Impossible, I thought.
There isn’t anything necessarily special about this particular theme park. They all seem to have the same rides engineered by the same engineers relabeled with different names. Almost all of them have nasty, tacky carnival food that you eat only because you’re so exhausted. All attract people who look like they might have murdered someone yesterday.
At least I think they’re all like that.
Theme parks are part of the oddly fascinating business category that I hate so much: businesses where capital is productive only because of rigidity.
The thing is, theme parks are virtually the same. They’re spread out enough that few worry about attendance numbers, fun enough that people visit, and inexpensive enough that they’re virtually recession-proof when people take staycations. It’s like any other company with a really “niche” (hate that word) product. If the market is large enough to make money in, but small enough two firms cannot, and costly enough to start production, you’re going to have a monopoly, even if your product isn’t that good. But you won’t have the big bucks.
Unlike retail, where competitors practically build right on top of one another, no one is going to build a theme park next to another to compete on price. There’s a certain bit of a geographic monopoly that comes with a theme park. No one builds a theme park next to another to gamble on another park’s pricing.
You wouldn’t start a $100 million project with the assumption the company next to you will sell a good time for $10 less than you once you build. It’s a terrible gamble to take.
Businesses Ended by Irrationality
Six Flags is a great example of a typical corporate screw up. The company went bankrupt only a few years ago after going on a binge of debt-fueled acquisitions. It later escaped bankruptcy and went on to be majority owned by bondholders (mostly distressed debt investors who picked up the firm’s debt for pennies on the dollar.)
Six Flags is publicly-traded – this time with much less debt, but at a higher interest rate. Luckily, because the debt isn’t a massive barrier to profitability, and because no one is insane enough to open a new park next door, and because you couldn’t compete with the firm on price (already constructed attractions built in 1960 have a lower cost structure than those built in 2012), Six Flags will probably manage to do just fine.
But it won’t do great. It won’t set landspeed records for profitability, or earnings growth. It has no real advantages other than the fact it costs a TON to open a new theme park. And I won’t own it, because the assets it owns are not productive because they are awesome. They’re productive because people have few choices and because rigidity exists.
Six Flags is the kind of company that should never go under. Except that it has before.