CFO Brian Witherow Interview/Article About FUN Finances

[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 Interpreter]

Very interesting.

Some key takeaways, as I see them:

* it's clear new management is managing differently. Note the we started looking at past capital and its returns. Polite way of saying we relooked the coaster czar's way.

* Note the focus on operations, even by the CFO.

* Note the rejection of the "people gotta eat" philosophy. I noted the money leaving as people bailed on those food lines. Next perhaps a focus on money and time spent in the park as guests leave for the parking lot/coolers and surrounding restaurants to evade drastic overpricing and/or actual or perceived lower quality?

* Note the concentration on fewer, larger projects but not overly aggressive--spectacular but not just limited to the thrill market.

* Note how little (none) is said about out of park revenue. Perhaps coincidental, but still a little strange.

* Note the increased paying attention to how Six Flags, Disney, etc. do things. Thank Q and Mr. Ouimet in large part.

* Diversion. Yep, diversion. Small new things like shows not part of capex. Large, concentrated, not overly physically aggressive capex. Or it could mostly ALL be a diversion.

[fanofFirehawk]

Interesting

I agree with you terpy.

But I hope they still realize there is still a market in thrills.

[The Interpreter]

See Cedar Point.

See B & M Wingrider.

See how aggressive it looks.

Ride a B & M Wingrider. "Wild" Eagle will suffice.

Ride Maverick or I-305.

Remember the modifications done to each of those last two.

Compare downtown.

Watch the....diversion.

[TheCrypt]

Ride Maverick or I-305.

Remember the modifications done to each of those last two.

As far as physical modifications go, what has been done to Maverick, apart from the heartline roll, and what has been done to I-305, apart from the trim on the first drop (which, to my knowledge, has since been removed)?

[The Interpreter]

Maverick had the modification prior to opening.

I-305 had extensive modifications after the first season to lessen g-forces. The brakes you referred to were a stop-gap measure, put in after opening and removed after the modifications. It also got newer, more comfortable flexible restraints.

[KIfan73]

* Note the rejection of the "people gotta eat" philosophy. I noted the money leaving as people bailed on those food lines. Next perhaps a focus on money and time spent in the park as guests leave for the parking lot/coolers and surrounding restaurants to evade drastic overpricing and/or actual or perceived lower quality?

They need to make eating as unique and out-of-the-ordinary as other things in the park. What's sad, is that they used to have a great example of this: dining with a panoramic view of the fountains and Eiffel Tower.

[Leland Wykoff]

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

[The Interpreter]

Sometimes simple evades management.

Smart phones? Apple Computers? iPads?

No Flash.

Cedar Fair's eCommerce? No Flash, no buy.

Does NOT compute.

Requiring paper vouchers when guests may not have ready access to a printer?

Does NOT compute.

I.T.? Operations? Finance?

Somebody ought to claim ownership and FIX this.

It's not smart.

At all.

[malem]

^ A 35% increase in e-commerce sales seems to validate the decision to switch, regardless of the problems.

Accesso offers an API designed for building a secure non-Flash e-commerce frontend, but neither Cedar Fair, Six Flags, Palace Entertainment, nor the Columbus Zoo have elected to spend the extra resources to incorporate this. It's much easier to slap a pre-built Flash store on top of the park's homepage than to incorporate a store frontend into the site itself.

I actually contacted people at 3 of those companies about issues relating to the Flash store when Accesso was rolling them out. I got a response from one acknowledging my frustrations and the possibility to fix them. However, there didn't seem to be much of a desire to expend significant resources to change what has unfortunately become an "industry standard".

Those of us who care about using non-Flash systems to place orders, and about web security and accessibility, are perhaps a minority that doesn't impact the parks' bottom lines. As I've said before, a convenient side effect of effectively blocking mobile devices is the protection of full-price gate ticket revenue. (More than a few people might see the $55 price at the gate and pull out their phones to quickly buy $35 tickets.)

If you're the CFO and an outsourced Flash store is pulling 35% more revenue than your previous in-house web-based store, do you authorize money for building a new web-based interface in-house?

By the way, it should be noted that systems with outdated SSL certificates installed in their operating system are blocked from the Accesso store with a cryptic error message. This happens when OS updates (Windows Update, Apple Software Update, Linux package managers) aren't installed. If you get a numerical error, update your system.

[IndyGuy4KI]

Great read and awesome topic here on KIC, Leland!

On the topic of ticket purchases. There is an option for purchasing tickets with the KI mobile site and mobile app. Having a season pass have never used it. Anyone else have? Would you not be able to purchase a ticket right on your phone and ticket booth scan your purchase right o your phone?

I would love to be able to renew my season pass right on the mobile site. I really figured that they would have used the fun perks site to be able to renew existing passes giving some sort of a perk for redeeming.