The turnaround strategy
Introduction
It hasn’t been a fun ride for Merlin Entertainments, as its global portfolio of entertainment destinations has struggled with evolving leisure trends and ongoing structural shifts since the COVID-19 pandemic.
Amid discretionary spending pressure, increased competition from new concepts and aggressive competitor promotions, visitor numbers remain depressed. This has resulted in revenue decline, at a time when Merlin has also found itself burdened with bloated costs and heavy investment that failed to generate profitable returns.
Indeed, Merlin has battled significant cash burn, which has unsettled credit investors. This dissatisfaction culminated in August 2025 when S&P Global Ratings downgraded Merlin’s credit rating to CCC+, explicitly labeling its capital structure as 'unsustainable'.
The question now is whether Merlin Entertainments can turn the tide and restore credit investor confidence. We discussed this with industry experts.
The new CEO’s savings plan
With Fiona Eastwood confirmed as permanent CEO in early 2025, Merlin has embarked on a transformation that consolidates its three business units —Resort Theme Parks, Gateway Attractions (formerly Midway), and LEGOLAND Parks— with a renewed focus on efficiencies and cost savings. Unified teams and workforce reductions have contributed to an expected £29m annual cost saving and EBITDA benefit, alongside an anticipated £50m ongoing saving from Merlin's 'Smart Spending' programme as procurement optimization is implemented and annualise.1 However, experts note that some attractions may be nearing minimum operational requirements, limiting the scope for further near-term savings.
The risk, however, is that structural efficiency comes at the expense of on-the-ground execution. Experts have highlighted weak marketing, declining in-destination events, and reduced staff visibility as early concerns. Centralized functions may deliver cost benefits and a more consistent HR approach, but they could also constrain site-level flexibility, leading to a one-size-fits-all approach to sales and marketing across a highly varied portfolio. In an increasingly competitive UK and US landscape, this poses a direct risk to guest satisfaction, particularly as concerns mount around run down sites.
Opportunities in smarter pricing
Pricing compounds the challenge. Visitors are becoming more price-sensitive, with UK and particularly US destinations facing growing exposure to competitor discounting. Experts point to a historical overreliance on direct and third-party discounts to drive footfall, a pattern Merlin has itself acknowledged.2 While the company has committed to a more targeted discounting approach, this requires the kind of marketing agility and flexibility that is uncertain under the new centralized structure. Competitive pressure, whether from rivals “upping their game” or discounting more aggressively, has weighed on results, particularly as concerns around customer experience compound the perceived value of a day out.
Broader pricing sophistication has also been questioned, with Third Bridge experts suggesting its dynamic pricing approach remains immature, creating one of the clearest near-term opportunities. Effective dynamic pricing could maximize revenue across peak and off-peak periods without requiring additional capital outlay, with one expert noting in mid-2025 that successful execution could drive a low-to-mid double-digit increase in top-line revenue within two years.
Visitation concern
Beyond pricing, the more fundamental challenge is creating compelling reasons to visit. While major investments such as the landmark LEGO Harry Potter Land are vital for transforming resorts into world-class destinations, experts suggest that major ride investment is not a prerequisite for meaningful visitation growth. Instead, doubling down on events such as the LEGO Festival offers a far more accessible route to meaningful revenue upside, provided they are supported by disciplined event planning and close collaboration with marketing teams. Optimizing event programming can not only bring visitors through the door but also keep them coming back.
Perhaps Merlin's most powerful lever is cross-destination visitation, which underpins the so-called "golden goose" cluster strategy, and is clearly something Merlin recognises, given the introduction of a new go-to-market cluster model as part of the 2025 business transformation.
The logic is simple: visitors who travel to one destination can be encouraged to spend more days and more money across multiple nearby Merlin sites. This dynamic finds its greatest expression in London and Orlando, where cluster density is highest. Pairing clusters with a strong annual pass offering is central to the model's success. Recent changes could help unlock incremental upside. Experts suggest the strategy had previously lost its way, with passes being undersold, particularly during the 2025 summer season.
Any discussion of the London and Orlando clusters must contend with the competitive implications of Universal Epic Universe in Orlando, Florida (opened May 2025) and the Universal Resort in Bedford, UK (planned 2031). Expert consensus is clear: Merlin cannot compete with Universal or Disney, and should not attempt to do so. As one expert noted, “the challenge for Merlin is not to get dragged into that. I think if Merlin goes up against Universal and Disney, that's only going to end one way [...] they'll overspend, overinvest and I don't think they'll see the returns.” The more realistic and productive approach is to capitalize on what new Universal parks bring, namely, increased tourism. If the London and Orlando clusters can “piggyback” on this increased visitation, it has the potential to drive higher footfall.
The nature of that opportunity differs by visitor type. Domestic UK visitors, who have represented the majority of footfall since COVID-19, often visit multiple attractions a year, and a Universal park is unlikely to significantly disrupt visitation across Merlin’s broader UK or London estate. International tourists drawn to Universal Bedford, however, are more time-constrained and selective in how they allocate their visit. Visitors spending multiple days at Universal Bedford may nonetheless be persuaded to spend one or two additional days at a nearby Merlin destination. Targeted marketing must look to complement and tap into Universal or Disney customer profiles, performance marketing must be improved, and Merlin should pre-emptively target those expressing interest in visiting the local area. New 2025 partnerships with global media and creative agencies may signal a step in that direction. The risk, especially in the US, is that competition for those third- or fourth-day visits is intense. LEGOLAND or a Gateway site has to prove its worth not only against an extra day at Universal or Disney, but also against a broader set of alternatives outside Merlin’s portfolio.
Attracting visitors naturally unlocks the opportunity to drive in-attraction spend. Merlin has outlined further scope to drive revenue per capita through food and beverage (F&B) and retail purchases, and experts broadly corroborate this view, noting that the current F&B proposition, much of which is outsourced, is far from trend-setting. Resort Theme Parks, with their captive visitor base, have significant room to drive leading food offerings, interactive games, and similar initiatives to increase dwell time, enhance customer experience, and drive revenue. Though it is harder to captivate Gateway visitors with F&B offerings, the focus on snacks and quick-serve items could, to some extent, be expanded to elevate the overall experience on a site-by-site basis. In particular, if ride investment is not forthcoming to drive visitation, in-attraction spend becomes increasingly important.
Targeted CAPEX to improve yield
Simultaneously, Merlin has focused on investment processes and reducing annual capital expenditure to below £300m, compared with £357m in 2024. Capital expenditure came in at £271m for 2025, driven by new business development CAPEX falling from £78m to zero.
Experts emphasize tiredness of the estate and the importance of optimising investment processes, with the potential to drive lower expenditure while achieving higher returns. One expert noted it was common practice to allocate resources as a flat percentage for infrastructure maintenance, without regard for year-on-year variation or site-specific requirements. Another commented on the tendency to prioritize maintenance over reinvention. Certain attractions, particularly within the Gateway portfolio, may benefit from targeted investment in newness. Selective replacement, despite often being more capital-intensive, can reduce ongoing maintenance costs, generate compelling reasons to visit and deliver meaningful ROI enhancement.
Whilst certain Gateway Attractions and Resort Theme Parks, such as Thorpe Park and Chessington World of Adventures, were described as feeling "tired" and "tatty", LEGOLAND parks appear more protected, likely due to investment requirements stipulated in Merlin's agreement with The LEGO Group. An underinvested attraction, however, not only harms its own customer experience but also creates inconsistencies across the portfolio that damage both intellectual properties and the Merlin brand, which is critical in driving the success of clusters and annual passes.
That said, targeted capital investment can still drive significant returns. Experts anticipate that investment in LEGOLAND parks in California and New York will generate compelling reasons to visit and meaningful revenue upside. If historic launches are used as a benchmark, experts suggest major new rides tend to provide significant visitation and revenue uplift in years one and two, before normalizing by year three. Renewed focus on LEGOLAND New York builds confidence in a destination hampered by its pandemic-affected 2021 launch, with a potential recalibration of targets and strategy seen as necessary to unlock the park's full potential. However, LEGOLAND New York, along with Korea and to a lesser extent Shanghai - which has shown positive signs since its 2025 launch - may be fundamentally limited by remote locations with sub-optimal transport links. Experts note this could dampen visitor appeal, necessitating above-average CAPEX and marketing investment.
Strategic portfolio rationalization
Despite operating a portfolio of over 130 locations, experts suggest that the majority of Merlin's profit is concentrated among the top 10 to 12 destinations, largely centered on key cluster locations. While there is brand-building value in operating fringe locations, underperforming, unprofitable sites are not uncommon — attributable to underinvestment, location constraints or format mismatch.
New partnerships and concepts, such as Minecraft, PAW Patrol and Peppa Pig, can help drive novelty and relevance in a shifting landscape. However, site-by-site analysis of the legacy estate is seen as essential, with particular scrutiny warranted within the Gateway portfolio, specifically around legacy Madame Tussauds and Dungeons concepts. Such sites could be selectively reformatted under alternative brands or assessed for closure.
The pressure on Madame Tussauds is underscored by a 2025 impairment charge of £262m related to the brand. Experts have suggested that part of the problem is that, despite operating 17 sites globally, most are overshadowed by the flagship New York and London destinations. Regional sites cannot replicate the profile of these iconic locations and instead rely on local celebrity waxworks that struggle to attract visitors.
Merlin has already executed several strategic Gateway exits, including the £200m sale of LEGO and LEGOLAND Discovery Centres to The LEGO Group, which not only releases capital but also allows The LEGO Group to exercise greater brand control over assets whose performance under Merlin has been "underwhelming." Whilst experts express confidence in the Merlin / LEGO relationship and near-term support, we encountered conflicting views on the long-term role of LEGOLAND parks, with one expert commenting “it will only be some time before the Legoland parks go over [to The LEGO Group]”. Others are far more certain of LEGOLAND’s place in the longer-term story of Merlin.
Merlin also explored the disposal of selected SEA LIFE locations, though this was reportedly shelved after acceptable bids failed to materialize. Should the company revisit the process, experts warn it may need to accept lower valuations, as many sites are loss-making, underinvested, and carry high fixed costs, leaving prospective buyers with limited headroom to unlock value.
Conclusion
However, portfolio rationalization may manifest as a means to raise capital or allow strategic resource reallocation away from underperforming assets towards higher ROI cluster sites. Merlin’s combination of cost management and topline recovery is yet to be proven. The building blocks are visible, and there are encouraging signs. However with cash burn persisting, material questions remain around leisure market recovery, business execution, and competitiveness before confidence can be assumed.
All insights in this article are based on information provided by Third Bridge experts.
For media inquiries, please contact: comms@thirdbridge.com
Transcript references:
1. Merlin Entertainments – Legoland North America Outlook & Global Business Development
2. Merlin Entertainments – UK Attractions & Turnaround Strategy
3. Merlin Entertainments – Legoland Asia Development & Short-to-mid-term Group Contribution
4. Merlin Entertainments – Global Gateway Attractions Strategy & Performance Optimisation
5. Merlin Entertainments – US Proposition & Strategy in the Face of Developing Amusement Trends
6. Merlin Entertainments – UK Portfolio & Visitor Strategy to Drive Short-to-mid-term Group Recovery
7. Merlin Entertainments – UK & Continental Europe Competitiveness & Cash Flow Drivers
8. Merlin Entertainments – UK Portfolio Management & Requirements to Fuel Footfall
References:
2. Merlin’s 2025 Q3 earnings call
