Amusement Park Economics

[Twister II]

I am currently attending UNLV as an economics major; and the other day, I was reading up on some of my stocks only to notice a really interesting article:

Amusement Parks Are a Carnival for Investors

 

This makes me think, is there any amusement park out there that is NOT in debt? We have so many parks around us that are in over their heads: Six Flags, Busch Gardens, Merlin Entertainment, and so many more.

 

I guess to me, the only parks I could see that may not be debt ridden are smaller, family owned parks like Knoebels. These parks build multi-million dollar machines but still have to pay employee wages, food and beverage purchasing, utilities, maintenance costs, horticulture, shows/performers, and so much more.

 

If anyone has any input on how amusement parks can really make profits, tell us here! I've heard many times that the main profit is from food and beverage then merchandise.

[gisco]

Debt is normal in a business and as an Econ major I'm surprised you don't know that. If a company doesn't barrow it is almost virtually impossible to expand. The hope is that when you borrow that there will be increased revenue that will pay off the debt you acquired. The problem is when you can't service the debt load, like what happened to SF a few years back.

[Double0Kevin]

^ That pretty much hits it dead on. I think the only park operators that don't do much in terms of borrowing would be parks linked to larger companies that have income coming elsewhere. Good example is Disney Parks, they can draw on the parent company that makes most of it's money from Television. Another is Universal that makes money again from TV through it's parent company Comcast.

 

Straight park operators like Six Flags and Cedar Fair really have to survive off of investors and taking on debt. Then park profits go to cover costs, payroll, and debt payments.

[drwpweb]

This technically depends on your definition of "in debt". If you own a house and have a morgage on said house you are considered to be in debt because you still owe on your house. Same thing goes if you owe on your credit cards, student loans, car loan etc...

 

Just like buying a house, when a park goes out and builds a new multi-million dollar attraction, they go out and secure a loan to cover the cost of the new ride. Then they pay over X number of years on the loan. Parks don't just cut a check for the expense of an expansion or new ride, the cost of the new ride is spread out over a number of years (just like your house). All parks do this, even the family owned parks. Pat Koch has made comments before about being nervous about signing the loans for their recent Mammoth project because it represented the single most expensive ride they've ever built.

 

The majority of parks end up making money at the end of the year when all is said and done. For example, in 2011 Cedar Fair made $83,995 (in thousands of dollars) before paying taxes (for the year) but still owes money for its expansions. In 2010, they ended up losing money for the year.

 

An example of a company that hasn't made any money is Great Wolf. They haven't turned a profit on their business in the last 6 years, and is a major reason of why they were just sold. They were building their mega lodges and when the real estate bubble collapsed, they owed more money to the banks because of construction loans then the entire property was valued at.

 

So what I'm getting at is a lot of companies (not just amusement park companies) are actually "in debt," and owe money. Just as Gisco said above, the problem is when you can't make your loan payments.

[Mrlittle]

I've worked for Wal-mart and Best Buy for many years. All year we were basically below making profit until the you probably already guessed it, the Holidays. It's common for any major company to be in debt but they keep working. Just look at our national debt for an example.

[larrygator]

If anyone has any input on how amusement parks can really make profits, tell us here!

 

Common sense: Don't over expand and build too quickly and your revenue becomes profit versus being used to pay down debt.

[cal1br3tto]

^Word.

 

I've worked for Wal-mart and Best Buy for many years. All year we were basically below making profit until the you probably already guessed it, the Holidays.

Yup, that's how it seems to be with retailers for the most part.

P.S. Target is better.

[Twister II]

Debt is normal in a business and as an Econ major I'm surprised you don't know that. If a company doesn't barrow it is almost virtually impossible to expand. The hope is that when you borrow that there will be increased revenue that will pay off the debt you acquired. The problem is when you can't service the debt load, like what happened to SF a few years back.

 

Sorry, should have elaborated: I know debt will always be there, but I guess when SF was in so deep, it seems almost like a never ending spiral. With managing so many properties and having to invest in new rides and 'revamping' parks to maintain guest attendance. However, looking at Six Flags' stock, since off setting their debt more recently, its made their shares gain momentum.

 

For example, in 2011 Cedar Fair made $83,995 (in thousands of dollars) before paying taxes

Youre going off of this report? Page 14

 

Maybe it's just me, but doesn't that seem a bit low for such a large company?

[Sir Clinksalot]

Last I checked, $83,995,000 was quite a lot of money.

 

Remember, that's PROFIT (after all expenditures, salaries, etc.)

[Twister II]

Last I checked, $83,995,000 was quite a lot of money.

 

Remember, that's PROFIT (after all expenditures, salaries, etc.)

Read that wrong. Ha, yes, $84m sounds much better.

[drwpweb]

 

For example, in 2011 Cedar Fair made $83,995 (in thousands of dollars) before paying taxes

Youre going off of this report? Page 14

 

Maybe it's just me, but doesn't that seem a bit low for such a large company?

 

Yes, I was going off of the Annual Stockholder Report, and yes that's a lot of profit. I just posted it how the report had it because I was going to link to it but forgot to include the link in my post.

[Skramp]

Wouldn't you think that Disney parks make a substantial amount of money, regardless of the parent company. Yes, they have a lot of employees and overhead, but at what, like $125 just to get in, and probably like 50k people a day, that's an enormous income everyday to have. I mean if they charged $100 a day and had 50k visitors, that would generate 1.825 billion a year just in gate receipts. Now add in the horribly overpriced food, the outrageous souvenirs that kids whine for and everything else, and it's gotta be close to 2.5 billion a year. You can't tell me that all the parks together don't make an enormous profit every year, and probably carry little to no debt.