He did it. Washington Redskins owner Dan Snyder was able to defeat a sea of cautionary press releases from the Six Flags (NYSE:PKS) camp last week to present the struggling amusement park operator with written consents for a shakeup in its stodgy board of directors.
If the court of public opinion bears out, Snyder will be joining the chain's board along with two of his cronies. One is Mark Shapiro, who, after a successful stint as an ESPN executive, now works for Snyder's Red Zone investing arm. The other is NVR (NYSE:NVR) Chairman Dwight Schar.
Six Flags is faring reasonably well this year, with attendance and per-capita guest spending both on the rise at its collection of regional thrill parks. However, after years of taking a lackadaisical approach to transforming the company into a profitable entity in the face of being on the hook for well over $2 billion in debt, Six Flags' largest investors have spoken. Even though Six Flags has insisted that either an outright sale of the company or some strategic alliances will be announced in a few weeks, a majority of shareholders have apparently had enough.
I can't blame them. None of the flags in the company's namesake arsenal are white, but it has definitely felt like a surrender for Six Flags after spending the past two years unloading assets that it had spent decades accumulating. Once a company announces that it is seeking the euphemistic "strategic alternatives," you just know that it's toast.
It's common sense. The only reason someone would want to buy a troubled company is to turn it around. And, believe it or not, Six Flags can, and most likely will, be turned around. It just won't be the handiwork of the guys who have run the company into the ground over the past few years.
Six Flags at half-staff
It doesn't take long to wonder why this shakeup didn't take place sooner. You don't even need to eye the grim stock chart. Let's consider something as simple as Six Flags Great Adventure in New Jersey. Drawing 2.8 million guests last year, it narrowly edges out Magic Mountain in California as the chain's most-visited park.
The Six Flags commitment to keeping Great Adventure popular is not in question. It added a record-breaking steel coaster earlier this year, and it has a tantalizing wooden behemoth going up for the 2006 season. However, ask any traveler planning a trip to the park about nearby lodging, and that person will tell you that there isn't a hotel for miles.
Compare this with rival Cedar Fair's (NYSE:FUN) flagship Cedar Point park in Ohio. The park attracts 3.2 million guests a year, so it's not that much more active on the turnstile front than Great Adventure is. Yet over the years, Cedar Fair has established several overnight resorts within the park's peninsula, as well as a pair of hotels just on the other side of the causeway. It isn't until now that Six Flags is finally getting around to working on getting a resort hotel built adjacent to Great Adventure.
It's ridiculous. Please don't tell me that lodging isn't a big deal for a regional player that relies on day-tripping locals. Build the resorts, and folks will come. And because everyone from Hersheypark to Disney (NYSE:DIS) to Cedar Point to Universal Orlando provides early park admission to their overnight guests, the hotels become a great option for locals with the means to spend -- they get to take advantage of extended hours and shorter lines.
That's why I'm excited about the folks that Snyder is bringing on board. Because NVR is a leading homebuilder, many have figured that Schar's role will be to simply sell off any excess land that the parks own. That may certainly be the case. However, NVR is a real estate developer. What if the plan isn't to simply just sell off parcels of land but to erect lodging and entertainment centers? It doesn't even have to be a capital-intensive deal. After all, Kings Island in Ohio is letting Great Wolf Resorts (NASDAQ:WOLF) build an indoor water park resort and receiving a minority interest in the venture simply by letting Great Wolf build on land that the Viacom (NYSE:VIA)-owned park wasn't using.
Six Flags is coming around slowly in this regard. In three months, it is opening a 200-suite resort with an indoor water park across from one of its smallest parks in upstate New York. It's a great move that should help smooth out the seasonality there. And it will help draw more affluent guests to kick some coin into Six Flags' coffers.
Yet that's why nothing should be as incendiary to longtime Six Flags shareholders as the company bragging about attracting approximately 50 million guests each year, when it's now becoming clear that the company left so much money on the table. Its guests could have stayed longer and spent more over the years. When you're leveraged -- and Six Flags obviously is -- it is disgraceful not to maximize every possible return out of every borrowed cent.
This doesn't mean that Six Flags should raise prices and cut spending. That's a death sentence. I'm just at a loss to explain why a company with so much at stake could afford to sleep at the wheel over the years while the meter was still running.
Along came Snyder
I don't know whether Snyder is going to be a savior. I do know that he and his Red Zone buddies will bring something different to the table at a time when Six Flags needs it the most.
Amusement parks can be a great business. Just hang outside a Disney theme park and see the folks streaming out with shopping bags after having already spent a ton on park tickets and pricey foodstuffs. Mathew Emmert singled out Cedar Fair as a worthy investment to Income Investor subscribers because it has been a consistent grower and has hiked its distribution every single year.
You have a captive audience with a regional amusement park, a feature that is true of an NFL team and a popular cable network. Snyder's new crew may not nail 'em every time, but the alternative feels so much more refreshing than the previous policy of waiting for the worms.
That's the kind of stuff that white flags are made of. Thank goodness that new flags will be fluttering in the wind soon.
Longtime Fool contributor Rick Munarriz loves to take his family to new amusement parks every summer. He practices what he preaches: He owns shares in Disney, Great Wolf Resorts, and Cedar Fair. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
