It has been a couple of weeks since Disney said it will spend a hefty $1 billion to spruce up its California Adventure theme park adjacent to Disneyland, but few Wall Street analysts have had much to say or complain about it. Perhaps that's because the need for major capital expenditures are key if parks are expected to grow revenue and profit.
According to Ray Braun of the Economics Research Assn., which co-published with research firm TEA the 2006 Theme Park Attendance Report, "Rule No. 1 in the theme park industry is Thou Shalt Reinvest."
While visitor growth last year in the top 20 U.S. parks was estimated at just 1.5% year-over-year, parks that added a major ride or "land" -- as Disney plans to do at its California Adventure with the upcoming Cars Land -- can boast many times that growth.
The TEA/ERA report indicated that attendance increases at parks that added major improvements was about three times the norm. Legoland California added Pirate Shores and a few other attractions, and its attendance leapt 16%, for example.
Disney's Animal Kingdom in Florida -- in desperate need of a boost according to some analysts -- saw attendance climb 8% a year after adding Expedition Everest and Finding Nemo the Musical.
Rick Munarriz, senior analyst with the Motley Fool, said Animal Kingdom before the improvements was a lot like California Adventure is now: "A half-day park with a full-day price."
Therefore, Munarriz said, Disney shareholders ought to applaud the move to upgrade California Adventure despite the hefty cost, because the alternative is unacceptable.
"It's a broken park," he said. "Most companies close down their broken parks. But Disney can't afford that kind of egg on its mouse-face."
Despite Disney's proclamation of a massive addition in capital expenditures, or capex, courtesy of California Adventure, other companies running theme parks shouldn't feel a need to keep up with the Joneses, mostly because others target residents within 100 miles of their various parks, while Disney is wooing people from across the globe.
Besides, Munarriz said, Disney competitors "Six Flags and Cedar Fair couldn't find their way to a even a half-billion (dollars) in capex investment, let alone a billion (dollars)."