DVC point balancing 2022 vs 2021

[we"reofftoneverland]

I am not currently a DVC owner, but have been to the sales center and have a question. In the latest podcast, there was mention of the term "breakage". If I understand correctly, it is set number of points that each DVC resort has access to turn into a cash sale. The resort owners then get a credit/discount of up to 2% for those points that are subjected to breakage.

So if there will be a higher aggregate of points for each resort, does the breakage cap of 2% get increased? Is there a linear relationship between increasing a point offering with the breakage cap?

Additional breakage beyond the 2% (is it 2%? I don’t even know what their set breakage is) is pure profit for dvc because we are paying the member fees on that breakage. They keep all money they earn after the 2%.

 

[Tiggerette]

I am not currently a DVC owner, but have been to the sales center and have a question. In the latest podcast, there was mention of the term "breakage". If I understand correctly, it is set number of points that each DVC resort has access to turn into a cash sale. [edited for length]

Thanks for checking in about this understanding. "Breakage" :
- allows a room to be placed in service, rather than go unused, and occurs no earlier than 60 days prior to the Use Day/"check-in".
- is the process where unused rooms are reserved through cash payment direct to DVC/MC, who then enters that payment into "Breakage income".
- is a cost recovery mechanism where 2.5% of the total amount of income from breakage is credited to annual assessment. The remainder 97.5% breakage income is credited to the company as profit or other internal use.

- is not directly related to the number of points required to reserve. It is indirectly related, because if owners choose not to stay or cannot afford the increased points in any given use day (for whatever reason), then the rooms are unused and breakage occurs. More breakage= more breakage income. I am not confident whether the inflated points automatically confers additional breakage, but I certainly concede that it increases the liklihood of unused points.

 

[CarolMN]

is a cost recovery mechanism where 2.5% of the total amount of income from breakage is credited to annual assessment. The remainder 97.5% breakage income is credited to the company as profit or other internal use.

Not quite. It's capped at 2.5% of the resort's operating budget, not 2.5% of the total breakage income.

ETA: From the BWV POS:
"The Association is entitled to receive, as breakage income, the proceeds of
such rentals not to exceed 2.5 percent of the aggregate of the Condominium Operating Budget (total operating expenses less the sum of interest income and Member late fees and interest) and Capital Reserve Budget in each calendar year."

"As additional consideration, the Association hereby assigns to DVCMC any and all rights of the Association to rent unreserved Vacation Homes (in accordance with the reservation priorities of the Breakage Period) and to receive the proceeds in excess of the following: (i) the rental proceeds equalling an amount up to two and
one-half percent (2.5%) of the Condominium Estimated Budgets shall be remitted by DVCMC to the Association; and (ii) a portion of the rental proceeds, if any, in an amount equal to Buena Vista Trading Company's ("BVTC's) costs for providing those services as set forth in the DVC Resort Agreement for the Condominium plus five percent (5%) of such costs. The portion of rental proceeds, if any, set forth in (ii) of the preceding sentence shall be remitted by DVCMC to BVTC in consideration for BVTC's performance of such services under the DVC Resort Agreement for the Condominium. ln performing its obligations for the Association and BVTC pursuant to (i) and (ii) above, DVCMC shall segregate such funds owed to the Association and BVTC and hold them, respectively, on behalf of the Association and BVTC and not for its own account. Such funds shall be deemed to be the property, respectively, of the Association and BVTC and not of DVCMC upon receipt of such funds by DVCMC."

 

[hertamaniac]

DVCMC may rent an unreserved DVC villa to the general public for cash 60 days or less prior to the check in date. The proceeds of these rentals are called "breakage", and are used to offset member dues.

The amount of breakage income is capped at 2.5% of the resort's operating budget. (It's not 2.5% of the total proceeds of the rentals). The amount over the cap goes to BVTC & DVCMC. (The detailed explanation of how the breakage cap is determined and distributed may be found in a Resort's POS).

The cap has been exceeded every year. We do not know how much ends up back in DVCMC's pocket. But since the cap is always exceeded, any increase in breakage benefits Disney, not members.

Do members get visibility to the quantity of unreserved DVC villas (with associated point totals) within a/the rolling 60-day, or less, check-in window(s)?

 

[hertamaniac]

ln performing its obligations for the Association and BWC pursuant to (i) and (ii) above, DVCMC shall segregate such funds owed to the Association and BWC and hold them, respectively, on behalf of the Association and BWTC and not for its own account. Such funds shall be deemed to be the property, respectively, of the Association and BWC and not of DVCMC upon receipt of such funds by DVCMC."

Does DVCMC pay accrued interest to the Association and/or BWTC while holding the breakage funds?

 

[drusba]

Do members get visibility to the quantity of unreserved DVC villas (with associated point totals) within a/the rolling 60-day, or less, check-in window(s)?

No, members do not get any count of available rooms from the reservation system. The information members get is simply whether the class of room (such as studio) at a resort is or is not available, not how many may be available, at any given time.

 

[kes601]

Thanks for checking in about this understanding. "Breakage" :
- allows a room to be placed in service, rather than go unused, and occurs no earlier than 60 days prior to the Use Day/"check-in".
- is the process where unused rooms are reserved through cash payment direct to DVC/MC, who then enters that payment into "Breakage income".

Are rooms that are placed into breakage still available to rent via points or do they become cash only at that point?

 

[Bing Showei]

- allows a room to be placed in service, rather than go unused, and occurs no earlier than 60 days prior to the Use Day/"check-in".

Per the POS, Disney is also permitted, at their own discretion and without oversight, to estimate what breakage will be, given historical data (to which members do not have access), and using those projections, convert rooms to cash and sell those rooms outside normal booking windows.

It’s important to note that when this happens, it is not simply Disney using their own points to book a room outside of the home resort window, it’s a conversion of a dues-paid room into a room for CRO to sell to cash-paying non-members.

The total revenue from breakage is not known, only that it has maxed out every year for at least the past 12 years.

I imagine this revenue is why Disney is so eager to build more and more timeshare resorts over cash rooms, and will continue the practice of converting cash rooms into timeshares (a la PVB, CCV, etc.).

The membership is a captured audience all too happy to pay to keep the lights on year-over-year for the next 20-50 years. For a long time this has been a symbiotic relationship. We love our Disney.

But it seems Management for the past decade seems to be willing to test the limits further and further to find our breaking point. And if the latest sales figures are any indication, the most severe restrictions leveled against the membership notwithstanding, they are still leaving a ton of money on the table.

 

[drusba]

Are rooms that are placed into breakage still available to rent via points or do they become cash only at that point?

Rooms that are still open at 60 days or fewer out (the breakage period) can be reserved by members using points or by anyone else renting through Disney, with no reservation priority given to either during that time.

 

[KAT4DISNEY]

, but I certainly concede that it increases the liklihood of unused points.

It isn't that it increases the likelihood of unused points but because the # of rooms has not changed when the number of points required to book them has then it absolutely increases the number of nights a room will be empty simply because the points have all been used and there are no more to book all nights. So then DVC takes that empty room and rents it for cash. And because the breakage income for the associations have always reached the limit then this new additional rental goes to DVC as pure income.

 

[Brian Noble]

I imagine this revenue is why Disney is so eager to build more and more timeshare resorts over cash rooms

I think there are two simpler explanations.

The simplest: the timeshare model compresses the ROI of a resort's development into just a handful of years during sales, rather than over the viable lifetime of the property. Because publicly traded companies are evaluated quarter-by-quarter, this acceleration is a smart move for the balance sheet.

Maybe another (and one I've been convinced of for a long time now): DVC shifts the risk of unexpected drops in travel demand from WDW to individual owners. This is important becase WDW is so highly dependent on air travel to make it work; Central Florida just isn't Southern California, Shanghai, Tokyo, etc.

If you think about it, the spigot for cash rooms was closed in response to 9/11, and really hasn't ever re-opened. The only cash rooms built since then are the completion of of Pop/AoA (which was already in progress when 9/11 happened and took more than a decade to finish), Gran Destino tower (built for convention business), and the Galactic Starcruiser (the poster child for specialty lodging).

In that same span, we've seen a steady diet of DVC rooms spread between new builds and conversions that removed cash rooms from inventory: BCV, SSR (a complete conversion of the Disney Institute), Kidani, Jambo (partial AKL conversion), BLT (North Garden Wing conversion), GFV, PVB (partial Poly conversion), CCV (partial WL conversion), Riviera (partial CBR conversion).

And I think it worked. How much harder would it have been to get guests to come to Orlando during the beginning of the pandemic recovery without a chunk of DVC owners with use-it-or-lose-it points?

Also interestingly: Reflections was a departure from the "normal" development model in that it was mixed-use: DVC plus cash inventory. I don't think it is any accident that it was cancelled outright as a result of the pandemic. Furthermore, I'll bet a mickeybar that (a) that parcel will be used for DVC development in the next decade and (b) there will be no cash rooms as part of it.

 

[ford91exploder]

I will check out that documentary. Thanks.
Today, there is also the added social justice agenda of large corporation CEOs that confuses what a company’s purpose really is and seems to put customer experience on the back burner.

Thanks for checking in about this understanding. "Breakage" :
- allows a room to be placed in service, rather than go unused, and occurs no earlier than 60 days prior to the Use Day/"check-in".
- is the process where unused rooms are reserved through cash payment direct to DVC/MC, who then enters that payment into "Breakage income".
- is a cost recovery mechanism where 2.5% of the total amount of income from breakage is credited to annual assessment. The remainder 97.5% breakage income is credited to the company as profit or other internal use.

- is not directly related to the number of points required to reserve. It is indirectly related, because if owners choose not to stay or cannot afford the increased points in any given use day (for whatever reason), then the rooms are unused and breakage occurs. More breakage= more breakage income. I am not confident whether the inflated points automatically confers additional breakage, but I certainly concede that it increases the liklihood of unused points.

Disney has quietly added another category to breakage 'trends' which officially means they can take rooms at the 11 month mark if 'trend analysis' shows the room 'unlikely to be rented by DVC members' translation premium rooms like GV's will be snatched out of DVC inventory and rented for a heck of alot more cash than the few piddling thousands the member fee's on point's give DIsney. Of course who does the 'trend analysis' why Celebration and Burbank not a disinterested third party

 

[ford91exploder]

I think there are two simpler explanations.

The simplest: the timeshare model compresses the ROI of a resort's development into just a handful of years during sales, rather than over the viable lifetime of the property. Because publicly traded companies are evaluated quarter-by-quarter, this acceleration is a smart move for the balance sheet.

Maybe another (and one I've been convinced of for a long time now): DVC shifts the risk of unexpected drops in travel demand from WDW to individual owners. This is important becase WDW is so highly dependent on air travel to make it work; Central Florida just isn't Southern California, Shanghai, Tokyo, etc.

If you think about it, the spigot for cash rooms was closed in response to 9/11, and really hasn't ever re-opened. The only cash rooms built since then are the completion of of Pop/AoA (which was already in progress when 9/11 happened and took more than a decade to finish), Gran Destino tower (built for convention business), and the Galactic Starcruiser (the poster child for specialty lodging).

In that same span, we've seen a steady diet of DVC rooms spread between new builds and conversions that removed cash rooms from inventory: BCV, SSR (a complete conversion of the Disney Institute), Kidani, Jambo (partial AKL conversion), BLT (North Garden Wing conversion), GFV, PVB (partial Poly conversion), CCV (partial WL conversion), Riviera (partial CBR conversion).

And I think it worked. How much harder would it have been to get guests to come to Orlando during the beginning of the pandemic recovery without a chunk of DVC owners with use-it-or-lose-it points?

Also interestingly: Reflections was a departure from the "normal" development model in that it was mixed-use: DVC plus cash inventory. I don't think it is any accident that it was cancelled outright as a result of the pandemic. Furthermore, I'll bet a mickeybar that (a) that parcel will be used for DVC development in the next decade and (b) there will be no cash rooms as part of it.

But breakage is 'the back door' route to cash rooms, remember there are NO DVC rooms on property that CANNOT be rented by a regular cash customer, And too many times I tried get a reservation on points which failed but the very same room class and dates were available for cash. That was post 2015, before that one could call MS and MS would see the room in breakage and then you would hear 30 seconds of clicking on keys and you would have a reservation but that I guess was from the days when DVC was actually managed for the members, and breakage was considered a bad thing, As of now I'm sure there are targets for breakage income and you get a bonus for exceeding target.

 

[KAT4DISNEY]

But breakage is 'the back door' route to cash rooms, remember there are NO DVC rooms on property that CANNOT be rented by a regular cash customer, And too many times I tried get a reservation on points which failed but the very same room class and dates were available for cash. That was post 2015, before that one could call MS and MS would see the room in breakage and then you would hear 30 seconds of clicking on keys and you would have a reservation but that I guess was from the days when DVC was actually managed for the members, and breakage was considered a bad thing, As of now I'm sure there are targets for breakage income and you get a bonus for exceeding target.

There are other buckets for the cash rooms though. Their own points and those that need to be rented for cash because the member traded out.

 

[SL6827]

Disney will try again. Just you wait.

 

[ford91exploder]

There are other buckets for the cash rooms though. Their own points and those that need to be rented for cash because the member traded out.

Those have existed forever, The point was pre-2015 there were never any difficulties in moving inventory between buckets, Now the only bucket moves are those which are cash positive for Disney corporate. Think of it like this your DVC membership is your permanent seat license, Your Member Fees are your season tickets, Trouble is Disney is coming up with creative ways to prevent you from utilizing your PAID FOR season tickets in favor of one time visitors paying for a much more profitable single game ticket in your seat.

Also NOWHERE in your contract does it say Disney must make accomodations available for you to USE your points, Only that they must give you your annual allocation in exchange for your member fees. Theoretically Disney could block all for points reservations at a popular resort and you would be up a well known creek with no means of propulsion or helm control.

 

[CaptainAmerica]

The simplest: the timeshare model compresses the ROI of a resort's development into just a handful of years during sales, rather than over the viable lifetime of the property. Because publicly traded companies are evaluated quarter-by-quarter, this acceleration is a smart move for the balance sheet.

True, but incomplete. Disney, more than any other timeshare destination, gets diverse revenue streams from their owners. I think of Walt Disney World as five or six intertwined yet distinct businesses (Room Nights, Park Admission, F&B, Merch, Recreation, and Conventions/Special Events). When we define "resort" as "Riviera Resort," yes, the primary cash flow associated with the room nights is compressed into the front end of the lifecycle. But if we define "resort" as "Walt Disney World Resort," DVC members' future spending on park tickets, F&B, and merchandise is a non-trivial component of the ROI calculation.

Maybe another (and one I've been convinced of for a long time now): DVC shifts the risk of unexpected drops in travel demand from WDW to individual owners. This is important becase WDW is so highly dependent on air travel to make it work; Central Florida just isn't Southern California, Shanghai, Tokyo, etc.

This ties in nicely with my point above. DVC doesn't just protect Disney on the room nights side (as in, these rooms are already sold so no worries), it also protects their other revenue streams to a certain extent. Even with COVID, Disney would have been much better off if they had been able to keep the DVC resorts open, even if they were forced to close the parks themselves.

 

[CarolMN]

But breakage is 'the back door' route to cash rooms, remember there are NO DVC rooms on property that CANNOT be rented by a regular cash customer, And too many times I tried get a reservation on points which failed but the very same room class and dates were available for cash. That was post 2015, before that one could call MS and MS would see the room in breakage and then you would hear 30 seconds of clicking on keys and you would have a reservation but that I guess was from the days when DVC was actually managed for the members, and breakage was considered a bad thing, As of now I'm sure there are targets for breakage income and you get a bonus for exceeding target.

Respectfully, if the cash rooms you saw were there due to breakage, MS could have "pulled them back" for members who wanted to book them for points.

The cash inventory you saw was almost certainly available because of Member trades for selected options in one of the Collections, most likely cruises. Many here do not realize how many members use points to cruise (probably because everytime it's mentioned, someone tells them how it's a bad value, and they should rent points instead).

 

[KAT4DISNEY]

Those have existed forever, The point was pre-2015 there were never any difficulties in moving inventory between buckets, Now the only bucket moves are those which are cash positive for Disney corporate. Think of it like this your DVC membership is your permanent seat license, Your Member Fees are your season tickets, Trouble is Disney is coming up with creative ways to prevent you from utilizing your PAID FOR season tickets in favor of one time visitors paying for a much more profitable single game ticket in your seat.

That was your experience but mine was different. Once I got them to pull back a single night at VB but otherwise no - pre 2015.

I do wonder about their prediction models though and whether they've been updated. If you are going off of predictions for breakage from 10-20 years ago I tend to think it's different now than it was then. And with the recent things they've done it is a concern that they may not be updating as they should. Once they showed either ignorance or questionable choices in one thing like the point charts it's difficult to think that's the only thing it is happening with so I do understand what you are saying. I just didn't have any particularly easy experience of getting a room pulled back anytime.

 

[Tiggerette]

Just came out of meetings and saw the corrections & clarification to my post on breakage. I didn't realize I was a bit astray from a fulsome understanding. I wanted to pop in to say thank you very much for sharing!

It's important to me that the thread remain informative in a correct and clear way. Thank you very much for your time, effort and assistance to keep it so!