Budget cuts at Walt Disney World

[adam.adbe]

If it is already the most visited park, and has had a attendance decline of 25% since 2008 and has made money only a handful of times in its existence, what is Disney going to do now that it didn't do before?

DLP pays TWDC licensing fees for IP, and it pays interest on loans. TWDC is not exactly hurting for DLP.

A DLP owned and operated by TWDC eliminates the licensing fees, and has an opportunity to get out from under debt burdens that make it pretty hard to turn a profit.

The interest payments on a DLPs debts are largely the difference between break-even and current typical yearly losses, so lose those payments and they're revenue neutral. Remove the debt payments, and they're turning a profit. Remove the licensing fees and they're turning a healthy profit. Now, fix up attractions, and add new rides at the same rate that US Disney parks expect, -- and which EuroDisney SCA cannot currently do as loan holding banks are blocking them -- and we can expect to see attendance rates and spend per guest start to climb, further increasing profits.

All this is quite aside from the fact the Disney brand as a whole benefits from a functioning park selling Disney IP in Europe (where that IP has traditionally been less valued).

The demographics of Europe are against it. People are not having families, and the market is withering much faster than the park.

Europe is not just France and Germany.

Plus, in the Iger era, even the healthy parks are being neglected.

Iger is running the parks lean, and I personally feel too much fat has been trimmed, but how are parks being neglected? DCA was pretty much rebuilt. DHS is being rebuilt. AK is being expanded. DL has seen some decent plussing. MK is looking stagnant at this point, but I think it's well understood that it'll get the love for the 50th. Only Epcot is looking moribund and without hope at this point. Even the much maligned FP+/MM spend bought significant and needed improvements in underlying infrastructure.

Iger's problem seems to be a tendency towards grand actions. For all he's maligned as boring, he doesn't care for incremental spend. Everything comes in boom-bust cycles.

 

[carmelhp]

DLP pays TWDC licensing fees for IP, and it pays interest on loans. TWDC is not exactly hurting for DLP.

A DLP owned and operated by TWDC eliminates the licensing fees, and has an opportunity to get out from under debt burdens that make it pretty hard to turn a profit.

The interest payments on a DLPs debts are largely the difference between break-even and current typical yearly losses, so lose those payments and they're revenue neutral. Remove the debt payments, and they're turning a profit. Remove the licensing fees and they're turning a healthy profit. Now, fix up attractions, and add new rides at the same rate that US Disney parks expect, -- and which EuroDisney SCA cannot currently do as loan holding banks are blocking them -- and we can expect to see attendance rates and spend per guest start to climb, further increasing profits.

All this is quite aside from the fact the Disney brand as a whole benefits from a functioning park selling Disney IP in Europe (where that IP has traditionally been less valued).

Where to start. Firstly, this is so highly optimistic and speculative to be not credible. The elimination of licensing fees will not allow other debt burdens to be eliminated. DLP was racking the fees up as debts to Disney, not cash payments, and still not paying off their other debts. Then, despite the current mess, you're asking to throw good money after bad at the park, billions. Where's it coming from, if everything is going to debt repayment? Doesn't make financial sense and endangers the whole organization.

Europe is not just France and Germany.

I don't see your point? France, along with Ireland, has the healthiest fertility rate in the EU, but still low. Everyone else is way, way lower. The rate for the EU as a unit is abysmal.

Iger is running the parks lean, and I personally feel too much fat has been trimmed, but how are parks being neglected? DCA was pretty much rebuilt. DHS is being rebuilt. AK is being expanded. DL has seen some decent plussing. MK is looking stagnant at this point, but I think it's well understood that it'll get the love for the 50th. Only Epcot is looking moribund and without hope at this point. Even the much maligned FP+/MM spend bought significant and needed improvements in underlying infrastructure.

Iger's problem seems to be a tendency towards grand actions. For all he's maligned as boring, he doesn't care for incremental spend. Everything comes in boom-bust cycles.

Again, a very optimistic spin on what has mostly been promises and half measures on the cheap. Where are these additional billions coming from?

 

[Eoghann]

You just said it yourself and it has nothing to do with who controls it. The market isn't there. They can't make money even as the most visited theme park in Europe (and attendance is declining). They have a debt burden from it's initial construction that can't be shed. It's a dying dog. Disney should have backed away instead of taking it inside the house.

It's not nearly that simple. A whole series of errors were made: the original financial deal which put them massively in debt, negotiations with French Unions which got bad PR, failure to properly build up the Parks. Attendance (at 14.8 million last year) is quite respectable and they have made profits some years. It's the debt load that kills them.

 

[crazy4wdw]

Cuts at Port Orleans Riverside (from portorleans.org).

The Riverside Mill food court has removed a number of breakfast options from its menu, including one complete serving zone (the counter in the corner, to the left of the Omelets). The odd thing is that most of these lost items were only introduced late last Summer:

• Breakfast Sandwich
• Egg White Frittata Sandwich
• Biscuits and Gravy
• Quiche Lorraine
• Create-Your-Own Fruit Bowl

What remains (apart from the other Make-Your-Own options and the Bakery) are just the generic - and presumably least healthy - Bounty Platter, Pancakes, Waffles, French Toast and Grits.

I can only assume this is a cost-cutting exercise, but whatever the reason I can't see how it can do anything other than result in even longer lines for guests.

 

[rteetz]

Cuts at Port Orleans Riverside (from portorleans.org).

The Riverside Mill food court has removed a number of breakfast options from its menu, including one complete serving zone (the counter in the corner, to the left of the Omelets). The odd thing is that most of these lost items were only introduced late last Summer:

• Breakfast Sandwich
• Egg White Frittata Sandwich
• Biscuits and Gravy
• Quiche Lorraine
• Create-Your-Own Fruit Bowl

What remains (apart from the other Make-Your-Own options and the Bakery) are just the generic - and presumably least healthy - Bounty Platter, Pancakes, Waffles, French Toast and Grits.

I can only assume this is a cost-cutting exercise, but whatever the reason I can't see how it can do anything other than result in even longer lines for guests.

Well I don't know. The executive chef of California Grill left that job and is now the head chef of the moderate resorts. This could be for coming changes to the menus from him.

 

[adam.adbe]

Where to start. Firstly, this is so highly optimistic and speculative to be not credible. The elimination of licensing fees will not allow other debt burdens to be eliminated. DLP was racking the fees up as debts to Disney, not cash payments, and still not paying off their other debts.

Fortunately, that's not what I said. I said that paying TWDC interest on loans, debt repayments on loans, AND licensing for IP is enough to turn operating losses into profits.

Then, despite the current mess, you're asking to throw good money after bad at the park, billions. Where's it coming from, if everything is going to debt repayment? Doesn't make financial sense and endangers the whole organization.

The debt is already incurred. TWDC is either writing it off and wiping their hands of it, or writing it off and making a go of an already built and functioning park.

I don't see your point? France, along with Ireland, has the healthiest fertility rate in the EU, but still low. Everyone else is way, way lower. The rate for the EU as a unit is abysmal.

The EU has around 75-80 million people between the ages of 0 and 15. The US has has around 60 million. Fertility rates are about 1.6 vs 1.8. What's your point?

 

[carmelhp]

It's not nearly that simple. A whole series of errors were made: the original financial deal which put them massively in debt, negotiations with French Unions which got bad PR, failure to properly build up the Parks. Attendance (at 14.8 million last year) is quite respectable and they have made profits some years. It's the debt load that kills them.

Fortunately, that's not what I said. I said that paying TWDC interest on loans, debt repayments on loans, AND licensing for IP is enough to turn operating losses into profits.

The debt is already incurred. TWDC is either writing it off and wiping their hands of it, or writing it off and making a go of an already built and functioning park.

What seems to lost is that the reason for the debt load is that the parks never generated sufficient cash to pay it down. In past years, creditors wrote off around $2 billion and the refrain is, "oh, it's the debt load that kills them." to get rid of debt, they have to make money. It's ridiculous to say that the parks could make money if only they didn't have to pay their own building costs. That's part of the game. The attendance has drifted down 25% in the last 8 years, I don't see an early or cheap turnaround. Again, where is the money going to come from to finance all these wonderful improvements at DLP? I can't see it.

 

[Eoghann]

What seems to lost is that the reason for the debt load is that the parks never generated sufficient cash to pay it down. In past years, creditors wrote off around $2 billion and the refrain is, "oh, it's the debt load that kills them." to get rid of debt, they have to make money. It's ridiculous to say that the parks could make money if only they didn't have to pay their own building costs. That's part of the game. The attendance has drifted down 25% in the last 8 years, I don't see an early or cheap turnaround. Again, where is the money going to come from to finance all these wonderful improvements at DLP? I can't see it.

It's not lost at all. I said they made some very poor deals. The problem was not the building costs for parks themselves it was the rest of the land deal and hotel occupancy.

Writing off debt load so that a company can return to profitability is also "how the game is played" to use your phrase. That is after all the whole function of Chapter 11.

You're also being very loose with your statistics. Down 25% in the last 8 years yes, but if you look at only the last 7 years the drop is a mere 4% and in fact in the last year there was 4% year on year growth. Percentages can be very misleading and you are picking yours to fit the narrative you already have. It would be more accurate to call attendance in Paris static. This does not describe a death spiral.

 

[lockedoutlogic]

http://www.orlandosentinel.com/business/tourism/os-disney-cuts-20160304-story.html

Here's a follow up article in the Sentinel…which will be largely ignored. i do like that they quote Deb in it - as opposed to an adjunct Econ Professor from the University of halifax or something...

 

[rteetz]

http://www.orlandosentinel.com/business/tourism/os-disney-cuts-20160304-story.html

Here's a follow up article in the Sentinel…which will be largely ignored. i do like that they quote Deb in it - as opposed to an adjunct Econ Professor from the University of halifax or something...

I agree, Deb is usually very positive and loves Disney. However if Disney does something wrong she has no problem them calling them out.

 

[carmelhp]

It's not lost at all. I said they made some very poor deals. The problem was not the building costs for parks themselves it was the rest of the land deal and hotel occupancy.

Writing off debt load so that a company can return to profitability is also "how the game is played" to use your phrase. That is after all the whole function of Chapter 11.

You're also being very loose with your statistics. Down 25% in the last 8 years yes, but if you look at only the last 7 years the drop is a mere 4% and in fact in the last year there was 4% year on year growth. Percentages can be very misleading and you are picking yours to fit the narrative you already have. It would be more accurate to call attendance in Paris static. This does not describe a death spiral.

I'm misleading? You cherry picked a year that was their lowest attendance in years as a start point to try to tease a rise in the current year. Would you call this healthy:

2008: 20.00 Million

2009: 15.40 million

2010: 15.00 million

2011: 15.70 million

2012: 16.00 million

2013: 14.90 million

2014: 14.20 million

2015: 14,80 million

It dropped EVERY year on year EXCEPT last year which was a tiny statistical blip. This DOES describe a death spiral except for the most oblivious. There has been a series of debt restructurings every few years and the spiral continues. Speaking of Chapter 11, would you feel confident putting your money in a concern that was in and out of Chap 11 every few years? As a shareholder, not with my money, please!

 

[Budshark]

I'm misleading? You cherry picked a year that was their lowest attendance in years as a start point to try to tease a rise in the current year. Would you call this healthy:

2008: 20.00 Million

2009: 15.40 million

2010: 15.00 million

2011: 15.70 million

2012: 16.00 million

2013: 14.90 million

2014: 14.20 million

2015: 14,80 million

It dropped EVERY year on year EXCEPT last year which was a tiny statistical blip. This DOES describe a death spiral except for the most oblivious. There has been a series of debt restructurings every few years and the spiral continues. Speaking of Chapter 11, would you feel confident putting your money in a concern that was in and out of Chap 11 every few years? As a shareholder, not with my money, please!

You're missing his point. Between 2008-2015 it dropped 5.2 million visitors. Between 2009-2015 it dropped .6 million. The majority of the drop happened between 08-09 since then it's been relatively flat.

P.S. What is your source. I'm not finding any site that confirms your high number for 2008. The other numbers match but I'm finding 15-16 million for 2008.

 

[Budshark]

Eurodisney annual report lists 15.3 million visitors for both parks in 2008, a slight increase from 2007.

So 20 million isn't correct. They've never been that high. Lack of growth is a concern but the substantial drop doesn't seem to exist.

 

[Eoghann]

I'm misleading? You cherry picked a year that was their lowest attendance in years as a start point to try to tease a rise in the current year. Would you call this healthy:

2008: 20.00 Million

2009: 15.40 million

2010: 15.00 million

2011: 15.70 million

2012: 16.00 million

2013: 14.90 million

2014: 14.20 million

2015: 14,80 million

It dropped EVERY year on year EXCEPT last year which was a tiny statistical blip. This DOES describe a death spiral except for the most oblivious. There has been a series of debt restructurings every few years and the spiral continues. Speaking of Chapter 11, would you feel confident putting your money in a concern that was in and out of Chap 11 every few years? As a shareholder, not with my money, please!

Um... check your numbers again. 2012 is higher than 2011...

The big drop occurred in 2008... why is that year familiar... oh yes... massive global recession. Since then the actual drops have been minimal.

 

[Eoghann]

Eurodisney annual report lists 15.3 million visitors for both parks in 2008, a slight increase from 2007.

So 20 million isn't correct. They've never been that high. Lack of growth is a concern but the substantial drop doesn't seem to exist.

He's getting the figures from wikipedia most likely. Those were the ones I was using. Interesting that 2008 would be so far off.

Either way the attendance figures are okay, very very few parks have higher anywhere in the world.

 

[DDLand]

Eurodisney annual report lists 15.3 million visitors for both parks in 2008, a slight increase from 2007.

Did you appreciate the awesomeness of the Matterhorn in a Disneyland Paris publication? Sometimes using stock Disney images is not a good idea... Or else you end up selling a product thousands of miles away from your own.

 

[Eoghann]

Did you appreciate the awesomeness of the Matterhorn in a Disneyland Paris publication? Sometimes using stock Disney images is not a good idea... Or else you end up selling a product thousands of miles away from your own.

The magic of Disney Parks and Resorts lets you and your family experience something no vacation is complete with out, that special frustration of discovering the ride you really wanted to go on doesn't actually exist in this park.

It's all in how you spin it.

 

[DDLand]

It dropped EVERY year on year EXCEPT last year which was a tiny statistical blip.

Why is 2015 a statistical blip? Occupancy was up. Guest spending was up. Revenue was up. Attendance was up.

2015 was the beginning of a turn around.

Disneyland Paris has capital and is in a position to invest. Helping to improve existing facilities, adding new attractions, and eventually adding new Resorts and Parks is now within the realm of possibility. For the first time Disneyland Paris has breathing room. Turning Park Two into a worthy companion park to Disneyland Paris is the most obvious direction.

Give them time. Walt Disney World is a behemoth next to the much smaller Disneyland Paris. Walt Disney World, Disney Cruise Line, and Disneyland can more than carry any weight that Disneyland Paris creates. It can only get better from here.

 

[DDLand]

WDW because it isn't driving a DVC cash cow

DVC is a part of a separate division. WDW has been and will continue being profitable all on its own. DVC makes waves, but nothing like the Billions they make from Admissions, Hotels, and Food/Merch.

 

[adam.adbe]

DVC is a part of a separate division. WDW has been and will continue being profitable all on its own. DVC makes waves, but nothing like the Billions they make from Admissions, Hotels, and Food/Merch.

Noted, thanks. Do you happen to know if Disney regard DVC as purely an extra revenue source from WDW, or do they also see it as also driving business to WDW? The natural lock-in of such an arrangement would suggest the latter, but Disney's seeming lax attitude to DVC points rentals, suggests they're comfortable with DVC being what it is.