Monday, June 15, 2009

Flat Busted

Th-th-that's all folks

Poke another hole in the emperor's cloak of Redskins owner Dan Snyder. Six Flags, the amusement park group chaired by Dan has finally declared bankruptcy. As of yesterday the company has declared assets worth an estimated 3 billion dollars but only has a market value of 26 million dollars.

So not only is the company not worth the land, buildings and equipment and business prospects that constitute the enterprise, it is worth less than nine one thousandths of one percent of all that. And that is mainly because the company is suffocating under the crushing burden of 2.4 billion dollars in debt.

And you thought your house was underwater.


Dan Snyder formed up Red Zone as his investment arm in 2004 to target media and entertainment properties, businesses that rely on consumers, despite Dan's expertise in business to business marketing. In August 2004 Red Zone acquired an 8.8 percent stake in Six Flags, the 8.15 million shares were bought by Red Zone for an estimated 34.5 million dollars, valuing the shares at roughly $4.23 per share, compare to the closing price on 30 August 2004.

By August of 2005 Red Zone had pumped its ownership stake in Six Flags to nearly 11 million shares, and while the share price had risen a dollar, Dan Snyder had spent the year complaining about Six Flags management and decided to launch a proxy battle for chairmanship of the company, through Red Zone Dan was offering $6.50 a share, a dollar higher than the previous day's close. He won, Dan was installed as chairman and former ESPN programming executive Mark Shapiro was installed as CEO.

Throughout the next year Dan Snyder and his team implemented their vision, and the company benefited, gaining millions in value even as Dan continued to stock the board of directors with allies. More than two billion in debt still hung over the company from previous management, alarming analysts. By April of 2006 Dan Snyder had convinced the new board of directors to reimburse him more than ten million dollars he spent during the proxy fight to take control. This number included the five million dollar signing bonus given to Mark Shapiro to leave ESPN, the same Mark Shapiro that in February of 2006 upon his first tour of Washington's Six Flags park in Largo Maryland had told a crowd of employees including maintenance workers that they could not expect raises because of the all that corporate debt. By June of 2006 as the season was heating up the company ran afoul of the ACLU with new restrictions on employee grooming, foreshadowing a hamhandedness in dealing with the predominantly black clientele and workforce in Prince George's County. By one year after the proxy battle began the stock had dropped fifty cents, and more than five dollars off the first of the year when Red Zone took charge.

In early 2007 Six Flags announced a new VIP access tier entitling participants to reserved parking, front of the line cuts on rides and private meetings with costumed characters. This policy is implemented with little sensitivity toward the demographic makeup of the county where the Washington area's park is located. In June a thirteen year old girl had her foot severed in the Kentucky Six Flags park. In December the Washington Post published a long report on the lack of federal oversight of amusement parks. Later that month the House of Representatives voted to kill a bill that would have placed amusement parks under the Consumer Products Safety Commission. The softening economy was beginning to take a toll on the business. By two years after the proxy battle began Six Flags stock price was down more than another half dollar to under four dollars per share.

The decline continued into 2008, even though attendance was on the way up so were operating deficits. Now the economic downturn was in full swing while gas prices for summer 2008 set records all over the country. Things were bad in the amusement park business and projected to get worse. That season the company put into place a new policy: no bags on rides, no matter how small. To facilitate this nominally safety oriented policy the parks put up temporary lockers at each ride, then touched up customers for one dollar a ride to stow their stuff. Short term lockers, if you leave your stuff there more than two hours the signs tell you plainly that your stuff will be thrown out. Little things like that piss off customers. To add insult to injury a fire broke out and severely damaged one of the attractions in the park in Largo Maryland in July. By three years after the proxy fight to install Dan Snyder as chairman had begun Six Flags share price had fallen more than 60 percent since the year before, down to $1.24 per share, more than five dollars less than Dan Snyder's offering price in the takeover.

Throughout 2009 the company had been trying to renegotiate with lenders, as the latest 175 million dollar interest payment loomed, a portion of the 2.4 billion dollars in debt mostly left over from the previous management, were scheduled to come due. The crashing economy made it impossible for the company to cannibalize itself further down the right size, there were no buyers for parks or unneeded real estate and no one to take an investment stake in the enterprise. In April of 2009 Six Flags was delisted from the New York Stock Exchange. Now that the company is in bankruptcy it will be executing a prearranged plan to trim nearly two billion dollars in debt off its books and avoid nearly 300 million in preferred stock payments. A lot of investors are going to wake up tomorrow to see how hard they have been screwed. The stock closed Friday at 26 cents per share, Dan Snyder's shares are now worth just over six percent of what he paid for them in 2004.


Did Dan Snyder and Mark Shapiro drive the company into the ground with incompetence or hubris? Not really though they did not put themselves in the best position to succeed. What they did was make a bad investment, the company had too much debt and too many things would have had to break just right for the company to generate the kind of revenue needed to clear the debt load. From all indications this is a management team that was in over its head from the very beginning.

Six Flags logo with Bug Bunny attempting to escape from here.