Leland Wykoff

Two days after appearing on KICentral.com the Orlando Sentinel stumbles upon the SeaWorld plans to go public. A few more details are provided along with the "declined comment" from Blackstone: http://articles.orlandosentinel.com/2012-12-17/business/os-seaworld-exploring-ipo-20121217_1_seaworld-orlando-seaworld-parks-entertainment-tampa-and-williamsburg Enjoy! Leland Wykoff

Reuters reports the Blackstone Group LP is planning an initial public offering of SeaWorld Parks and Entertainment in the $500 to $600 million range, likely in early 2013. Blackstones use of cash and debt at SeaWorld has been characterized as "aggressive" as $600 million has been paid out in dividends to Blackstone. Management fees and consultant fees likely have been hefty as well. For the Reuters story please see: http://www.reuters.com/article/2012/12/15/us-seaworld-ipo-idUSBRE8BD1CJ20121215

Imagination Cinema to reopen in 2013 as new venue featuring a show about Dolly's family, former Adventure Mountain will be an active construction zone when the park opens next season, Dollywood promises a new, never seen before, attraction which will take both the area occupied by Adventure Mountain and the adjacent hillside across from River Battle: http://www.knoxnews.com/news/2012/dec/13/dollywood-tours-new-ride-shows-in-2013-14/

Cedar Fair adopted new ticketing and mobile interfaces last season outsourcing much to Accesso Ticketing of Lake Mary Florida. Now Accesso has been purchase for $22+ million in stock and cash by British industry player Lo-Q. Most large amusement park operators now will find themselves dealing with a common supplier. For more details on the deal and product offerings please see: http://www.orlandosentinel.com/business/os-lake-mary-ticketing-firm-sold-20121206,0,7885126.story

Knott's Berry Farm featured a Scare Zone Maze requiring reservations and an up-charge fee. This first time trial was successful and Ouimet reported it more than payed for itself in the first year. The CEO stated "So we think there [are] other opportunities around the Halloween program, as [an] example." This fits within the model of providing services and product tailored to the benefit oriented consumer. The requirement of holding a reservation to access the up-charge Maze is in essence a Fast Lane Pass to Haunt. It allows customers seeking a premium experience to better manage time on park. These revelations further drive home the point: managements realization people standing in line are not spending money. It will be interesting to see if Cedar Fair will adopt some more extreme adult versions of haunts. Read a review of such an activity in New York here: http://www.blackouthh.com/reviews

Cedar Fair presented for the first time on December 3rd at the 40th UBS Global Media and Communications Conference. Matt Ouimet with 18 total months service, and near his first anniversary as CEO, expressed his firm belief Cedar Fair would close the year with a third strong record setting season. Revenue guidance up 4% was confirmed, as was average guest per capita spending up 4%. Attendance flat, inline with previous year record attendance. Caution was suggested against focusing on simple attendance figures, rather the revenue generation per turn-style click was emphasized as the key metric. Revenue management practices from the cruise line, hotel, and broader amusement industry were identified and evaluated as valuable management tools. More season pass sales can result in less per capita income as incremental admissions are essentially discounted. However, season pass revenues are captured up front and are resilient to downward pressures affecting daily admissions, such as adverse weather conditions. Essentially strong revenue gains are being somewhat masked by the downward pressure of season pass sales which have the effect of discounting some marginal admissions. Given this reality, it is better news than it may appear at first glance, per capita spending was up a healthy 4%. The staycation was identified as a permanent fixture rather than a short term trend limited by the recent economic downturn. Ouimet spoke again of the "genetic vacation behavior" where by what you did as a youth on vacation will have influence over those activities you enjoy with your children on vacation. Ouimet identified positive amusement park visits as an experience worth repeating as an adult. The pipeline feeding such legacy family visits was judged superior. The importance of the Dinosaurs Alive attractions were explained as having the education component necessary to justify and capture the school market. The capital investment is low as it is a partnership in which the DA folks split the up-charge gate fees with Cedar Fair. The defining nature of large rides, such as the new Gatekeeper Coaster and Gold Striker Coaster, were highlighted along with the superior returns they earn both at the turn-style and in promotional value. The YouTube Gatekeeper video was reported to have generated over two million hits to date. Strategic investments in new rides, and corresponding editing out of old rides, was demonstrated by Gatekeeper at flagship park Cedar Point. The operating costs saved by removing two older rides provides 75% of the cost of operating the new coaster. Those rides had low ridership and high maintenance costs. Costs are thus limited, and controlled by new rides, while reducing the fixed base costs. Evening lighting and music will continue to receive management attention and expansion as they have the power to retain guests on park longer resulting in lucrative dinner sales while simultaneously improving the value perception by guests. Promotional activities will rely upon less discounting and more relationship building. Price integrity will be practiced and new pricing models, such as installment season pass purchases, will continue to be developed and nurtured. Dynamic pricing and advance purchase commitments will be the watchwords. Incremental customer acquisition will be guarded to assure pricing and revenue opportunities are maximized. "Late to party" revenue opportunities such as sponsorships, marketing partnerships (such as the recently announced Coke deal), front of line passes, dinosaurs, premium parking, premium Halloweekends mazes and haunts, and improved e-commerce options, are and will be expanded and exploited. Cedar Fair is committed to spending approximately 9% annually of revenues on marketable capital projects going forward. These investments are viewed as absolutely necessary to promote the value and desirability of the properties to guests. Wise deployment of this 9% capex budget will also have the benefit of trimming, containing, and/or reducing operating and fixed costs as new rides replace older rides. The projected 4% annual growth in revenues was identified as coming three quarters from pricing and new products, and one fourth from new attendance. Hotel refreshment is primarily driven by the desire to extend the stay by guests and capture the second and subsequent daily admissions as well as increased room revenues. Cedar Fair has little interest in developing additional resort hotel rooms at this time. Campgrounds and other niche products may see growth. Ouimet supports the development of outside hotel rooms around or adjacent to Cedar Fair properties but is not interested, at this time, in expanding Cedar Fair hotel room inventories. The sale of Soak City in San Diego was disclosed to have sold for "around $15 million." Proceeds will be devoted primarily to fund the hotel refreshment program. Soak City SD was not a primary growth asset and it made sense to redeploy the capital to the hotel refreshment program. Ouimet indicated the company did not have many other assets ripe for sale. Cedar Fair will continue to be managed to provide significant returns to unit-holders via a sustainable dividend. Management and the Board of Directors is committed to increasing the dividend as the earnings of the company increase. See this Conference Transcript for details and sourcing of information and brief quotes: http://seekingalpha.com/article/1042371-cedar-fair-l-p-s-ceo-presents-at-40th-annual-ubs-global-media-and-communications-conference-transcript Leland Wykoff

Toledo Blade has an article rich with details of the planned hotel refreshment and refurbishment at Cedar Point: http://www.toledoblade.com/State/2012/12/02/Firm-to-invest-60M-to-restore-old-hotels-and-beach-properties.html Worth the read.

Good points all. Great discussion. Let us consider other issues from the CFO.com article: the realization people standing in line are not spending money. This has driven the Point of Sale (POS) conversion at Cedar Point. Recall, the newly announced capital program focused on "hotel refreshment" includes installing several park POS systems. Improved customer experience, increased revenues, decreased shrinkage, all lead to more profitable operations. The growth of e-commerce revenues, up 35% following outsourcing of platform design, and pre-purchase expansion of product offerings (food vouchers, parking, accommodations, and admissions), resulted in significant returns. Look for ever larger percentages of revenues being generated from e-commerce in the foreseeable future as plenty of room exists for organic growth. Updated POS systems make the acceptance of vouchers/smart phone cash much more efficient and effective. Clues as to other CF properties which may be on the block might be found by looking at parks which have not been identified for new POS systems. Disposition of non-core assets such as the San Diego Soak City allows for the redeployment of additional capital to fund projects such as hotel refreshments. The "concentrated use of capital" on fewer projects resulting in greater returns can be seen in the Gatekeeper Coaster announced for Cedar Point. This is an expensive ride, concentrating capital expenditure (while reducing operating and maintenance costs associated with two older rides which it replaces), whilst integrating the new ride into the park entrance and parking lot thus enshrining and defining the park as a high energy park with the promise of connecting thrills. This capital strategy would seem to be an acknowledgement of the role of big coasters/attractions as generators of significant revenues and earnings. Reviewing the recent impact of Harry Potter at Universal Park(s) reinforces the concept concentrated capital investments have the biggest potential payoffs. Harry Potter drove attendance in excess of twenty percent. Cedar Fair now seems committed to funding capital projects which have the ability to "drive incremental attendance." No longer can FUN afford to add rides which simply satisfy current customers. Rides must now draw significant additional attendance and the corresponding increased revenues and earnings. CFO Witherow observes in relation to capital projects since 2007 "Was the ride’s appeal too narrowly focused? Did it twist people upside down too much, or something like that? Let’s not make that mistake again. The capital budget has to go across 11 properties.” Following the sale of SDSC the capital budget now will be spread across just 10 parks. Witherow's mention of Pepsi in the article also gives us clues as to the interview being conducted at least three months ago. One wonders if WindSeeker additions would have passed muster under the new capital allocation process. The conspicuous absence, as pointed out by The Interpreter, of consideration of out of park revenues is, well, puzzling. Again, recall, the recently announced hotel refreshment project at Cedar Point. That announcement included the news of removal of employee dormitories from the Point. However, the announcement did not indicate what portion, if any, of the refreshment funds would be utilized to accomplish this task. The announcement did include POS funding as part of the refreshment project. Those POS systems were slated for parks other than Cedar Point. Some wiggle room exists for the use of the announced refreshment funds. Other off park projects may also be addressed with these funds. As previously discussed on these forums, the refreshment funds seem excessive at a cost of between $56,250.00 to $75,600.00 per room, considering building costs per new hotel room, excluding land costs, are currently estimated at $56,100.00 for the budget/economy segment. Hotel refreshment and price segmentation will likely spread system wide in the near future. Hotel improvements may include additional or enhanced restaurant and food venues which may also do double duty and serve on park guests. Food improvements at Knott's Berry Farm this past year will continue to be refined and rolled out system wide. Dinning is arriving on parks and will supplant eating on park. Higher quality foods may result in increased food costs as a percentage of sales. The trick will be to increase incremental food sales to offset loss of profitability achieved by lower food cost items. Leland Wykoff

Cedar Fair CFO Brian Witherow is featured in a major professional publication. Witherow discusses the challenges of working for a company which generates the lions share of its revenues in just 130 days, how no two revenue months share close resemblance to each other, and the challenges of allocating capital expenditures. The article delves into the study and analysis behind looking at historical capital expenditures to determine what worked and why as well as how to best proceed with future capital allocations. Very interesting. Enjoy the read: http://www3.cfo.com/article/2012/11/people_cedar-fair-point-brian-witherow-pos-amusement-parks

The rule requiring at least one occupant to be 21 is also common practice in the cruise line industry. Hotels can make reasonable rules and requiring guests making the reservation to be of an age of responsibility (mentally and financially) has been accepted in many jurisdictions. It promotes the safety of the property, hotel, and other guests. Going back to ancient common law practices of hospitality one would not find such an age prohibition. Actually custom in biblical times would require one to welcome a stranger into the home and hearth upon request. An actual duty was imposed upon the host to protect and quarter a traveler. Much of modern hospitality law stems from these early practices. Ohio law most likely offers some protection to inn keepers who have reasonable age requirements and/or restrictions. State statutes likely impose affirmative duties upon inn keepers requiring them to maintain orderly houses, specifically not to rent to or quarter underage drinkers. No doubt the Ohio Department of Tourism could provide up to date information and a regulatory frame work.

Don't forget--Carowinds has a WindSeeker!

Great Wolf Resorts was the worlds largest operator of indoor water park hotels. Great Wolf was primarily a development company, then the economy went south, they were transitioning into an operating company. They achieved long strides and were about to turn the profitability corner. The wolf arrived at the door. In the guises of a little enterprise called Apollo. The hammered out a tender offer merger agreement calling for the payment of $5.00 per share. They also needed the holders of rather exotic mortgage debt instruments to agree to change in control provisions to debt covenants. Like the deal agreed to by former management at Cedar Fair, Great Wolf's management and board lapped up the milk and licked their chops at the prospect of lucrative management contracts and golden parachutes. Shareholders, much like Little Red Riding Hood, recognizing a great wolf when the saw one, balked at the deal. The shareholders demanded more. Mortgage debt holders wisely refused to surrender protective covenants. The deal day approached to find hardly any shares had been tendered, and frighteningly, zero mortgage debt had agreed to drop change in control restrictions. Mean while Little Red Riding Hood--the shareholders in our tale--agitated for the deal to be aborted if adequate consideration was not offered for shares. A competitive bidding of sorts broke out with Apollo consistently raising the consideration to best the new suitor. The shares took off and Apollo finally won the company with a cash price of $7.85 per share. One of the largest price increases ever in a tender offer merger. Little Red Riding Hood was left to ponder if it was all just silly coincidence two of Richard Kinzel's children had played significant roles at Great Wolf Resorts. So yes, Great Wolf Resorts is on the market, one way or another, as the Interpreter has alluded. It is simply a question of price. Would the new Cedar Fair board, which from all observation takes it's oversight role very seriously, and new FUN management team pay an extravagant premium for the Great Wolf Resort at Kings Island? Not likely given current debt loads, this quarters unexpected revenue miss, and a healthy increase announced to the dividend. Purchase the property at a fire-sale price? No doubt FUN would like to, but less likely Apollo would consider a distress asset sale. However, never say never. The CEO hinted at the possibility of acquisitions in the not to distant future (think two to three years after the balance sheet is cleaned up a bit and the debt due in 2014 has been restructured at lower rates) of attractive assets offering good returns on investment. One clear lesson from our little morality tale; the Wolves (investment firms) are having a harder time leading the Sheep (shareholders) to slaughter. Leland Wykoff

The conference call announcement of a three year capital investment in hotel properties at Cedar Point of between $15 and $20 million annually focused on a "refreshment program" and developing a three tiered room and pricing strategy characterized as good, better, best. Focus groups and other intelligence strategies will be employed to better understand guest expectations and attending price points. Cedar Fair also announced the removal and relocation of employee dorms from the Point to free up valuable property for future development. That nature of that development was not clear. Hotels, attractions, or ride expansions were not specified. What was clear was the search for dynamic pricing knowledge and strategies to allow for hotel revenue and profit maximization. Cedar Point was identified as having an inventory of 800 rooms. Refreshment costs would run from $56,250.00 to $75,600.00 per room. These are significant costs for a program which is not identified as a rebuild or remodel program. Construction costs for budget/economy hotels are currently estimated at $56,100.00 [excluding land costs].* With talk of suites on the conference call it is not clear if the 800 room inventory count will increase, decrease, or remain steady. One wonders if hotels outside the gates could be acquired at prices similar to the cost of planned refreshments. In any event this announcement represents a major project is on the horizon. Given Cedar Fair could build budget/economy rooms as cheaply from scratch it represents a major undertaking. Refreshment may not be the right term to characterize the plans. *http://www.hvs.com/Content/3235.pdf Leland Wykoff

This may not be an application for a single ride, but rather a collection of rides in or along an area such as the lakefront at Cedar Point. Or it may be a single ride in a similar coast type location. Just a thought...

Turns out Coke Is It! Today Cedar Fair announces a comprehensive partnership agreement extending regional product introductions, multichannel marketing, and new product introductions. The ten year agreement exploits the captive audience asset and demonstrates the new FUN management team understands the value and concept of consumer switching costs. Take a look here for more details: http://www.ariva.de/...Sponsor-4313709 This announcement confirms my earlier analysis: "Given changes in the corporate sponsorship recruitment, I would be surprised if FUN was not looking to best the beverage contract. Parks possess an asset which can be exploited in selection of products such as soft drink vendors--the concept of the power/value of product introduction to captured audiences. Essentially a park can "force" a consumer to try a different product. This is why drink companies are so eager to sign amusement parks. They can introduce new product whilst at the same time locking out competitors opportunities for product introduction. It is knowledge of this value which allows a park to effectively push for lucrative contracts. One can seriously doubt former management at Cedar Fair fully understood this dynamic or viewed it as an asset." No doubt Pepsi choked on this news as it took the big gulp and digested the bitter elixir.

Turns out Coke Is It! Today Cedar Fair announces a comprehensive partnership agreement extending regional product introductions, multichannel marketing, and new product introductions. The ten year agreement exploits the captive audience asset and demonstrates the new FUN management team understands the value and concept of consumer switching costs. Take a look here for more details: http://www.ariva.de/news/Cedar-Fair-Announces-The-Coca-Cola-Company-As-Official-Beverage-Sponsor-4313709 No doubt Pepsi nearly choked on this news at it attempted to take the big gulp and digest the bitter elixir.

ICEE extended beverage contract announced: http://www.prnewswire.com/news-releases/cedar-fair-announces-extended-partnership-with-the-icee-company-at-parks-nationwide-174753941.html

"One of the studies included in Rumor Psychology surveyed public relations professionals from Fortune 500 companies about the veracity of organizational or workplace rumors from their own experience. The authors found that most workplace rumors are 95 percent accurate." That comes from an article exploring the veracity of rumors (as distinguished from gossip). Many studies report similar findings. If The Interpreter is correct and this information first came from Jeff Putz at CoasterBuzz and/or PointBuzz it would tend to be a more reputable source than some kind of gossip. Watching the Putz video interview with CEO Ouimet it seems clear he is well connected and may have had confirmation or heard this from multiple sources ( I am not suggesting he heard it from Ouimet). Given changes in the corporate sponsorship recruitment, I would be surprised if FUN was not looking to best the beverage contract. Parks possess an asset which can be exploited in selection of products such as soft drink vendors--the concept of the power/value of product introduction to captured audiences. Essentially a park can "force" a consumer to try a different product. This is why drink companies are so eager to sign amusement parks. They can introduce new product whilst at the same time locking out competitors opportunities for product introduction. It is knowledge of this value which allows a park to effectively push for lucrative contracts. One can seriously doubt former management at Cedar Fair fully understood this dynamic or viewed it as an asset. Considering the package of information available I judged this rumor may possibly be true. That is not to say my judgement is correct. Soon enough we will know. Here is the link to the report on the study quoted above: http://www.medicalnewstoday.com/releases/54454.php

This may be hard news for Pepsi to swallow: http://micechat.com/forums/knotts-berry-farm-cedar-fair-parks/174871-Pepsi-looses-cedar-fair-contract-Coke-back.html It appears Coke has won the contract for the Cedar Fair parks.

Charlie Brown and Company have been making recent appearances other places as well. Jimmy Kimmel featured the Gangs National Coming Out Day Video: http://www.youtube.com/watch?v=COFOmtUuzcU See, it does get better!

Cedar Fair indicates they do not know if WindSeekers will reopen this season: http://www.wfmj.com/story/19757102/cedar-point-unsure-when-grounded-ride-will-reopen I tend to agree with The Interpreter's view the big issue to be resolved is reasonable evacuation times.

The Dinosaurs Alive attraction adds value. Lacking an educational component many schools will no longer allow field trips to Amusement Parks. Dinosaurs Alive addresses and fills the educational component requirement. This is also quite likely the reason for the separate admission fee. To segregate out the costs of the educational components of field trips to meet bookkeeping and regulatory requirements. Cedar Fair is savvy to exploit the school field trip market. Efforts such as Dinosaurs Alive assist in securing access to that market.

More details trickle out concerning the aborted Nashville Water Park. The news is a flurry with details concerning the melting Snow Park concept: http://www.tennessean.com/article/20121002/NEWS/310020020/Herschend-not-interested-Nashville-water-park-without-Dolly-?odyssey=tab|topnews|text|FRONTPAGE Interest in this project is severely stunted. Other industry players, such as Cedar Fair CEO Matt Ouimet, are on record saying the regional amusement park industry is fully built out in America with no room, economically, for another large capital investment park. Given Marriott's dismal past experience managing regional parks no one seriously considers them returning to the domestic industry. Six Flags has been burned often enough by over-reaching to know better. A SeaWorld would not seem to fit or make economic sense. Dito Busch Gardens. Is it likely the much smaller, enjoying significantly less revenues, lacking a deep bench management operations team, stillborn Ryman Hospitality Properties/Gaylord Entertainment will pull off such a major development? Particularly not likely given no industry partner seems willing to mid-wife such a birth. Recall, the now Ryman Hospitality Properties had to abandon the Denver Gaylord Hotel and Convention Center, a project already underway, to effect the Marriott deal.

Following the Shareholder vote converting Gaylord Entertainment to a REIT and finalizing the sale of the Gaylord Hotel Brands to Marriott, Friday it was announced the Dolly Parton partnership with Gaylord to build and develop a snow park and water park in Nashville has been cancelled. The announcement follows the news released last week transferring the General Jackson show boat and other entertainment properties to Marriott, presumably to sweeten the hotel deal previously struck. For an article rich in details concerning the cancellation of the Snow/Water Park project please see: http://www.knoxnews....ter-park-plans/

The Orange County Register has an updated WindSeeker story: http://www.ocregister.com/entertainment/WindSeeker-372554-ride-safety.html