Funworld JUNE 2007

Changing the Landscape

by Jeremy Schoolfield

Editor’s note: This is the first of a three-part series on Cedar Fair’s 2006 purchase of the former Paramount Parks chain. In a wide-ranging exclusive interview, Cedar Fair’s three top executives discuss the acquisition and what it means for their company.

Cedar Fair Entertainment Company operates under a five-year business plan. While the goals and strategies of that plan may have changed over the years, company president/CEO Dick Kinzel says there has always been one constant: He hoped to someday have Kings Island under the Cedar Fair umbrella.

“I have always believed the entrance to Kings Island is beautiful,” Kinzel says. “When something that beautiful is within arm’s length …”

On June 30, 2006, the IAAPA Hall of Famer finally realized his decades-old dream when Cedar Fair put up $1.24 billion to purchase the former Paramount Parks chain from Paramount’s parent company CBS Corporation. Now flying under the Cedar Fair flag are Canada’s Wonderland in Toronto; Carowinds in Charlotte, North Carolina; Great America in Santa Clara, California; Kings Dominion in Richmond, Virginia; and, of course, Kings Island in Cincinnati, Ohio.

The bold move dramatically reshapes not only the Sandusky, Ohio-based Cedar Fair, but the amusement industry as a whole. The company essentially doubled its size, increasing from seven to 12 amusement parks while adding an estimated 12 million-plus in annual attendance and $400 million-plus in annual revenue.

“We had to grow the company,” Kinzel says. “This was an unusual case.

Usually we just buy a small park owned by private individuals or a family. When the opportunity came up to buy five premium parks, we just couldn’t turn it down. They fit very well with our footprint, both geographically and financially. It gives us additional diversity.”

‘We Needed to Make This Acquisition’

When Kinzel looks now at a map of North America and sees how broad Cedar Fair’s coverage has become in one sweeping gesture, he can’t help but smile.

The company’s flagship park, Sandusky’s legendary Cedar Point, was forced to carry too much of the water in the past, Kinzel says, contributing a significant portion of Cedar Fair’s annual revenue and almost half of its cash flow. That’s always been higher than he and his exectuive team were comfortable with, especially in a regional economic market currently on a downturn due to the struggles of the American automobile industry.

So when Kinzel and Cedar Fair Chief Financial Officer Peter Crage started building a strategy to make the purchase and pitched the acquisition to Cedar Fair’s board of directors, spreading the revenue-generating responsibility around was a key component. By adding the five Paramount parks, which include two facilities that draw about 3 million annual visitors apiece, Cedar Point’s burden drops below 25 percent. Also, the demand on Knott’s Berry Farm, located near Disneyland in Buena Park, California, falls from approximately 30 percent to just less than 20 percent.

“Much of our revenue was being generated in a depressed economic region,” Crage says. “If we’re going to plan growth for the long term, we needed to make this acquisition.”

Incurring such a large amount of debt is a financial risk, but lack of diversification in operations was riskier, Crage says. “You can manage the risk in geographic diversification of your business, and you can deal with the debt as a singular issue,” he says. “Once you have the business, you can earn from the business.”

Crage relied heavily on Cedar Fair’s track record when discussing the purchase with investors: Even though the deal would require borrowing a considerable amount of money, he says through facilities such as Knott’s Berry Farm and Pennsylvania’s Dorney Park the company has proven “we can take a decent performer and make it an even better performer.” Cedar Fair also believed its operational policies along with synergies from combining the two chains would lead to increased revenues and decreased overhead. In the end, Kinzel and Crage based their pitch on the history, culture, and experience of Cedar Fair, as well the draw of acquiring an asset in good shape with a big upside.

‘Dick Called the Play’

The possibility that CBS would sell Paramount Parks had been in the air for a few months before the official announcement came down in early 2006.

Cedar Fair’s executives were ready.

“I know for a fact our stomachs were grinding individually, but there were never any heated discussions or battles or anything,” recalls Jack Falfas, the company’s chief operations officer and Kinzel’s right-hand man. “It was very professional. It was like Dick called the play in the huddle, yelled ‘break,’ and we went to our positions and performed our tasks.”

So while Crage and his team spent three months poring over the hard finan cial data released by CBS to prospective buyers—cost structures, attendance, per caps, etc.—to prepare Cedar Fair’s proposal, Falfas hit the Paramount parks in person, conducting a series of what he calls “walking interviews” with the respective general managers.

“I wanted to see what their park was like,” Falfas says. “If you’re walking around with their general manager, this should be their best and what they’re proud of.”

Besides assessing the GMs on a personal and professional level, Falfas kept his eyes and ears open for how they interacted with their employees because “that’s your heart and soul out there.” He also evaluated major issues like safety, maintenance, staffing, etc., and how the Paramount parks compared to Cedar Fair’s standards, policies, and culture.

“I thought they were good parks and they had good people,” Falfas says of those visits. “They are well designed and are some of the prettiest parks ever built. But I knew that even before the negotiations started.”

“They acted with the utmost respect and professional courtesy,” Kinzel says of Paramount staffers. “We were pleased with everything we saw externally.”

‘Five Beautiful Pieces of Property’

The due diligence process was as much for validation as anything else, Crage says, because it’s not like the Cedar Fair execs weren’t familiar with Para mount’s facilities—for years Kinzel has been taking his entire Sandusky-based team down to Kings Island for annual visits (and found out after the purchase that Kings Island officials did the same regarding Cedar Point). Crage says the research yielded hard data to back up what they’d known all along: “That we can make them extremely profitable for us.”

Cedar Fair submitted its initial proposal to CBS in spring 2006 and then spent several weeks refining the offer as CBS continued to whittle down the competition. Upon finally reaching an accord on the $1.24 billion price tag, on May 22, 2006, Cedar Fair and CBS signed a definitive agreement for the acquisition, with Cedar Fair purchasing all Paramount Parks stock. The deal became official June 30, and Cedar Fair assumed immediate operational control of its new facilities.

“You have things you want for your personal life and your business, and [Kings Island] was something I’ve always wanted for Cedar Fair,” Kinzel says. “It’s beautiful.”

And as a bonus, Cedar Fair’s footprint doesn’t just extend across Ohio to Cincinnati, but for the first time stretches all the way into Canada and the booming southeastern region of the United States. Over the years, Kinzel knew “if the opportunity ever came up, we would have to do everything we could to try and get them under the Cedar Fair umbrella,” and now, those parks are finally within his grasp.
“We paid a premium price for them,” he says, “but we got five beautiful pieces of property. We always
wanted them.”

Coming in July: In Part Two of FUNWORLD’s exclusive Cedar Fair series, Kinzel, Falfas, and Crage discuss what it took to merge the two chains on the fly and the immediate changes they made for summer 2007.

Friendship and Philosophy Cedar Fair execs discuss how they work together to run the world’s biggest ‘mom-and-pop’ store It sounds strange when a man who runs a billion-dollar company says he thinks of it as a “mom-and-pop operation.” Then again, it’s still not uncommon to see Dick Kinzel out in his parks picking up trash. “It was a lot easier when we only had seven parks, but my philosophy has been to run this as close to a mom-and-pop operation as we can and still be a New York Stock Exchange company,” says the 66-year-old Cedar Fair CEO. “The people who have made this industry, they worked all the time. My whole family was self-employed, so that’s always been my philosophy and what I try to pass along to everyone.” For the past several years, the day-to-day leadership group at Cedar Fair has been rather small: Kinzel is the head of what Chief Operations Officer Jack Falfas calls “the triad,” of which Falfas is a member along with Chief Financial Officer Peter Crage. As Falfas describes it, Kinzel makes the big decisions, Crage controls the finances, and “once we have the direction, my job is to make sure we carry that mission out.” Kinzel hired Falfas in 1975 to run admissions at Cedar Point (he was a seasonal employee even before that), and he’s never left. When Cedar Fair acquired Knott’s Berry Farm in 1997, Falfas was named general manager; his success in that role led Kinzel to make Falfas, 55, his right-hand man and eventual successor, naming the loyal employee COO in 2005—a job Falfas describes as “herding cats and fixing problems.” “You can be a director, a manager, but until you get the full responsibility and have to make day-to-day decisions that you have to live and die on, that’s when a person comes forward,” Kinzel says. “When Jack was recruited to go to Knott’s Berry Farm, that’s when I really saw who Jack Falfas was. I knew he was good—motivating people, being a hands-on manager, knowing maintenance and safety, and loyal. He went to Knott’s and changed the whole culture there, and his future was embedded in my life forever.” Crage, 45, began his career with Cedar Fair in 1999 as corporate treasurer; he left in 2002 to pursue a job with more responsibility, but Kinzel brought him back in 2004 as vice president and corporate controller. When the company’s previous CFO, Bruce Jackson, retired in July 2005, Crage was promoted to fill the vacant position. And only a few months later, he led the financial team that would make the company’s largest acquisition in its history. “It’s been unbelievable, wonderful,” Crage says of the project that’s dominated much of the past two years of his life. “To work with Dick and this team has been outstanding. It’s a pretty straightforward approach—the principles are the principles. This is the business we do, and we concentrate on it. My role in this acquisition was challenging, but when you have a group of people who know this business inside and out, it makes it easier to do your job.” “I regard Peter as one of the best financial people I’ve ever worked with,” Falfas says. “He has a lot of energy—I’d hate to ever have to make him sit in a seat for too long.” The three men agree the Paramount Parks deal was one of the most fulfilling moments of their respective careers, and they worked well together to make it happen with nary a cross word between them—probably because they have one fundamental element in common. “Everyone I’ve been proud enough to keep, they have to have a great work ethic,” says Kinzel. “This is a demanding job. We’re only open about five months a year, and that’s when all the money’s made. Our team has to be fully focused on the parks during this time.” “Everything in our lives touches our business—our jobs are really our hobby,” Falfas says. “We’re better amusement park walkers than we are golfers. Well, Peter’s a good golfer—myself and Dick, we stink.” Adding five new parks to the Cedar Fair chain in one big bite meant “the triad” had to loosen its grip somewhat and make some additions to Cedar Fair’s corporate structure (more on this in Part Two of FUNWORLD ’s series on the acquisition, coming in July). But don’t expect the corporate ranks to suddenly swell—Kinzel just needed to bring in a few more hands to get all the new work done. “We’re not empire builders,” Kinzel says. “I don’t want to go to a party and say, ‘I have 15 people under me.’ I’d rather go to a party and say, ‘I have three people under me, and we operate one of the most profitable companies in the industry.’” — Jeremy Schoolfield A Look at the New Cedar Fair ‘LEGACY’ PARKS (Statistics based on 2005 figures) Cedar Point & Soak City Sandusky, Ohio Founded 1870 3.5 million visitors (including water-park) Knott’s Berry Farm Buena Park, California Founded 1920, acquired 1997 3.6 million visitors Dorney Park & Wildwater Kingdom Allentown, Pennsylvania Founded 1884, acquired 1992 1.5 million visitors Valleyfair Shakopee, Minnesota Founded 1976, acquired 1978 986,000 visitors Worlds of Fun & Oceans of Fun Kansas City, Missouri Founded 1973, acquired 1995 1.1 million visitors Geauga Lake & Wildwater Kingdom Cleveland, Ohio Founded 1888, acquired 2004 700,000 visitors Michigan’s Adventure Muskegon, Michigan Founded 1988, acquired 2001 550,000 visitors PARAMOUNT PARKS Kings Island Cincinnati, Ohio Founded 1972 3.1 million visitors Canada’s Wonderland Toronto, Ontario Founded 1981 3.3 million visitors Kings Dominion Richmond, Virginia Founded 1975 2.1 million visitors Carowinds Charlotte, North Carolina Founded 1973 1.9 million visitors Great America Santa Clara, California Founded 1976 1.8 million visitors