IAAPA
Institute for Attractions Managers
Finance
Operations
and Safety
Revenue
Operations
Marketing
Finance
Leadership
Contents
Industry Overview: Global Attractions Data
FunWorld Park’s Financial Statement
Revenue Theory and Practice
Skills Exercise – Case Study
Finance
2
Objectives
Upon completion of this course, attendees will be
able to:
 Broadly describe worldwide spending/attendance forecasts for the
global amusement park and attractions industry
 Identify the major players in the industry
 Define the major income and expense items for facilities
 Describe the financial metrics that attractions should be monitoring
regularly and why
 Explain depreciation, amortization, EBITDA, and Cash Flow
 Explain Capital Budgeting processes and evaluations modules
Finance
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Industry Overview (cont’d)
Global attractions data (cont’d)
 Key players in the attractions industry
2005 Worldwide Attendance Share Among Major Theme
Park Operators (in Millions)
Note:
Total 2005
attendance
at attractions
owned/operated
by these
companies =
241 Million
* - Estimate
44.0%
Disney (106)
14.6%
Six Flags (35.1)
Cedar Fair (incl. Paramount) (28.2)
Universal (26)
Anheuser-Busch (21.2)
11.7%
10.8%
8.8%
Grupo Mágico* (12.3)
5.1%
Blackstone/Merlin Entertainment (12.2)
5.1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Sources: The Global Theme Park Industry, S. Anton Clavé, 2005
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Why?
Finance
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Industry Overview (cont’d)
Global attractions
data (cont’d)
 How many
major theme
park facilities
are there
worldwide?
 What is the
breakdown by
types of
attractions?
Number of Major Theme Park, Waterpark and Attraction Facilities –
Worldwide (Total 189)
6.4%
10.6%
1.6%
34.4%
United States (65)
Europe, Middle East, Africa (89)
Asia/Pacific (20)
Latin America (12)
Canada (3)
47.1%
Types of Attractions (Major Parks) – Worldwide (Total 189)
17.0%
Theme Park (130)
14.3%
Waterpark (27)
Nature/Animal Attraction (32)
68.8%
Sources: The Global Theme Park Industry, S. Anton Clavé, 2007; TEA/ERA Theme Park Attendance Report, 2007
Finance
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Industry Overview (cont’d)
Global attractions data (cont’d)
 Economic impact of the amusement/theme park industry
• In 2004, all travel-related spending* by travelers to U.S. amusement/theme
parks directly generated:
– 164,500 jobs and $3,529,500 in payroll income
– $2,148,600 in federal, state and local tax revenues
• Traveler spending inside U.S. amusement/theme parks directly generated:
– 123,800 jobs and $2,318,500 in payroll income
– $1,813,200 in federal, state and local tax revenues
• Represents impact of both domestic and overseas travelers
• Also indirect/induced positive impacts on suppliers
* Includes transportation, lodging, food services, retail shopping, and other recreational services.
Source: The Economic Impact of Domestic and Overseas Travelers Who Visit Amusement/Theme Parks and Other
Attractions in the United States, IAAPA/TIA, 2005 Edition
Finance
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Industry Overview (cont’d)
Global
attractions
data (cont’d)
Amusement Park Revenue Sources - Worldwide, 2007
3.6%
1.7%
 Types of
income
1.1%
Admissions
1.8%
F&B
6.5%
Games
8.9%
Merchandise
Tenants/Concessions
47.5%
Sponsorships
Parking
16.9%
Other
Source: Managing Attractions for More Profit: An International Survey of Operational Performance, IAAPA, 2007
Finance
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Industry Overview (cont’d)
Global
attractions
data (cont’d)
 Types of
expenses
Amusement Park Types of Expenses - Worldwide, 2007
Employee Wages & Benefits - Operations
21.6%
Employee Wages & Benefits -Administration
8.1%
Repair and Maintenance
6.2%
Operating Supplies
3.9%
Entertainment/Special Events
2.2%
Advertising
5.6%
Utilities
3.9%
Insurance
2.9%
Genl. Office & Administration
2.2%
Lease/ Rent
1.7%
Taxes & Govt. Fees
2.5%
Cost of Goods Sold
11.8%
Other
4.9%
Operating Margin
15.8%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Source: Managing Attractions for More Profit: An International Survey of Operational Performance, IAAPA, 2007
Finance
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FunWorld Park’s Financial Statement
FunWorld Park revenue
FUNWORLD PARK
CAPITAL IMPROVEMENTS
ATTENDANCE
2009
2009
2008
2008
ACTUALS
PER CAPS
ACTUALS
PER CAPS
$1,374,252.00
$1,328,469.00
751,565
745,000
REVENUES
TICKETS
$13,967,030.00
18.58
$13,484,500.00
18.1
FOOD
$2,574,000.00
3.42
$2,495,750.00
3.35
GAMES
$1,120,000.00
1.49
$1,043,000.00
1.4
ATTRACTIONS
$173,945.55
0.23
$171,350.00
0.23
RETAIL
$826,000.00
1.10
$856,750.00
1.15
PARKING
$375,620.26
0.50
$357,600.00
0.48
LESSEE/OTHER
$119,209.54
0.16
$111,750.00
0.15
SPONSORSHIP
$167,072.86
$160,000.00
INTEREST & OTHER INCOME
$79,789.90
$75,050.00
TOTALS
$19,402,668.12
25.82
$18,755,750.00
Finance
24.86
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FunWorld Park’s Financial Statement (cont’d)
Income highlights
 FunWorld Park’s 2009 Income
• Ticket/gate revenue was $13,967,030, or 72.0% of gross revenue
• Total F&B, games, and retail income was $4,520,000, 23.3% of
gross revenue
• Per caps: Gate – $18.58; F&B, games, and retail – $6.01
• Per caps growth 2008–2009
– Gate: 2.7%
– F&B: 2.1%
– Games: 6.4%
– Retail: –4.3% (decreased)
Finance
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FunWorld Park’s Financial Statement
FunWorld Park
Other operating characteristics
 126 Operating Days
 Pricing Policy – Regular Adult, $23.99; Child, $16.99;
Senior/Handicap, $12.99
• Season pass holders
– Individual, $54.99
– Early Bird, $39.99
– After 2:00 pm, $16.99
• Discounts
– Family of 4 Discount, $15.00/family
– Discount tickets, $10.50
• Coupons
– Bring the price down to $12.07
Finance
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FunWorld Park’s Financial Statement
Key metrics
 These metrics should be monitored daily:
•
•
•
•
Per caps
Daily attendance
Planned/budgeted income versus actual
Labor costs (can be hourly labor, or a productivity metric)
 Daily, weekly, monthly, quarterly, and annual tracking of actuals against
the budget
 Increases in daily attendance are worth more to the bottom line than
increased per caps for the same day
 Good budgeting anticipates known causes of revenue increases or
decreases; e.g., special events that will bring in more guests
Finance
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FunWorld Park’s Financial Statement
FunWorld Park revenue
FUNWORLD PARK
CAPITAL IMPROVEMENTS
ATTENDANCE
2009
2009
2008
2008
ACTUALS
PER CAPS
ACTUALS
PER CAPS
$1,374,252.00
$1,328,469.00
751,565
745,000
REVENUES
TICKETS
$13,967,030.00
18.58
$13,484,500.00
18.1
FOOD
$2,574,000.00
3.42
$2,495,750.00
3.35
GAMES
$1,120,000.00
1.49
$1,043,000.00
1.4
ATTRACTIONS
$173,945.55
0.23
$171,350.00
0.23
RETAIL
$826,000.00
1.10
$856,750.00
1.15
PARKING
$375,620.26
0.50
$357,600.00
0.48
LESSEE/OTHER
$119,209.54
0.16
$111,750.00
0.15
SPONSORSHIP
$167,072.86
$160,000.00
INTEREST & OTHER INCOME
$79,789.90
$75,050.00
TOTALS
$19,402,668.12
25.82
$18,755,750.00
Finance
24.86
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FunWorld Park’s Financial Statement
FunWorld Park expenses
2009
EXPENSES
2009
2008
%Total Rev
2008
%Total Rev
SALARIES/WAGES (INCL TAXES)
$6,400,000.00
32.99%
$6,120,000.00
32.63%
MARKETING
$1,170,000.00
6.03%
$1,015,000.00
5.41%
TRAVEL/ENTERTAINMENT
$75,000.00
0.39%
$70,000.00
0.37%
EQUIPMENT RENTAL
$100,000.00
0.52%
$100,000.00
0.53%
OUTSIDE SERVICES
$950,000.00
4.90%
$920,000.00
4.91%
$1,400,000.00
7.22%
$830,000.00
4.43%
OPERATING SUPPLIES
$970,000.00
5.00%
$950,000.00
5.07%
UTILITIES
$600,000.00
3.09%
$555,000.00
2.96%
INSURANCE
$660,000.00
3.40%
$600,000.00
3.20%
PROPERTY & OTHER TAXES
$99,084.00
0.51%
$80,000.00
0.43%
REPAIRS & MAINT
$12,424,084.00
$11,240,000.00
Finance
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FunWorld Park’s Financial Statement
Expense highlights
 FunWorld Park’s 2009 Expenses
• Total cost of goods sold (F&B, games, and retail) was $1,622,980,
or 36.0% of revenue from those areas
• Cost of goods sold was a slight decrease from 2005, which was
$1,628,943, or 37.1% of revenue
• Total expenses for 2008 were $12,424,084, an increase of 10.5%
over 2006
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FunWorld Park’s Financial Statement (cont’d)
Global attractions data (cont’d)
 Fixed and Variable costs
• Fixed costs - A fixed cost is a cost whose total dollar amount remains
constant as the activity level changes.
Include rides, facilities, buildings, equipment
The industry has very high fixed costs – Very capital intensive
Fixed items must be paid for whether the park is open or closed; whether there are
guests or not
• Variable costs –A variable cost is a cost whose total dollar amount varies in
direct proportion to changes in the activity level.
Include labor (largest component), and all non-capital costs, such as electricity,
supplies, etc. A park must cover both its fixed and variable costs out of generated
revenue – Once these are paid, the remaining amount is profit
Seasonal facilities lose money when they’re closed – This is why peak season is so
critical to these facilities
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FunWorld Park’s Financial Statement
FUNWORLD PARK
2009
2008
ACTUALS
ACTUALS
REVENUES
$19,402,668.12
$18,755,750.00
EXPENSES
$12,424,084.00
$11,240,000.00
EBITDA
$6,978,584.12
$7,515,750.00
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Theory and Practice
EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization)
 An approximate measure of a company's operating cash flow based
on data from the company's income statement Calculated by
looking at earnings before the deduction of interest expenses, taxes,
depreciation, and amortization
• Offers an indication of how much cash the company is generating
• Such an earnings measure is of particular interest in cases where
companies have large amounts of fixed assets which are subject to
heavy depreciation charges (such as the theme
park/amusement/attractions industry)
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Theory and Practice (cont’d)
Interest: A Charge made for the use of borrowed Funds; results from a mortgage
on a principal or second residence is typically deductible.
Taxes: Real-estate taxes, personal property taxes and state and local income
taxes are deductible.
Amortization: The allocation of the cost of intangible assets to the
accounting periods benefited.
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Theory and Practice (cont’d)
Depreciation
 Measuring the loss in value of an asset In accounting, the allocation of
the cost of an asset over its economic life. Covers deterioration from use,
age, and exposure to the elements
 Depreciation is a very important factor in the attractions industry,
because of the high fixed cost investments in rides and ride machinery,
equipment, and buildings
 Example:
New roller coaster cost:
$10 Million
Depreciation period:
10 years
Annual depreciation amount:
$1 Million
• Second year purchase: $500,000 ride, 5 years
• What will the depreciation amount be in the second year?
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Theory and Practice (cont’d)
Is EBITDA and Cash
Flow the Same?
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Theory and Practice (cont’d)
NO
They Are different
EBITDA does not take into account the actual cash inflows and
outflows.
Example:
 Principle payment is not reflected in EBITDA
 Account Receivable Collection
 Accounts Payable Payments
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Skills Exercise
Case Study
FunWorld’s Finance Department is planning an
investment...
 What will be the return?
 How many years should
the loan be for?
 How is the return calculated?
 What will be the impact on
revenues and how will
that be calculated?
How Do I Decide?
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Skills Exercise
Case Study (cont’d)
Finance
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Six Stages in Capital Budgeting
Identification Stage – determine which types of capital
investments are necessary to accomplish organizational
objectives and strategies
Search Stage – explore alternative capital investments that
will achieve organization objectives
Information-Acquisition Stage – consider the expected costs
and benefits of alternative capital investments
Selection Stage – choose projects for implementation
Financing Stage – obtain project financing
Implementation and Control Stage – get projects under way
and monitor their performance
Finance
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Skills Exercise
Case Study (cont’d)
Asset management and valuing a facility
 Management should develop a rationale and a set of well-defined
steps to govern the investment process
• Take an intelligent approach to investments
HOW?
Finance
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Skills Exercise
Case Study (cont’d)
Finance
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Skills Exercise
Case Study (cont’d)
Budgeting Methods to Analyze
Financial Information
Finance
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Net Present Value (NPV) Method
NPV Method calculates the expected monetary gain or loss
from a project by discounting all expected future cash
inflows and outflows to the present point in time, using the
Required Rate of Return
Based on financial factors alone, only projects with a zero
or positive NPV are acceptable
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Internal Rate of Return (IRR) Method
The IRR Method calculates the discount rate at which the
present value of expected cash inflows from a project
equals the present value of its expected cash outflows
A project is accepted only if the IRR equals or exceeds the
RRR
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Payback Method
Payback measures the time it will take to recoup, in the
form of expected future cash flows, the net initial
investment in a project
Shorter payback periods are preferable
Organizations choose a project payback period. The greater
the risk, the shorter the payback period
Easy to understand
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Payback Method (continued)
With uniform cash flows:
Payback
Period
=
Net Initial Investment
Uniform Increase in Annual Future Cash Flows
With non-uniform cash flows: add cash flows period by
period until the initial investment is recovered; count the
number of periods included for payback period
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Accrual Accounting Rate of Return Method (AARR)
AARR Method divides an accrual accounting measure of
average annual income of a project by an accrual
accounting measure of its investment
Also called the Accounting Rate of Return
Finance
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AARR Method
Accrual Accounting
Rate of Return
=
Increase in Expected Average
Annual After-Tax Operating Income
Net Initial Investment
Finance
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Skills Exercise
Case Study (cont’d)
Performance
Methods
Finance
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Return on Investment (ROI)
ROI is an accounting measure of income divided by an accounting
measure of investment
ROI =
Income
Investment
Finance
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Economic Value Added (EVA®)
EVA is a specific type of residual income calculation that has recently
gained popularity
EVA
=
After-tax
Operating Income
{
Weighted-Average
Cost of Capital
X(
Total
Assets
Current
Liabilities
)}
Weighted-average cost of capital equals the after-tax average cost of
all long-term funds in use
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Residual Income
Residual Income (RI) is an accounting measure of income minus a
dollar amount for required return on an accounting measure of
investment
RI = Income – (RRR x Investment)
 RRR = Required Rate of Return
Required Rate of Return times the Investment is the imputed cost of
the investment
 Imputed costs are costs recognized in some situations, but not in the financial
accounting records
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Skills Exercise
Case Study (cont’d)
Which method is Best?
It Depends!!!
Key:
Take an intelligent approach to investments.
Be consistent!!!
Finance
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Skills Exercise
Case Study (cont’d)
Let's review what new tools we have added to our tool box this morning
Basic Industry Data
Identified Major Players
Look at major Income and Expense
Definitions of Key Accounting Terms
Steps to Capital Budgeting
Evaluations Methods
Finance
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Skills Exercise
Case Study (cont’d)
When all else fail
you could just roll the
dice
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Skills Exercise
Case Study (cont’d)
Finance
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Sources
Speaker:
Neva Richardson – Larson,
Sims Group & Department Chair & Professor of Business for Everest University an affiliate of Corinthians College.
Managing Attractions for More Profit: An International Survey of Operational Performance, IAAPA, 2007
Books:
Introduction to Managerial Accounting 4th Edition; Boston: McGraw-Hill
Cost Accounting 12th Edition; New Jersey: Pearson Prentice Hall
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