Breakage Income - Is DVCMC's share decreasing?

[CarolMN]

So far, all of the resort budgets have shown the maximum allowed for breakage income coming back to the operating budget.. Anything over the max allowed by contract goes to DVCMC.

It's been a long time since I've seen any studios available anywhere on the "60 day Snapshot" and reports of no studios available even 4-6 months in advance are increasing.

I know that DVCMC is allowed to "predict" 60-day availability based on past booking history to send villas over to DRC/CRO as breakage well before 60 days, but I am wondering if the increasing member demand for studios is stating to significantly decrease DVCMC's breakage income. If so, maybe the "bungalow effect"** is coming back to bite them, too. (Most cash demand from the general public is for studios. Larger units seem to need bigger discounts to entice bookings). The decrease in their income could help to explain the increase in the lock-off premiums they tried to implement (rescinded 2020 point charts).

Perhaps I am assuming motives that aren't there. Your thoughts?


** I rarely see a cabin on the snapshot, so those must be getting booked. Don't know if that's for points or cash, though.

 

[Frederic Civish]

It's been a long time since I've seen any studios available anywhere on the "60 day Snapshot" and reports of no studios available even 4-6 months in advance are increasing.

I am wondering if the increasing member demand for studios is stating to significantly decrease DVCMC's breakage income. If so, maybe the "bungalow effect"** is coming back to bite them, too. (Most cash demand from the general public is for studios. Larger units seem to need bigger discounts to entice bookings). The decrease in their income could help to explain the increase in the lock-off premiums they tried to implement (rescinded 2020 point charts).

I certainly hope that the 'Bungalow Effect' is starting to cause problems for them, too. It certainly is causing enough pain for DVC Members. And that could be one of the reasons they were trying to diddle with the point charts.

DVC did so well for so many years, and then it seems like Disney just decided that they were going to 'steal' extra profit from it, and I honestly have to say that it is 'worth less' than it has been in the past, because of it.

I know people say that DVC just requires you to 'Plan Ahead,' particularly up to 11 months ahead, if possible. BUT IT SHOULDN'T BE LIKE THAT. IT WASN'T LIKE THAT BEFORE. And Planning so far ahead makes DVC much less useful and enjoyable for members. There was a reason that the 7 month window was designed into the program, and, frankly, there was probably a time when most reservations were made in the 7 month window, and not the 11 month window. But not anymore.

It would be nice if Disney would feel enough pain to straighten this out.

 

[CarolMN]

..........(snip)......It would be nice if Disney would feel enough pain to straighten this out.

I just hope it's not at our expense. Can't imagine what they could do that wouldn't hurt Members. Hate the lock off premiums and I doubt we'd like anything they came up with to tamp down demand for rental points. IMO, increased rental demand and ease of renting is a significant factor in availability.

 

[jerseyduke]

Interesting point @CarolMN I had never looked at it that way. You are right in that the "bungalow" effect probably has lowered the number of studios going into breakage.

To make the extreme hypothetical case, envisioning the PVB with none of the "B's, just all studios - that would mean 3 million points were sold at poly. Lets pick a number and say 5% of points go into breakage - that means 150,000 points get broken a year (I think this number is high, but run with it).
DIS would have little to no issue renting those rooms out. Breakage income galore.

But not, there is 1,000,000 Bungalow points - and lets say 1/2 of those points were bought by people with the intent on actually using them at the bungalows (This is an absurdly high guess - making a more realistic guess would actually further support this argument) but that now leaves 500,000 points that can gobble up that 150,000 points that would have gotten broken.

So yes, in the case of the Poly, i think you are right that very few if any studios are getting broken. The question is how much revenue is Disney getting from the Broken Bungalows, and is it offsetting the loss of breakage income from the studios. Based on the availability I see, I would say no. I do not think they are able to rent bungalows for cash regularly. Of course, if they lower the cash price for them, they can change that.

 

[crvetter]

The issue is cash upfront is far more valuable for a corporation than the breakage income they receive on points, they probably get 15-20 a point as profit (at max) on these larger units. Basically the $150 a point they got on those 1 million bungalow points is far too valuable for them to care about the loss on breakage, 150 million invested back into a corporation where the assumed internal rate of return is well above 8% is far too valuable. The issue is DVCMC is likely to never correct the bungalow (and to a degree cabin) problem by a point reallocation because it devalues the "deluxe" marketing that Disney can command on the their rooms. If suddenly the bungalows drop in cash price then the cash side of the resort will need to lower prices (bungalow for a fair markup could start cannibalizing other accommodation rates of occupancy). While the number of accommodations are low (20 vs the hundreds of cash rooms) Disney survives on fillings rooms on image of getting the "best" for what you are paying.

As for DVCMC having to work in the best interest of the membership it's easy to say (and proven already) that members don't want a reallocation of points. However that is spin for sure as many were upset that the reallocation was increasing studios and 1 bedrooms (the real issue was the 1 beds) and not lowering the other units enough. Plus there is some indication that the original DVC leadership never intended points to be reassigned across Vacation Home Types.

 

[jerseyduke]

Ha - I was basically rethinking my last post then started thinking, wait a minute.......

1 Million Bungalow points sold at about 170$ per point - they sold those Bungalows for 170 million dollars. What could they have cost to build and sell? Lets say 2 mil a piece? 40 Mil total. That is 130 mil in profit with no breakage.

breakage income on those is just icing on the icing on the cake

Although I would think there is some wiggle room on the cash price of a Bungalow. They can't slash it, but could probably drop it 10 percent or so.

The other issue about the Poly DVC that is being ignored here is that they took a beloved resort that, to my knowledge, did not have occupancy issues, and slashed the room inventory by about 1/3. Poly room prices have gone up a chunk since the rooms were converted. Poly has a cult following, and not everyone who bought Poly DVC was in that cult...and those people still want to stay there.

 

[Matty B13]

The other issue about the Poly DVC that is being ignored here is that they took a beloved resort that, to my knowledge, did not have occupancy issues, and slashed the room inventory by about 1/3. Poly room prices have gone up a chunk since the rooms were converted. Poly has a cult following, and not everyone who bought Poly DVC was in that cult...and those people still want to stay there.

If you read Tikiman's Facebook back when it was just starting to be built, several of his followers were very upset by the location of the Bungalows which screwed up the view for most of the hotel rooms.

My family loves the Poly, and would have bought direct...... if it has 2 bedroom and 1 bedroom units, but I think they really screwed up with the all studio configuration.

 

[CarolMN]

Breakage income may pale in comparison to the initial DVC profit. HOWEVER, there is a cap on how much DVCMC can spend on operating the Club. Members pay a percentage of the resort's operating budget to support DVCMC's operations. If it costs more than that, then Disney is on the hook to pay for the "overage".

So, If breakage income decreases enough, managing the club may actually start to cost Disney money. They care about ongoing costs a lot! IMO, it' the main reason we now have online booking. Prior to that, they were perfectly happy with the number of CMs required for MS, but when the Club growth started to mean hiring many more CMs to handle it (labor is expensive), all of a sudden, online booking looked very attractive. Calls to MS (again, IMO), also drove many of the enhancements to the online system - i.e., the MODIFY feature.

I think a significant decrease in breakage is a big deal for DVCMC. It wouldn't surprise me at all if their management isn't pressured to keep costs down (but still have to keep Members mostly satisfied).

 

[crvetter]

Breakage income may pale in comparison to the initial DVC profit. HOWEVER, there is a cap on how much DVCMC can spend on operating the Club. Members pay a percentage of the resort's operating budget to support DVCMC's operations. If it costs more than that, then Disney is on the hook to pay for the "overage".

So, If breakage income decreases enough, managing the club may actually start to cost Disney money. They care about ongoing costs a lot! IMO, it' the main reason we now have online booking. Prior to that, they were perfectly happy with the number of CMs required for MS, but when the Club growth started to mean hiring many more CMs to handle it (labor is expensive), all of a sudden, online booking looked very attractive. Calls to MS (again, IMO), also drove many of the enhancements to the online system - i.e., the MODIFY feature.

I think a significant decrease in breakage is a big deal for DVCMC. It wouldn't surprise me at all if their management isn't pressured to keep costs down (but still have to keep Members mostly satisfied).

I still think there is significant breakage. Just because studios disappeared that means there will be bungalows replacing them in this instance. DVC has a responsibility to rent those units out as breakage to create income for themselves and the community. I think if we get to the point were significant portions aren't rented (causing them to lose money) they could start dropping the cash prices through a discount. There is quite the buffer between the standard hotel room and the bungalows. Though it is a delicate balance for them because of diminishing the resorts brand/dollar command; however, the members could definitely have a legitimate concern and complaint if DVCMC simply wasn't renting them out because they set the price too high.

As of right now a fair amount of the breakage income goes to BVTC to operate the exchange program. But I do agree if breakage drops they could stop the developer guarantee. However, as long as they sell each resort (to a degree) it is in their best interest to offer it. Because the "unsold" inventory they don't need to pay dues on, which as long as the shortage is less than those dues they will always offer it. Also just a note "unsold" inventory is different than the points DVC has declared ownership in, which they do pay MF on.

 

[CarolMN]

My understanding is that the Developer guarantee is that they will pay if the operating budget is exceeded. AFAIK, the guarantee has nothing to do with operating DVCMC, which is given a straight 15% of each resort's operating budget to run the Club. I thought BVTC is funded separately from DVCMC. Could have changed. Haven't really kept up with all the MSPOS changes.

 

[crvetter]

My understanding is that the Developer guarantee is that they will pay if the operating budget is exceeded. AFAIK, the guarantee has nothing to do with operating DVCMC, which is given a straight 15% of each resort's operating budget to run the Club. I thought BVTC is funded separately from DVCMC. Could have changed. Haven't really kept up with all the MSPOS changes.

No BVTC is funded (always has, at least in the BWV agreement) through some of the breakage income. It does receive $1 per recorded deed also, but it gets second dibs on the breakage (to a cap) after the association gets their claim. Here is the documentation how BVTC is paid:



So as you can see BVTC it's a $1 for each Club Member (which oddly and questionably is deed's recorded not unique club member ID), section 7.2. Though section 7.1, it says BVTC gets any breakage that exists (after the association gets their claim) up to actual costs incurred plus 5%. I believe the rest of the breakage that might exists gets to go back to DVCMC as a profit. I will say both sections were identical until DRR at which point section 7.1 was added to add a larger flat resort fee in addition to the $1 per member (that is eligible because this resort will have ineligible members).

Correct the developer guarantee covers the excess, which saves them from having to pay MF on "unsold" inventory (not to be confused with inventory DVC owns, which they do pay). My point was that the guarantee always makes sense to DVC as long as they assume the shortage will be less than what they are actively selling at the resorts. So it's likely they keep offering it if they have a healthy amount of sales. I agree the developer guarantee and breakage are different, I was just responding to the point made

Breakage income may pale in comparison to the initial DVC profit. HOWEVER, there is a cap on how much DVCMC can spend on operating the Club. Members pay a percentage of the resort's operating budget to support DVCMC's operations. If it costs more than that, then Disney is on the hook to pay for the "overage".

So, If breakage income decreases enough, managing the club may actually start to cost Disney money

So my thought even if breakage drops as long as the shortage costs less than them paying the MF on points they will opt to give the guarantee.

 

[CarolMN]

Thanks for the BVTC sections and explanation. I remember the $1 fee, but not the breakage funding part. When I get around to it, I'm going to see if that was what my original MSPOS statement said back in 1999 when we purchased.

And I agree about the guarantee - I always assumed it was in Disney's best interests to offer it.

 

[disney11fan]

I certainly hope that the 'Bungalow Effect' is starting to cause problems for them, too. It certainly is causing enough pain for DVC Members. And that could be one of the reasons they were trying to diddle with the point charts.

DVC did so well for so many years, and then it seems like Disney just decided that they were going to 'steal' extra profit from it, and I honestly have to say that it is 'worth less' than it has been in the past, because of it.

I know people say that DVC just requires you to 'Plan Ahead,' particularly up to 11 months ahead, if possible. BUT IT SHOULDN'T BE LIKE THAT. IT WASN'T LIKE THAT BEFORE. And Planning so far ahead makes DVC much less useful and enjoyable for members. There was a reason that the 7 month window was designed into the program, and, frankly, there was probably a time when most reservations were made in the 7 month window, and not the 11 month window. But not anymore.

It would be nice if Disney would feel enough pain to straighten this out.

I don't like someone telling me how to book my vacation and using their time constraints. I'm retired 10 years and we now pick up and go on a dime. Since we only fly SWA direct flights we look for the airfare deals. Not tied to a schedule and don't have to book 11 months out 7 months out would drive me crazy.

 

[jerseyduke]

If you read Tikiman's Facebook back when it was just starting to be built, several of his followers were very upset by the location of the Bungalows which screwed up the view for most of the hotel rooms.

My family loves the Poly, and would have bought direct...... if it has 2 bedroom and 1 bedroom units, but I think they really screwed up with the all studio configuration.

Agreed with Tikiman's posts - The Poly is one of and if not my favorites. I was set to buy a fixed week lake view. I was debating between a studio and a one bed room.
Ultimately decided I did not want a fixed week Bungalow view!

However I am not so sure the location of the bungalows is a screw up in their eyes - the sold out the resort pretty quickly. In my eyes it is.

I remember initially the line of sight balloons were over by Luau Cove, but I guess that location didnt work (looked like they were looked at a taller building over there

I don't like someone telling me how to book my vacation and using their time constraints. I'm retired 10 years and we now pick up and go on a dime. Since we only fly SWA direct flights we look for the airfare deals. Not tied to a schedule and don't have to book 11 months out 7 months out would drive me crazy.

Then DVC is not for you - its not for everyone

 

[disney11fan]

Agreed with Tikiman's posts - The Poly is one of and if not my favorites. I was set to buy a fixed week lake view. I was debating between a studio and a one bed room.
Ultimately decided I did not want a fixed week Bungalow view!

However I am not so sure the location of the bungalows is a screw up in their eyes - the sold out the resort pretty quickly. In my eyes it is.

I remember initially the line of sight balloons were over by Luau Cove, but I guess that location didnt work (looked like they were looked at a taller building over there



Then DVC is not for you - its not for everyone

 

[disney11fan]

I agree. Even thou I retired from the same company I started with for almost 33 years and had for the last 10 years 5 weeks vacation a year ...I never took the same weeks. With dvc aren't you more or less lock into a Time window based on your points? Why do the points expire you more or less paid for them.. I love flexibility.

 

[jerseyduke]

(snip)
With dvc aren't you more or less lock into a Time window based on your points? Why do the points expire you more or less paid for them..
(snip)

You are not really locked into a time window at all, you can use your points over a 2 or 3 year stretch, depending on how you do things.

Points have to expire. What if you banked 49 years worth of points and so did everyone else? Disney would not have enough rooms for everyone in year 50.

I do not think you fully understand DVC, but that really is not the issue. DVC is for people who book vacations far in advance, and that is not you. When I do my go on a dime trips, I pay cash.

 

[disney11fan]

You are not really locked into a time window at all, you can use your points over a 2 or 3 year stretch, depending on how you do things.

Points have to expire. What if you banked 49 years worth of points and so did everyone else? Disney would not have enough rooms for everyone in year 50.

I do not think you fully understand DVC, but that really is not the issue. DVC is for people who book vacations far in advance, and that is not you. When I do my go on a dime trips, I pay cash.

We take on average 3 to 4 trips a year staying a minimum of 7 nights and no more than 11. Earlier this year was March spring training Florida. Disney in June booked with 6 weeks notice (love spur of the moment). Going again to Disney in Sept. Booked last week . Dvc would never work for me. Oh yes a trip in Nov. To Florida... Just a wing it trip. Not Disney.

 

[disney11fan]

Disney has one great thing. That being, the magical express and bag service. To me that's worth hundreds of dollars.

 

[Frederic Civish]

I just hope it's not at our expense. Can't imagine what they could do that wouldn't hurt Members. Hate the lock off premiums and I doubt we'd like anything they came up with to tamp down demand for rental points. IMO, increased rental demand and ease of renting is a significant factor in availability.

One reason for increased rental demand is because Disney has raised prices. So people look for a way to save money.