate a buzz to get people in before you lose the season.

GAdv didn't feel the need in August to do the buy your 2006 pass now and get the rest of 2005 for free, so the gate must have improved. With Kingda Ka, the new woodie replacing Rolling Thunder and the possible addition of a hotel on site, multi-day opportunities should be providing some growth and hopefully more cashflow.

I have never been to Magic Mountain, but the real estate underneath it is probably worth more than the operating park today. If they wanted to fix their financial woes, just sell the park to a home builder. Maybe that is what they should do with those smaller parks too.

Creating less seasonal areas and opening them all year would require some major re-themeing of areas and higher labor costs of non-seasonal workers. It might not be the best use of capital. I would rather see them fix the things they have. For example, some map kiosks at GAdv didn't even have a current map in them. Jungleland and Kingda Ka were completely missing. Just imagine that happening at Disney.

From Robert Niles on September 9, 2005 at 6:08 PM
Based on its current stock price and number of outstanding shares, Six Flags has a market capitalization around $660 million. (For perspective, that puts the value of the entire Six Flags chain at less than half of what Disney spent to build California Adventure and Downtown Disney in Anaheim.)

Given the current state of the real estate market in California, it is not crazy to suggest that the land underneath Magic Mountain and Marine World might be worth up to $100 million each. (That is, assuming clear land with commercial zoning, existing utilities and road access.) Certainly the land Elitch Gardens is sitting on in downtown Denver is worth a nice chuck of change, too.

Someone will need to help me out and check to see if Six Flags owns the land underneath these and other parks, or if it is leasing it from some agency. But if one adds up the current real estate value of all the land Six Flags parks are sitting on, it is conceivable that the bulk of the company's value lies in real estate. In California, one could make a strong argument that the amusement parks themselves have become a negative asset -- that the land underneath them would be worth more if the equipment and buildings of the parks were not there.

That ain't a good sign for a company. And it increases the possibility that the company could be bought by an investor with no intent to run it as a theme or amusement park chain, but simply to sell the parks' rides and their land to others for whatever they can get.

From Robert OGrosky on September 9, 2005 at 9:01 PM
I agree with your concepts Robert.
But sadly in regards to the SF park nearest to me Six Flags Great America in Gurnee ILL.(Not far from Chicago/Milw)they dont have the luxury of the land to put in a CityWalk type district or a hotel. I dont know if you have been to the park but your idea's i think could work here if they had more land and capital to spend. Im sure they could reconfigure the front of the park and build a parking structure to free up some land but i dont know if it would be enough..
From Robert Niles on September 9, 2005 at 9:24 PM
That's what Universal Studios Hollywood did, and it's built on the side of a mountain. (!)

Ultimately, Six Flags lives in no man's land, financially, now. Either the chain gets an infusion of cash to develop itself into a 52-week-a-year operation, or it liquidates -- partially or completely. It can't persist in its current state with its current business model.

From Arthur Cashin on September 10, 2005 at 5:40 AM
The parcel that GAdv is on is nearly 1,000 acres of which under 600 is developed. They own the land for this one and with 2 major metro areas to draw from, this would be the best place for them to experiment with some sort of year round operation.
From Anthony Murphy on September 10, 2005 at 8:39 AM
I think that Six Flags great America can make a citywalk type of thing. It would require cutting down the parking lot and buying more land. I am actually suprised that there is not hotel that Six Flags runs. However, I think the reason for this all is that Six Flags does not stay open the entire year so the movney going into it might be worthless. ALl the others stay open much longer (except for a few that also close because of cold weather). I will agree with the size thing. Hurricane Harbor, though a good idea, is very small!
From Chuck Campbell on September 10, 2005 at 11:19 AM
Six Flags could take a hint from Busch Gardens Williamsburg here--put in something like DarKastle, rather than just another coaster or flat ride. It is a rather remarkable attraction for a seasonal park.
From Marty Koves on September 10, 2005 at 1:07 PM
I think that a City Walk district would be a good idea for a few parks. but I say the new owner should theme the place and give it a Busch aproach to clean up the chains terrible image.
From Robert OGrosky on September 10, 2005 at 8:42 PM
Anthony-In regards to Six Flags Great America if they built a hotel it would have to have a large indoor swimming area to be viable yearround(unless they put a dome over hurriace harbor which i assume isnt cost effective. And as regards to a citywalk, i think they might have a hard time competing yearround with nearby Gurnee Mills for the dollars of the locals.
From Adriel Tjokrosaputro on September 12, 2005 at 5:03 AM
Will Six Flags good enough with its new owner to compete with Disney and Universal?
From Robert Niles on September 12, 2005 at 9:30 AM
They'd have to decide they want to.

Six Flag's current management is trying to appeal to a very different market than the one Disney and Universal pursue -- teens in their local markets, not families willing to travel. Six Flags could go after the D/U market, but it would need to cut back to two or three U.S. locations, and substantially improve them with additional amenities.

But to make resorts of that scope pay, they have to be fully functional 52 weeks a year -- partial functionality won't cut in on *that* level. And Six Flags doesn't have enough existing warn weather markets. Its best parks are in New Jersey and Chicago. So I suspect the new management will retain the policy of going after local and regional traffic, rather than national and international tourists.

From Philip Curds on September 12, 2005 at 11:23 AM
Six Flags faces many financial issues as Niles has well picked upon. Real estate definetly deserves attention. But, I would almost be tempted to begin from the basics. What does Six Flags stand for, and how does it intend to expand in the future? Economies of scale has clearly not worked for the brand over the past 7-10 years, especially not in terms of attendance volumes. The problem is size.

Firstly, as Niles explained, the business must sell some of its poorly performing parks (those with lower than acceptable growth over the past 5-7 years). Judging a park by their distance to a major urban centre is foolhardy. For instance, if advertising revenue is high, attendence is growing at an even-keel (say 2-3% per annum) and employment costs flat-lining or even declining, a park may be judged successful.

Second, remember that Six Flags core values are different across the chain. In some areas, Six Flags markets itself as a regional operator, others a national chain. This differentiation does little to help advertising dollars flow to the central funding of the parks and reduces the demand of annual passes. Six Flags must decide upon a specific ethos. Either follow families or teenagers. Six Flags Magic Mountain would do well to focus on teenagers, since Disney & Universal provide saturation for families in this market. Six Flags Great Adventure could do the same. Six Flags Great America, should not follow this route, families are key to their development. It is this mixed bag of properties, that confronts Six Flags' planners. If Six Flags chooses to go for families then, sell those parks teenager orientated. If teenagers are the way forward, then sell family-orientated parks.

Third, management must be radically altered, top to bottom. The boss of Six Flags needs to be someone who is a go-getter, willing to analyse the accounts and present a compelling argument to financial institutions, otherwise any takeover is doomed to failure. This can also help the structure of this behemoth. I would recommend rule from the top, but to do this any future leader must inspire his/her co-horts.

I believe, that Six Flags could actually attract more attendees by using some clever tricks from other chains; Busch Gardens in Tampa draws Florida University students and Florida residents to its park through price sensitive movements in slack periods. These ideas and tips would be well-used at Six Flags chains nationwide.

In closing, remember their is 'no perfect answer', the only correct answer is a strong, compelling judgement which solves the main issues facing Six Flags; size, marketing and leadership. Without these, Six Flags (and its employees) will face an uncertain future.

From Dustin Kern on September 12, 2005 at 1:00 PM
Hey, I have two questions. How much is Six Flags Darien worth (how much could it sell for)? When is it possible that it might go up for sale?
From Pete Brecht on September 12, 2005 at 6:18 PM
Interesting timing on this column: my brother in Houston just sent me an article this evening mentioning that Six Flags Astroworld is about to be sold to a non-theme-park developer. Apparently, the real estate costs in that part of town have boomed so that it made more economic sense for the Astroworld property to be something other than a theme park. While Astroworld has seen better days, it's still disappointing to hear about this Houston landmark going the way of the dodo. I'm also kind of bummed since my trip to Astroworld this summer got bagged due to torrential rainstorms, but at the time I just figured that I'd go the next time I was in Houston. I hadn't been there in almost 20 years, but it never occurred to me that it was my last chance.

I wonder if all of the major rides (especially the Texas Cyclone) will be moved or smelted....

article here:

From Marc-André Routhier on September 13, 2005 at 9:52 AM
I agree with Philip! We need to go back to the basics. Although I'm not a Six Flags specialist, here is my vision of what they could do.

First of all they have a bad market position. Going after teenagers is risky. They have no loyalty, they don't have a lot of money, they boycott you if you don't bring new rides, they go only after what they consider fashionable. This is a clientele that don't give you any chance of making your money back. So persisting to answer those needy customers (new coasters every year) will make them go bankrupt.

What Six Flags need is to keep its core business: intense thrills but change their target market and their product offering. Here is what I would do. I would go after the adult market, but not any adult market. I would go after the adult extreme sports market. I would ask manufacturers to build extreme sports experiences to fit those needs. I would change the park experience: from rides to thrilling/dangerous experiences. I would reduce park's dimensions, sell it, use that money to invest in new sport extreme experiences and reduce the cost of maintenance, employees, security and so on. To open year round I would design winter extreme sports and summer extreme sports. I would compete actual extreme sports activities with the benefit new parks would bring: Experimenting different extreme sport experiences in one place/ in one day. I would organize a reservation system that would eliminate waiting times and maximize efficiency. I would name the new chain: Six Flags extreme.

Key strategies: Maintain core, change target market, change the offering, reduce park size and reinvest

I really believe that's a good way out of this situation.

MA Routhier
Montréal Canada

From Derek Potter on September 13, 2005 at 11:27 PM
Astroworld has indeed been reported as being sold. This probably won't be the last either. Sad to see that the park will probably be closing outright. Six Flags wants to cash in on it's prime real estate location. If it's for a parking lot or shopping mall, I will be sick. Even a Six Flags park isn't deserving of that death.

Anyone want to take bets on which park is next?? I have my suspicions...

Elitch Gardens (Denver)
Great Escape (Lake George NY)
Kentucky Kingdom (Louisville)
Jazzland (New Orleans)

One hopes that Jazzland will continue on as an amusement park after Katrina. I for one would hate to see an end come to this historical park. I just can't help but wonder if Six Flags will hang on to it or not. Regardless of whether that happens, Jazzland needs to stay. As for the waterparks, Six Flags lease for Wyandot Lake in Columbus Ohio is gladly up soon. I haven't been there in years, and to be honest, haven't missed it a bit. That place needs some serious help.

From Wayne Kavanagh on September 14, 2005 at 1:44 AM
IM planning on getting to LA in december on vactaion from Ireland!! do you think that six flags magic mountain will still be there/open?
From Robert Niles on September 14, 2005 at 8:41 AM
Weekends. (It's always a bit of a crapshoot as to what will be open within Magic Mountain, though.)
From Arthur Cashin on September 14, 2005 at 6:20 PM
Seems like Robert is ahead of the rest of the world, again.

From Arthur Cashin on September 14, 2005 at 6:41 PM
BTW, from the 2004 Annual Report:

SF owns the land for America (515 acres/only 131 developed), GAdv(2200/635 my original numbers were way off), GA (300/92), MM (260/172), St Louis (497/132) and Frontier City (109/55).

Some parks were not explicitly identified as being owned by SF (Eiltch, Fiesta, Great Escape, etc.)

From Derek Potter on September 14, 2005 at 10:19 PM
Once again...the rumors of Cedar Fair purchasing Magic Mountain are swirling around. Much of the buzz can be attributed to a recently written LA Times story. It's pretty much all rumors right now, but I honestly can't think of a company better suited to run Magic Mountain than Cedar Fair. MM never even really began to touch Cedar Point in terms of park experience, but perhaps Cedar Fair could bring some balance in terms of rides, and some sensible park operation principles that MM has been lacking for years now. It wouldn't be the Disney superthemed experience, but at least it would be a fun and safe place to go again.

Cedar Fair has always picked it's shots when purchasing property...unlike Six Flags, who bought up pretty much every little park they could get their hands on. CF would probably only buy if the price was right, but Magic Mountain would probably be the only park they would pay a pretty penny for.

From Mike M on September 15, 2005 at 5:03 PM
Great Adventure is by far the best and most profititable park in the six flags chain. And with the new themed hotel being built, that should boost the sales. Also, about selling the smaller parks, Six Flags New England is on the top of many people's lists. It is extremely small, and only has about 2 good rides. Superman: Ride of Steel could be moved to another park, and the Dark Knight as well. It is not near any large cities(Springfield is quite small) and is built right next to houses. It would be a huge investment for a builder to buy that land, since it is in such a residential community. Any thoughts?
From Derek Potter on September 15, 2005 at 10:22 PM
I do agree that GAdv is the new flagship for Six Flags. They certainly have begun to sink some big money into the park..Albeit maybe not the smartest spending. Kingda Ka was little more than a pile of metal for quite a while this past summer...something all of us familiar with Top Thrill Dragster knew was going to happen. I still have my doubts about the ride for next year. The tallest wooden coaster in the world spells whiplash, and the fact that it is prefabbed lowers my expectations even more. However, the Golden Kingdom section does look good, and spells a possible bright future..repeat possible. The hotel is a good idea, but in order for the hotel to succeed, Six Flags needs to give it's customers a reason to stay more than one day. I don't think they have done that yet.
From Philip Curds on September 16, 2005 at 12:13 PM
From reading your comments, it appears many of you are interested in this story because it will affect your local park. This demonstrates Six Flags greatest strength at present; size and scale. I have always been surprised that Six Flags managers never expanded the Annual Passes into loyalty schemes like that of Air Miles (UK & Canadian readers), Nectar (for UK readers) or Delta Skymiles etc. The database of entries must be worth quite a lot to market research agencies and businesses, which rely upon themepark guests (hotel, car hire, airlines, restaurants etc.). These opportunities have just not been exploited to their full potential, email, postal addresses and phone numbers must be used if spare revenue generation is to be efficiently utilised. In Europe, Ryanair (low-fares airline, think Southwest) makes 16% of its total revenues in 2004 from gaining commission from selling hotel, car hire, dining and theatre tickets alongside its primary business model (airline tickets to consumers). In fact, I would gladly bid for control of Six Flags Annual Passes (perhaps, another slice of Six Flags that could be divested from the core business), that database, with the right expertise, marketing, afflications and website control could easily be snapped up by an information provider.

If Six Flags executives read, think about this idea as a serious method of reducing your debt mountain.

From Derek Potter on September 17, 2005 at 10:23 PM
Just an update. Dan Snyder is again throwing his two cents in the mix...trying to win over the shareholders, and also threatening to sue if Six Flags sells off any more property. Come on... it's not like he wouldn't be doing the same thing if he was in charge. Talk about trying to feather a nest for the future. He's talking a lot lately, but I don't see anything happening yet. If he wants the company so bad, why doesn't he stop flapping and make a real move.

From M F on September 19, 2005 at 8:44 AM
Even in the white hot California real estate market, there is still empty land available near Six Flags Magic Mountain in Valencia. The cost of buying the land and removing all those rides would be greater than buying adjacent vacant land. I don't think SFMM will be sold for the real estate it sits on. SFMM also does have some hotels nearby and looks like it was (or was in the process of becoming) a family destination (a la Wally World). Of course this plan was probably from 2 or 3 owners ago.
I am not familiar with the other Six Flags parks, however, the SFMM assets are absolutely underutilized. With year round outdoor weather in California, I never could understand why the park was not open 365 days. Get a workforce that doesn't consist primarily of high school students and let's start working year round. It costs more but aren't these costs offset by the gate?
Another interesting thing about this park is the sponsors. They either don't visit the park and don't know what it looks like or they just don't care. If that was my company, I would have yanked sponsorship a long time ago. On a recent visit, I saw a sign for Sherwin Williams. The park looks like it hasn't seen new paint anywhere in over a decade. So, what is Sherwin Williams providing to SFMM? Paint brushes?
I think it will be critical for new owners to have plenty of cash lined up, talent to figure out how to make it work, and to be ready for lots of hard work. Judging by the appearance of SFMM now, the motto of this management could have been, "Hard work never killed anybody but why take a chance?"


From Erik Yates on October 9, 2005 at 8:33 PM
One of the biggest mistakes SF has made is not taking advantage of any Florida market. Sure it is saturated by Disney and Universal, but you have Busch Gardens in Tampa and that seems to do just fine. It is primarily a coaster park, but mixes it up pretty good with animal attractions. I think if SF took advantage of a booming area like somewhere in the vicinity of the Palm Beach area, and as was said before, diversify some of its attractions, that park would most likely become extremely succesful. This area is extremely strong with tourists, and if they did a more theme oriented park they would have no reason to keep it closed during the week. Sure they could lower prices and not run some of their larger attractions to save on cost. And as was said, dump some of the underperformers that seem way out in the middle of nowhere. But I really dont think that the future of that company can exist without one park in florida...its just too big a market.
From rick stevens on October 24, 2005 at 11:50 AM
I can only speak to Magic Mountain as I have not had the opportuinity to visit Six Flags' other parks. They need to drop the water park, too seasonal and not a big draw. I agree that a City Walk type set up would be nice, but would there be an audience? MM is not exactly in a prime location. Its target market is spread over a wide geographical area and are unable to drive. Robert is dead on in that they desperately need to have a family draw just to have a way of getting the teens in. I only go when I take a group of teens from our church. There are usually other large groups in attendance.

Cleaning up their act would also help to attract a more family oriented crowd. I know many families that are afraid to go to MM because of the reports of fights. The park has been closed down due to altercations in the past, another hazard of throwing teens together. Whom ever buys the franchise, has their work cut out for them. I hope the overall chain stays afloat, there are many historical coasters within their system. Hate to lose them.

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