Disney, Why...? The TDO Footprint Constraint

Discussion in 'Disney Rumors and News' started by clsteve, Jun 10, 2014.

  1. clsteve

    clsteve "It takes a very long time to become young..."

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    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):

    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​

    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...
     
    Last edited: Feb 10, 2015
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  3. rteetz

    rteetz DIS Veteran

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    Universal has two theme parks and one water park...

    Disney has four theme parks and two water parks...

    Disneys theme parks all get over 10 million a year in attendance

    Universals around 7-8 million

    Disney doesn't have to answer universal in any way shape or form technically. Disney is far superior to universal when it comes to theme parks and resorts. What universal is doing right now is answering disneys past. Disney is on cruise right now universal is playing catch up. Yes potter is huge and will bring in people but neither of universals parks will surpass disney any time soon. Disney will add to their parks and they currently are in so many ways. We here on the boards as disney fans since the beginning of WDW many of us know the good and bad of disney.

    Disney is getting mass revenue right now...

    Does disney need to update their parks? No

    Do I think they should? yes

    Does the common first time visitor after their first visit or even before think so? No

    Mymagic+ is infrastructure setting disney up for the long haul in the future. Disney springs is a mass renovation of a shopping and entertainment district. Avatar means AK will be open later. DVC is being built means money for disney and resort renovations for the rest of us. It is what it is don't like it don't go simple as that.
     
  4. waldiddy

    waldiddy Mouseketeer

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    This line is excellent:

    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.


    I agree 100%. There's a lot of focus by folks on this board (like the first person to reply to your post) that since Disney's absolute numbers are and will be higher than UOR for the forseeable future, that UOR doesn't matter. UOR definitely matters, and figures into Disney's plans, because of exactly the factors you've laid out. If UOR starts growing market share at a higher rate than WDW, even if WDW's absolute numbers remain higher, my bet is that you'll see WDW start rolling out improvements at a faster pace than we've seen previously.

    I wonder too, if Disney hasn't gotten so big, that its internal bureaucracy is sclerotic and that's another reason it's taking longer for them to get new attractions into their parks.
     
  5. clsteve

    clsteve "It takes a very long time to become young..."

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    That's an excellent point- TDO internal bureaucracy- especially in conjunction with the larger company: how does what we want to do impact the overall brand and integrate with the strategies of the other businesses, whether that's Media Networks, Studio Entertainment, other Parks, etc.,
     
  6. rteetz

    rteetz DIS Veteran

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    I agree universal is a factor they do pay attention I don't know how they couldn't. But with that being said I don't think right now thats their focus. Disney is focused on making mymagic+ successful then once that's done we will see focus back on the rest. Mymagic+ involves everything at WDW and if it doesn't become successful they have a problem.

    Market share... The last look at market share from a few months ago was that disney pretty much stayed the same universal gained and sea world lost. Most of what universal gained was from sea worlds loss so that made sense. I'll be interested to see numbers once diagonal alley opens.

    Disney isn't too big yet. Universal wants to get bigger but they can't so easily like disney. Disney likes to take longer for building so that its budget stretches into multiple years. It gives disney a longer time to collect revenue to pay off the work they are doing. Comcast has said they will put money into their parks for 5-10 years. I would assume universal will come to a point that disney is at now with slower expansions and additions.

    I also like to add disneys projects right now are very large projects. Diagonal alley is a large project but not as big as disneys and that does have to do with space as well. AK is getting its largest expansion in park history with Avatar thats set to bring a couple of attractions and night time experiences to a mainly day time park. DTD is becoming Disney springs adding a ton more shops and restaurants and large parking structures expanding its existing spaces. That's an extremely large project. NFL that just finished was MKs largest expansion. MK is also getting an expanded Hub to accommodate so many people more infrastructure. I'm sure the next large project will be for DHS and will include Star Wars related things which may be the one thing disney needs to make universal look smaller again.

    Don't forget Iger is on the way out he doesn't want to be spending so much money he wants revenue for a nice retirement package...
     
  7. jade1

    jade1 If your lucky enough to live on the lake, your luc

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    In depth-nice work OP. You sound quite knowledgable. I don't see a 5th either sadly-and even HP should have been a 3rd IMO.

    Kind of on topic, do you know if WDW jobs are split among "in parks" actual WDW employees, and "near park" non WDW employees-such as Swan/Dolphin, DTD and Boardwalk, maybe even some EPCOT countries?

    DD and BF are thinking of heading down to work for or near WDW and not sure where to start. BF may be offered a job through his college I guess, but no firm offer yet.

    Furthermore-are there a lot of "non WDW" employees in the parks-or is it strictly WDW employees in the parks. Thanks.
     
  8. Andrew015

    Andrew015 WL Guru

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    Quite an interesting read, and I can't help but think that your analysis is anything but spot-on...
     
  9. seascapemvy

    seascapemvy Earning My Ears

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    Great read. I think you have all your facts correct. What is Disney doing next? Flamingo Crossing and the Poly. Then I think they will build a new large DVC and a mid range hotel complex between MK and Epcot. Flamingo Crossing will have 5000 hotel timeshare rooms. This seems to go along with what you think they will do. However it is also the reason I think your conclusion is wrong. With all the rooms they need another gate. They have already just about reached the capacity of their 4 gates and to continue to add rooms without a major increase in capacity will only drive guests off property. Would that still be profitable, definitely. The problem is I don't see Disney wanting to help Universal or Sea World. I think they have no choice but who knows they may feel they only need to do the major expansion of AK which besides Pandora would also include a major expansion near Asia. That could help drive customers to the south on property. I still like my idea of a 5th gate west of MK but your idea is not unreasonable.
     
  10. Andrew015

    Andrew015 WL Guru

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    I really think his conclusion is spot-on. The 4 gates are not currently at capacity. Rather, they are just not uniformly utilized. MDE / FP+ will help with that capacity utilization, and again, the focus on getting AK up as a full-day park will help even the load amongst the 4 existing parks.

    He concedes that a 5th gate is not out of the question down the road, but I agree with him... there's no need for it yet. Fine tune and refine the 4 that they have now, and once those parks are constrained, then up goes the 5th gate. Again, MDE / FP+ is the tool that was needed to help understand and manage their existing capacity. I truly believe that it will pay dividends in the long-run, and will be their guiding principle for when to break ground on the next gate.
     
  11. seascapemvy

    seascapemvy Earning My Ears

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    Yes. Fast pass plus and MDE are going to work and increase capacity and are the key to everything Disney has planned. I think they have also done a great job with the plans and construction of Disney Springs. Flamingo Crossing will be a western version of hotel plaza. They also have done lots of road work to be ready for the next expansion.

    My ideas are to increase capacity everywhere on the property to be ready for the massive attendance in 2021. I expect there to be 45,000 hotel and DVC rooms on property including the leased hotels in 2021. I think the only disagreement we have is timing. As a stockholder I want Disney to not only succeed but grow massively and make tons of money. I think the market is there and the time is now. As a theme park fan I want both universal and Disney to do well. As someone who owns property in Florida I want the Orlando economy to grow as much as possible. I guess it all is debatable based on the hat I am wearing at the time. I posted my ideas on the attendance thread.
     
  12. ChoppityChops

    ChoppityChops Mouseketeer

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    I'd love to know at what ratios other parks/expansions took place. Obviously can't compare to UOR historically very well, but maybe a trend can be found within the employment numbers that you used, if those #s can be found for years epcot, MGM, AK, DHS expansion, etc... all happened?

    or does that not make sense?

    I'd imagine there's some attendance/revenue threshold that when crossed will justify the next major project/gate announcement.
     
  13. clsteve

    clsteve "It takes a very long time to become young..."

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    Jade1, I'd love to hear from a CM on your points. Without their input, it would be very difficult to get complete answers to your questions. There is always some capabilities overlap in large companies and some ability to share headcount. But, most often, in rare occasions. Each company is different of course, but almost all operate under completely different cost centers, if not completely separate entities.

    The Swan and Dolphin are Starwood properties, so unaffiliated to Disney. As far as non-Disney employees in the Parks? I'm sure there are some, such as some Starbucks employees, some 1099's (highly skilled contractors, but behind the scenes and mostly behind the utilidoors), and a few others from close business partners and under specific contracts. Disney keeps a firm hand on it and for good reasons.

    I hope it works out well for your DD and her BF - there are many worse places to be young and starting out than Orlando!
     
  14. clsteve

    clsteve "It takes a very long time to become young..."

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    There's also a point where large companies need to keep the staff energized and excited about what's yet to come - especially if the competition is "sexy" and innovative. You can still win with compensation and benefits in order to retain your employees, of course. But, the technology industry has wrestled with this for decades -your good people want to be challenged and want to be innovative. And TDO hasn't really had much competition in this area until UOR changed hands and started upping the bar, so to speak.

    And this thread is in no way meant to be a UOR is better than TDO discussion. Even without UOR as a future catalyst, TDO seems to be at a headcount crossroads, just based on their size and geographical constraints.
     
  15. jade1

    jade1 If your lucky enough to live on the lake, your luc

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    Thanks-yea they really hate winter and don't mind heat.

    Was mostly wondering how to look at job openings in the area. They will figure it out.
     
  16. lockedoutlogic

    lockedoutlogic DIS Veteran

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    This thread is excellent....especially clsteve's insightful analysis of labor and costs...which is the biggest issue that rarely gets mentioned and often is foolishly dismissed...

    I have nothing to add other than thank you for not mentioning "free dining" anywhere here :)
     
  17. clsteve

    clsteve "It takes a very long time to become young..."

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    Thanks... and I promise - no Free Dining in any future threads!
     
  18. Orph

    Orph Mouseketeer

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    That is a VERY insightful analysis of DW. Good Job clsteve!

    May I just add/discuss, your analysis is dependent/make the assumption of DW being a completely seperate entity away from the overall corporate growth. Will factoring the success of its various licenses change your analysis?
     
  19. clsteve

    clsteve "It takes a very long time to become young..."

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    Very good point.

    I'm assuming you mean the success of licenses in the other Corporate Entities such as Studio Entertainment and Media Networks? Please correct me if it's the wrong assumption.

    It's interesting how TDO has shown they can quickly, efficiently and very successfully leverage and incorporate the IP from the other entities without significantly trending employee count upwards. M&G's are a very good example of this - incredibly popular, yet very low on implementation cost, head count, time-to-implement, and ongoing expense. The Legend of Jack Sparrow fits this mold, if not completely on the success side.

    Even the NFL (especially under it's original plans before 7DMT) was efficiently designed and planned, from a headcount perspective- JTLM a headcount wash with Snow White, ETWB and Ariel M&G's, with BOG probably the largest employee increase. But even with BOG - look at the incredible investment they made in technology - so much of it focused on minimizing headcount, from how you order, to how it appears - really fascinating.

    The development of Avatar will be incredibly interesting to watch - different IP structure with some non-Disney oversight. We'll learn a lot through that process with what the final footprint looks like.
     
  20. OtherScott

    OtherScott Laugh

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    You've posted a lot of food for thought in OP, but this one especially resonated with me. I posited a while back that Disney knows more about "you" than you do. Of course I was using the indefinite form of "you," but what I meant was that given the breadth and diversity of the Disney brand, it knows how and why you connect with it. It knows that a former Mousketeer (now a grandparent) connects differently than a current child.

    We tend to think WDW is always just about WDW. Sometimes it is, but most times not.
     
  21. OtherScott

    OtherScott Laugh

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    Great job putting a "why" to what we've been discussing. I especially like the analysis of the forward thinking of MM+ and the upfront costs being worth the long term operation. I've thought for a while that Disney has a better view of the horizon (and a better guess at what lies beyond) than I can, and what they do tells me what they see.

    I also wonder if Disney is operating under any existing PUD. Certainly they have the juice to rework any language that hampers expansion, but given all the reasons you've laid out, would they even want to at this point?
     

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