Capital Spending

“Dear Mr. Theme Park – It seems that amusement parks are spending more and more on rides and attractions then ever.  Why is that and how do they decide what and how much to add? “ Joel R. - Michigan

Dear Joel R. from Michigan, 

Thank you for your question.  It amazes me year after year the amount of capital spent on new attractions, but it is necessary and one of the intensities of our business.  Our research team at ITPS added up over $1.2 Billion in capital expenditures for 2015! (That number is a bit low since a lot of investment costs are not reported.) 

New LSM Speedboat Ride the latest creation by Errol McKoy, former Six Flags executive and former president of Texas State Fair and produced by Intamin.  See the video of the ride here.

Let me give you a few examples of capital spending.  This year Holiday World opened a $22 million coaster called Thunderbird.  Last week, Dollywood announced a $22 million wooden coaster named Lightning Rod.  Next week Cedar Point might be announcing a highly rumored multi-million record breaking dive coaster. 

To put that into perspective, we built Kings Dominion in Virginia in the early 1970’s with a $60 million budget!  Disney and Universal spend more on 1 ride today. 

Without a doubt, the most challenging aspect of operating an amusement park is to make good decisions on capital investment.  Deciding how to re-invest the park’s hard-earned money involves the difficult task of committing funds for lengthy periods.  This can reduce the flexibility of the business – but it is also highly vital to the future success of the business.

This makes our industry capital intensive.  Amusement parks thrive on repeat business – both within a season and from season to season. In this mature industry, most markets have been penetrated as deeply as possible. It is fair to say that a park’s effort is to maintain current market penetration while, through the process of capital expansion, increase attendance through reasonable cost effective product additions.

Reasonable is the key word here.  As I have said, and you have seen now, a major attraction today such as a large steel coaster can cost between $15 and $30 million.  Parks have to continue committing this level of capital to grow their business.  They have to do this in order to protect their market.  If they are a teen-driven market, they have to continue to provide product which will bring the teens back again and again.  And yet, they have to also present other products that will appeal to different demographics in order to diversify their market appeal.

  

As you see here, the major park operators spend anywhere from 6 percent to 25 percent of their annual revenues on capital spending programs.  The most recent IAAPA benchmark among the various continents surveyed shows an average spend of 13 percent of revenues.  Water park operations are slightly lower, with about 4 to 5 percent of revenues being allocated to capital spending.

No matter which group a park chooses to target, investments are expensive. Yet without these annual or semi-annual investments, attendance begins to stall and, ultimately, decline.

Internal capital budgeting programs are needed to make wise decisions about investing in major attractions, infrastructure, and major construction projects.  This capital outlay impacts the business for many years to come, and must earn a reasonable rate of return.

Here are just a few of the capital expenditures for 2015.  

• Zombie Ride (Roller Coaster) – Bosque Magico - $10 Million
• Camelback Waterpark & Lodge (New Indoor Waterpark) – Poconos - $163 Million
• Kalahari (New Indoor Water Park and Resort)  – Poconos - $230 Million
• Fury 325 ( Roller Coaster) – Carowinds - $30 Million
• Dreamland Margate (Reopening of existing park) - $29 Million (18 million Pounds)
• Baron 1898 (Dive Coaster) - Efteling - $22.8 Million (18 million Euro)
• Thunder Falls (Super Flume) – Everland - $12 Million (14 Billion Won)
• Oblivion – The Black Hole (Dive Coaster) – Gardaland - $25.5 Million (20 million Euro)
• Hello Kitty Theme Park (New Theme Park) – Zhejiang, China - $215 Million
• Laff Trakk (Indoor Spinning Coaster) – Hershey Park - $14 Million
• Thunderbird (Launched Wing Rider Coaster) – Holiday World - $22 Million
• Cyclos, Skycatcher, Enterprise, Up Up and Away, Wizard of Oz 5D, Flutterfly, Raging Rapids River Ride and T3 - Kentucky Kingdom – Part of a $44 million investment over the first few years of park operation.
• Bamses Värld (New children’s area themed to the cartoon character Bamses with 5 new attractions including a Zierer coaster)– Kolmården - $10 Million (75 Million SEK)
• Cannibal (vertical lift roller coaster) – Lagoon - $22 Million
• PlopsaAqua (New indoor waterpark) – Plopsaland De Panne - $20 Million  (16 Million Euro)
• Romon U-Park (New indoor/outdoor theme park) – Zhejiang, China - $805 Million (5 billion RMB)
• Schlitterbahn Padre Island – New 65 acre water park - $41 million
• Fireman’s Landing (New area themed to old-time volunteer firefighter recruitment fair)  – Silver Dollar City - $8 Million
• Nickelodeon Lost Lagoon (Asia’s first Nickelodeon area with 9 attractions and 6 rides) – Sunway Lagoon - $30.9 Million (RM 100 Million)
• The Cú Chulainn Coaster (largest wooden coaster in Europe) – Tayto Park – R10.8 Million (8.5 Million Euro)
• King Tritton’s Concert (New Musical show themed to the Little Mermaid) – Tokyo Disney Sea - $37 million (4 Billion Yen)
• Fast and Furious Supercharged and Springfield U.S.A. - Universal Studios Hollywood – Both are part of a $1.6 billion overhaul of the park and adjacent movie studio
• Wave Pool (new wave pool, restrooms, lounging areas and food stand) – Waldameer - $10 million
• IMG World of Adventure (New theme park not open yet but scheduled to open in late 2015) – Dubai - Over $1 Billion
• Bondegårdsland (Happy Farm Land - New Themed Area with 10 new rides including a Zierer Force family roller coaster) – Djurs Sommerland - $7.7 Million (45 Million DKK)
• The Forbidden Caves (A 1,500 sq. meter (161,458 sq. foot) highly themed storytelling immersive tunnel dark ride that takes guests on a 10 minute ride through dangerous and mysterious caves.) – Bobbejaanland - $6.2 Million (5 million Euro)

Thanks again for your question Joel R, and make certain to visit www.interthemepark.com for additional information on the leisure industry and the services provided by ITPS.  

Don't forget to visit www.mrthemepark.com each week for new questions and answers!