The Cedar Fair and Six Flags merger

Thursday, Six Flags and Cedar Fair announced a merger agreement. I've had a few folks ask me about it since then, and what I think. I've been kind of doing drive-by posts about it on CoasterBuzz and PointBuzz, but I haven't really offered any fully formed opinion, maybe because I don't have one. But let me put something together here, and see if it makes sense.

It's helpful to talk about the two companies individually first. Six Flags, under the leadership of Selim Bassoul, has been a constant train wreck. He eliminated huge parts of the corporate staff, and I've heard he micromanages the GM's at the parks. It's absurd how many direct reports that he has. He has pursued a race to the bottom for gate pricing when there was no one else in the race. He said he wanted to upgrade the customer base from "Wal-Mart" to "Target," but the long-term pricing around annual passes has not really embraced that idea. Attendance, income, revenue and margin has been in free fall. I don't think he knows what the fuck he's doing.

On the Cedar Fair side, the observations are more nuanced. They're not completely bad, but they're not good either. Richard Zimmerman as the successor to Matt Ouimet has been a mixed bag. Admittedly, I've always had a professional crush on Ouimet, in no small part because I had an unusual amount of access to him for a few years. A lengthy conversation that we had in the middle of Cedar Point's Gatekeeper media day had a profound effect on how I look at career, money and goal setting. Almost no one, professionally, has had that kind of impact, and that's not even counting the half-day I spent interviewing him, or his invitation to a roller coaster factory, or random interactions on the midway.

Matt resigned from the board a few months ago, shortly after renewing his three-year term. It's not hard to imagine why that happened (and to be clear, I have zero first-hand understanding why). I don't think he was a fan of this merger. If he was, unless there was some personal reason we'll never know about, he would have stuck around. But there are other clues there too. Operations at the parks, the process of servicing guests by way of fast ride loading, "streetmosphere," and peripheral soft touches that improve the experience, have all disappeared since his departure as CEO. I visited Cedar Point spring last year, and it was disappointing, especially in ride operations. On the flip side, the entire culinary operation was next level, so it's reasonable to assume that the good parts are where the strongest personalities lie. No joke, they're killing it in a way that's akin to the Busch (SeaWorld) parks in the early aughts. The summary judgment is that the trust and empowerment that Ouimet instilled has diminished, and the park GM's are largely order takers from the corporate level. They've also sort of pursued an unnecessarily cheap run at annual passes in the hope of making it up on in-park spending. The real result has been a drop in both attendance and per capita spending. It's not as bad as Six Flags, but it ain't good. The reason that's so disappointing is that we've seen this movie before, in the pre-bankruptcy Six Flags under Dan Snyder. The Kieran Burke era of Six Flags was great by comparison.

So really we're left with speculation about what the future might look like. If there's a positive, it's that the Cedar Fair people are going to lead the new company. Bassoul will be executive chair, but he's not going to have real influence on day-to-day. Some other Six Flags guy will be the "chief integration officer," but he doesn't know shit about what CF has in place (generally solid ERP, retail and ticketing systems), so he'll be more nuisance than anything for a year or two before he's tossed out. I don't imagine that he can do too much damage when Zimmerman is his boss.

The potential negatives, and what I suspect are the reason that enthusiasts are not enthusiastic about, are as follows:

• The CF execs might be in charge, but they've been looking at the world as transactional. I mean, the press release about the merger refers to guests as "consumers." If you don't see them as "guests" in the context of a hospitality business, you're already doing it wrong.
• The gate integrity thing hasn't been as bad on the CF side as it was in SF, but I'm not sure if they've actually learned anything from it. In the history of amusement parks and theme parks, giving away the gate and hoping to make it up on per cap spending never works. And why would it? If you're looking for people who want a break on getting in, why do you think they'd spend more once inside? The big themers, Disney, Universal and SeaWorld are certainly not operating this way. Don't race to the bottom when no one else is even in the fucking race.
• The soft "experiential" parts to operating amusement parks are the things that make you love them. This means adequate staffing operations to get people on and off attractions quickly. It's the random street performers, resort experiences and entertainment that you're not expecting, but enjoy. It's the random employee that makes your visit better when you don't expect it. The cost cutting of existing Cedar Fair execs kills all of that, and the press release suggests that there's an absurd billion and a half to realize by combining the companies. Mark my words, because I will say "I told you so," that savings does not exist.
• My contacts in the company suggest that Cedar Fair has reverted to a world of micromanagement. The empowerment that Ouimet enabled is gone. GM's are order takers. It might be a billion-dollar corporation, but the markets that each park operate in are different in terms of culture, demographics, income, etc. You can't simply apply one paradigm from a park to others. Former CEO Dick Kinzel did this to disastrous effect after the Paramount acquistion. Furthermore, you don't want to chase out the people who "get it" and can make day to day decisions on the fly, in context to their market. The Zimmerman tenure appears to have done just that.

On the surface, what I'm really saying is that the overall Cedar Fair operation is superior to the Six Flags operation, and it's clear from the press release that it's the CF side that's really going to run things in the combined company. But the foundations of that Cedar Fair management are not where they should be.

Here's my overall take on the hospitality business, specifically with theme parks. There is no direct, same-industry competition, for the most part. But you will absolutely compete with a hundred other things, whether it be sports events, Taylor Swift, movies, mini-golf... whatever. To that end, it's your product that attracts people, and more importantly, keeps them coming back every year for the important recurring revenue. (ARR is clearly not a consideration in this industry.) If the product does not instill happy happy joy joy feelings, there is no recurring revenue. You lose to the non-industry competition. It doesn't come for free. You may take a hit to your margin to staff the things that instill those feelings, but you don't actually have a choice. Demanding a premium price requires delivering a premium experience that you can't get elsewhere. And let's be clear... your total addressable market doesn't change. Heck, in most markets it's shrinking, not expanding, as people move to warmer climates.

Disclosure: I own 10 shares of Six Flags, which are down 46% since I bought them. I bought them in the emergence of the pandemic, feeling they would likely improve (same for some cruise stocks and Disney, but they're all under by about the same amount... buy index and mutual funds, kids!). Disney, NBCUniversal and SeaWorld Parks seem to have all done the right things post-Covid, but the two biggest regionals, Six Flags and Cedar Fair, have not.