Legoland and Merlin Growth Strategies

[Leland Wykoff]

Today the New York Times has an article examining the US growth plans of Merlin Entertainments particularly as it relates to theme park development with the Legoland brand:

http://www.nytimes.com/2011/10/17/business/media/merlin-entertainment-brings-its-amusement-parks-to-america.html?_r=1

Of special interest is the look at Merlin's Madame Tussauds wax museum's holdings which they acquired many years ago. Also operating the London Eye Merlin Entertainments hosts over 40 million guests annually. The CEO Nick Varney makes his intentions clear, "Our ambitions for this market place [uSA] are tremendous" the Times quotes him.

Which begs the question, why did Cedar Fair not branch out years ago when properties such as Madame Tussauds were available? Cedar Fair certainly were made aware of the potential for such business combinations. Yet they chose to ignore the opportunities.

Perhaps incoming CEO Matt Ouimet will be more proactive and cease such revenue and brand building engines. The failure of his predecessor, Mr. Kinzel, to grasp the value in such moves restricted the growth and scope of Cedar Fair.

[The Interpreter]

But see Six Flags under Messrs Snyder and Shapiro. How'd that branching out work for them? What did Mr. Reid-Anderson and Mr. Weber do with those sidelines almost immediately? I think they focused on the core business, and ceased most of the sidelines....

If anything, both Cedar Fair and Six Flags grew too rapidly....

[Leland Wykoff]

Agreed that Cedar Fair and Six Flags expanded to rapidly. However, Six Flags was structured not to produce earnings but rather to produce debt and highly compensated corporate level jobs. This explains why SF had only two profitable quarters in the history of the publicly traded company, and why the capital expenses (and acquisitions) were so expensive but they could never find time to get around to monetizing those investments. They were grow and borrow, not market and operate.

Cedar Fair could have made strategic acquisitions of properties such as Madame Tussauds which are much cheaper than acquiring another park. Plus they are much cheaper to operate. And provide year round income streams. Tend to be businesses with the same, or similar, market and customer bases. The core competencies of Theme Park operators overlap with the skills necessary to exploit such acquisitions--namely proficiency in working with a mostly low-wage, seasonal employe, pushing a highly marketed and promoted product, which offers an exhibition type product, an key element is the ability to create positive memories often through some entertainment leisure component.

The return on capital is much higher at a Madame Tusssauds than a Cedar Point. In addition the company would have a developed stable of secondary products they could place around existing amusement and water parks thus gaining a larger portion of the sales occurring off park. This is a clever way to monetize the marketing dollars spent to get people to parks. It also affords the added value of brands and the extension opportunities they create.

Look at Herschend Family Entertainment as well as Merlin Entertainments to see the cash flow, revenue, and profit opportunities of owning, and thus leveraging core competencies, with product offerings such as museums, aquariums, sky lifts, excursion boat trips, conference centers, time shares, campgrounds, inns and hotels, caves, dinner attractions, and the like.

This is the boat Cedar Fair has refused to board. Under Mr. Kinzel Cedar Fair insisted, and believed, it was simply an amusement park operator. Compare that to Merlin Entertainments. A name that is plural, not singular, and says "if it involves making money by creating positive memories involving exhibition and entertainment, we can deliver."

Mr. Ouimet appears to have a broader vision and scope of the possibilities for Cedar Fair expansion. Look for him to begin making the targeted, sensible, acquisitions which should have occurred years ago.