Breakage revenue

[Plutofan]

So why is there a yearly limit on how much breakage income can be retained by the association? If they exceed the limit does the money go to Disney?

"Gross proceeds, resulting from the rental of unreserved accomodations, are retained by the Association up to an amount equal to 2.5 percent of the adjusted Operating Budget"

 

[Chuck S]

I'm wondering if perhaps it has to do with tax laws? Isn't "the Association" a not for profit entity?

 

[Plutofan]

Per the budget the associations are subject to federal income tax and are not considered non profit.

 

[Plutofan]

I would love to see the details on the various related party contracts including management fee, breakage etc and also see the cost incurred to see how much Disney is making on the back end. The management fee is not a cost plus a percentage profit but instead a percentage of the adjusted budget. In addition to making a good profit on the sale of these units I bet Disney has a nice revenue stream from providing services. So they may complain about losing rental income from people renting off units but I bet that they are making up for a good part in profits by managing the units.

 

[tjkraz]

So they may complain about losing rental income from people renting off units...

When did they complain about this?

Last time I checked commercial renting was always against the rules, and DVC's statement at the time of the rule changes indicated they were more concerned with a pattern of renters reserving multiple rooms during popular time periods and blocking out other members.

... but I bet that they are making up for a good part in profits by managing the units.

Probably no more than any other timeshare manager. If Disney wasn't making money off of managing the timeshares, they'd farm-out those rights to another manager.

Like it or not, it's a necessary evil. And given that the management fee in '06 amounted to about $50 out of my pocket, I'm not going to sweat it. Also, the Management Fee is not strictly profit--it also covers the operating expenses of the organization we know as "DVC".

 

[crisi]

Could it mean that they can use it to create a reserve of up to 2.5% of the operating budget, but that anything over that 2.5% has to be including in the operating budget for the next year? i.e. they wouldn't want the reserve getting larger and larger, while we get no break on our dues from breakage - or rather, they would, but it would probably create problems with timeshare regulations.

 

[RobDoc]

Income from renting time unused by members is limited, by contract, to 2.5% of the operating budget. This is fixed in the POS documents. It goes directly to the income side of our budget and does offset our dues. Anything over that amount does go to DVC.

Basically, the full resort expenses are paid each year by our dues - whether we use our points to fill the resort or not. It is in our best interest for DVC to rent out time we choose NOT to use since it lowers our dues expense. It is also in DVC's best interest to rent out the unused time since anything over the 2.5% limit is theirs to add to their bottom line. It is a win-win - they get nothing for renting those dates until the 2.5% threshhold is reached and we get all of anything up to 2.5% to offset dues.

Rooms rented using points used for non-DVC options goes back to CRO to "pay" for the non-DVC options (DCL, other WDW resorts, DL resorts, Concierge Collection, etc.). Members get no additional financial benefit from CRO renting those rooms since that is what provides the other options to members in the first place. Without that service, we could not have those as exchange opportunities , but the only members who actually benefit from those options are those who use them. Otherwise they do not help or harm other members.

 

[InstImpres]

Income from renting time unused by members is limited, by contract, to 2.5% of the operating budget. This is fixed in the POS documents. It goes directly to the income side of our budget and does offset our dues. Anything over that amount does go to DVC.

Doc -

Did you mean DVD? If you meant DVC, who exactly is that (as far as the money side)?

TIA

 

[RobDoc]

DVC is the management company. They provide MS and receive a fixed percentage of the budget as payment for the services provided. Renting unused member inventory (breakage) is one of those services.

DVD (Disney Vacation Development) is the developer of the resorts and is responsible for sales.

 

[InstImpres]

Thanks for the clarification, I always thought "we" were DVC, there was MS and then DVD. Guess it is obvious that I never made it anywhere near all the way through my prospectus booklet

 

[RobDoc]

It's pretty easy to think of everything at WDW as one big family - and it is to a point - but each "division" has it's own budget and operates as a separate entity - WDW Transportation (resorts contract with that division to provide bus, boat and monorail services), Textile Services (more commonly known as the laundry), Restaurants, Theme Parks, etc. are all unique entities within the overall framework of Disney (along with other aspects like Touchstone, ABC-TV, ESPN, DCL, Disney Channel - and the list goes on).

We, as the owners of specific resorts, have the ability (albeit remote) to even replace DVC as the managing entity (shooting ourselves in the foot in the process) and replacing them with other management. If a resort chose to do that, those owners would lose access to MS and thus access to use points at other DVC resorts and all other DVC options offered, since they would no longer be part of DVC. The new management would also need to contract with the above Disney divisions to provide desired services - or seek outside providers, much like the Fairfield Bonnet Creek Resort. I'd expect those negotiations would be fun to watch!