March 21, 2009

Too much debt can sink a theme park  

By Mike Cherney
The (Myrtle Beach) Sun News

As Hard Rock Park emerges from bankruptcy, a much larger theme park corporation is teetering on going broke.

Six Flags, which runs 20 parks across North America, is facing a $300 million payout to its preferred stockholders. Saddled with debt from park acquisitions and facing frozen credit markets, the company said it is not going to have the cash when the payout is due in August.

Six Flags has been talking with shareholders regarding the payout to avoid filing for bankruptcy. In the meantime, some theme park experts say the situation sends a message to Hard Rock Park, which was purchased out of bankruptcy last month following a dismal first season.

"The lesson is both from Six Flags and the original owners at Hard Rock Park - the debt levels were too high to be sustained by the business," said Jim Futrell, the historian for the National Amusement Park Historical Association, who suggested the park's new owners watch their borrowing.

Six Flags actually had a decent year in 2008. Its attendance increased by 400,000 to 25.3 million, and its revenues increased 5 percent to $1.02 billion, the company said.

Six Flags' new management, led by Chief Executive Mark Shapiro, who took over in late 2005, has restructured the company well by selling off some parks and advertising the others more effectively, some theme park experts said. But that has not been enough to overcome the company's debt.

"With $2 billion of debt on the balance sheet, it doesn't make a difference what they do," said Dennis Speigel, the president of International Theme Park Services, a consulting firm. "They can't get out from underneath that."

Still, things could have turned out differently. The company could have financed its $300 million payout to the stockholders if the recession did not freeze up the credit markets.

"When they originally set this up, they obviously had a plan in mind, and that plan was probably to refinance this amount, not to simply pay it out of pocket," said John Gerner, the managing director of Leisure Business Advisors, another consulting firm.

Since debt from Hard Rock Park's previous owners has been wiped clean by the bankruptcy court, FPI MB Entertainment, which purchased the $400 million park in February for $25 million, is well-positioned financially, experts said.

The challenge now is to not borrow money beyond the company's means and overcome any negative publicity from the previous bankruptcy, experts said. And, of course, attract enough guests to the park to make it profitable.

That's probably not going to be easy, especially because the park is also still talking with Hard Rock International on whether it can keep the Hard Rock brand, experts said.

"There's been so many mixed messages about what's happened," Futrell said. "A month ago, we were all preparing for the liquidation, and now they're reopening in May. I think they have a big sales job."

Officials with the park, though, said they are working with local hotels and other businesses to promote the park and are confident they will have a successful season.

"We would not have come into this deal and taken on this responsibility doubting we could make it work," said Steve Baker, the president of Baker Leisure Group, the firm managing the park.

© 2009 Myrtle Beach Sun-News.