Cedar Fair, L.P. (NYSE:FUN)
40th Annual UBS Global Media and Communications Conference
December 3, 2012 10:00 am ET
Matthew A. Ouimet – President and Chief Executive Officer
Good morning. So, I have what I think is a treat this morning, which is an inaugural presentation by Cedar Fair. It’s their first visit to our conference and we are absolutely delighted to have them.
I’d like to introduce Matt Ouimet, the CEO of the company. He is coming up on his one-year mark as CEO at Cedar Fair, having joined the company about 18 months ago. Matt?
Matthew A. Ouimet
So thank you, Jennie. So first of all, I appreciate you being here. I’m going to go through a very brief presentation, but I would encourage kind of a more spontaneous conversation at some level. So, I’m assuming by the way, and I think it’s probably appropriate that 50% of you probably have followed our story and maybe 50% haven’t had a chance yet to. So again, I’ll go through it rather quickly and then we can answer any of your questions.
For those of you that either our coaster riders or have somebody in your family who enjoyed this particular activity, the picture you’re seeing up here is our newest coaster, which is at – in Sandusky, Ohio at our Cedar Point, our flagship park. It’s called GateKeeper and it will open on opening day next year and we’ll come back and talk about the importance of coasters.
So assuming this works, everybody got it. Okay, our company, so basically we want – run 11 major amusement parks, regional amusement parks spread across the country, and I’ll show you the geographic dispersion in a second. Little over $1 billion in revenue; $375 million in adjusted EBITDA last year. And you see the other relevant statistics there. The coaster you see at the bottom just out of anecdotal reference is at our Toronto Park, which is Canada’s Wonderland.
Spread across the country as I said, almost all North America, one international park, Toronto, Canada’s Wonderland. It has proven to be and I’ll show you some numbers in a minute, but the geographic dispersion does work to our benefit. Clearly, the various markets have different economic situations at different points in time. And to the extent that there’s weather risk it tends to normalize itself out over the course of the season across our 11 parks.
Of these parks, only one is open year around and that is the Knott’s Berry Farm in Orange County, California. The rest basically close after the Halloween weekend. Maybe if you grew up in any of these markets I think you’re probably familiar with them.
So I’m going to touch on a couple of things here. I’m going to touch on the favorable industry dynamics, which I think are compelling in and of themselves. We have been very successful and the numbers will be referenced here in a minute about being able to deliver stabilized cash flow and a growing cash flow, which is translating to a growing distribution.
As I referenced earlier, the 2010 were record results. 2011 were record results. And we are – our guidance, which we firmly believe in, is on pace for a third record year here, as we close our books in the next three weeks or so.
Important part of the story, and we’ll emphasize it, is the growing distribution. We’ve announced a $2.50 distribution. And at today’s stock price, that implies a yield that’s in excess of 7%. We would expect to see that obviously come down. And if it’s 6%, by the end of the year or early next year, you end up with about a 30% total return.
This is an industry that, for many, consider relatively mature. But we’re going to show you why we think there’s strategic growth opportunities here, and have been able to start to demonstrate them.
And then finally, I have been on board for about a year and half. Inherited a very talented management team and added a couple other key players, and we feel like we’re in good shape at this point.
So the industry dynamics – the investment thesis – significant barriers to entry. They are very real. If you think about it, there are three major players in this space. There is ourselves, Six Flags and the Anheuser-Busch parks, which are currently owned by Blackstone – the SeaWorld parks and the Anheuser-Busch parks.
The reason you haven’t seen a successful, new, regional amusement park built in the last 20 years is because it costs too much. There is too much land that needs to be acquired, transportation infrastructure is hard, and basically the markets have already been tapped. And you would be – the first-entry advantage is taken for all those markets. So there hasn’t been – the only one that was tried was in Myrtle Beach. It stayed open for less than one season.
Value compared with other forms of entertainment – what we’ve seen, and certainly I think what we all show you in some of the numbers we’ve demonstrated – is consumers even in this economy or you could say, particularly in this economy, believe there is a compelling value compared with other forms of entertainment for a full-day experience. And again, when I show you some numbers on how we’ve been able to grow revenues, I think that’s the case.
Recession resilient. I’ll bump along and I’ll show you a graph here shortly. In 2009, our EBITDA dropped by 11%. In 2010, it came back 13%. It’s continued to move up from there. We’ll talk a little bit about the staycation effect, which actually is a very real dynamic as it’s played out in our industry.
75%-plus are repeat customers. They all come within 150 or so miles to the park. That’s to our advantage in many cases because they know who we are, we know what the experience is, and there is a ritual to the visit. It also means, though, that you have to reinvest in these parks to provide new things to get your repeat customers to come back.
Where we’ve been very fortunate is that there hasn’t yet been a digital disintermediation, right? So the roller coaster I showed you at the top – and along with that, our 200-foot, our 300-foot, our 400-foot coasters – can’t be replicated, at least today, from your couch. And that has proven to be the case for the last X years, and hopefully for the next X years.
And then again, North American focus. We’re not distracted by what’s happening in other places of the world today.
So these numbers from the back of the room may be difficult to see. I suspect the scale or the trend of the bars is more obvious. Again, we’re on to our third record year here at 12/31 – somewhere between $385 million and $395 million of adjusted EBITDA. Revenues bumping up over $1.055 billion. And then attendance – flat generally is what we’re providing in our guidance, at a little over 23 million, which was a record level last year.
We talked about resilient performance during recessions. Here’s the graph that demonstrates that. As many of you have asked me about over time, the staycation effect is real. Originally created by the economic situation. In other words, you had less cash or felt less confidence in the job you held, so you stayed a little closer to home and spent that money perhaps in our theme park instead of in my former colleagues’ in Orlando.
What I do believe is happening now though, is if and when, let’s say, when is optimist at this conference, the economy continues to turn around. I think what we’re going to see is staycations are actually here to stay. What we’re hearing from the consumer is that they are, they are re-learning what they knew as a youth, which is just a lot simpler to put kids in a car and bring them and spend a couple of days at an amusement park than it is to try to get them through security with their shoes off.
And so I’m pretty confident that as we continue to grow and provide a quality experience, the economy turning around will give us a couple of benefits. One is, I think, we’ll keep most of that staycation effect. The third is, we’ll get some consumers who we did lose because of the economic situation. And the fourth is, to the extent and this is fundamental of the long-term success of the business.
To the extent that we’re able to capture you early in your life, in other words young families, that is a benefit to us on a long-term basis because there’s a thing I call genetic vacation behavior, which is, if you did it as a youth, you’re much more likely to do it as an adult. And I think if you flashback to maybe some of your own vacation memories, that’s probably true. So it’s important to us to get young families into the pipeline, if you will, and we’ve been very successful there over the last several years.
So again 2012, a good year, about to close, revenue is up 4%. You see the $37 million there. In-park average guest per capita spending, up 4%. And attendance comparable with last year’s numbers. A couple of things I’d point out on this slide, one is that you can get – in this industry, you got to be careful you don’t get addicted to attendance. It is something that I think we all grew up with, which is if the turnstile is spinning we feel better, but we feel best when the turnstile is spinning at the right price.
And so what we’ve done a lot this year and we’ll talk about is, do apply revenue management practices that you would be familiar with from the cruise industry, from the hotel industry, from larger amusement parks such as the Disney system et cetera to the business. And I’m actually quite pleased with the amount of growth we’ve been able to drive during this period.
That’s particularly true as you would expect it, the per capita spending to be flat or decline as our season pass mix has gone up and we’ll talk a little bit more about that in a minute. But those are the people who pay money on the front end anywhere between $69 and $150 or $160 to visit our parks for every day they’re open. And when that happens, you generally see a decline in your per cap, but this year, we did not across all of our parks.
Confident in our targets, again there you see the guidance, which we’ve reconfirmed just recently as a month ago, and we’ll have our earnings call somewhere in the February, late February timeframe.
Here’s the real part of the story for now. This is a company, it’s an MLP. We are in business to provide a meaningful and sustainable distribution to our unit holders. This is the path that we have been on historically. You see the disruption in 2009, 2010 and then back on path in 2011. We have, the board has stated that our distribution for next year is $2.50. And the first quarter of that will be declared in the February timeframe of next year. As I said earlier, at $2.50 on today’s price we’re in excess of 7% yield. I suspect, hope, encourage that that will change over the next couple of months, particularly as we get closer to when we declare that first quarter distribution.
One of the other things that’s important on this graph, I think, is, that $2.50 has been the focus, not only for the magnitude I said, but the sustainability of it. And we have plenty of cash to pay the $2.50. In that, in our modeling and in many of your models I know, we have reinvestment capital, so we have about 9% capital we reinvest, what we call marketable capital, new rides and attractions. We are assuming that we continue on a discretionary basis, pay down our debt. There’s about $20 million or $25 million working through our models relative to that, and there’s other variables in there including a little bit of a rainy day fund.
So, I think the investors that own our units to a great degree rely on that $2.50 and the sustainability of it, or the quality of it, as I referenced. The other thing the board has said is that our target is to grow that $2.50 as our business grows. So we would expect to see that as we continue to grow our EBITDA (inaudible).
Just a little bit of bell and whistle here for you, it is important, I said earlier that most of your consumers come within a three or four-hour drive to your park, so it is important and they come back on a substantial repeat basis, important to add new assets in order to keep them coming back. And we have said that we will invest 9% of our revenue in marketable capital. And that’s a discipline we have around our business as part of the total acquisition costs of our guests.
These are the first three here referenced in the terms of our 2013 capital investment. You see at the top, GateKeeper, which comes across literally 100% of our guests will walk under that coaster as they enter the park. The coaster is a winged coaster, so you sit on the wings and as you come through the key holes at the front you spin. And we think that will be, and as already proven to be highly marketable. We got more than 2 million hits already on YouTube for the video of this alone.
Gold Striker in California, we are expanding our park in California, which is immediately adjacent to the new 49ers stadium. I feel very good about the long-term lease extension we negotiated with the city there, but also feel very good about the synergy between the stadium and the amusement park in Santa Clara. And then for any of you that are familiar with Southern California, Knott’s has been a successful park for us since we bought it from the Knott’s family several years ago and we’re going to continue to invest in that park as well.
Just a couple other examples, important for our business is what we call the social mix in the park. The social mix is the amount of adults that are there with children. It’s important for two reasons, one is, it’s a better economic model, if dad is there with the teenager, he’s got his wallet.
The other thing is that to the extent that there are more adults who are accompanying children, the children who are unaccompanied tend to behave better. And so one thing I think that’s very strong in the Cedar Fair portfolio is this idea that we have something for the young families as well as the thrill riders. And you can see here a couple of examples, we’re expanding our Planet Snoopy offering at Kings Dominion and then adding these life-sized animatronic dinosaurs at several of our parks. Just a little bit of a background on the dinosaurs, it is a venture we have with a third party. We spent very little on the capital and we share the revenue.
The most important part of the dinosaurs is that it supports the educational program. Early season, school groups is a big part of our business. And more and more there is the requirement for an educational component that’s substantive. And so there’s a curriculum that is outlined around the dinosaurs, it helps the schools legitimize the visits for the younger students who visit us.
And then in the middle, Two Parks for the Price of One. Very compelling marketing message we believe in Kansas City, where we’ve had two parks, a water park and an amusement park that have been separate since the beginning. And we are consolidating those at this point in time under one ticket price and raising the gate price accordingly.
So, where are we going? We’re, as I said, third record year in a row, $359 million to $375 million to $385 million to $395 million, on our way to $450 million in adjusted EBITDA. That is a 4% CAGR on that. And it is driven by the initiatives you see here. One of the things, and I touched on it earlier I think, the value that the consumer sees in our product we believe is substantial. We believe, we have not grown the price of admissions consistent with what you’ve seen in other entertainment offerings in the marketplace. And we seem to be bearing that out as we continue to grow revenue this year.
But in that, you have to invest in the guest experience, so continue to invest a 9% of marketable capital for rides and attractions, continuing to invest in something for every member of the family, and continuing to do things like providing evening lights and music, which we’ve done at Luminosity at Cedar Point, which drags you into the evening, which means that you feel like you’ve got greater value, you stayed a longer period of time. But also means if you stay into the evening, you’re buying dinner, which is a very profitable meal period for us.
Improved consumer messaging, you’ll see – if you’re in any of our markets, you tend to see our commercials. We have, this industry was born of a very strong retail discount offer perspective. We think there is an opportunity to balance a brand perspective that adds some emotional as well as promotional or adds some emotional reflex if you will to the traditional-promotional approach. And so not just $30 off on a Coke can, but why you should visit with friends, come out today, don’t miss it, et cetera. And then add it in the retail component, but try to be much more disciplined about how we price, which leads me into my third point, dynamic pricing and advanced purchase commitments.
The industry to a great degree did not, as I said maybe earlier, rely on the same practices, revenue management practices, dynamic pricing practices as you see in the hotel industry, the cruise industry and other large industry players. And so we’re doing a lot more around dynamic pricing, fencing offers, making sure that that incremental customer you’re trying to pursue is truly an incremental customer and not just somebody down drafting to a cheaper price.
Importance in that regard is, we put an e-commerce platform in place for us, across all the 11 parks, which has been very successful for us. But one of the major things that’s allowed us to do is it allowed us to take season pass programs and allowed the consumer to pay those on an installment purchase plan, either over four – three, four, or six months.
And although it may not sound to this room as quite a daunting challenge, but for that mom who is trying to juggle budget and buy three theme park tickets or four theme park tickets, quite honestly it’s a very important aspect of what our business is these days, the season pass program have over 2 million people who have season passes and part of the reason we’re able to sustain that number or continue to grow that number, I should say, is because we’re going to offer the installment purchase program. So for $10, $11 or $12 a month you get to buy the passes for the year.
Just an anecdotal reference or may be a change in thinking from my standpoint, it has always been the case that the annual pass is a very good value to the consumer. It pays itself back generally in two visits. What we’re seeing more and more of is not only the value proposition but the money-value proposition, but the time-value proposition. People are so busy, they need to be able to use the amusement park in time bites. Go for three or four hours, and not feel like they didn’t get their value. And so increasingly that’s the way we’re seeing people use this season pass.
The other thing we’re seeing is, just when we think we’ve reached the peak in the number of season passes we sell, we see a socialization aspect happen, which is in Kings – I’ll pick Cincinnati, where we did particularly well with season passes. It turns out, once we think we got a ceiling it turns out, your neighbor owns one on one side, your neighbor owns it on the other side, your kids need to own a season pass. And we see another step function in the season pass program as an example.
And I’ll go quickly through these, so we can have time for questions. Premium product offerings, we, this year for the first time and we are late to this party, offer a front of the line pass. So there are two types of consumers, there’s the benefit oriented consumer and there’s the value-oriented consumer. This is designed toward – premium products are designed to sort of the benefit oriented consumer, the guy with extra – couple extra bucks in his pocket who is only visiting us for one day and after he’s paid $50 bucks to come in, he’s happy to another $50 bucks to get to the front of the line. Very successful program for us.
Premium parking, the idea you get to park close to the park and people are willing to pay for that. At Knott’s Berry Farm in our very important Halloween season, for the first time, we had a maze, scare zone maze that you had to pay extra to get into and you had to make a reservation and it more than pays back itself in the first year. So we think there’s other opportunities around the Halloween program as an example.
Strategic alliances. We, again, in fairness, I think we’re a little bit late to this party. We have over 23 million people that visit us, or turnstile clicks, at least. And people like Coca-Cola, Pepsi. And we’ve signed a national deal now with Coca-Cola. And others not only want to – in Coke’s case obviously there’s a beverage pour, but others want to be able to market in our park to these consumers. And we now, for the first time, have bodies, have an executive in charge of this area, have a couple other people, and are putting in some infrastructure into our parks to be able to sign up promotional alliances much like some of our competitors do.
And then finally capital expense productivity, two things I’d say, one is 9% of revenue is dedicated to marketable capital. You’d like to believe that can be last, but you got to drive the attendance and if you want to drive the revenue growth, you need it. But the other thing is when you see us put new rides and attractions in, you generally will see us take a ride or attraction out. If you don’t’ do that, you build up your cost base, your fixed cost base.
And so as we put the new coaster into Cedar Point, I showed you at the top, 75% of that new operating cost for that coaster is covered by two rides we took out. And those two rides had very high maintenance cost and very low ridership, and so you’ll continue to see us do that. In Knott’s we took out a very expensive ride and we’re adding three rides there that’ll actually cost less than the one ride we took out.
So that’s who we are. I would say from an emphasis standpoint, the company is in very good shape. This is a company that in good times and bad generates a lot of free cash flow. We are committed to a meaningful and sustainable distribution. We’ve run various scenarios to know that sustainable is in fact belongs in that sentence. And then we feel really good about where we are. So, I will stop there and be happy to take any questions.
That’s great. Thank you, Matt. Maybe if I could start off with a couple of my own. One of the things that is so interesting about listening to you talk about Cedar Fair is that you obviously have the benefit of 17 years at Disney before coming to Cedar Fair. And I guess, as the first question, I’m wondering whether there are other sort of lessons learned from your time at Disney and specifically around destination theme parks that you’ve been able to apply to Cedar Fair, or plan to going forward?
Matthew A. Ouimet
Great. And I appreciate that. So yes, for those of you who didn’t know, I spent about 17 years with The Walt Disney Company in various capacities, all in the theme park and amusement park side of the business.
But Jennie, I’d say a couple of things. One is length of stay is important. So not only the length of the stay in the park on a given day and how many rides you ride, because that speaks to value you get, so we measure how many rides a guest rides during the day or how many shows they go to. Because there’s a cliff there, and if we’re too busy, and we don’t have enough operating hours, then the consumer doesn’t see the value.
But more importantly for the economic model is there’s two things I’d like to do, I guess there’s three. One is, I’d mentioned earlier, drag you into the evening, because then you get the meal period. And that’s an Epcot lesson, right? If any of you’ve been there, you stay for IllumiNations and the restaurants around the park do incredibly well.
The second is get you to stay overnight, because if you stay overnight, you buy a multi-day ticket. Second day is purely incremental, in many cases. And that’s big to Cedar Point, particularly where we’ve announced we’re going to reinvest into our hotel inventory there, right?
And the third is, it comes to me from the cruise line, which is the advanced purchase commitment or where I said earlier, I guess, we would like you to buy things ahead of time. And our e-commerce platform lets you do that.
And the best example I always give people is, if, when you buy tickets on our site now, it’ll immediately pop up and offer you parking, would you like to prepay your parking for $15. And most people check that box. Well, dad still goes to the ATM that morning and takes out $100. He just doesn’t give the first $15 to the parking attendant, but he does end up spending it.
So advanced purchase commitment from the cruise line, a lot of that, if you think about it, cruises are booked as market is all inclusive. But you get off the ship, you got a $1,500 bill, right? And I think a lot of us I think can see the benefit from advanced purchase commitment.
The other thing the advanced purchase commitment that’s less about Disney, it’s been more about this particular business, the retail amusement park business. I need some visitation disruption protection. So if I can get you to buy it ahead of time, you are much more committed to coming. And in the world we live in, the most, the strongest competitor of our business is what else you could do. And we talk about a thing called time poverty, which the consumers just are so stretched these days compared to where they were 10, 15, 20 years ago, trying to get you to buy ahead of time is really important.
One of the other things you talked about and referred to is more dynamic pricing and yield management focused, which obviously given your background is something that makes a lot of sense. Where would you say you are in terms of tapping into that opportunity? Is it still very early days?
Matthew A. Ouimet
Yeah, I think it is early days. So our e-commerce platform went in place in February, March of this year, which really is the one of the primary tools. We’ve also just hired, begin to have staff up in that particular area. So I would tell you, we’re probably, there were some lay-ups. So we’re probably a third of the way through that.
But it’s important to note that the industry and I think I said it earlier, the industry has a tendency to get addicted to attendance. You need to get addicted to revenue and profitability. And it is hard, when it rains on a weekend in July, it’s hard not to think about putting $30 off on a Coke can, right?
But I think the discipline, and the good thing is, and I’ll give a shout out to the rest of the industry. Look, Blackstone owns some parks. The Six Flags team is clearly a professional management team. They know what they’re doing. And to the extent that we all are practicing greater pricing discipline, even though we don’t overlap very much, the consumer message bleeds.
And I think it’s important for the consumers to know these are, we are a value at the price that we charge today. And if we’re all doing that on a disciplined basis, I think it makes a difference. And clearly we are today.
Terrific. So do we have questions in the audience? If you do, just raise your hand and we’ll bring a mike over.
Two questions. Could you just touch on your Internet strategy as it relates to the databases that you’re creating about the attendance and the usage? And what does it mean going forward? And then I have a capital structure question after that.
Matthew A. Ouimet
Okay. So I think what I heard you say is about the CRM databases we’re creating. So I referenced it earlier, and we talked about it. We have more than 2 million season-pass-holders. And so being able to effectively manage those – and I’ll give you – and that platform, by the way, will be in place by March of this year. And we have campaigns designed against that platform already for this coming year, right?
But it is things like – if I can be as simplistic as this, this is – we will monitor how many times you’re visiting the park. And if you’re not using it up to our standard, we’re going to encourage you in various ways to use it, because we know utilization is the best predictor of renewal, right? We now will have the capability to deliver on your birthday, right? We have special offers that you’ll only get as a season-pass-holder.
And when I talk about fencing various discount offers, one of things that we never give credit to, season-pass-holders make up between 33% and 40% of our attendance. That’s without the influence factor from the season-pass-holder.
So if I want to really fence an offer and do it effectively, I can give – bring your neighbor for $19.99 offer. It’s totally fenced, and it’s highly incremental. And those are examples of the CRM platform.
And the woman we’ve hired named Kelley Semmelroth worked at Disney, doing the CRM, and she also was with Bank of America most recently. This is what she does. I mean, Kelley is a great brand marketer, but she gets much more excited about this than she does the commercials.
Looking at your capital structure and your distribution coverage, you have a lot of room. Is there a priority between the capital structure and the distribution? I mean you really are an amazing place, but can you just share what that means to you?
Matthew A. Ouimet
Yeah, so – think about how I answer this. Good – look, so, the good news is we’re easy to model. I always tell that I talk to various analysts and investors, et cetera. So – and we’re relatively transparent, I would tell you. We predict out, we report out on a going-forward basis.
What is most important to me at this point in time is not only the amount of the distribution but the sustainability of it, right? We came through a disruptive period that almost lost control of the company, and certainly wouldn’t have been to the benefit of our unitholders.
So I think what you’re seeing is a little bit of conservatism on our part. We still want to pay debt down on a rational basis. It’s hard to pay debt down too much at this cost of debt.
What I told people is I feel very, very good about where we are, but we probably have a refinancing in the 2014 window. And I think we will – $2.50, growing it as our profits grow, until we get through the refinancing. And if there is a time to revisit the strategy, it would be after that. Okay?
Just a couple of questions. You talked about monitoring the ridership. Is that just for the questions that you just addressed – is for the week that the pass – how do you…
Matthew A. Ouimet
How are you tracking, just general…
Matthew A. Ouimet
So every ride, we track ridership on, if you take total ridership for the day on some of your major rides, you can divide it by attendance and come up with ride per cap, right? So, on a given day, how many people went to your entertainment shows, go ahead.
What I really meant was you talked more specifically towards each attendee on how many rides you are going on. So without the season pass, how are you trying to do that?
Matthew A. Ouimet
Yeah, I may have misspoke...
Matthew A. Ouimet
...or miscommunicated, because we don’t do it on an individual basis.
Okay, all right?
Matthew A. Ouimet
What I meant was I want to know, if you’re a season-pass-holder, I want to know how many times you’re visiting the park, because if you’re under-penetrating, I got to do something about it. If you are over-penetrating then I probably have to do, I have an opportunity in a different direction.
And do you resell your old rides or what do you – just move them to a....
Matthew A. Ouimet
Most of them live out their useful lives in this system, much like the turkey that the President pardons.
And so we do sell rides on occasion. But most of our rides are – at this point, we don’t have a lot of rides to sell when we take them down.
And just a last question. In terms of pricing at $42, and recognizing that some of that is on a number of different things, so there is two parts of this. One, where do you think that number can go? How do you kind of get there? And what’s in that raise?
Matthew A. Ouimet
And then the second part of it is, given that you’ve got 11 theme parks, is there any possibility that you can align yourself with – I don’t want to say McDonald’s, but someone that you can actually incorporate, in addition to what you’re doing on the food side – be able to take more of a license approach?
Matthew A. Ouimet
Yeah, I don’t know about – I’ll do the second one first. The licensing approach, we are going to do more – we will do much more promotional efforts with the people like McDonald’s, Taco Bell – we do – it isn’t Taco Bell, it’s Burger King in California. We do a big promotion with Knott’s, et cetera.
And also, as we expand our strategic alliances, part of it isn’t just the fee they give you, it’s the promotional leverage. So we do that in a park-by-park basis. I think you’ll see us get much better on a broad, 11-park basis. Not because these parks overlap, but it’s just more efficient. If I can create a model I can drop on a 11 parks, it’s lot easier than the GMs doing it.
On the $42, what I tell people is, look, what we’ve predicted is about a 4% growth going forward. I tend to think about a quarter of that growth coming from attendance and about three-quarters coming from pricing and new products. And so I feel very, very good about that, given how early we are in the curve of doing this, and how much the consumers value.
Just a couple sound bites. If you continue to grow your season pass, you would expect to see your per cap spending come down. Because they divide it by 5 visits or 4.5 visits to the park, and they don’t buy the T-shirt every time they come to the park, et cetera.
We were up on in-park spending this year substantially, and up at the front gate on a admission-per-cap basis, even though we also grew season pass by more than double digits.
And so I think we’re early in that process. We’ve got a lot to learn, but I feel very good about where we are.
Right, thanks. Just real – one quick one. You recently sold Knott’s Soak City.
Matthew A. Ouimet
Can you disclose any type of price, revenue.
Matthew A. Ouimet
Yes, I think it’s actually hit the paper. I’m looking at my IR person, so she’s going to nod her head. It was around $15 million we sold that for, and – which is a very good multiple.
And quite honestly, it was an asset – we’re looking – we don’t have a lot to sell, but that asset particularly was not a growth asset. And we can take some of that money and reinvest it in our hotel refreshment program. It’s just a much smarter use of the capital.
You answered the second part already.
Matthew A. Ouimet
Hi. Where do you think you can take season pass sales to, over time?
Matthew A. Ouimet
It’s funny because I pushed the team and I asked them where the ceiling was, as well. From more from a checking our own logic standpoint – and again, I’ve had a couple of forums this morning, so if I forget – I think I’ve said it here before. I don’t think we’re done yet, particularly at various parks.
Kings Island does an extraordinarily high penetration at Cincinnati. At some point, we’re going to top out there. But this year, we’re taking more pricing there, right?
So I decided let’s – okay, we’re at the – we think we’re close to the ceiling towards potentially at Kings Island. Places like Knott’s Berry Farm and some of our other parks are just beginning to think about how their programs could be effective.
And the industry used to be worried about season-pass-holders because it diluted the per-cap, right? The reality is it’s the highest price ticket you can sell. They have the highest influence factor on it. And they are, quite honestly, the most loyal customers you have.
So I don’t – the only reason you could sell too many is if it became a teenage drop-off service, or they took capacity when you could sell it for a higher number. And our parks rarely – I mean a handful days a year are at close to the capacity.
So the second is you’re using a variable. The first one, we pay attention to. If it’s too cheap or we get too many teenagers dropped off without their parents, I think you’d have to begin to be a little bit nervous.
Maybe another one, right here in the front.
Thank you. Can you expand on the cost side, mainly labor? Two parts. First, procurement of qualified individuals, and geographically are there any issues? And secondly the cost side, can you expand a little bit on healthcare?
Matthew A. Ouimet
Yeah, all right? So, I’ll cross my fingers on the second one, we believe we’re going to be okay with the healthcare issue as it relates to our seasonal employees, as it relates to ObamaCare. And so we’re – that was one of the original concerns, but I think the industry has found its way through that, and I think we’re going to be okay on that side.
Healthcare up for our 1,700 full-time employees is exactly where everybody else is and we just rolled out this year’s annual increase, which employees will pay more, deductibles will be higher, and we’ll just have to continue to manage that. I am intrigued, although I suspect it’ll be limiting at some point, I am intrigued by this defined contribution medical program that people are starting to rollout, where you give the employee X amount and they have to go figure it out. I’m not sure from a value standpoint, I like it, but there has to be something to control the insurance cost going up, but for the vast majority of our employees are seasonal employees we don’t have that issue, okay. I’m sorry, your first question?
Unidentified Company Representative
Matthew A. Ouimet
Labor. Look – so, it works in the pendulum, right? When the economy is bad, it’s not so hard to get the right people, right? When the economy turns around it’s a little harder to get the right people. But we are in very good shape. We get a good repeat rate from most of our employees to come back year after year. Strains in the system, college schedules stretch themselves out. So, if a college stays in or goes back earlier, stays in longer, goes back earlier. And Ohio State has now gone to semester basis, instead of trimesters, that will strain us up a little bit.
And then the hardest one for us is, it’s Cedar Point, it’s an hour from Cleveland, it’s an hour and half from other markets. So, we have to have dormitories there to house our employees. And we also have to recruit another J-1 Visa. We pull in people like the ski resorts do. In this economy, we’ve been pretty – if you can say it that way, in this economy we’ve been pretty fortunate, but finding the quality individual and training them is the key issue in this industry and always will be.
More questions from the audience? Matt, if I can ask one more, you talked before about length of stay being one of the sort of key lens as you’ve been looking at the business through, does that suggest that potentially there are – in addition to the reinvestment in hotels at Cedar Point, are there other expanded lodging opportunities around the park?
Matthew A. Ouimet
Yeah, for us I think there’s a lodging opportunity in campgrounds. Low capital, longest length of stay. Once you get that trailer unhooked and you set up all the bells and whistles these days you don’t move. But no, we’re not interested in building more resort rooms. There may be small niche products for us, but I’m happy to support the building of hotel rooms around our properties. So, to a extent that there are opportunities for us to encourage that type of development, you may see that, but not under our inventory.
Looking at the long-term attendance of your parks, should we assume you understand the demographics of your parks extremely well? And can you just help us understand what you think about the 4% CAGR? What are you thinking about the demographics (inaudible)?
Matthew A. Ouimet
Yeah. So, I think we understand the demographics well. I think we’ll understand them excellently as we get our CRM database. And our – so the CRM database by the way, interplays with the, not only season pass, but the e-commerce platform. So everybody that buys there we’ve got it now. And it’ll feed right into the database. So we’ll be much more disciplined about it than we are today. We understand that – I think both intellectually and intuitively we understand our consumer today, but being able to drive the incrementality from that data is probably where we still have a big opportunity, but between those two platforms we’re going to be in good shape.
Other questions from the room? All right? Well, Matt, thank you very much.
Unidentified Company Representative
Matthew A. Ouimet
That was great. Thank you.
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