Mickey Mouse projects

Even the economic recession and the unsettled weather last year could not put a damper on the success of the best European theme parks. They have continued to thrive and further investment is planned, leaving the sector looking to the future with some optimism. In 2012 Europe’s top twenty amusement parks, which are all located outside the CEE region, managed to attract a combined total of 58 mln visitors, exhibiting fairly consistent growth. France (with five parks in the top twenty ranking), the UK (with three), Germany (three), as well as the Netherlands (two), Denmark (two), Sweden (two), Italy (two) and Spain (one) confirmed their dominance of the continent. Nevertheless, the fact is that all of these complexes are just local big fish compared to the world’s largest players. Only Disneyland Paris (ranked fifth) and the Walt Disney Studios Park in the same city are among the global top twenty best performers (with the latter propping up the ranking). All the other big achievers are either located in the US (ten parks) or in a number of Asian countries (eight parks). From the global perspective, therefore, the CEE region appears to be a wasteland on the fringes of a European market that is hardly impressive itself.

Long list of disappointments
The whole CEE region, with a dozen countries and over 200 mln inhabitants, does not have even one modern complex of this kind to boast of, although many attempts have been made to lift the region’s entertainment scene out of its misery. One of the most outlandish announcements made by Michael Jackson (even for him) was in 1997, when he declared his intention to open a family park in Warsaw. Six years later George Lucas, the creator of Star Wars, also felt that the force was with him as he considered plans to develop three large complexes in Kostrzyn, Modlin and Wrocław. At the same time, Danish company Tivoli International was preparing to start work on a park near Gdańsk, before pulling out due to a failure to reach an agreement with the local authorities over the future of the site. More than two hands are needed to count the similar large- or medium-sized projects that have been mooted for Poland but later came to nothing. “The business here involves dozens of years of delay – unlike in the western world. Things are only looking up in the more stable markets, but it is going to be difficult to close the gap in the short term,” explains Marek Pisarski of PAIT (Polish Tourism and Leisure Consulting), which has been involved in drawing up several concepts for entertainment projects in the country. He cites the political infighting that impacts the business, the poor level of social awareness leading to opposition towards such projects, and most of all the problems with financing, as the main reasons for the abandonment of so many promising projects. After the most recent collapse, Adventure World Warsaw (the developer filed for bankruptcy in October after failing to secure a bank loan and a strategic business partner), Polish hopes now hinge solely on the last mega park investment still in the pipeline. Global Parks Poland, which is controlled by the Greidinger family (the majority owners of Cinema City International), announced that it was planning to develop the Park of Poland entertainment centre in 2010. The envisaged complex, including hotel facilities and a conference centre, would be one of the five largest European theme parks with a 4 mln yearly attendance and would require an investment of EUR 600 mln in its first phase alone. “The company is currently discussing and analysing different scenarios with potential strategic partners about later phases of the development of the park. As the biggest cinema operator in Poland and one of the major operators in Europe, we believe that Poland is an ideal country to develop such a park, since this type of entertainment project has so far been absent in the CEE region,” says Nisan Cohen, the financial director of Cinema City International. However, the project has already been subject to considerable delays to the first phase, which has not yet been able to start despite being scheduled to do so in Q1 2013 (and finish in 2015).

Making ends meet
The Ukrainians, who have been waiting for many years for the country’s first world-class rollercoaster ride (this was built in Gorky Park in Kharkiv last year while another is to be built in the Respublika shopping centre in Kyiv), are also still hoping that one day the sun will shine more brightly on their domestic amusement park industry. But an analysis published in 2011 in the local press showed that the country could barely support a genuine full-scale theme park. Theme parks across the world have ticket prices high enough to cover the investment costs – and tend to be very expensive. Prices vary between USD 50 to 80 for adult tickets and app. USD 5–10 less for children’s tickets, representing a cost of app. USD 180–230 for a visit by a family comprising two adults and two children. The question is, who would be ready to pay over a half of their gross salary (the average is app. USD 400 per month in Ukraine) for a one day visit to a theme park? Similar issues related to low purchasing power more or less exist in all the countries of the former communist bloc. “In Poland household incomes are about a third of what you have in Germany. In order to perform similarly in the available markets, you should adjust the pricing to the local market. This would automatically be around EUR 20, compared to EUR 30–40 for Germany,” explains Natalia Bakhlina, an associate director of AECOM in London, which specialises in theme park developments. Although such a price adjustment results in a substantial reduction in revenues, the investment costs remain high. “The costs are quite comparable to the international level because you are paying international prices for the consultants and the planners, who are based in western markets. You can probably save on the construction costs and labour, but that isn’t a huge saving,” says Natalia Bakhlina. Smaller revenues also mean the investment takes longer to break even, which in the case of theme parks tends to be a long time anyway. “This is why a lot of investors struggle to see an opportunity in our markets. Theme parks generally require higher outlay, which takes them longer to recoup. Therefore it is much more difficult to obtain financing. Any investor will compare them to other markets or consider other forms of real estate they can invest in – and in this light theme park investment in the region will not look so attractive,” Ms Bakhlina claims. And there is another more obvious problem: it is hard to demonstrate that a theme park would be successful, due to such unpredictable factors as the weather and seasonality. For the CEE region this problem is compounded by the fact that there are no theme parks at the moment, so the data simply doesn’t exist to base such an assessment on.

On the Russian front
The Russians could well be the first to provide some ready examples of theme park developments for the region. In 2012 plans to build Magic World Russia (a USD 2.5 bln project) were announced by Moschanko Investment Group 2000 and Gary Goddard Entertainment. The park, which is to be located outside Moscow, is expected to attract 12 mln visitors per year – even more than Disneyland Paris. This will include up to three smaller parks with themed hotels, retail and catering areas, with most of the attractions under a roof to shield visitors from the harsh Russian weather. Currently a master plan is being prepared. Another huge USD 2.8 bln investment was announced last year – the Galactica Park project by Rusinkom (part of the B&N group) and Universal Parks & Resorts. If the investors succeed, the 150,000 sqm indoor complex will be the first Universal Studios theme park built in Europe. Two hotels are planned, as well as a convention centre and a 20,000-seater arena. Other large-scale projects currently in the pipeline include Park Russia, which is to be located on a huge 1,000 ha site near Moscow’s Domededovo airport (comprising a safari and two other parks, hotels, restaurants, a museum complex and an exhibition centre), Sochi Adventure Park (54 ha, and also comprising a retail area and a 350-room hotel complex) and Anapa Theme Park (10 ha) on the Black Sea coast.
The most recent newcomer to the emerging Russian theme park scene is the Regions Group of Companies, which has announced the development of the three “largest indoor European theme parks” in the country. The first of these is to appear in St Petersburg as early as 2015, followed by the next one in Yekaterinburg in 2016, and the third in Moscow in 2018. The company signed an agreement with the US film studio DreamWorks earlier this year for the rights to use characters and themes from such movies as Shrek, Madagascar, Kung Fu Panda and How to Train Your Dragon. The investment costs are estimated at USD 3 bln for all three projects, each comprising an app. 70,000 sqm park plus a large shopping centre. “In early September, Sberbank of Russia granted our company a ten-year USD 500 mln loan. Some of these funds will be used, among other things, for developing the DreamWorks indoor theme park projects,” reveals Amiran Mutsoev, a member of the board of directors of the Regions Group of Companies. According to preliminary estimates, the price of a ticket will come to no more than USD 35. The developer is counting on a timescale of 15 years to recoup its investment and expects the combined number of visitors for all the three parks to total 11 mln per year. This would put each of the parks in terms of attendance in the European top ten – somewhere between Tivoli in Copenhagen (ranked fifth) with almost 4 mln visits per year and Legoland Windsor(ranked tenth) with 1.9 mln.

Size matters
The scale of these projects is impressive. If they work out, they could well lead to a snowball effect similar to what was seen in Florida with Disney World. “Business attracts business. That’s the obvious situation when land prices go up,” remarks Marek Pisarski. Walt Disney built his first park in 1955 in Anaheim in California. This caused an enormous increase in investment around the neighbourhood of the park and was one of the reasons Disney started looking for another location to build a larger complex. He moved to Florida hoping that he would be the sole player there. Acting through a number of dummy companies to avoid a sudden spike in land prices he bought app. 11,088 ha of land – and it was only then that Disney’s plans were leaked to the press. Soon other theme park giants, such as Universal Studios and Busch Gardens, followed Disney to Florida. The price of land there (most of which was swampy and inhabited) was dramatically transformed, but despite this in little over ten years the largest entertainment complexes in the world were built. A similar situation followed the news that the Chinese government had given approval to the development of a Disneyland in Shanghai (a USD 3.66 bln investment), where land prices rocketed so much that according to the local press a mere one and a half hours after the announcement a 56,500 sqm plot in the vicinity of the site was auctioned at 264 pct of its asking price (for CNY 1.19 bln or app. EUR 144 mln). “Parks that draw tourism to the area provide opportunities not just for the hotel, retail and entertainment developments around them, but also for the businesses providing goods and services to the park. So there is an economic spiral here that increases land values. With parks like Disney there are also opportunities for office and residential investment,” remarks Natalia Bakhlina. The prime example of this is the town of Celebration (over 7,000 inhabitants), which was built by Disney in the mid 90s on 2,771 ha in the neighbourhood of Disney World in Florida in an investment of USD 2.5 bln. Residential, retail and office projects were all developed in the new town.
Of course, while the phenomenon of business attracting business seems to be obviously true for the larger and more successful parks, the impact of smaller projects is more difficult to ascertain. “There are a lot fewer opportunities around small less-than-a-day-visit parks located close to large cities. Theme parks do not complement residential areas due to the high level of noise and traffic, particularly at weekends. However, they are great providers of jobs to the neighbouring villages and towns, which typically struggle with employment, and the people who work in the park recycle this back into the local economy. There are economic benefits from both the indirect and induced impact – so there are two sides of the story,” explains Natalia Bakhlina.
Nevertheless, one good example of such a success on a smaller scale can be found in the town of Zator (4,000 inhabitants) in southern Poland, where a 10 ha dinopark was developed several years ago. Since the project proved to be successful, a larger development is now being built in the same area – the PLN 72 mln (EUR 17 mln) Energylandia theme park, half the costs of which have been provided by EU funds. This will include three rollercoaster rides and a number of family attractions. Clearly this seems to be the way to play it safe: build to the scale of the market and then grow gradually to see where the market takes you. “Generally, it is not wise to build a park for 4 mln visitors where you can only justify 1 mln visits per year. It is simply a huge investment. From what I see many projects announced for this part of the world have been overambitious. The single biggest mistake that you can make with a theme park development it is to overbuild it,” warns Natalia Bakhlina of AECOM. With such new projects slowly coming on to the scene in the region, even if mega parks fail in raising finance local enterprises will step in to gradually satisfy the growing demand for modern amusement parks.


Poland enters Jurassic era
A relatively easy investment to make and an idea that has taken off in Poland. The opening of the first dinopark in Bałtów in the Kamienna river valley in 2004 marked the beginning of this increasingly popular form of attraction in the country. Currently there are app. twenty dinoparks across the country. “A typical dinosaur park comprises an educational path lined with at least 35–40 models over an area of 3–4 ha. A smaller development these days would now seem rather meagre. The price includes fencing the area and constructing an entrance building with toll booths, toilets, a restaurant, educational hall, children’s entertainment areas and a paleontological exhibition,” says Krzysztof Kuchnio, the owner of the PLN 4 mln (app. EUR 1 mln) Park Dinozaurów in Nowiny Wielkie. He also runs a company that specialises in building models of dinosaurs and providing services to most of the parks across Poland. “The most expensive dinoparks are situated in Krasiejów, Bałtów, Solec Kujawski, Rogowo and Łeba. Investment costs range between PLN 10 mln and PLN 20 mln (EUR 2.5–5 mln) for each complex, but the attendance during the boom in dinoparks in 2007–2010 exceeded 200,000 visitors per year, with some boasting even 300,000 visitors. Now these numbers have fallen back somewhat,” explains Krzysztof Kuchnio. According to analysts, the market is currently approaching saturation, but there are still some regions that could possibly host new well thought-out developments. “Everybody suddenly started to copy the same business model and that’s why Poland became dense with dinosaur parks. Such projects need to differ more in order to be successful,” comments Marek Pisarski of PAIT Consulting. Entrance fees typically range between PLN 15 and PLN 35 (EUR 4–8).