Merlin's Best Trick: Turning Big Profits on Cheap Wax Statues

Lifelike yet creepy wax sculptures are a great business. Who knew?

Merlin Entertainments, the company behind Madame Tussauds, drew crowds of investors in its debut on the London stock market on Friday. The company raised about $1.5 billion in its initial public offering, and the shares promptly surged about 13 percent.

Merlin has a wide range of attractions all over the world, including a bunch of Legoland theme parks full of water rides and roller coasters. But Merlin’s less flashy stuff is more profitable than its high-tech and polished thrill rides. Turns out, opening a wax museum requires “very limited investment” and can typically turn a profit in less than a year, according to the company’s IPO prospectus.

Tussauds got its start in 1835, charging sixpence for likenesses of notorious villians. Lately it’s been drawing crowds with statues of the band One Direction and Bollywood stars. In a world of virtually limitless entertainment options, people will still pay to see a wax statue of Celine Dion.

Merlin has a range of similarly low-budget concepts, including a series of tours based on historical crimes that the company calls The Dungeons and Sea Life, a line of aquariums.

Merlin has 86 of these inexpensive sites and says there’s enough demand for at least an additional 100. In comparison, the company has only 12 Legoland attractions and other resort parks. Tussauds is one of the main reasons Merlin is second only to Walt Disney in sheer numbers of visitors.

Of course, the expensive, high-end theme park business is pretty bullish at the moment as well. Resorts and rides were one of the best-performing areas of the Disney empire in recent months, according to the company’s financial update on Nov. 7. While income at its cable business slid 8 percent in the recent quarter, Disney’s parks posted $571 million in operating profit, up 15 percent from the year before. Those returns were fueled by higher ticket prices and more expensive room rates at nearby hotels.

Merlin contends its attractions are doing well because people are opting for two- to three-day mini-vacations in lieu of weeklong R&R. To meet that demand, it’s building hotels at a fast pace and hoping to get at least half its guests to spend the night. That construction, plus a steady supply of wax, ought to keep investors happy.

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