Race Track Amusement Centers Beset by Debt, Bad Weather : Malibu Grand Prix Entertainment Chain Has to Make Hay in Sunshine
A lot of businesses pray for rain in the summer. Farmers, for example. Water companies. Umbrella makers.
But not Malibu Grand Prix, a financially troubled Woodland Hills corporation that runs about 45 recreation centers nationwide, including three in the San Fernando Valley. Most of Malibu’s centers feature miniature race tracks that allow visitors to play out their high-speed fantasies in scaled-down cars. Malibu has to make hay while the sun shines, in the summer, when the kids are home from school.
Officials of Malibu Grand Prix probably are praying for sunshine with particular fervor this summer. About a quarter of the company’s parks are in places where climate is a factor, and Malibu blamed some of its recent losses on bad weather.
Just last week, Malibu announced that it missed a $1-million payment on a $24-million note stemming from its acquisition last year of Castle Entertainment Inc., a bankrupt Westlake Village amusement company.
Trouble Signs
But the missed payment is only the latest sign of trouble at Malibu. Last year the company lost $6.3 million on revenue of $28.1 million, and also had a bad first quarter this year, losing $2.4 million on revenue of $6.1 million.
Moreover, its balance sheet after the quarter showed current liabilities more than 12 times current assets, while long-term debt stood at $30 million.
The company has shown other signs of financial strain, according to its annual report, which says it sometimes fell behind on its rent, property taxes and accounts payable. The report also says Malibu was declared in default last year on a $16.8-million debt to Crocker Bank.
Company officials refused to be interviewed, so attendance figures and other information were unavailable. But Malibu’s heavy debt appears to be a factor in its troubles. Malibu General Counsel Walt Harasty acknowledged in a brief telephone exchange that Malibu has a “tremendous amount of debt” and “not much working capital.”
Changes Afoot
“Hopefully, things are changing,” he said.
The company’s annual report, dated May 31, says Malibu’s management is trying to change things in part by broadening the appeal of the amusements offered at Malibu facilities, which are mainly the miniature race tracks, miniature golf and video games. Additions include a number of traditional carnival-type attractions, such as children’s rides and pitch games.
These changes won praise from Michael Jenkins, president of Leisure and Recreation Concepts Inc., a well-known consultant in the field, who said: “They need to add more family-oriented activities.”
Jenkins said the company’s facilities are well-managed, and that Malibu is wise to move away from video games, a saturated area in which interest has sagged. Also, he said, Malibu seems positioned to appeal to a more active generation of amusement consumers with its racing and its miniature golf.
“In the ‘60s, it was a very passive audience,” Jenkins said. “Today it’s a very active audience. People want to be involved . . . There’s a whole trend toward this active, participatory element.”
Jenkins said he also thinks the market for giant amusement parks, such as Six Flags, is saturated, and that Malibu’s concept of smaller, neighborhood amusement centers is in line with trends.
Racing Still at Heart
But scaled down Grand Prix racing remains at the heart of Malibu’s business and provides a third of its revenue, according to its annual report.
“My educated guess is there are about 150 concession go-cart tracks” in the country, said Tom Leon, sales manager for Mini Speedway USA, a leading go-cart maker situated in Rock Island, Ill. “Malibu has the most installations.”
Ronald Cameron, a Malibu investor, started the company in 1975 with a single miniature Grand Prix race track in Anaheim. For a fee, any licensed driver could pilot specially made, scaled-down race cars at maximum speeds of 40 m.p.h., complete with computerized timing to 100th of a second. Later, a much slower model was added for unlicensed drivers. Fees are $1.30 to $1.70 per lap.
5 Tracks in Southland
By 1977, Malibu had five tracks in Southern California, and Cameron sold the company to Warner Communications Inc., for whom Cameron continued to run it while Warner funded its expansion. It is not clear just how much Warner spent to make Malibu grow. Nickerson put the figure at $53 million; Cameron said it was somewhat less. A Warner vice president did not return phone calls.
On Dec. 31, 1983, Warner sold Malibu for $19 million to a holding company controlled by Nelson M. Skalbania and Ira L. Young, Canadian businessmen who later merged the company with Castle, gaining seven nonracing recreation centers in the process. By trading cash and stock for Castle, Skalbania and Young effectively took the company public.
Malibu’s latest annual report lists 46 recreation centers. Twelve are in California, including centers in Northridge, North Hollywood and Sherman Oaks. There are two or more in Florida, Texas, Arizona, Ohio and New Jersey.
Seeks Improved Food Revenues
The company spent $4.5 million to upgrade the facilities during 1984, according to its annual report, and has also concentrated on improving returns from its food stands.
Skalbania is a former owner of the Montreal Alouettes football team who has been involved in a number of sports enterprises. Young has described himself as an auto-racing enthusiast. Both are based in Vancouver, and together they control nearly 60% of the company’s outstanding shares.
Malibu’s main challenge now is restructuring its debt to Crocker, whose money was used initially by the MGP Holding Co. to finance the purchase of Malibu from Warner Communications. When MGP and Malibu merged, the debt became Malibu’s.
On Feb. 15, Crocker told Malibu that it was in default for failing to maintain minimum net worth and working capital requirements, and for failing to pay interest of $944,137 from Sept. 1, 1984, through Feb. 15, according to Malibu’s annual report.
Letter of Intent
Crocker and Malibu later signed a letter of intent to convert $4.7 million of the debt into preferred stock. Crocker would also get 250,000 warrants, which expire in five years, to purchase Malibu stock at $1 per share. (It now trades at 38 cents bid and 63 cents asked, according to the brokerage firm of C.L. McKinney, a market-maker.) And Crocker would get the right to name someone to Malibu’s board.
In February, Malibu paid $700,000 in interest due up until Dec. 31, according to a proxy statement, but the restructuring still is not done, Harasty said.
In a statement issued recently to explain the missed $1-million payment, Malibu said that Crocker wants it to get approval for the deal from the creditors committee of Castle Entertainment, and from the bankruptcy court. As a result, Malibu said, it missed the payment, which was due July 13.
Harasty said Malibu’s executives will not discuss the company until the restructuring is completed.
MALIBU GRAND PRIX AT A GLANCE Established as an independent company (formerly a unit of Warner Communications) Dec. 31, 1983, and currently based in Woodland Hills, Malibu Grand Prix operates a chain of about 45 recreation centers, most of them including a mini-racetrack. Employment varies seasonally, with between 1,200 and 1,600 full-time and part-time workers. Figures for fiscal 1984, in millions
Revenue $28.1 Net income (loss) ($6.3)
Latest quarter, ended March 31, in millions
Revenue $6.1 Net income (loss) ($2.4)
Balance sheet as of March 31, in millions
Current assets $1.1 Current liabilities $13.4 Long-term debt $29.5
