Six Flags as Regulator: Why It Matters
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In a single move, Six Flags Entertainment could usher in a new era of smart regulation or set the free markets back decades.
At issue is the investigation into the death of 52-year-old Rosy Esparza, who fell from the Texas Giant roller coaster at the Six Flags Over Texas park in Arlington, Texas. Because of a fairly loose government-regulatory environment the task of determining the cause -- and fault -- for the accident rests not with a regulator, but with the company itself. How responsibly and thoroughly Six Flags looks at itself will likely determine how much tighter regulation it and other companies face in the future.
Already, there are calls for a federal regulatory structure. "A baby stroller is subject to tougher federal regulation than a roller coaster carrying a child in excess of 100 miles per hour," Sen. Ed Markey, D-Mass., said in a statement. "This is a mistake."
Truth is, it isn't that no agency has regulatory authority. In theory, police could investigate the death if there is sign that foul play or negligence led to the death. What's more, the Texas Department of Insurance is the primary regulator of amusement parks in the state because each ride needs to carry a certain amount of liability coverage. Then there is the soft regulation of the American judicial system, since Esparza's family can do its own investigation in advance of a civil lawsuit.
But this accident doesn't naturally lend itself to a team of government investigators swooping in to probe the accident like they would in, say, a train derailment. Here, Six Flags is largely on its own. Critics might see this as a loophole, fearing that executives will want to hide mistakes and cover up evidence to protect itself from liability. But the free markets demand more honesty and serve as a kind of regulator, too. As a result, it's imperative that Six Flags determine precisely what happened, come clean about it and make steps to make sure it never happens again.
Here's why Six Flags needs to be tough on itself: Put bluntly, no one will ever buy a ticket for any theme park where the patrons have a chance of dying. Six Flags is in the business of thrills, but patrons have an expectation that those thrills don't rise to the level of serious injury or death. No doubt concern over safety has kept quite a few people away from the park already.
Then there is the competitive disadvantage Six Flags would be under. The marketplace regulates a company like Six Flags because competitors can swoop in and take business away from it if there is any shadow of concern that the company has not come clean. Even now, leisure competitors can promote safety in their ads. They don't even have to mention Six Flags by name. Potential customers will just know.
Every customer who thinks twice about Six Flags represents lost revenue. A general admission ticket at Six Flags Over Texas is $62.99. Children under 48 inches pay $47.99. Lost customer traffic represents lost ancillary revenue. Parking is $20. There are 24 places to eat there. There are 11 gift shops.
Lost revenue means a cut in staff and services. That puts the company at risk of collapse. Six Flags knows what it is like to be in dire financial straits. In 2009, it filed for Chapter 11 bankruptcy protection amid a heavy debt load and a slowdown in park traffic. Bankruptcy is never fun. It is especially unpleasant a second time around.
Corporate responsibility is always good business. The most famous case study is Johnson & Johnson, which lost $100 million in 1982 by taking Extra-Strength Tylenol off of the market once seven people were killed by cyanide poisoning in tampered bottles in Chicago. The deaths had nothing to do with what J&J had done -- all the tampering took place after the bottles were on store shelves. Still, the company recalled Tylenol nationwide almost immediately, saving lives and saving both the product's and the company's reputation. No regulator came in and demanded a recall. Nor did regulators demand Tylenol create the first foil-sealed, tamper-proof bottles. Johnson & Johnson knew that the marketplace and consumer would regulate its products and its response. So, in its crisis, it acted honestly, quickly and even found a way to innovate.
It is a little different with Six Flags, since it is possible that there was a breakdown somewhere in its own controls that led to the death. Perhaps the ride wasn't inspected closely enough, or an employee didn't do the necessary safety check, or the ride itself was mechanically faulty. Six Flags should be quick about finding the cause, fixing it and making restitution.
Maybe then, economists and business leaders will use its response as a textbook case of how market-based regulation works. If it mishandles this, it will be used as an excuse for more government-based regulation, not just for the amusement industry but likely for others, as well.
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