Broyhill Asset Management on the long case for Cedar Fair (ticker FUN)
The amusement park industry is a clear-cut and easy to understand business model, an attribute we seek in all of our investments. Cedar Fair owns and operates amusement parks and generates almost all of its revenues from the sale of tickets in addition to food & merchandise. Unlike peers in the leisure industry, FUN’ s revenues are incredibly resilient as its regional parks cater to recurring “day-tripping” visitors from the surrounding area rather than long-distance visitors to destination parks. As a result, the business enjoys a natural economic stabilizer during difficult times, as consumers cut back on more expensive vacations in favor of the value offered by amusement parks closer to home. We analyzed attendance records going back to 1990 and found only three instances where the industry’s head count declined, but only a single period in which revenues fell year over year. In each of these instances, the recovery in the following year made up nearly all of the lost ground. This is a very good business.
Broyhill Asset Management on Industry
The amusement park industry is a highly concentrated, mature industry which benefits from high barriers to entry in the form of limited land supply, arduous zoning restrictions, and substantial capital requirements. With major markets already well served by established incumbents, new entrants have little hope of gaining ground with thrill seekers. We believe this competitive landscape provides Cedar Fair with significant economies of scale through its near monopolies of niche markets. Consequently, there has been zero growth in the number of amusement parks over the last decade. FUN management has previously commented that there has not been a successful new regional park built in the past three decades. Furthermore, we have yet to hear of any plans from Google to start building roller coasters, on this planet (others may be up for discussion).