Leland Wykoff

The saga of the departure of Jack Falfas as the COO of Cedar Fair continues. The Court of Appeals for the sixth district has reversed the lower courts order and ordered Jack Falfas back to work. The Court reaffirmed the award and order of the binding arbitration panel which ordered Falfas reinstated to his Cedar Fair position. The Appeals Court also remanded to trial court the duty of setting the issue of the exact economic loss of wages, insurance, legal costs, reasonable costs, etc., suffered by Mr. Falfas as a result of his inappropriate termination. That action will then establish the damages which Cedar Fair must pay Mr. Falfas: http://www.supremecourt.ohio.gov/rod/docs/pdf/6/2013/2013-ohio-1590.pdf Be looking for Cedar Fair to attempt to settle this dispute with Mr. Falfas, perhaps by offering a substantial cash settlement (in lieu of Mr. Falfas returning to work as COO).

The folks over at micechat.com have an excellent photo essay and article about the renewal and renovation of Knott's Berry Farms classic log ride and new family attraction rides. Worth the look: http://micechat.com/26946-knotts-berry-farm-preview/ These improvements speak to (pardon the pun) worlds of difference CEO Matt Ouimet brings to the table with his creative team. The feel and look are much more theme oriented and indicative of a holistic design philosophy.

More news on the sale in small lots: http://www.auroraadvocate.com/news%20local/2013/04/17/geauga-lake-land-in-aurora-bainbridge-to-be-sold-in-smaller-portions Awareness city and township are not happy about property not being put to "highest and best use" by being broken up into small pieces.

The recent pod cast featuring Matt Ouimet was very interesting. He reports bringing in hotel design folks from Disney days to assist in the "refreshment" of FUN lodging properties. Talked of concepts such as dueling piano lounges/lobbies. His discussions concerning dark rides and design limitations due to a lack of intellectual properties (IP) was insightful. To call Cedar Fair an "Entertainment Company" seems disingenuous to me. Lacking the IP component they really are more a collection of amusement parks. The ability to fully monetize theme parks and resorts is hobbled without IP content. Ownership of IP is critical to profitability leverage and capture long term profits from those assets. It will be interesting to see what else Mr. Ouimet has up his sleeves in the coming couple of years. With refinancing of debt, and the much lower annual interest expenses, I suspect Mr. Ouimet is readying to make an acquisition of one sort or another. Possibly pick up a park or attraction franchise they can locate near parks to gain a second admission. Look at Cedar Fair moving from the old guard view wherein lodging was simply warehousing guests, to the new guard action of lodging and hospitality adding value (and revenues!) to the Best Day Experience on Park. IP will increasingly play a larger role in the future Cedar Fair. Increase the offering, refine the product, and price accordingly. Theme is the meme.

Disney should be required to pay $4,000.00 each time anyone has to listen to "It's A Small World."

Finz has posted a podcast explaining the ruling in the California's Great America bumper car case. This case helps define the primary assumption of risk doctrine. Finz pod cast sums it up quite nicely: http://finzblog.com/2013/03/nalwa-v-cedar-fair-l-p/ Listen and enjoy!

Interesting article exploring the risks brought on by failure of Pigeon Forge Planning Department to adequately regulate cabin style developments, examples of which can be seen adjacent to, and above, Dollywood: http://www.knoxnews.com/news/2013/mar/19/sevier-county-regulations-bounty-of-cabins-long/ For an interesting video and photos of Dollywood cabin options see: http://www.dollywood.com/PigeonForge/cabin-rentals.aspx They might want to consider removing the burning log and spa candle images from the promotions. Or not.

Cedar Fair on February 25, 2013, included an impairment of assets area in its 10-K Form. That impairment was for $25 million on both the Whitewater Kingdom and adjacent non-operating Whitewater Kingdom (read Geauga Lake parcels). From the filing: At the end of the third quarter of 2012, the Partnership concluded based on 2012 operating results through the third quarter and updated forecasts, that a review of the carrying value of operating long-lived assets at Wildwater Kingdom was warranted. After performing its review, the Partnership determined that a portion of the park's fixed assets were impaired. Also, at the end of the third quarter of 2012, the Partnership concluded that market conditions had changed on the adjacent non-operating land of Wildwater Kingdom. After performing its review of the updated market value of the land, the Partnership determined the land was impaired. The Partnership recognized a total of $25.0 million of fixed-asset impairment for operating and non-operating assets during the third quarter of 2012. This helps explain why the prices are so low on the properties. Cedar Fair has taken a write down on the carrying costs of the assets. Now they are recognizing the value of the properties more in line with current market conditions. This could be taken as a sign CEO Matt Ouimet is ready to divest the surplus Geauga Lake property, eliminate criticism over the eye-sore of an abandon park, and focus management attention on productive assets and new business. Link to the complete 10-K filing here: http://biz.yahoo.com/e/130225/fun10-k.html

Cedar Fair announces pricing of new debt. Interest rate will fall to 5.25% and term extended until 2021. Substantial saving will result from the refinancing of a significant part of Cedar Fair's debt. Read more here: http://www.newson6.com/story/21429394/cedar-fair-announces-pricing-of-500-million-senior-unsecured-notes

Just in case you missed this update: Blackstone reports SeaWorld IPO more likely than sale to Apollo or other entities: http://www.bloomberg.com/news/2013-02-20/blackstone-said-to-favor-seaworld-ipo-as-it-weighs-takeover-bids.html

Blackstone reports SeaWorld IPO more likely than sale to Apollo or other entities: http://www.bloomberg.com/news/2013-02-20/blackstone-said-to-favor-seaworld-ipo-as-it-weighs-takeover-bids.html

Cedar Fair's refinance of $1.13 billion planned. Falling just one day after the fourth quarter conference call in which CFO Brian Witherow reaffirmed FUN's continual monitoring of credit markets in an attempt to extend terms, lower borrowing costs, and seek more advantageous loan covenants, the refinance would cover a term loan currently due in 2017. Cedar Fair would still be holding the high interest rate bonds referenced in yesterdays conference call. That bond debt has restrictions limiting the right to call to August of 2014. Bloomberg pegs Cedar Fair debt at $1.5 billion, including $405 million in bonds maturing in 2018. More details: http://www.bloomberg.com/news/2013-02-20/cedar-fair-seeks-to-refinance-1-13-billion-loan-to-lower-cost.html?cmpid=yhoo

Cedar Fair today reported record numbers for 2012 including net revenues of $1.068 billion, up 3.9% year over year, net income of $101.2 million up $30.5 million, and EBITDA up 4.4%. Average guest per capita spending increased 4.8%, gate receipts increased, total debt leverage ratio was reduced to 3.9, and the company reaffirmed it is on pace to achieve $450 million in adjusted EBITDA by 2016. The company did not achieve record in attendance in 2012. Attendance fell slightly and was attributed in part to poor weather, primarily in the fall. The fourth quarter was down 11%. CEO Matt Ouimet stated, “We do not believe we suppressed attendance with pricing.” Ouimet further noted "you do not change pricing strategy due to rainy [October] weather." Meaningful opportunities to build upon the rather late advertising agency change and Fast Lane pass sales were seen for 2013. Cedar Fair continues to study the Fast Lane pass and make refinements to maximize revenues and customer adoption. Traction gained by installment sales of season passes, introduced late in the year last season, was above expectations. New refinements to installment sales, including six payment installments rather than four payments, and an earlier introduction of the installment plan to coincide with ride and park improvement announcements, has improved the productivity in this sales channel. Installment purchase plans for hotel, parking, and meal programs are also seeing favorable adoption by customers. This provides a buffer for poor weather and commits guests to FUN summer plans far in advance thus reducing marketing costs and capturing revenues early. Improvements to sales forces, season pass sales, and a new incentive program for sales staff has lead to record migration to season pass sales, now representing about 40% of park admissions. Season pass sales are up 6%, corporate group business sales were also reported up last year, trends expected to continue. Tighter relationships and management of promotional partnerships was also credited with increasing sales gains. Capital projects are on time, and on budget, with the major projects expected to open as scheduled including Gatekeeper, and the new wooden coaster in California. Four additional parks will receive Point of Sale (POS) systems including the recent completion of the POS system at Knott's Berry Farm. POS will be operating on all parks with the exception of Michigan's Adventure which is expected to be completed by the 2014 season. March and April will see the full implementation of a CMR program. This is expected to allow management to identify additional revenue opportunities and seek incremental sales and revenues. Management expects returns on capital from this system to be "North of 15 percent." High interest bonds are not callable until August 2014 and thus opportunities to reduce those expenses are limited at this time. The additional capital program of $15 to $20 million per year to address hotel refreshment, employee dorms, POS system upgrades, and CRM, announced as a three year plan, was suggested may expand to a fourth year. Hotel refreshment and employee dorm 2014 expenditures are expected to come in the second half of the year. Canada's Wonderland was the leader in sales gains for 2013, primarily attributed to the new coaster introduced last year. The $3 million increase in cost of goods sold was attributed primarily to quality improvements particularly in the food sold on parks. Matt Ouimet was "Very confident headed into 2013." The company reaffirmed the intention to achieve the $2.50 per unit payout announced for 2013. The company attributed the record performance to successful implementation of the FUNForward initiative. Capital plans for 2014 were pegged in the $100 million range. Several areas were left unaddressed in the fourth quarter and year end report and analyst conference call. The status of WindSeeker rides was not addressed much less clarified. It was most disappointing management did not update on that situation. The silence on this topic was stunning. One may infer the WindSeeker news must not be good. An analysis of the food and beverage improvements, particularly at Knott's, was not provided. F&B improvements at other parks was not addressed leaving one to ponder both the success of the Knott's program and future roll-out plans. Specific pricing strategies for premium parking, Fast Lane, and other products were not addressed. No significant new revenue streams were announced. To view the Cedar Fair 2012 financial results press release please see: http://www.cedarfair.com/ir/press_releases/index.cfm?current_root=15&mode=story&story_id=371 Conference Call transcript here: http://seekingalpha.com/article/1203551-cedar-fair-s-ceo-discusses-q4-2012-results-earnings-call-transcript?source=yahoo

The myth of the luxury convention center host hotel rears it's ugly head once again (see link in the Interpreter's comment above). This is a silly expensive myth well studied and disclaimed by Heywood Sanders in this article based upon his study published (behind a pay wall) finding no economic gain from host hotels: http://www.oregonlive.com/opinion/index.ssf/2012/10/does_a_convention_hotel_make_s.html Professor Sanders is the foremost expert on convention centers and host hotels in the United States. Here is his extensive study and conclusions about the publicly funded convention center business: http://www.brookings.edu/research/reports/2005/01/01cities-sanders For the Fair Board to claim no government money will be spent on this project whilst doling out tax breaks and credits is not honest. If you forgive an otherwise due tax it is the same as spending tax funds.

Spoke with a former high up manager who served at SeaWorld and Dollywood among other theme park industry postings. Asked him what he thought of Hart's attempt to reopen Kentucky Kingdom. He expressed extreme skepticism. It was his belief the economy in general, and that area in particular, simply can not support another theme park. Echos Matt Ouimet's conclusion the theme park business is fully built out in the United States. He also does not expect Six Flags to acquire SeaWorld and Bush Gardens parks. Seems to think Six Flags has its hands full managing the parks it already owns. Had positive observations on the current leadership and management at Six Flags and felt they were doing a good job. All this from a veteran of the industry who now works outside the industry and thus has a clear vision of the market and players. Things to think about.

Remember, Cedar Fair has recently been in close talks with Blackstone. Cedar Fair sold Blackstone a California Soak City water park. SeaWorld intends to massively rebuild and theme this location. Cedar Fair's Matt Ouimet had an extensive tour at Disney having developed Disney Cruise Line, timeshares, overhauled Disneyland for the 50th Anniversary, and other projects. Ouimet understands developing and carrying out comprehensive themes. Look at the attention he has already directed to Knott's Berry Farm theme integrity. Ouimet repeatedly states the US market for theme/thrill parks has reached saturation. Growth, he says, must be driven primarily by wringing more profitability out of existing properties and acquisitions. Things to keep in mind.

Oh, my. This has me recalling how, some many years ago now, when the beer industry began consolidating on a global scale, Cedar Fair management was asked to begin preparing to consider acquiring the Busch Gardens Parks. They could not see the future which was, at least to some, clearly on the horizon. Cedar Fair management had rebuffed earlier requests to consider acquisitions of properties such as Madame Tussauds wax museums, aquariums, and other leisure brands to develop a stable of properties operating year round which could be placed outside existing gates to enhance revenues and capture a larger share of the guest revenues, thus leveraging marketing expenditures. InBev purchased Anheuser-Busch and began looking for a buyer for the Busch Gardens Parks. Cedar Fair did not respond to the opportunity. By that time Cedar Fair had paid a hefty price for the Paramount Parks acquisition and was stretched to thin financially to seriously compete for Busch Gardens without a partner. Kinzel and crew apparently couldn't stomach the thought of sharing control by partnering with another party. Thus Blackstone acquired the Busch parks. Now we have the report Apollo may wish to acquire part of SeaWorld. Apollo earlier acquired Great Wolf Resorts for a song. Apollo also attempted to acquire Cedar Fair for less than a song. Reports at that time suggested Apollo was possibly interested in combining Cedar Fair with Six Flags. Apollo acquired a fifty percent stake in Norwegian Cruise Lines and has recently launched a successful IPO selling the shares above the original suggested price range. Apollo has demonstrated quite an interest in the leisure sector. Smart money recognizes Great Wolf Resorts are, essentially, cruise ships stranded at a permanent docking. The business models can be quite similar; captive audiences, receiving food, beverage, entertainment, for extended stays, utilizing relatively low cost labor, sharing brand name resort style amenities, booked and paid for in advance. Sounds remarkably like the amusement park business, no? Disney saw the connections and developed its cruise line. Disney has been growing resort hotels adjacent to parks for decades to consolidate revenues and further leverage marketing expenses. Where will the safe harbor be for Apollo? Where will Cedar Fair find safe harbor in a possibly further consolidating industry? Will lack of scale and intellectual properties--read "entertainment brands"--retard Cedar Fair's future potential? It may well come down to "Any port in a storm."

Norwegian Cruise Lines IPO prices at $19.00 per share a dollar above expected top range: http://dealbook.nytimes.com/2013/01/17/norwegian-cruise-line-prices-i-p-o-at-19-a-share/

Apollo plans to sell 23.5 million shares priced between $16 to $18 per share and raising about $400 million. This would represent, it appears, about 12 percent of the voting shares. Apollo, TPG Funds, and Hong Kong based Genting would control 88% of voting shares. More details: http://dealbook.nytimes.com/2013/01/08/norwegian-cruise-sets-price-range-for-i-p-o/

The New York Times reports Disney Parks will introduce new technology allowing guests to wear a bracelet which will expedite payments, track guests and mine information about behaviors, called MyMagic+ the system will be introduced this spring. The rubber Magic Bands will function as room key, park ticket, FastPass, credit card, and schedule or reserve parade seats, character visits (and tell the character the visitors name so they can be greeted personally), and like a frequent flier loyalty program card. Collectable charms and Magic Band accessories will be developed to generate additional sales and speed guest adoption of the technology. Disney expects MyMagic+ to cost between $800 million and one billion dollars. Enhancing the guest experience is paramount to the project. Read more: http://www.nytimes.com/2013/01/07/business/media/at-disney-parks-a-bracelet-meant-to-build-loyalty-and-sales.html?nl=todaysheadlines&emc=edit_th_20130107&_r=0

For more thoughts on the coming SeaWorld IPO please see: http://dealbook.nytimes.com/2013/01/03/can-seaworld-make-a-splash-in-its-i-p-o/ The returns Blackstone has achieved as well as the likely returns to future shareholders is considered. Hum.

More: http://www.fool.com/investing/general/2013/01/02/seaworld-gets-ready-for-its-ipo.aspx

Here is an interesting article: http://calapp.blogspot.com/2012/12/nalwa-v-cedar-fair-cal-supreme-ct-dec.html Explores the majority and minority positions.

For a fresh link to the story, and comments, please try: http://seekingalpha.com/article/1081231-cedar-fair-growth-hits-a-snag

SeaWorld files $100 million IPO. Six Flags and Cedar Fair on watch. http://www.streetinsider.com/Trader+Talk/Six+Flags+%28SIX%29,+Cedar+Fair+%28FUN%29+On+Watch+Following+SeaWorld+IPO+Filing/7971146.html More detailed report from the DealBook at the New York Times: http://dealbook.nytimes.com/2012/12/27/seaworld-files-to-go-public/ Leland Wykoff