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My, that Cedar Fair (NYSE: FUN) property map is starting to look cluttered. The regional amusement park operator completed its $1.24 billion deal for CBS' (NYSE: CBS) Paramount Parks chain over the weekend. Nearly doubling in size in time for its seasonally potent third quarter, this beefy acquisition sees Cedar Fair heading into uncharted territory.


No one is expecting immediate results, though it's odd to see the few analysts following the company stuck on their forecasts, calling for Cedar Fair to continue to earn $1.75 a unit this year and $1.90 a unit come 2007.

There are just too many uncertainties at this point to approach the future without a vat of correction fluid. The status quo will have little choice but to fluctuate like Adirondack patio furniture over the next few years. How can it not, with Cedar Fair joining Six Flags (NYSE: SIX) as regional amusement park operators with roughly $2 billion in debt?

The ups and downs of opportunity
Challenge Park is the name of the outdoor entertainment center wedged between Cedar Point, Soak City, and the peninsular resorts. It would also make a great name for a mission statement, as the company -- whose headquarters are a brisk five-minute walk from Challenge Park's miniature golf courses and go-kart racing circuits -- looks to absorb the five new parks into its industry-respected bloodstream.

Cedar Fair took no time in stripping the "Paramount" from the freshly acquired properties. Well, at least on its CedarFair.com website. But the transition will be trickier than that. If Cedar Fair is still struggling to turn around the Geauga Lake when it's knee-deep into its third operating season with the park, one can only imagine how long it will take to get the five ex-Paramount parks in line.

You know what, though? It may not be as difficult as you think. The Paramount Parks properties weren't distressed attractions. It's not like Geauga Lake where Six Flags was throwing money at an attraction within a 90-minute drive of Cedar Point that would never duplicate the success of Cedar Fair's flagship park. These are popular destinations in "move in" condition.

Don't expect much of an impact this year. Next year is when the combined empire may provide a refreshing surprise. Give Cedar Fair an off-season to mull over synergies and that's a much easier monetization goal than trying to breathe new life into a moribund property like Geauga Lake.
Don't expect the lessons to flow in just one direction, either. The former Paramount parks can use Cedar Fair's mastery of efficient operations, and Cedar Fair can learn a thing or two from the Paramount properties when it comes to optimizing kid areas and laying out themed attractions on a regional park budget.

The changing face of amusement parks
This colossal deal closes at a critical point in the industry. With Six Flags hoping to trade in penny-pinching teens for more free-spending families, the very DNA of the amusement park industry is being genetically altered.
New thrill rides will continue to be key attendance drivers. Parks like Cedar Point and Dollywood are already laying the groundwork for major additions next season. The difference now is that parks are becoming more capable producers of the traffic spilling in through the turnstiles.

Cedar Fair has been growing out-of-park revenue at a headier clip than in-park revenue by expanding its adjacent resorts. That should only intensify once the Paramount properties come in, since they are volume producers without the attached resort hotels, timeshares, and condo hotels that theme park giants like Disney (NYSE: DIS) have been embracing. Cedar Fair is also inheriting a project going up next to Kings Island, which Great Wolf Resorts (Nasdaq: WOLF) is financing. Cedar Fair will receive a minority stake in exchange for the dormant land that was contributed beneath the massive lodge.

Logic would dictate that Cedar Fair would prefer to roll with its own proprietary Castaway Bay concept that it opened in Ohio in the fall of 2004. It too offers upscale accommodations and a huge indoor waterpark. The sticking point is that Cedar Fair is now taking on quite a bit of debt, so partnering with an industry leader like Great Wolf of Kalahari (with the partner putting up the financing) is the easier way to cash in on underutilized parks in a hurry.

What is old is new again
In the early 1900s, amusement parks sprang up all over the country at the end of trolley lines. It was an ambitious attempt by the carriers to attract riders to their trains and trolleys, so watering holes were christened and the midway attractions followed.

Perhaps it's that peculiar genesis that has kept amusement parks from unlocking their true potential over the past few decades. The industry has concentrated on drawing warm bodies instead of cashing in on that captive audience.

Six Flags is trying. Between the character meals and the emphasis on cleaner parks and more costumed characters, the chain is hoping to restore a shiny finish to its once neglected brand. Attendance is down, but those who are showing up are spending substantially more and grading the parks higher on exit surveys.

This is just the beginning, of course. Parks will continue to improve concessions and follow the lead of other entertainment providers by selling patron sightlines to advertisers. In five years or so, good luck finding a ride queue that won't be fortified with sponsored ads. The quality of the experience will continue to improve industry-wide, because so much more is possible if consumers extend their stays into various meal segments. That will translate into more casual upscale table service eateries and themed eateries that will allow these young families (a hot demographic in this business) the chance to cool off and recharge. New rides will be more family-friendly, but will also have interactive elements that encourage multiple rides despite the lack of a scream payout.

Perhaps the bigger change will be in the way parks communicate with their park-goers; the Internet is finally being tapped as a way to hook consumers with year-round viral gimmickry. Parks like Holiday World are pioneering the use of blogs to ramp up excitement, and even the previously stodgy Six Flags published construction journals to keep patrons updated on the progress of new projects.

I don't blame Cedar Fair for going after Paramount. Even if this acquisition weighs heavy on the balance sheet, it's rare that you get the chance to acquire some of the more popular seasonal parks in the country at a somewhat sensible price. The future is so much brighter than it seems right now. With shares of Six Flags and Income Investor newsletter recommendation Cedar Fair trading one bad day off its 52-week lows, it's time to approach these standalone players as attractive value plays in an industry that will grow faster than the naysayers expect.