While we’re far too modest to blow our own horn, we have to say Insider Louisville and its sources have called the Kentucky Kingdom/Bluegrass Boardwalk fiasco from the giddy up.
Back in January, Insider Louisville broke the story the Koch Family, who owns Holiday World theme park in Santa Claus, Ind., was in negotiations with the Kentucky State Fair Board to take over Kentucky Kingdom.
Our sources: Thanks to the Fair Board, Harold Workman and Ron Carmicle, if the transformation of the abandoned amusement park into Bluegrass Boardwalk happens at all, it will happen slowly, painfully for us – the taxpayers who own it – while sustaining record attendenace at Holiday World.
Sure enough, Courier-Journal reporter Sheldon Shafer reported yesterday the Koch Family has pushed back the opening date to 2014 from next year because the rides are in poor shape.
So we thought we’d ask Ed Hart, the only person who’s been able to make the 60-acre amusement park make money, for some play-by-play on the deal as the ultimate subject-matter expert.
Starting in 1989, Hart took Kentucky Kingdom from a financial disaster to the No. 1 tourist attraction in Louisville, drawing 1.8 million visitors at its peak.
In 1997, Hart sold it to Six Flags. Texas-based Six Flags ultimately pulled out, but not before hauling off some of the park’s most spectacular rides such as Chang.
After Six Flags left, Hart proposed in 2010 a $50 million plan to turn Kentucky Kingdom back into a regional amusement park, but state officials abruptly ended the negotiations last September without an explanation.
One explanation might be that state officials were talking to Dan Koch, Koch Development Corp. CEO, at the same time they were negotiating with Hart. Whatever the case, our sources tell us the Kochs’ plan is to in fact keep Kentucky Kingdom shut down as long as possible, maximizing attendance at Holiday World, which is 80 miles away.
We spent more than 90 minutes talking to Hart about all aspects of the amusement park business, from crowd flow to how much it would cost to restore the T-2 roller coaster ( $2.5 million.)
This question-and-answer session has been edited for length.
Insider Louisville – You took over the failed park the Fairgrounds had put in place about 1985, right?
Ed Hart: A guy from Texas opened the park in 1987, and went bankrupt right away. They closed the park. They had a late opening. It was a disastrous experience. The Bank of Canada contacted me … they were a creditor. It took until 1989 to work out a deal with the fair board. In 1990, we opened the park.
First of all, Terry, the Kochs really don’t have a plan yet. They’ve said publicly they don’t have a plan. They have to come in, bring in experts and evaluate the rides. They’ve started with a $15.6 million amount of money and apparently they’re going to see how far the $15.6 million goes. They don’t know, by their own account.
We said, “Okay, what will it cost to refurbish all these rides?’ That’s why we had a whole squad in the facility – technicians, landscape experts – on our payroll, trying to figure out ride by ride … that’s what took us 18 months to figure out … how much would this thing cost?
Things, as we expected, were more expensive as we got into it. But we accommodated that from the outset by building a big contingency.
Keep in mind, we’ve had two turn-arounds. I know where the surprises are when you refurbish old parks. We went into Kentucky Kingdom, and it was down for three years. We had to deal with a certain amount of decay there, though that was a relatively new park.
Of course, Magic Spings (in Arkansas) … that was a park that was 20 or 25 years old, much like Kentucky Kingdom is today. We have a lot of experience in what it takes to turn around a theme park. Remember, turning around a theme park is a different skill set than operating a theme park. We happen to have both. We’ve turned around theme parks, then we’ve operated the parks subsequent to turning them around. So I must say, with all due respect to Holiday World, which runs a great facility, I’m sort of scratching my head seeing how they go about starting with a number – $15.6 million – then trying to figure out how far that money will go.
That’s very dangerous. What if you conclude you can’t open the things you want to open? What’s left? I know their approach is not the approach I would take …. you’ve got to work bottom up. You don’t pick a number and work down.
Were you surprised to see the Kochs were going for senior-secured debt, which is expensive, to do this deal?
Well, we don’t know that’s indeed the case. We were going to borrow money from the bank, and the Fair Board had arranged with the state to use the Kentucky Kingdom land to collateralize that debt. Of course, we were going to spend a lot more money. So if you spend a lot more money, you have more attractions. If you have more attractions, you have more attendance. If you have more attendance, you can support the debt financing. If you spend less money, and have less attractions, you don’t hit the attendance estimates and your business is in jeopardy.
You thought there was an optimal investment …
Do you know for a fact they’re using the land for collateral? Do you know that?
It seems obvious. What else would the bank want? In the public documents Sheldon had, it clearly stated they intended to borrow money from Stock Yards bank.
Well, I can tell you they’re not using Stock Yards. They’re using Community Bank of Indiana.
I can tell you not many regional banks have the lending capacity to do a deal on this level without using syndication.
The plan they submitted in February to tourism said Stock Yards. Subsequently, we found out … they decided not to use Stock Yards Bank. They decided to use Community Bank in Indiana. But to answer your question, they could pledge Holiday World stock if they wanted to.
No one is going to encumber their core business unless the have to. And I don’t think they have to.
We don’t know if they’re using the land as collateral until we see the lease. I don’t have any idea what collateral they’re using. You don’t know what deal they cut.
But I mean the total $50 million you wanted to raise ….
My $23 million loan, okay, was backed by the land. Plus my $6 million in equity was my $29 million investment. But my $23 million was backed by the land, and the A. J. Schneider Company was behind that.
So I had two guarantors on $23 million, and the reason that was important was, we got a very low (interest) rate, obviously because we had good collateral. On the other $20 million piece, we expected the state to issue a revenue bond. Now, that $20 million revenue bond might cost (the state) $2 million per year over 15 to 20 years. By their own study, they were going to make more than $10 million in new tax revenue. So figure it out. If they’re making 10 and it’s cost them two, that’s a hell of a spread.
They walked away from that. The legislature did not want to do that deal for whatever the reason. And, Terry, it’s not me saying it should be a regional park, it was their own economic impact study that cost $50,000 that found the highest and best use is a regional park. Why? Because you want overnight stays. How are going to get them? With a major theme park. People are not going to drive overnight from Indianapolis for a small water park.
Remember, that’s an accordion. It works both ways. You’re bringing people in from major metropolitan areas, and the people in Kentucky aren’t leaving the state. You’re bringing in new dollars, and you’re keeping money. Why that didn’t get any traction in the legislature is one of the mysteries.
Why didn’t it?
I don’t know.
I don’t know. I don’t know.
What happened at Holiday World when Kentucky Kingdom didn’t reopen in 2010?
Well, by their own account … they said they picked up 200,000 visitors. Kentucky Kingdom that last year with Six Flags in 2009 did 550,000 people. The three years before that … they did about 600,000 people per year with a full park, everything operating. The bulk of that (traffic) went to Holiday World.
Many, many people have cited precisely the trend you’re talking about as precisely why the Kochs want to come in and take control of the park.
“It’s good business. They’re not the villains. They’re not the villains. They’re not doing anything wrong. They’re protecting their business in Indiana. To do that, apparently, they hope essentially to have a local water park with some rides. But it would not be smart for them to build out a huge theme park.
This is not a bad business move. To spend the money on the legal side to apply for …
I’m not going to assign motive to them.
Well, I think you just did ….
I’m happy to tell you on the record, in my judgment, it’s a defensive business move to protect their park in Indiana, and it’s smart. Otherwise, you’re investing money in both facilities and all you’re doing is dividing attendance you already have.
You think this is a viable opportunity for somebody?
Not me. They should find an operator willing to put the right money in it to make it a success.
Well, it sounds less likely (the Koch) deal is ever going to get consummated. This would be something – under the right circumstances – you’d still be interested in ….
No. I would not.
No. I’ve learned my lesson. I would not deal with the individuals I had the unfortunate experience of dealing with during the last 18 months. No, I would not. If it were a different set of individuals, perhaps. But they’d have to carry their part of the water.
Remember, Terry, we started with them going to get $50 million from the state. And we wound up after 18 months with me coming up with $29 million and their coming up with zero. But they wanted the same lease as though they’d put in $50 million.
I have to deal with people who are working in good faith. And after 18 months and the abrupt way they terminated us, there’s no question in my mind they were not operating in good faith.
So, aside from my 11-year-old having no place to go this summer, how does all this turn out?
This is the other thing that’s interesting … if taxpayers think a closed Kentucky Kingdom … let’s say Bluegrass Boardwalk fails. Let’s say it fails.
So the taxpayer is off the hook if (the Kochs) are putting their own money in. That’s not true. The Fair Board gave up roughly $20 million to Six Flags. Gave them a roller coaster. Forgave them delinquent taxes, which would have been one of the first liens in a bankruptcy proceeding. They gave up rent. They paid for the land, which cost them more than $4 million.
Then, if Bluegrass Boardwalk fails, they have to buy back their own land, if indeed they’re putting up the land (as collateral.) Then you’re going to have to clear the property! It cost $500,000 to remove the footers for Chang (a roller coaster.) You remove all those footers and clear all that land for another use, it’ll cost $8 million. If Bluegrass Boardwalk doesn’t make it, it’ll cost the taxpayer $40 million not to mention the $10 million they’re losing in opportunity costs each year they’re giving up business to other theme parks in other states.
That’s $70 million. And counting.
The taxpayer doesn’t realize through smoke and mirrors what’s going on here.
Here’s the back story on Kentucky Kingdom: In 1989, Ed Hart took over the failing Kentucky Kingdom amusement park, which began as an extension of the Kentucky State Fair. At its peak under Hart in 1998, Kentucky Kingdom drew about 1.8 million visitors. Kentucky Kingdom later was sold to Premier Parks, which became the Six Flags Entertainment Corp. chain of amusement parks, based in Grand Prairie, Texas. Six Flags Entertainment went through Chapter 11 reorganization in 2009. In February 2010, Six Flags officials announced they wouldn’t reopen the park after a lease dispute with the Kentucky State Fair Board, which owns much of the property.