Waiting for the next new ride at Disney world? Understanding the determinants of capital expenditures among theme parks

Abstract

Purpose The purpose of this paper is to investigate the determinants of capital expenditures (CAPEX) in the theme park industry, particularly following the financial stresses induced by the COVID-19 pandemic. CAPEX drivers are poorly understood due to the idiosyncratic nature of this industry, which is dominated by a few large players. It also aims to identify the variables influencing both the growth and maintenance components of CAPEX among U.S. theme park operators. Design/methodology/approach The paper uses contingency theory to analyze both financial and nonfinancial data from U.S. theme park operators between 2009 and 2021. The paper also uses partial least squares structural equation modeling to manage issues of multicollinearity and to ensure robustness in the findings. Findings The analysis identifies several key determinants of CAPEX. Resources and the presence of competing theme parks in proximity to an operator’s parks positively affect CAPEX. Conversely, higher leverage, dividend payouts, intellectual property (IP) dominance and population density in areas with their active parks correlate with reduced CAPEX. The paper also notes distinct trends in maintenance versus growth CAPEX post-COVID-19, with maintenance CAPEX increasing as operators invest in existing assets while growth CAPEX trending downwards. Research limitations/implications The study’s scope is confined to U.S.-based theme park operators, limiting the generalizability of the findings internationally. Moreover, data limitations restrict the sample size due to the consolidation of the industry players, potentially affecting the statistical power of the analysis. Practical implications This research offers significant insights for theme park operators, industry analysts and policymakers. Understanding the factors influencing CAPEX can aid operators in strategic planning and investment decisions, especially in a post-pandemic economic environment where efficient capital allocation will be crucial for recovery and growth. A major contribution of this research is the development of a new measure for IP dominance, which allows theme park operators to quantify the impact of IP on their investment strategies. Originality/value This study contributes uniquely by incorporating both financial and nonfinancial determinants in analyzing CAPEX within the theme park industry, a sector significantly impacted by the pandemic. It introduces novel metrics for assessing the impact of IP on CAPEX and differentiates between the factors driving maintenance and growth expenditures. The findings enrich the existing literature on hospitality management and provide actionable insights that could guide the strategic financial decisions of theme park operators.