Business Plan All Contents Copyright 2004 Surfparks LLC Technical Questions, Contact: John Doe; [555] 555-5555 Investor Information, Contact: Jane Doe; [555] 555-5555 THIS IS NOT AN OFFER TO SELL SECURITIES Proprietary and Confidential For learning purposes, the financial data has been altered or changed to reflect students’ participation and discussion in this course. For privacy purposes, the names of individuals have been changed or removed. 0 of 36 Table of Contents I. Executive Summary 1 II. Company Overview 3 III. Market Analysis 5 IV. Marketing and Sales Plan 11 V. Operations 17 VI. Management Team 23 VII. Financials 25 VIII. Funds Required and Uses 29 Appendices: Appendix A: Market Demand Survey 30 Appendix B: Web Survey Comments 34 Appendix C: Market Research Background 36 0 of 36 Executive Summary Project Summary Surfparks Holdings (SPH) is raising $10 million to build, own, and operate the facility, located at Festival Bay, a 1.1 million square foot mall on International Drive in Orlando, Florida. Key anchor tenants at Festival Bay include Pro Shops, Skatepark, Surf Shop, and a 20-screen theater. The Surfpark will be located between the theater and the skatepark, with a themed, high-visibility entrance from the parking lot and an interior mall entrance via the Surfpark Pro Shop and restaurant. Key Surfpark Features/Attractions: • Large Surf Pool (4-8 foot waves, 70-100 yard rides) for intermediate-advanced surfers/bodyboarders. • Training Surf Pool (3-4 foot waves, 30-35 yard rides) for beginners-novice surfers/bodyboarders. • Flowrider™ standing-wave attraction for non-surfers. • Surf School and High Performance Training Program. • Surf Shop • World Surf Travel themed restaurant • Extensive viewing, dining, and private function areas. • Event stage overlooking the Large Surf Pool. The Surfpark Concept The Problem A perfect natural surfing wave requires a precise mix of wind, swell, tide, and sea-floor contour, and these elements synchronize in only a handful of locations around the world. In spite of its elusive playing field, surfing has undergone explosive growth in the last decade. Fueled by massive exposure in 1 of 36 mainstream media, participation rates have increased at over 20% per year for the past three years, and there are now an estimated 2.4 million surfers in the US. Currently, all but the most remote world-class surf breaks are now dangerously overcrowded. Demand for quality surfing waves far outstrips supply. It is not uncommon to see over 250 surfers vying for waves at a single surf spot. The Solution A solution to surf overpopulation is to create new waves with technology. Artificial reefs have recently been installed in select locations, but these reefs still rely on the presence of optimal swell, wind, tide, and sand to break suitably. For reliable wave quality, a safe learning environment, and increased access for inlanders, all of these factors must be controlled. This is the Surfpark Experience: Perfect surfing waves in a completely controlled environment. Project Development and Management Aquatic Development Group (ADG), America’s leading waterpark and aquatic facility design and construction company, will handle project management, guarantee wave quality and warranty wave- equipment performance. Startup development and operations process will be assisted with the consulting services of Baker Leisure Group, an Orlando-based consulting company with over 20-years of themed entertainment development, startup, and operations experience. Surfparks LLC (SP) will manage the development, operations, and marketing of the Surfpark and all subsequent SPH facilities. SP’s management team and advisory board include veterans in the operations, development, and marketing of the world’s largest theme parks, waterparks, skateparks, and themed entertainment facilities. The Partnership SPH has entered into a partnership with Worlds Largest Surf Shop (LSS) , Inc. for the Orlando facility. The partnership has three main components: 1. License Agreement: Surfparks has agreed to license the LSS, Inc. brand for the Orlando Surfparks in exchange for LSS Inc. committing approximately $1,000,000 worth of marketing support annually to the Surfparks. Key elements of this commitment include Orlando DMA billboards, network and cable TV spots, radio advertising, magazine advertising, brochure distribution throughout Florida, direct marketing to international tour-group operations, PR, kiosks in its retail locations, and substantial discount-card promotions through regional hotel and guest-services channels. The license fee to LSS, Inc. equals 4.5% of sales of the Surfpark components and 6% of Surfpark component sales in excess of Proforma. Forecasted license fee is currently $255,253. 2. Investment: LSS, Inc. has also agreed to invest $300,000 for the build-out and inventory of the Surfpark retail shop for 3 membership units in SPH (See, “Terms of the Offering”). 3. Retail Manager: LSS , Inc. will manage the restaurant and merchandise the Surfpark Pro Shop, leveraging substantial vendor relationships and discounts. LSS Inc. will receive a management fee of $100,000 per year plus 5% of Pro Shop sales in excess of the Proforma $1.298 million. 2 of 36 Company Overview Industry Analysis Hundreds of wave pools exist in the world today, but every one of those pools has been built as an extension of a waterpark or resort, targeted for casual recreational use. As a result, the design and wave quality in these pools has been deemed unsuitable for skilled surfers. While crude technology to generate surfing waves in a large pool has existed for nearly 20 years, standalone Surf Pools were considered unfeasible due to prohibitive energy costs, slow wave intervals, and poor wave quality. New technology developed by the engineers at Aquatic Development Group (ADG) and ASR Ltd. has now made the perfect surfing wave technically feasible and economically viable. The technology includes the Groundswell Wave System, Wedge pool design, and Versareef computer-controlled adjustable pool floor. SPH has the exclusive North American rights to this proprietary technology, which is capable of creating six perfect waves per minute, each up to 8 feet high with 100-yard rides. SPH also retains right of first refusal to acquire exclusive international technology rights from ADG/ASR. Unlike waterparks or theme parks, the Surfpark experience will be affordable, variable, and exciting enough to warrant frequent return visits. To keep the experience fresh, the wave generators can produce a wide range of wave heights, and both the Big Pool and Training Pool have a computer-controlled floor that allows wave shape, peeling speed, and direction (left/right) to be altered at frequent intervals. Salt water will be used to simulate the buoyancy, smell, and feel of ocean water. Site Information Area 3-Mile 5-Mile 10-Mile 15-Mile 25-Mile Demographics Radius Radius Radius Radius Radius Population 50,782 167,298 561,535 1,011,316 1,512,040 (2001 Estimates) Households 19,876 62,120 213,688 382,999 564,979 (2001 Estimates) Household Income $57,755 $61,184 $60,817 $58,973 $62,128 (2001 Average) • Site visible from the Florida Turnpike and I-4. • Orlando is the #1 tourist destination in the WORLD (Nearly 40 Million tourists last year.) • Festival Bay receives 10-12 million visits per year. • The Skatepark sells over 200,000 sessions per year. • The LSS Pro Shop receives over 4-million visits per year. • Within two-hour radius of the largest surfer/bodyboarder population on the East Coast (approx. 50,000 active participants). 3 of 36 Membership /Pricing Structure To fill off-peak sessions and to take advantage of the many surfers with flexible schedules, each membership will be offered in an “Anytime” or “Off Peak” version. Off Peak members can use the facility on non-holiday weekdays between 9am-3pm. This structure allows utilization to be spread more evenly over all operating hours. Following is an outline of the proposed membership and pricing structure: Membership Pricing Membership Annual Monthly Annual Cost Waves Type Cost Equivalent Sessions per per session Session Platinum Anytime $2,399 $200 100 23.99 15-20 Platinum Off-Peak $1,799 $150 100 17.99 15-20 Gold Anytime $1,499 $125 50 29.98 15-20 Gold Off-Peak $1,199 $100 50 23.98 15-20 Silver Anytime $899 $75 25 35.96 15-20 Silver Off-Peak $749 $62 25 29.96 15-20 4 of 36 Market Analysis Background Surfing is an addictive sport that breeds obsessive adherents. Most beginners are hooked with the first taste of success, and these enthusiasts spend a large portion of their discretionary income on equipment and travel to improve their surfing experience. Surfing and other waveriding sports appeal to a broad demographic, including males and females ages 7-70. The average surfer is in his/her mid-20s with an 85/15 male/female split. The core of our market is part of a rapidly increasing Echo-Boomer population with a proven preference for board sports. Echo-Boomers are participatory sports enthusiasts, they are already 77 million strong, and are expected to grow at a rate 19% faster than the overall population. Not surprisingly, the US surfer population (estimated at 2.4 million) is increasing at a rate of over 15% per year. Due to the favorable climate, large and densely populated coastline, and high overall population, Florida is home to approximately 20% of this number, or nearly 500,000 surfers. Surfer Population Estimates • Both Board-Trac and American Sports Data claim there were 2.4 million “active” surfers in the United States in 2002, a 57% increase from ASD’s 1998 estimate of 1.4 million. About 1 million of these surfers are based on the East Coast, 1.25 million on the West Coast, and 150,000 in Hawaii. • American Sports Data defines the “Very Active” (significantly more than 4 surfs per year) surf population as 20% of the above figures.