Disney to sell their DVC unit?

[GAN]

Except go back and read Post #106. The originator of the rumor, Len Testa says he doesn’t think it came from inside Disney, but from outsiders sniffing for some M&A red meat (which I suggested upthread).

Sure ...that's possible as well.

 

[Duckbug.Ducktales]

The fact it was "leaked" tells me Chapek & Co. are probably reading through this forum right now. If it was something truly "in the works" we never would have heard anything at this point. Hi Bob!

Ooh, hi Bob! While you're here, let me respectfully plead with you to quit and get someone who cares about guest experience in line behind you. As a stockholder myself, I can tell you aqueezing out every last cent from the company's consumers is not my bottom line!

 

[TheEpcotForEver]

I welcome our Marriott overlords if they can get a working website. FIX THE WEBSITE BOB/BILL.

Ha, you’ve never been “Bonvoyed” I see. Marriott‘s loyalty program has been a mess for a long time now

 

[kilik64]

Ha, you’ve never been “Bonvoyed” I see.

Does it hurt? Sounds like it might.

 

[EM Lawrence]

I went back and listened to the podcast again. Its the last 15 minutes of today's podcast for anyone interested. What I gathered from the second, more careful, listen is that Len's source overheard representatives from three different financial firms discussing what a deal would look like if DVC were to be sold. What would the terms be, etc? But then Jim Hill also claimed that his sources inside of Disney corporate were bemoaning that DVC has become a bloated mess of a problem for them. No CEO has wanted to stop the expansion of DVC because all of the money from those direct sales are registered as income for the bottom line of the parks division, and whichever CEO decides to get off the merry-go-round of DVC sales will take a big hit to their bottom line. Chapek sees the upcoming Star Wars Galactic Cruiser as a potential solution to the problem of lost income from the continued expansion of DVC. Then Len stressed that this is all pure speculation. But to be honest, the whole conversation did not sound like pure speculation to me. It sounded as though it was grounded in something real going on behind the scenes, both inside and outside of Disney. Whether any of it comes to fruition is something else entirely. Who knows.

 

[DonMacGregor]

Does it hurt? Sounds like it might.

I spent 5 nights at the JW Marriott Grande Lakes last year and earned just enough points for a one night stay at the Fairfield Inn in Flagstaff. In November.

 

[CanadaDisney05]

No CEO has wanted to stop the expansion of DVC because all of the money from those direct sales are registered as income for the bottom line of the parks division, and whichever CEO decides to get off the merry-go-round of DVC sales will take a big hit to their bottom line.

I don't know the inner workings of Disney, nor have I ever looked directly at their Financials, but from a strict accounting perspective that doesn't sound right. They are selling a 50 year lease. I would imagine that the revenue is deferred every year, and every DVC sale only earns 1/50th of the amount every year.

The purpose of accounting standards forcing the revenue to be deferred is for exactly this purpose. You dont want a CEO to sell a bunch of 50 year contracts, artificially inflate the profit, earn big bonuses, and then stop selling in year 2 causing stock prices to drop.

 

[Lorana]

Ooh, hi Bob! While you're here, let me respectfully plead with you to quit and get someone who cares about guest experience in line behind you. As a stockholder myself, I can tell you aqueezing out every last cent from the company's consumers is not my bottom line!

Seconded (as a shareholder myself as well!). I bought into Disney, as a shareholder and as a DVC-owner, because the customer experience was top-notch and the thing I wanted, and what set Disney apart from everyone else. Don't lose sight that THAT is what made Disney the behemoth it now is, and losing that may very well lose Disney its place when customers turn away to someone who WILL create that magical experience for them.

 

[DonMacGregor]

Chapek sees the upcoming Star Wars Galactic Cruiser as a potential solution to the problem of lost income from the continued expansion of DVC.

I'd love to hear more about how THAT would work...

 

[andyman8]

This doesn't pass the smell test for a slew of reasons.

I have lots of respect for Len and Jim. They get some things right. They also get things wrong. At the start of the year, they said RAT would be open in time for the start of the Festival of the Arts to drum up demand for the festival. It's still not officially open.

And to be clear, I'm not suggesting that Len or anyone just made this up. It sounds to me, as has been suggested upthread, like an idea from bullish M&A folks or potentially a consulting team with limited operational knowledge of WDW and its resorts (and probably DVC and its various "companies").

 

[RivShore]

I don't know the inner workings of Disney, nor have I ever looked directly at their Financials, but from a strict accounting perspective that doesn't sound right. They are selling a 50 year lease. I would imagine that the revenue is deferred every year, and every DVC sale only earns 1/50th of the amount every year.

The purpose of accounting standards forcing the revenue to be deferred is for exactly this purpose. You dont want a CEO to sell a bunch of 50 year contracts, artificially inflate the profit, earn big bonuses, and then stop selling in year 2 causing stock prices to drop.

This is exactly right. Each DVC sale gets amortized over the life of the contract, so that $20k DVC purchase someone made this month only amounts to $400 of revenue for this year. Can't imagine its a large impact to the parks bottom line. Disney always indicated that the real money was in the repeat visits from the owners - tickets, eating, shopping, etc., not the sales

The podcasters are not the best when it comes to business discussions - they went on a tangent about the downfall of Disney Stores without once mentioning how all brick and mortars have been impacted by the internet and that the malls are dying around the country.

Some have mentioned they need the cash to pay down debt but sure their debt is at very favorable rates and, per one financial web site:

• Disney’s capital structure remains heavily weighted toward using equity to finance growth, versus debt.
• This remains true even after the company more than doubled its debt load this year with the closing of the 21st Century Fox acquisition.
• Despite leverage ratios that are near decade highs, Disney—compared to its major peers—uses less debt and has a less levered balance sheet

 

[dkostel]

Folks, I believe this is a Jim Hill podcast. He is notorious for throwing things against a wall to see what sticks. He is not reliable at all. I would sooner believe a bus driver.

This is simply not true. If Jim says they are discussing something they are. Whether or not it actually happens is another story. I think Disney "leaks" plans to guage reactions. It is cheaper than doing their own surveys.

 

[RivShore]

This is simply not true. If Jim says they are discussing something they are. Whether or not it actually happens is another story. I think Disney "leaks" plans to guage reactions. It is cheaper than doing their own surveys.

But this would be a gigantically complex financial transaction with implications that will last 50 years...as a shareholder and owner I certainly hope they give it more consideration than a survey!

 

[MarkNC2Disney]

I don't know the inner workings of Disney, nor have I ever looked directly at their Financials, but from a strict accounting perspective that doesn't sound right. They are selling a 50 year lease. I would imagine that the revenue is deferred every year, and every DVC sale only earns 1/50th of the amount every year.

The purpose of accounting standards forcing the revenue to be deferred is for exactly this purpose. You dont want a CEO to sell a bunch of 50 year contracts, artificially inflate the profit, earn big bonuses, and then stop selling in year 2 causing stock prices to drop.

I was a bit surprised when I scanned Disney’s 10-K. From the revenue recognition section:
“Resorts and vacations - Sales of hotel room nights and cruise vacations and rentals of vacation club properties are recognized as revenue as the services are provided to the guest. Sales of vacation club properties are recognized as revenue upon the later of when title transfers to the customer or when construction activity is deemed complete.”

I interpret rentals of vacation club properties as breakage income, whereas sales in the second sentence as normal DVC contracts.

ETA - I don’t know how Disney’s subsidiaries work (e.g. DVC, DVD etc), and the ownership structure of the land and buildings.

 

[Chuck S]

Chapek sees the upcoming Star Wars Galactic Cruiser as a potential solution to the problem of lost income from the continued expansion of DVC.

One hotel, even an expensive hotel, is not going to replace DVC income, especially when you consider that the Galactic Cruiser will be CM intensive with costumed characters, and I believe it will include meals and other entertainment, like a cruise ship, only on land.

 

[RescueRanger]

This is simply not true. If Jim says they are discussing something they are. Whether or not it actually happens is another story. I think Disney "leaks" plans to guage reactions. It is cheaper than doing their own surveys.

Are you Jim's mother? It certainly is true. Clickbait.

 

[CBMom01]

I don't know the inner workings of Disney, nor have I ever looked directly at their Financials, but from a strict accounting perspective that doesn't sound right. They are selling a 50 year lease. I would imagine that the revenue is deferred every year, and every DVC sale only earns 1/50th of the amount every year.

The purpose of accounting standards forcing the revenue to be deferred is for exactly this purpose. You dont want a CEO to sell a bunch of 50 year contracts, artificially inflate the profit, earn big bonuses, and then stop selling in year 2 causing stock prices to drop.

That sounds right to me, and I’d be shocked if any of that lease income belongs to the parks division.

I doubt banked points are much of an issue as long as they expire and can be accounted for. Targets with poor cash flow and huge liabilities aren’t that attractive to

 

[Westerlin]

We are discussing this because Disney wants us too. This was on the podcast because Disney decided to leak it. That is how the Fortune 500 works.
I don’t think it will happen but of course it has been discussed, I am sure it gets discussed in the past. It’s a publicly traded company that will look at any and all options. They are simply feeling the water.

 

[izzy]

I’ve felt for years that DVC is their golden Goose. I can’t remember the last hotel built on WDW property that wasn’t a DVC property. Maybe Art of Animation? Even the longstanding hotels have had portions of their rooms and buildings either taken over or expanded by DVC - AKL Jambo, BLT, Poly, VGF, just to name a few. I have to think that DVC is making a ton of money for the parent company or they wouldn’t have put almost all of their room focus on it for at least the last 10 years.

 

[dvc lover 1970]

I can totally see selling off the off-site properties, especially Aulani.

Sadly I agree. It has long been rumored that dvc would love to get rid of all the offsite properties. Too bad really because HHI is a hidden gem. VB is supposed to be really nice to.