Riviera resale restrictions lifting: possible

[CanadaDisney05]

If they did, whatever the fee would not make it cheaper than direct, so, I agree it would be a hefty amount.

If they were to charge a fee to give resale points "direct status", it would 100% be cheaper than direct. Why would anyone in their right mind go through the hassle of resale AND pay more? They would just go direct.

I understand Disney wants people to go direct, but what they really want is to earn money. If nobody is going to purchase this upgrade, there is no point in offering it. By offering an upgrade fee that is somewhere between the price of Resale and Direct pricing, people will utilize this service. Disney basically gets free money without having to take on inventory, pay maintenance fees, plus selling commissions to sales people. The resale company does all the work, and Disney still earns a chunk of cash without investing any capital. Its the perfect scenario for them.

Add to that, if the resale restrictions do in fact drive prices down, that just creates more room for Disney to profit from this strategy.

I can see them not offering this on in-market resorts because they don't want to take away sales from themselves. But it makes perfect sense for them to offer this on sold out resorts.

 

[crvetter]

If they were to charge a fee to give resale points "direct status", it would 100% be cheaper than direct. Why would anyone in their right mind go through the hassle of resale AND pay more? They would just go direct.

I understand Disney wants people to go direct, but what they really want is to earn money. If nobody is going to purchase this upgrade, there is no point in offering it. By offering an upgrade fee that is somewhere between the price of Resale and Direct pricing, people will utilize this service. Disney basically gets free money without having to take on inventory, pay maintenance fees, plus selling commissions to sales people. The resale company does all the work, and Disney still earns a chunk of cash without investing any capital. Its the perfect scenario for them.

Add to that, if the resale restrictions do in fact drive prices down, that just creates more room for Disney to profit from this strategy.

I can see them not offering this on in-market resorts because they don't want to take away sales from themselves. But it makes perfect sense for them to offer this on sold out resorts.

I agree with most of what you have to say. Though a few things: 1) Any points DVC takes back with the intention of selling they do not pay MF on (part of the developer guarantee). They only pay MF on the points they own (which typically slightly above 2%). Though most resorts are actually subsidized by DVC (SSR and OKW and AKV are subsidized at a rate greater than the MF that DVC didn't pay). 2) As soon as they offer this on the first sold out resort (Riviera) each subsequent resort buyers could opt for resale with the assumption it will keep happening (sort of goes with the moral hazard arguments for forgiving debt).

I suspect a per trade trade fee would be more likely to happen. So each time you trade points you'll pay a nominal fee per point to do the transfer (nominal in that one instance but not too nominal if you trade all the time).

 

[Sandisw]

If they were to charge a fee to give resale points "direct status", it would 100% be cheaper than direct. Why would anyone in their right mind go through the hassle of resale AND pay more? They would just go direct.

I understand Disney wants people to go direct, but what they really want is to earn money. If nobody is going to purchase this upgrade, there is no point in offering it. By offering an upgrade fee that is somewhere between the price of Resale and Direct pricing, people will utilize this service. Disney basically gets free money without having to take on inventory, pay maintenance fees, plus selling commissions to sales people. The resale company does all the work, and Disney still earns a chunk of cash without investing any capital. Its the perfect scenario for them.

Add to that, if the resale restrictions do in fact drive prices down, that just creates more room for Disney to profit from this strategy.

I can see them not offering this on in-market resorts because they don't want to take away sales from themselves. But it makes perfect sense for them to offer this on sold out resorts.

You could be right. But Let’s think about what Disney has been doing and I am going to bet that the charge, if it is ever done, brings it pretty close to the active selling price of the current resort.

If not, why would anyone buy direct? Buy cheap on resale, then pay Disney a fee, and end up with the same options as those that buy direct,

If the whole point of the changes they have done these past 8 years was to push sales to Disney, I just can’t see anyone coming up with a plan that allows people to get direct benefits cheaper by starting with resale.

Your point, though, is that if it is so high that no one upgrades points, it wont be worth it. iMO, I don’t actually see them doing it Across the board

What I see is that they might do, when Reflections comes on board, is offer Rivera resale owners the ability to stay at Reflections for a per reservation fee.

None of us know...we are all guessing...who would have predicted the changes they have done...so any ideas of what they might do are valid.

 

[CanadaDisney05]

2) As soon as they offer this on the first sold out resort (Riviera) each subsequent resort buyers could opt for resale with the assumption it will keep happening (sort of goes with the moral hazard arguments for forgiving debt).

Can you please elaborate on this?

 

[Sandisw]

I agree with most of what you have to say. Though a few things: 1) Any points DVC takes back with the intention of selling they do not pay MF on (part of the developer guarantee). They only pay MF on the points they own (which typically slightly above 2%). Though most resorts are actually subsidized by DVC (SSR and OKW and AKV are subsidized at a rate greater than the MF that DVC didn't pay). 2) As soon as they offer this on the first sold out resort (Riviera) each subsequent resort buyers could opt for resale with the assumption it will keep happening (sort of goes with the moral hazard arguments for forgiving debt).

I suspect a per trade trade fee would be more likely to happen. So each time you trade points you'll pay a nominal fee per point to do the transfer (nominal in that one instance but not too nominal if you trade all the time).

Maybe along the line of a charge like OTU points? Not as much but like $10 a point to convert to vacation points eligible at the new resorts.

 

[CanadaDisney05]

If not, why would anyone buy direct? Buy cheap on resale, then pay Disney a fee, and end up with the same options as those that buy direct,

a) People have been buying direct since the beginning of DVC, even when resale got you an identical product.

b) I can see them not offering this upgrade on the current selling resorts. Basically, the idea would be that Disney would no longer have to ROFR and resell legacy resorts. They can simply use this upgrade as their way of profiting. So the reason why someone would still buy direct is because they want to own the actively selling resort.

If the whole point of the changes they have done these past 8 years was to push sales to Disney, I just can’t see anyone coming up with a plan that allows people to get direct benefits cheaper by starting with resale.

There is a major cost for them to build new resorts, and actively sell and ROFR legacy resorts and sell. For example, lets say the holding cost of Riviera points is $140 to Disney. They then sell for $188. Disney makes a profit of $48. Or....

Joe Shmo buys a Riviera contract for $100 resale. Disney offers an upgrade charge of $60. Disney profits $60, and the buyer pays less. Everybody wins.

Disney also benefits because they can slow down their capital investments in building new resorts, make similar profit on DVC, and redirect their capital to other projects.

Your point, though, is that if it is so high that no one upgrades points, it wont be worth it. iMO, I don’t actually see them doing it Across the board

What I see is that they might do, when Reflections comes on board, is offer Rivera resale owners the ability to stay at Reflections for a per reservation fee.

None of us know...we are all guessing...who would have predicted the changes they have done...so any ideas of what they might do are valid.

Like you said, we are all guessing. If I was a DVC executive though, this is atleast an option that I would take a serious look at.

 

[crvetter]

Can you please elaborate on this?

Well what I'm referring to is once Riviera sells out they offer Riviera resale owners to convert to "full-benefits" then people who haven't bought yet but want Reflections may opt for resale Reflections under the assumption that once Reflections sells out they offer its resale owners to convert to "full-benefits". Or if those people don't care about home resort will opt for the cheapest point cost overall thus the system will be similar to today (just a bit more costly). I suspect the one time UY conversion fees are more likely because it avoids this scenario.

Similar to the arguments against debt forgiveness or bailouts. If you forgive or bail out large amounts of debt it might make future borrows more willing to accept debt above what they normally would in hopes for another forgiveness or bailout. This is generally referred to as a moral hazard when discussing these topics. Though with DVC it's not really harming anyone because Disney can just price the conversion rates high that Direct is always better and essentially buying resale then converting is more of a way to finance the purchase sort of (delay the direct benefit cost).

 

[Sandisw]

a) People have been buying direct since the beginning of DVC, even when resale got you an identical product.

b) I can see them not offering this upgrade on the current selling resorts. Basically, the idea would be that Disney would no longer have to ROFR and resell legacy resorts. They can simply use this upgrade as their way of profiting. So the reason why someone would still buy direct is because they want to own the actively selling resort.



There is a major cost for them to build new resorts, and actively sell and ROFR legacy resorts and sell. For example, lets say the holding cost of Riviera points is $140 to Disney. They then sell for $188. Disney makes a profit of $48. Or....

Joe Shmo buys a Riviera contract for $100 resale. Disney offers an upgrade charge of $60. Disney profits $60, and the buyer pays less. Everybody wins.

Disney also benefits because they can slow down their capital investments in building new resorts, make similar profit on DVC, and redirect their capital to other projects.


Like you said, we are all guessing. If I was a DVC executive though, this is atleast an option that I would take a serious look at.

Yes, people do buy direct and when resale and direct with the same benefits, it was because it might have been the only way to get certain resorts,

But, if starting with resale and then upgrading gets you exactly what you get for direct...now that there are differences...Disney is less likely to do anything that pushes people to resale, knowing they can pay less in the end by just upgrading.

I don’t see ROFR as an issue because to be honest, I don’t think they are that worried about that.

One thing it seems, that I think most of us agree on, is that DVC has made decisions that they believe undercut resale and drive people to direct.

So whatever they do, it will be based on that goal

 

[CanadaDisney05]

Well what I'm referring to is once Riviera sells out they offer Riviera resale owners to convert to "full-benefits" then people who haven't bought yet but want Reflections may opt for resale Reflections under the assumption that once Reflections sells out they offer its resale owners to convert to "full-benefits". Or if those people don't care about home resort will opt for the cheapest point cost overall thus the system will be similar to today (just a bit more costly). I suspect the one time UY conversion fees are more likely because it avoids this scenario.

Similar to the arguments against debt forgiveness or bailouts. If you forgive or bail out large amounts of debt it might make future borrows more willing to accept debt above what they normally would in hopes for another forgiveness or bailout. This is generally referred to as a moral hazard when discussing these topics. Though with DVC it's not really harming anyone because Disney can just price the conversion rates high that Direct is always better.

I understand the logic, but I guess I'm not following it to the premise that this is a negative for Disney.

Lets say I'm looking at buying at Reflections. Instead of buying direct from Disney, I wait for a resale to come up with the hopes of eventually buying the upgrade package. Yes Disney loses out on the immediate sale, and has to wait to earn the profit. That is a downside for them. But the upside is, I'm not coming in and scooping up the inventory that they can sell to some uninformed guest. But I agree, overall, it will take them longer to sell out Reflections. However, in the meantime they will earning similar profits from contracts they've already sold, without the capital investment of continuing to build new resorts. It's basically free money.

They can now redirect that capital to other projects.

 

[Sandisw]

Well what I'm referring to is once Riviera sells out they offer Riviera resale owners to convert to "full-benefits" then people who haven't bought yet but want Reflections may opt for resale Reflections under the assumption that once Reflections sells out they offer its resale owners to convert to "full-benefits". Or if those people don't care about home resort will opt for the cheapest point cost overall thus the system will be similar to today (just a bit more costly). I suspect the one time UY conversion fees are more likely because it avoids this scenario.

Similar to the arguments against debt forgiveness or bailouts. If you forgive or bail out large amounts of debt it might make future borrows more willing to accept debt above what they normally would in hopes for another forgiveness or bailout. This is generally referred to as a moral hazard when discussing these topics. Though with DVC it's not really harming anyone because Disney can just price the conversion rates high that Direct is always better and essentially buying resale then converting is more of a way to finance the purchase sort of (delay the direct benefit cost).

This was what I was thinking and you said it better! Lol

 

[CanadaDisney05]

Yes, people do buy direct and when resale and direct with the same benefits, it was because it might have been the only way to get certain resorts

Of course this is all speculation, but what I am suggesting would be to only offer this upgrade to sold out resorts. So it would be the same situation. If you want the newest resort with the most amount of years remaining, your only option is still direct.

I don’t see ROFR as an issue because to be honest, I don’t think they are that worried about that.

I don't think they are necessarily worried about ROFR, but I bet they would love to earn the same profit without the upfront investment. I know I would.

One thing it seems, that I think most of us agree on, is that DVC has made decisions that they believe undercut resale and drive people to direct.

So whatever they do, it will be based on that goal

I guess this is really where I disagree. I don't think DVC's goal is to drive people to direct. I believe their goal is to earn the highest profit possible. Driving people from resale to direct is one strategy to achieve this goal, but at the end of the day, it itself is not the goal.

Driving resale prices down using restrictions and then offering an upgrade fee is another strategy towards the same goal. Which strategy is better is a matter of opinion.

I personally like the second strategy better because it's a lot less risky, a lot less time consuming, and it free's up capital to be invested on other projects.

 

[crvetter]

I understand the logic, but I guess I'm not following it to the premise that this is a negative for Disney.

Lets say I'm looking at buying at Reflections. Instead of buying direct from Disney, I wait for a resale to come up with the hopes of eventually buying the upgrade package. Yes Disney loses out on the immediate sale, and has to wait to earn the profit. That is a downside for them. But the upside is, I'm not coming in and scooping up the inventory that they can sell to some uninformed guest. But I agree, overall, it will take them longer to sell out Reflections. However, in the meantime they will earning similar profits from contracts they've already sold, without the capital investment of continuing to build new resorts. It's basically free money.

They can now redirect that capital to other projects.

Yeah the issue is it takes them longer to sell out Reflections (which does mean less sales staff is needed). Could be something the Execs want to accept or not. It really depends if the turnover is high enough on the resale to direct conversion to keep the income stream growing year after year (as that is probably all that matters not the speed of a resort selling out). Though they do need to maintain a staff of sales because once resorts start to expire they will be in an easy place to redo and turnover every 2-5 years a new resort. So if this method discussed leads to them dwindling sales people (which it will if it lengthens the sell out of Reflections) they will have to seriously rehire as resorts start to expire again or eventually they will be sitting on a lot of resorts taking longer to sell.

Edit: One other thing to note. The language allows them to charge a fee but it also allows them to setup "authorized" resale companies where buying direct from them gives you unrestricted points. So there seems to be a lot of ways they can stick their hand in the pots.

 

[Sandisw]

Of course this is all speculation, but what I am suggesting would be to only offer this upgrade to sold out resorts. So it would be the same situation. If you want the newest resort with the most amount of years remaining, your only option is still direct.


I don't think they are necessarily worried about ROFR, but I bet they would love to earn the same profit without the upfront investment. I know I would.


I guess this is really where I disagree. I don't think DVC's goal is to drive people to direct. I believe their goal is to earn the highest profit possible. Driving people from resale to direct is one strategy to achieve this goal, but at the end of the day, it itself is not the goal.

Driving resale prices down using restrictions and then offering an upgrade fee is another strategy towards the same goal. Which strategy is better is a matter of opinion.

I personally like the second strategy better because it's a lot less risky, a lot less time consuming, and it free's up capital to be invested on other projects.

You right in that is where we disagree, especially with them charging the upgrade for sold out resorts. I think the L14 resale restrictions are here to stay.

 

[CanadaDisney05]

You right in that is where we disagree, especially with them charging the upgrade for sold out resorts. I think the L14 resale restrictions are here to stay.

I agree that the resale restrictions are here to stay. I believe the strategy is

1) Implement resale restrictions in order to drive down resale price and create a differentiated product
2) Wait for the resale market to settle and for the consumers to truly understand the drawbacks of the restricted resale product. This step could take several years.
3) Offer the upgrade charge at a significant price (if resale prices are down, it means they can charge more for this upgrade fee without reaching the Direct price). With this, stop ROFR and reselling sold out resorts.
4) Slow down the building of new resorts, and redirect the capital elsewhere.

 

[Sandisw]

I agree that the resale restrictions are here to stay. I believe the strategy is

1) Implement resale restrictions in order to drive down resale price and create a differentiated product
2) Wait for the resale market to settle and for the consumers to truly understand the drawbacks of the restricted resale product. This step could take several years.
3) Offer the upgrade charge at a significant price (if resale prices are down, it means they can charge more for this upgrade fee without reaching the Direct price). With this, stop ROFR and reselling sold out resorts.
4) Slow down the building of new resorts, and redirect the capital elsewhere.

So what are your thoughts as to why they raised the buy in for direct benefits to 100 points instead of keeping it lower to get resale buyers to continue adding on?

 

[CanadaDisney05]

So what are your thoughts as to why they raised the buy in for direct benefits to 100 points instead of keeping it lower to get resale buyers to continue adding on?

There is a cost of offering the blue card benefits. They need to keep the profit high enough to continue to offer these benefits for years to come. People exploited the loophole so they need to continue to adjust

 

[RivShore]

Maintenance fees over the life of your contract are going to be your biggest expense and will far outstrip the price you paid per point. As for booking at other resorts at the 7 month window it all depends on what resort, room type and when you want to go if you will be successful. It is getting harder and harder to book rooms at resorts that are not your home resort

Agreed that in total they are a big expense over the 50 years but i was trying to make the point that the dollar difference from the average at Riv is not that great. It amounts to just $5k over the full 50 years on a 100 point contract, it just not that much differance over such a long period.

Luckily we usually travel off peak and have not had trouble booking studios at other resorts for a few shorter and split trips in 2020.

 

[kboo]

Of course this is all speculation, but what I am suggesting would be to only offer this upgrade to sold out resorts. So it would be the same situation. If you want the newest resort with the most amount of years remaining, your only option is still direct.

I guess this is really where I disagree. I don't think DVC's goal is to drive people to direct. I believe their goal is to earn the highest profit possible. Driving people from resale to direct is one strategy to achieve this goal, but at the end of the day, it itself is not the goal.

Driving resale prices down using restrictions and then offering an upgrade fee is another strategy towards the same goal. Which strategy is better is a matter of opinion.

I personally like the second strategy better because it's a lot less risky, a lot less time consuming, and it free's up capital to be invested on other projects.

I simply cannot see Disney offering the "upgrade to direct benefits" for the reasons @crvetter and @Sandisw have said. I don't think their goal is to earn the highest possible profit - and the ## of people who might choose to upgrade their resale to direct is likely very, very small compared to the money they can make by selling direct points that are distinguishable from resale, and the financing.

If their goal was to make the highest profit possible, they would have ROFR'd 2 of 3 of my resale contracts, as I was paying $80-85 less per point than direct pricing. Even my "distressed" contract from an international seller was priced at around $70 less per point, and they didn't even foreclose on it. (the seller was underwater on it) Of course resale benefits were different then, but I easily could have paid $70-80 more per point to have a fully unrestricted direct contract at those resorts (BLT, VGF) and did not.

 

[CanadaDisney05]

If their goal was to make the highest profit possible, they would have ROFR'd 2 of 3 of my resale contracts, as I was paying $80-85 less per point than direct pricing. Even my "distressed" contract from an international seller was priced at around $70 less per point, and they didn't even foreclose on it. (the seller was underwater on it) Of course resale benefits were different then, but I easily could have paid $70-80 more per point to have a fully unrestricted direct contract at those resorts (BLT, VGF) and did not.

The difference between the ROFR technique, and the upgrade charge technique, is that the latter is cheaper and requires limited risk.

Example 1) You sell a contract for $100 PP, and the direct price is $180 PP. Disney ROFRs at $100. Disney has a cost of capital of 10% and 15% admin fees which includes sales commissions. (These are made up numbers by the way). Disney holds on to that contract for 3 months before finding a seller.

Disney's Profit =

180 (Direct Price)
(100) (ROFR)
(27) (Admin Fees)

Profit = $53

Example 2) Disney does not ROFR your contract. Instead they charge a $60 upgrade charge.

Disney's Profit =

60 (upgrade charge)
2.50 (by not ROFRing the $100 contract, Disney can now use that $100 and earn a 10% return per year or 2.5% per quarter)

Profit = $62.50

Even if this option slows down direct purchases, it's still a win for Disney. 1) they earn a larger profit on the sale of sold-out resorts. It also allows them to earn a return on the capital they are no longer using to build resorts. Remember, Disney has to build the resort up from the ground. This takes time and a lot of money. Then when they put up the resort for sale, it doesn't sell out over night. As long as they are holding on to inventory, they are out cash that they cannot re-invest elsewhere.

Without looking at their actual books and understanding the exact numbers its hard to predict equilibrium point where the profit from example 2 would equal the profit from example 1. But I'm sure there is a point where it does make sense.

FWIW, I believe Marriott uses this exact model. You can buy their resale dirt cheap, but its only usable at the home resort unless you pay the upgrade fee to make them direct points.

 

[mustinjourney]

I do think Disney wants to get through the first couple months of having RIV open to see what uptake is likely. Weird things can happen though when the person in charge is not going to hit their bonus.

I agree that they will likely wait to see what happens once the resort opens.

regarding bonuses -- it's not just the person in charge. The sales guides not getting enough commission will lead some to find different employment -- particularly the ones that are good. high turnover is bad for business.