The future of DVC, regardless of Comcast.

[KNWVIKING]

Recently there have been "rumors" of DVC being sold off to an outside entity. In another recent thread, Baron mentioned Marriott. I don't know if this will ever happen, but I can't think of an upside for Disney to do this. What would they gain ?

Currently, SSR is selling like hotcakes. Every price increase has been accepted by future members. Even the higher points totals at SSR haven't phased buyers. Cash is pouring in faster then the resorts are built. DVC has even resorted to envoking ROFR.

The resorts themselves, after they are build cost Disney nothing to maintain or operate as our dues cover all operating expenses and kick a little more profit into the kitty.

Disney also holds a small percentage of rooms at each resort for the purpose of cash rentals.

And the real beauty of it for DVC is that in 2042- with the exception of SSR- they get to start all over again.

Why would Disney/ME ever want to sell this cash cow ? Conversely, why would Marriott or anyone else want to pay the price to buy it, knowing they'll never own the land and will pay huge fees to Disney.

Where's the logic in selling - or buying - DVC ?

 

[rriley25]

Good questions.

I do believe that SSR sales may slow somewhat due to the uncertainty in future ownership. Having said that, I agree that DVC is a money-maker and would be regardless of ownership.

Typically, in large mergers, the new owner must find a way to recover some of the debt incurred during the process. This causes spin off's of some of the more profitable units in an effort to do just that. However, in this case, Comcast's offer is a stock swap. Stock swaps tend to be less costly, and in fact, will probably be the major reason this initial tender will be rejected.

As a DVC owner, one of my biggest concerns regarding this possible merger is the difference in company culture. Disney has managed to convince it's front line staff that the customer deserves to be treated well and with respect at all times and ththe CM's have provided a level of service not often seen in corporate America. The level of service provided will likely decline if a takeover occurs....IMHO anyway.

 

[Werner Weiss]

Originally posted by KNWVIKING
Why would Disney/ME ever want to sell this cash cow ? Conversely, why would Marriott or anyone else want to pay the price to buy it, knowing they'll never own the land and will pay huge fees to Disney.

Over on the DVC board, there's been speculation and concern that DVC could be sold off, or that just HH and Vero could be sold off, or that DVC could become Comcast Vacation Club. At this time, there is no reason to believe any of this will actually happen.

Personally, I think that the only way that DVC will be sold off is if the corporate financial wizards decide that it makes more business sense to outsource Disney's entire lodging business than to operate it (regardless of whether Disney merges with Comcast, merges with another compnay, or remains independent). In such a case, DVC, along with all deluxe, moderate, and value resorts, might end up in the portfolio of a major lodging company (or perhaps the buidlings would wind up with one company and the operations with another).

Disney would free up a large amount of capital. And Disney would continue to receive guaranteed profits from licensing. The lodging company (or companies) would add "trophy" properties to their portfolio(s).

Both sides would assume that the lodging company can bring greater efficiencies to the Disney resorts because lodging is their core business.

And it's likely that WDW guests, including DVC members, would see very little change. And what little change there is — such as the ability to earn and redeem major lodging chain frequent guest points or a trading priority with a major chain's timeshare collection — are likely to be positive.

 

[KNWVIKING]

How ? If they sold off the resorts outright I could see them generating new capital, but what capital are they tying up by hanging on to them ?

 

[Chuck S]

I agree, I doubt they would sell off just DVC without selling (or sub-contracting management) of all the Disney resorts.

I could see maybe sellling of VB and HH, but the bad press and hard feelings it would create amongst DVC owners there would hardly be worth it.

 

[Werner Weiss]

Originally posted by KNWVIKING
How ? If they sold off the resorts outright I could see them generating new capital, but what capital are they tying up by hanging on to them ?

By hanging on, the capital that those resorts represent cannot be put to other uses. Disney (or Comcast-Disney) could spend the capital in other ways if they sold the resorts.

Let's suppose they could sell the resorts for $8 billion. (I have no idea if that number is anywhere near the real value.) The value would be calculated based on the profit that the resorts can generate — not by how much it cost to build them. With that money, they buy another second-rate cable channel.

Sure, it sounds like a bad idea to me, too. But that doesn't mean that it can't happen.

 

[DVC-Landbaron]

Bingo Mr. Weiss.

The real cash for DVC comes from the up-front investment. That has already been realized. The rest is mediocre at best. And as you say, the sale would generate immediate cash that could be used for other things.

It's been in the cards ever since its inception. It's just that none of us realized it. But it was always in Ei$ner's mind!!

 

[Maistre Gracey]

Originally posted by DVC-Landbaron
The real cash for DVC comes from the up-front investment. That has already been realized. The rest is mediocre at best.

If that's the case, why would anyone want to buy the sold out DVC resorts?
I can see why Disney would sell, but who would pay a substantial amount of money for a business that makes very little profit, even less after paying Disney licensing fees?

MG

 

[DVC-Landbaron]

Someone who is in that particular business already. A development on Disney property would definitely enhance their image (scope, marketability, etc.) thereby increasing interest and revenue.

It is my understanding that Marriott is already interested.

 

[KNWVIKING]

but they also generate substantial cash with their financing on those points - in the area of 10% APR. I don't know the percentage of member who have chosen to finance thru DVC, but just reading the DVC board leads me to believe a substancial portion do.

I also find it hard to imagine Marriott paying mega bucks for the current DVC resorts - with the exception of SSR - because they would have virtually no way of recouping that investment. The very argument you're using for ME wanting to sell - little additional profit after up-front cash- would mot definitely apply to Marriott or any other potential buyer.

If anything, I can imagine WDW leasing acreage to Marriott so they can build their own on-property resort or possibly buying up SSR. DVC as I know it would continue as is, but DVC 2 would but under someone elses ownership.

 

[vernon]

If it were the financing area that someone were interested in ( and I'm not sure about that because most financing is done over 10 years, therefore many of the loans are coming to an end) then it would make more sense for a company like Bank of America or Citibank to be interested. Disney may charge 10% on their financing (which I think is outsourced anyway) but either they are paying to borrow that money, or it could be invested for about half that %age rate.

I'm sure Mariotte would like to be able to build a timeshare on Disney property, but DVC has been such a MASSIVE cash producer to Disney why sell off something that is so successful.

It is also the case that if Disney were to sell the DVC all those properties that will be returning to the Disney fold in 38 years time (and will basically be in full working order) would belong to whoever bought the company. IMHO the only person that would benefit from taking the money now for that huge windfall in 2042 would be a shortminded chairman who's desperate to inflate the profits because he thinks his time in charge ( and share options potential) is very limited. Hmmmmm sound like anyone we know. Eisner maybe, but it seems the Comcast boys are reasonable forward thinking and only someone who sees their tenure disappearing down the swanee is likely to take that option. IMHO DVC is safer with Comcast than it is with Eisner.

Again why sell off part of your property (indeed slap bang in the middle of your property) when you get special dispensation for owning all that land. It would seem an increadably shortminded action to sell off any land at WDW,let alone something as currently profitable as DVC that has a future huge potential in the not too distant future. I understand it could be argued that the potential future profit would be the "carrot" for Mariotte ( or any other timeshare company) but the amount of up front cash they would have to pay in order to secure that incalcuable future windfall would be astronomic. I don't think they (or anyone) is that cash rich, JMHO.

I can see a decent argument for selling off DLC, because that could be done as a "job lot", freeing Disney/Comcast of the Californian parks commitment allowing it to concentrate on pumping money into WDW and really raising the bar there.

 

[KNWVIKING]

***"IMHO the only person that would benefit from taking the money now for that huge windfall in 2042 would be a shortminded chairman who's desperate to inflate the profits because he thinks his time in charge ( and share options potential) is very limited. Hmmmmm sound like anyone we know."***

I'll agree that ME could try and do this, I just don't think there is enough up-side for a potential buyer. Not enough return for the purchase price.

***"( and I'm not sure about that because most financing is done over 10 years, therefore many of the loans are coming to an end) "***

I don't know why must would be coming to an end.Since the late '90s the flow of new sales- and loans- have been non stop. Of course some notes are and have ended, but there are new ones being signed everyday.

 

[vernon]

Viking, I think we're arguing the same point. I agree there isn't enough in it for a potential buyer.

I'm also pretty sure the financing is outsourced already. Even if that isn't the case it makes more sense for a finance company, not a timeshare company to take on that particular aspect.

 

[raidermatt]

Really now, I don't think anybody making these decisions really cares much about what will happen in 38 years.

So, we are left with what would happen now.

Yes, the bulk of the return on DVC is realized up front. Just as its a way for a guest to pre-pay for vacations, its a way for Disney to get pre-paid for vacations.

Why would Disney sell?

If its profitable for them to run, then it would be profitable for someone else to run. Therefore, Disney would have another opportunity for up-front cash.

No, not as much as if they simply sold a hotel, but still a nice chunk of change.

Why would Marriott (or anyone else) buy? Same reason Disney might not sell... because they are in the business of running timeshares, not just collecting up-front capital.

Its just a question of which direction each wants to take.

Having timeshare properties in WDW would be extremely valuable to Marriott. It would be a selling point for all of their properties.

I'm not saying it will or will not happen. Only that there's no way we can look at how Disney runs their business today and say its not a realisitc possibility.

 

[Another Voice]

The lure to Marriott is that the WDW properties would be a fantastic addition to their existing time share network. Imagine all the people on the edge of buying that place at a ski resort if they knew they could also use their points in Florida. All hotel companies fight to get the best locations at the most popular destinations, this is no different.

In addition to the marketing angle, Marriott could make a much better profit off the DVC operations than Disney – the mouse is demanding that DVC bail out a bankrupt network, offset losses from a retail chain, pay off a $5 billion debt to buy the Power Rangers, and to send the monthly check to Ben Affleck until Pearl Harbor finally gets buried. The return at DVC may not be enough for Naked Mike, but it could be huge for a company like Marriott (that knows its business and sticks to it).

From Disney's side, they get a chunk of cash to invest in "high return" options like airline leases or to pay down their junk debt. It's not to difficult to see that those returns are going to be much better for the company now[/I] rather than a trickle of funds over forty years. Besides, Disney still keeps what it wants and why the DVC was created in the first - a steady stream of wallets heading into the parks.

Naked Mike has already sold of close to a third of Walt's property in Florida (when Disney sold off Celebration and places like Crossroads). There's no reason to believe that Eisner wouldn't be willing to sell off even more as "underperforming assets". Or it cold simply be a Swan & Dolphin deal; Disney owns the land and others own the structure.

There are few obstacles that ever keep Naked Mike from cash.

The lure of immediate cash has been the driving factor behind everything has done in the last several years. They under-funded California Adventure to get a positive cash flow immediately, animation is focused on quick (and forgettable) DVDs instead of classics that earn money over decades, the Stores dropped high quality merchandise for high volume, high margin trinkets.

DVC is not immune.

 

[KNWVIKING]

***"Why would Marriott (or anyone else) buy? Same reason Disney might not sell... because they are in the business of running timeshares, not just collecting up-front capital."***

Not sure what you mean here Matt. Marriott builds and sells timeshare resorts similar to DVC. Marriott buying DVC would only allow them to collect dues and maintain the properties, which isn't where the profit is. As for the prestige of having the resorts and using them as a selling point for other off-properties, well, maybe. The current owners of DVC points like using their points at their DVC resorts. It is very difficult for an outsider to trade into a week at DVC resorts. So while it may sound and look good in your advertisement brochures, in practicality it's not really going to benifit other Marriott owners. Of course, maybe Marriott only cares about the image.

 

[KNWVIKING]

***"The lure to Marriott is that the WDW properties would be a fantastic addition to their existing time share network. Imagine all the people on the edge of buying that place at a ski resort if they knew they could also use their points in Florida. All hotel companies fight to get the best locations at the most popular destinations, this is no different."***

Only if Marriott can construct new resorts on-property. As I said earlier, DVC members want to stay on-property. Marriott may be able to grab a few more sales now with a DVC buyout announcement, but once their member realize how difficult it is to actually stay there,it will backfire on them.


***In addition to the marketing angle, Marriott could make a much better profit off the DVC operations than Disney – the mouse is demanding that DVC bail out a bankrupt network, offset losses from a retail chain, pay off a $5 billion debt to buy the Power Rangers, and to send the monthly check to Ben Affleck until Pearl Harbor finally gets buried. The return at DVC may not be enough for Naked Mike, but it could be huge for a company like Marriott (that knows its business and sticks to it)."***

Well, if DVC is sold, it's not like these debts are going to disappear. I doubt the up-front purchase money would be used to pay off outstanding debt. And how would Marriott be able to make more profit off the existing sold out DVC properties ? Cut back on staff ? maintenance ? transportation ? raise dues for reaons not spelled out in our contract ?

 

[Another Voice]

"Only if Marriott can construct new resorts on-property."

Hardly. The vast majority of people in this country don't want to plop down twenty-grand and be forced to go to WDW every year for the next half century. The Marriott has the better solution: you're buying into a massive chain of reosrts located all over the world. So you convince someone who to buy your new Aspen development with the idea they can go to WDW when they want to. In other words, Marriott builds where ever they want but can still "sell" WDW.


"I doubt the up-front purchase money would be used to pay off outstanding debt. "

Your probably right, it will go to put another layer of gold leaf of Naked Mike's parachute.

"And how would Marriott be able to make more profit off the existing sold out DVC properties ? "

A) See above.
B) Like Disney isn't make a good profit off your "maintenance fees" now?
C) Imgine how much Marriott will make off everything else (from boat rentals to "special vacation offers just for our most magical members") to all the trapped DVC members.
D) "I'm sorry, but other members are have booked all the rooms for the dates you've requested. But we do have a room available for a slight "convenice fee" upgrade."
E) Five Words: Marriott's Yacht and Beach Club.

 

[raidermatt]

Marriott buying DVC would only allow them to collect dues and maintain the properties, which isn't where the profit is.

Yet, they are (at least for now) committed to the business of maintaining and collecting on them. Just as Disney is and/or was.

Again, there is profit to be made, its just a question of who wants to be in that business.

But yes, its not the kind of quick return you get on new sales, which leads to the point that it would help Marriott with all sales.

Only if Marriott can construct new resorts on-property. As I said earlier, DVC members want to stay on-property. Marriott may be able to grab a few more sales now with a DVC buyout announcement, but once their member realize how difficult it is to actually stay there,it will backfire on them.

I don't see why Marrott couldn't be allowed to construct more resorts. Further, they deal with this sort of inequity already.

The bottom line is this:

If the business of running DVC is not profitable, Disney will find a way out.

If it is profitable, there will always be somebody willing to do business in the most popluar resort destination in the world.

Again, its just a question of strategic direction.

 

[JDH]

it all comes down to which comes first The Walt Disney Company or Michael Ei$ner as to what process is chosen to fight off any take over. I'm leaning towards any process that Ei$sner thinks will make HIM the most and save his butt.

Guess that's not much of a stretch in reasoning.