clsteve
"It takes a very long time to become young..."
- Joined
- Jul 25, 2012
We've all had just a few conversations on DIS about "Why Avatar/Why no Star Wars?/Why FP+/Why no 5th Gate", haven't we , and I've been right there in the middle of it. All the while, attendance is booming, while the crowds and capacity are getting tighter without significant relief on the horizon. So, something was still nagging at me, something big seemed missing in our discussions as to the "Why" of Disney's direction. I started digging --- business journals, articles, analyst reports, 10K's, etc., and something did jump out --- something that has a direct impact on the Parks, their future, Disney's strategies for expansion, and also, our expectations:
WDW, specifically TDO (Team Disney Orlando. i.e.: the employees of all levels that comprise Disney's Orlando presence), has grown too large. Or, I should say, has grown as large as they are comfortable with for the near future. Now, I don't mean too many rides and attractions, too much square acreage, etc.: I mean the number of employees - the size of their headcount - and all of the issues associated with being the largest physical employer in a geographical area.
This is a major factor in their transitioning to a "Farmer Company" rather than a "Hunter Company". Hunters (such as UOR with WWoHP, DA, DM, Transformers, Simpsons, etc.) invest in increasing their footprint and offerings at a high rate with quick turnaround in order to increase top line revenue and profitability. Farmers invest in optimization (FP+, DVC's, Resorts) to increase the yield from their existing footprint.
Disney is Orlando's largest corporate employer, by far, and it has grown exponentially. It is also the largest single-site employer in the US. Exact figures are hard to find, but combining several sources: TDO has gone from 56,000- 58,000 employees in 2006/7 to over 70,000 currently. With the opening of the Poly DVC, that number will increase. Folks, all of these employees are in the Orlando area. Think about that. Where other companies this large could look at expanding into other geographical areas, TDO cannot. Hiring and maintaining quality employees is difficult for any business. When you're the biggest kid on the block and in one, relatively small, competitive geographical area...... it's even tougher.
Two line items (from Disney Company open source):
So, what has happened since 2007 that accounts for the increase in number of employees? Resorts and DVC's: AKV, BLT, AoA, GFV, with PRV soon to come. Back to the Farmer Company analogy: leveraging the existing attraction footprint with increased on-site guest capacity. Resorts are very staff intensive- they're 24/7 operations and have huge common areas, pools, grounds and food facilities to operate and maintain - beyond the Mousekeeping , GR, Front Desk, etc. Disney, most definitely, believes on-site guests provide a significantly higher revenue and profitability stream than off-site. Their investment doesn't lie.
FP+ is the epitome of the Farmer Company. It is heavy on up-front costs, but incredibly low on increased/ongoing headcount and YTY expense after implementation, also taking into account amortization and depreciation schedules. Remember, FP+ is expected to bring in an $11-$12 dollar spike in per-guest spending, according to CFO Rasulo. Just looking at on-site guests:
With 30,405 available rooms (incl. DVC – number from TP) with 79% occ. rate and an avg of 3.2 guests per room, could bring an additional $307,974,191.00 in revenue per year at $11 per guest, per day. Again, farming the existing “plot” and easy to see how the expenditure was justified – especially at the original $500 million estimate (if he misspoke and meant per room night or per visit, I have those figures, as well).
But, Avatar is a whole new Land! That's not Farming! But, it is: DAK is the least optimized Park, with guests streaming out after 3pm and the Park virtually empty during the last hour of operation. Therefore, its existing employee count also isn't optimized. Adding Avatar and nighttime entertainment not only optimizes DAK, it also alleviates the almost dangerous Wishes crowd size issue at MK by diverting (hopefully) a significant number of guests to DAK (and the supporting cast members). It's easy to see why Avatar trumped Star Wars as the next one up. Avatar plus the nighttime entertainment optimize the whole WDW "plot" with better yield management of DAK resources, capacity management across the Parks and the best optimization of existing headcount.
And a 5th Gate, the hope and dream of many, whether that's Star Wars or Villains or something else? Estimates show that each existing Gate employs 3,500 to 9,000 specific employees, with MK the highest. This does not take into account all of the supporting staff such as HR, Accounting, etc. With TDO already at over 70,000 cast members, it's easy to see why immediately having to increase headcount at the 5th Gate opening by 5-11% would be untenable to TDO, as would be the necessary increases in supporting staff (HR, etc.), CP Staff housing, plus the increase in benefits and future Pension Plan liabilities.
Now, could TDO's direction change in the future? Yes, it could, with UOR as the catalyst. We have some visibility into the numbers that Disney will track at UOR, with top line revenue and profitability growth percentages as compared to Disney's being more important to them than just attendance figures. What happens with Occupancy Rate and Per Room Guest Spending at WDW are also very important to watch. Unfortunately, we do not have visibility into 2 of the most important metrics: Length of Stay and Length of Park Ticket Purchased. If UOR causes a downward trend in those 2 important metrics by causing shorter stays for onsite and shorter Park visits by off-site -- things will change: whether that's acceleration of Star Wars, new rides/Countries at EPCOT, etc. It's why hardcore, "Disney-till-we-die&" , "I'll-never-step-one-foot in-UOR" fans should root very hard for the continued success and continued improvements at UOR.
Whatever happens, the specific impact to TDO's headcount must be taken into account as one of the major influencers of the size, timeline, and capabilities of current and future projects. There's a point at which geographically-bound companies lose not only their ability to grow, but also their efficiency and their ability to execute due to the geographic limitations of the employee pool.
I've tried to keep the analysis and the numbers basic and hope it helps in providing a different, but important angle to the discussions. I'm very interested in your thoughts and comments...
WDW, specifically TDO (Team Disney Orlando. i.e.: the employees of all levels that comprise Disney's Orlando presence), has grown too large. Or, I should say, has grown as large as they are comfortable with for the near future. Now, I don't mean too many rides and attractions, too much square acreage, etc.: I mean the number of employees - the size of their headcount - and all of the issues associated with being the largest physical employer in a geographical area.
This is a major factor in their transitioning to a "Farmer Company" rather than a "Hunter Company". Hunters (such as UOR with WWoHP, DA, DM, Transformers, Simpsons, etc.) invest in increasing their footprint and offerings at a high rate with quick turnaround in order to increase top line revenue and profitability. Farmers invest in optimization (FP+, DVC's, Resorts) to increase the yield from their existing footprint.
Disney is Orlando's largest corporate employer, by far, and it has grown exponentially. It is also the largest single-site employer in the US. Exact figures are hard to find, but combining several sources: TDO has gone from 56,000- 58,000 employees in 2006/7 to over 70,000 currently. With the opening of the Poly DVC, that number will increase. Folks, all of these employees are in the Orlando area. Think about that. Where other companies this large could look at expanding into other geographical areas, TDO cannot. Hiring and maintaining quality employees is difficult for any business. When you're the biggest kid on the block and in one, relatively small, competitive geographical area...... it's even tougher.
Two line items (from Disney Company open source):
58,000 employees are employed by Walt Disney world as of 2006, spending more than $1.1 billion on payroll and $478 million in benefits each year
69,900 employees are employed by Walt Disney world as of 2013, spending more than $1.8 billion on payroll and $1.0 billion in benefits each year
*Take note of the benefits increase * note that salaries have stayed mostly flat since the crash of '07-'08 * evidence suggest that the percentage of part-time is climbing
69,900 employees are employed by Walt Disney world as of 2013, spending more than $1.8 billion on payroll and $1.0 billion in benefits each year
*Take note of the benefits increase * note that salaries have stayed mostly flat since the crash of '07-'08 * evidence suggest that the percentage of part-time is climbing
So, what has happened since 2007 that accounts for the increase in number of employees? Resorts and DVC's: AKV, BLT, AoA, GFV, with PRV soon to come. Back to the Farmer Company analogy: leveraging the existing attraction footprint with increased on-site guest capacity. Resorts are very staff intensive- they're 24/7 operations and have huge common areas, pools, grounds and food facilities to operate and maintain - beyond the Mousekeeping , GR, Front Desk, etc. Disney, most definitely, believes on-site guests provide a significantly higher revenue and profitability stream than off-site. Their investment doesn't lie.
FP+ is the epitome of the Farmer Company. It is heavy on up-front costs, but incredibly low on increased/ongoing headcount and YTY expense after implementation, also taking into account amortization and depreciation schedules. Remember, FP+ is expected to bring in an $11-$12 dollar spike in per-guest spending, according to CFO Rasulo. Just looking at on-site guests:
With 30,405 available rooms (incl. DVC – number from TP) with 79% occ. rate and an avg of 3.2 guests per room, could bring an additional $307,974,191.00 in revenue per year at $11 per guest, per day. Again, farming the existing “plot” and easy to see how the expenditure was justified – especially at the original $500 million estimate (if he misspoke and meant per room night or per visit, I have those figures, as well).
But, Avatar is a whole new Land! That's not Farming! But, it is: DAK is the least optimized Park, with guests streaming out after 3pm and the Park virtually empty during the last hour of operation. Therefore, its existing employee count also isn't optimized. Adding Avatar and nighttime entertainment not only optimizes DAK, it also alleviates the almost dangerous Wishes crowd size issue at MK by diverting (hopefully) a significant number of guests to DAK (and the supporting cast members). It's easy to see why Avatar trumped Star Wars as the next one up. Avatar plus the nighttime entertainment optimize the whole WDW "plot" with better yield management of DAK resources, capacity management across the Parks and the best optimization of existing headcount.
And a 5th Gate, the hope and dream of many, whether that's Star Wars or Villains or something else? Estimates show that each existing Gate employs 3,500 to 9,000 specific employees, with MK the highest. This does not take into account all of the supporting staff such as HR, Accounting, etc. With TDO already at over 70,000 cast members, it's easy to see why immediately having to increase headcount at the 5th Gate opening by 5-11% would be untenable to TDO, as would be the necessary increases in supporting staff (HR, etc.), CP Staff housing, plus the increase in benefits and future Pension Plan liabilities.
Now, could TDO's direction change in the future? Yes, it could, with UOR as the catalyst. We have some visibility into the numbers that Disney will track at UOR, with top line revenue and profitability growth percentages as compared to Disney's being more important to them than just attendance figures. What happens with Occupancy Rate and Per Room Guest Spending at WDW are also very important to watch. Unfortunately, we do not have visibility into 2 of the most important metrics: Length of Stay and Length of Park Ticket Purchased. If UOR causes a downward trend in those 2 important metrics by causing shorter stays for onsite and shorter Park visits by off-site -- things will change: whether that's acceleration of Star Wars, new rides/Countries at EPCOT, etc. It's why hardcore, "Disney-till-we-die&" , "I'll-never-step-one-foot in-UOR" fans should root very hard for the continued success and continued improvements at UOR.
Whatever happens, the specific impact to TDO's headcount must be taken into account as one of the major influencers of the size, timeline, and capabilities of current and future projects. There's a point at which geographically-bound companies lose not only their ability to grow, but also their efficiency and their ability to execute due to the geographic limitations of the employee pool.
I've tried to keep the analysis and the numbers basic and hope it helps in providing a different, but important angle to the discussions. I'm very interested in your thoughts and comments...
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