who's having fun? - operating agreements for theme parks

the status quo

More than 150 different types of leisure facilities are usually included in the category of amusement or theme parks. It is a vast field requiring highly specialised skills in terms of operations, and the possible operating contract variations are accordingly fairly diverse, yet rather similar in their core to hotel operating agreements.

The three main models (differing according to the allocation of investment and operating risk) are thus management agreements, lease agreements or owner-operated entities. All of the large well-known theme parks are owner-operated, meaning that the owning company is also the operator of the facility (see chart). The owner reserves complete governance over the strategic and political goals as well as the economic parameters.

However, they also bear the full economic risk. Nevertheless, the highly specialised nature of the product barely allows for any standardised operating agreement, which is why the typical lease or management agreement can seldom be used or only in smaller facilities.

As theme parks are heavily dependant on current trends, a continuous extension/adaptation of the offered attractions and thus constant investment into innovations and new visitor attractions are of paramount importance.

The investment in owner-operated models is usually undertaken by the holding company. However, as large theme parks are also part of an overall municipal infrastructure, the local government often partakes in renewing the according infrastructure in and around theme parks in order to ensure a consistent visitor flow. These subsidies are often regarded as incentives for owner-operated facilities to perform well.

The management agreement model is primarily used in small amusement or theme parks, in which the continuous operation would not be possible without governmental subsidies and in which the investment costs are not being refinanced. In this case, local communities or subsidiary companies of these local communities take over the role of the owner.

Benefits for the local communities are mostly realised through secondary effects, such as increased awareness, improved image, additional employment, growing overnights and even successive settlements. In this model, the operator is representing the property with their own name, however, running the overall operation on account of the owner.

challenges and peculiarities

A major challenge in this context is the limited number of professional operators with an internationally recognised brand name (e.g. Disney), as well as the constant necessity of changing and adapting the agreement according to new attractions and new sponsors. In the following, some selected challenges and peculiarities of theme parks are summarised:

• limited number of professional operators disposing of brand names with international recognition
• highly specialised product requiring tailor-made operating concept and vice versa
• usually, continuous extensions of theme parks require adequate reflection in the particular operating agreement
• constant investment into innovations and new visitor attractions
• co-branding through sponsors often required in order to secure funding for extension and innovation
• seasonality of operations
• maintenance and development of innovations requires highly specialised expert knowledge and significantly advanced technical/engineering skills
• tailor-made concepts and vast investment require long-term commitment from operator (duration of contract)
• operating company needs to dispose of expertise in various fields, e.g. marketing, gastronomy, hotel, technical operation and maintenance 
• often large catchment area with multinational target groups
• large staff count required
• large insurance premiums on account of severe liability risks applicable

The displayed challenges and peculiarities highlighted in the above chart also indicate the major differences between the operation of theme parks and hotels and the individuality of such specialised leisure facilities.

In conclusion, it can be noted that the rather complex product with all its operational particularities and the tailor-made approach generally requires an owner-operator structure, which is reflected to a significant extent in the top ten of international theme parks.

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