Why does DVC exercise ROFR???

[FlyingfreeWDW]

A post entitled "Got the Call??" by Corpcomp set my wheels in motion. This poster just got BCV $92 pp through DVC. I have to wonder why DVC exercises ROFR because there simply isn't much money in re-selling these points. $2-$3 pp profit hardly seems worth it to exercise ROFR. This brings us to my poll and my question. Why does DVC exercise ROFR? Please vote and feel free to speculate or provide any facts about this. The reason seems obvious but I have to wonder some times.

 

[Showe]

what exactly is ROFR

 

[Caskbill]

Lots of reasons:

1. A profit is a profit, no matter how small.

2. DVC can break up a contract. If they get 100 points using ROFR, they can sell it as four 25 point add-on contracts which could be in high demand, so their turnaround would be very quick.

3. If Disney gets a smaller contract by ROFR to resell, it can only be purchased by a current member since new members must buy 150 points minimum when buying directly from Disney. By restricting it to a current member there is basically little cost to DVC to maintain that account since it already exists. If a non-member purchased a 25 point contract for example, the cost to DVC increases in order to maintain that small account, including all mailings (EG Vacation Magic), Annual Statements, etc.

 

[Chuck S]

I also think part of it is "image." Would Disney want their timeshare resales selling for pennies on the dollar compared to new contracts? It would give the appearance that DVC is "just another timeshare", like those with high pressure sales. Disney has a vested interest in protecting their "high end" image.

It also discourages people from buying with the sole intent of renting out points, in direct competition with Disney.

 

[crisi]

And it adds to their member satisfaction. A BCV member who owns 150 points and wants to add another 50 is a happy BCV member if Disney has those 50 to sell him.

It also keeps the price of their current offerings high. The resale market would be much more active if you could buy a distressed OKW contract for $50 instead of a new SSR contract for $92 (or whatever it is now). Making sure the differential between the current resort and resales is not too big keeps SSR an attractive option.

 

[Chuck S]

And it adds to their member satisfaction. A BCV member who owns 150 points and wants to add another 50 is a happy BCV member if Disney has those 50 to sell him.

It also keeps the price of their current offerings high. The resale market would be much more active if you could buy a distressed OKW contract for $50 instead of a new SSR contract for $92 (or whatever it is now). Making sure the differential between the current resort and resales is not too big keeps SSR an attractive option.

And not just SSR...any new resort DVC is selling would benefit. It would be hard for most folks to justify $92 point at BCV or VWL if they were the newer resorts, if they could get SSR, OKW or BWV for half that price (or less).

 

[spiceycat]

not only those - but think

disney charges anywhere from $200 to $500 per night for their deluxe resorts - why would you pay that if you could buy BWV, BCV,VWL for $5,000 - so this is not gonna happen period....

not matter what you heard from other folks...

staying onsite at WDW is not a right....it costs....

 

[diznyfanatic]

Can someone please clarify what the official DVC policy is on the price to add -on for new members/existing members?

I thought the $92.00 per point was valid for any current DVC members until 6/30/06 at which time the prices would increase to $95.00 per point at BCV, BWV, VWL and that OKW would remain at $92.00. VB & HHI would be something different.

We are waiting to close on our contract as new members (hopefully in about 10 days), and when I inquired with my Guide about the price to add-on, he said it would be $95, even if we did it before 6/30/06.

When I replied that I must have been confused on the price, and asked if the $92 price only applied to existing members prior to a certain date, he said yes.

Our guide is wonderful and I'm not trying to cause problems, I just want to make sure that we have all of the facts correct.

Does anyone know for sure?

 

[DrTomorrow]

Plus, there is already a full DVC sales staff in place, and I bet that resales help fill in those moments when Guides aren't busy with SSR. It will be interesting to see what happens when DVC finally stops building - and selling - new resorts....

 

[Disney1fan2002]

I think the main reason, even more than the few dollars profit, is like someone else said, it keeps the cost up.

Say Disney just let people sell at any price. If people started selling at $60/point, when Disney is charging over a $100/ point, they would have more people buying through the resale market.

ROFR is brilliant for Disney, they get the best of both worlds. In a way, they are controlling supply/demand.

 

[mom2alix]

Actually, I think one of the main reasons is that if someone buys a contract through Disney, they can use Disney financing. At 10.9% interest (I think that was the last figure I heard) Disney is making a lot more than $2-$3 profit per point.

 

[Dean]

Even at $20 pp, there's not really any money in it for them, any profit is only a fraction of what they'd make retail. They are not in the resale business. What it does is steer potential buyers to retail, plain and simple. It does this is several ways, by propping up the resale price, avoiding those occasional sweetheart deals and by instilling risk and doubt that the ROFR will take any specific contract.

 

[Caskbill]

I'm not sure ROFR actually keeps the prices high that much.

It's more supply and demand. How many people on these boards alone would be snapping up contracts at $50/point if they could. Almost everyone wants more points.

There are only so many resales available. If they were selling for a low value, they would sell very quickly, and then there would be basically none left. Demand would outpace supply, thus driving prices up.

While ROFR may have some impact, I suspect it's a lot more of supply and demand that is keeping the prices high.

$0.02

 

[OneMoreTry]

OP: If you think it's amazing that Disney would exercise ROFR for just a few dollars profit per point what's REALLY amazing is that someone would buy resale FROM Disney and spend an extra $10 per point over the outside resale market.

(No need to PM me, Tom. Reality is reality -- or should I say realty is reality .)

 

[Plutofan]

They need a way to purchase contracts were the buyer and seller agree to a to low of a price. It is in Disney's best interests to keep the resale prices up so that more and more people do not buy resale at lower cost per point and then be able to use them at more popular resorts while people currently buying at the newest resort are paying a higher price. Assuming that there is no probleming getting in at the 7 month window I would think more people would buy at a sold out resort for say $50 per point if no floor set by Disney than paying around $100 per point a newer resort. Since a point is a point, ignoring the difference in remaining life and the 11 month window, there would be some people who are buying the new resort that would gamble to get twice as many points in the hope that they can book at 7 months. Also Disney is consider one of the top timeshares and they do not want to ruin the reputation by letting prices fall like most other timeshares.

 

[Caskbill]

OP: If you think it's amazing that Disney would exercise ROFR for just a few dollars profit per point what's REALLY amazing is that someone would buy resale FROM Disney and spend an extra $10 per point over the outside resale market.

(No need to PM me, Tom. Reality is reality -- or should I say realty is reality .)

But all outside resales aren't the same. There's a big difference, some may be pretty good, but others aren't.

Which would you purchase? An outside resale for 100 BCV points with a September use year wherein all 2005 points have been used and all 2006 points have been borrowed and used, and you would not get the first allocation of points until September 2007, and pay about $4/point in closing costs.

OR

From Disney, same contract but you get all 2005 points NOW and get all 2006 points on Sep 1st, 2006, but pay $10 more per point, but pay no closing costs (Thus paying about $6/point more compared to the resale contract)

Now if the outside resale had banked 2004 points, all 2005 points and all 2006 points remaining and is still $10 less/point than Disney, then in that case it's an excellent buy.

The point is that all resales are not the same, and in some cases it's a better deal to buy direct from Disney.

Of course you could always go to E-Bay and probably find some resale for $110/point...

 

[Caskbill]

They need a way to purchase contracts were the buyer and seller agree to a to low of a price. It is in Disney's best interests to keep the resale prices up so that more and more people do not buy resale at lower cost per point and then be able to use them at more popular resorts while people currently buying at the newest resort are paying a higher price. Assuming that there is no probleming getting in at the 7 month window I would think more people would buy at a sold out resort for say $50 per point if no floor set by Disney than paying around $100 per point a newer resort. Since a point is a point, ignoring the difference in remaining life and the 11 month window, there would be some people who are buying the new resort that would gamble to get twice as many points in the hope that they can book at 7 months. Also Disney is consider one of the top timeshares and they do not want to ruin the reputation by letting prices fall like most other timeshares.

Disney is not setting any kind of a floor. Are you saying if there was no ROFR all resale contracts would be selling for $50/point? No way. Would you sell your points for $50 if you could get $80?, or $90. The marketplace determines the selling price, not Disney. A seller is going to try to get as much as they can for their points. No one is going to sell for $50 when there are plenty of buyers who will pay $80, or more.

Would you sell your house for half of what similar sized new houses cost? Of course not. It's the 'value' of a property that determines what it sellf for. And the 'value' of DVC points sets the resale selling price, not ROFR.

 

[Disneyaholic]

Disney is not setting any kind of a floor. Are you saying if there was no ROFR all resale contracts would be selling for $50/point? No way. Would you sell your points for $50 if you could get $80?, or $90. The marketplace determines the selling price, not Disney. A seller is going to try to get as much as they can for their points. No one is going to sell for $50 when there are plenty of buyers who will pay $80, or more.

Would you sell your house for half of what similar sized new houses cost? Of course not. It's the 'value' of a property that determines what it sellf for. And the 'value' of DVC points sets the resale selling price, not ROFR.

Sorry, Caskbill, but I'm gonna have to disagree with you on this one...

Too many DVC owners ae already letting their points go for less than they're worth -- on the rental market. The DVC boards and other DIS boards are full of posts from renters who are ecstatic because they were able to get our superior DVC accommodations for less than the price of a moderate! And there are many owners who are willing to keep the price low.

Sometimes I wish that Disney could regulate the rental market like they do the sales market with ROFR. I would be more than willing to chip in a few bucks of the rental if I knew that the value of the DVC resorts could be kept more in line with what CRO charges for the other WDW resorts!!

I'll go get my flameproof outfit on now....

 

[FlyingfreeWDW]

Thanks for the great replies. Really I agree with all of these thoughts more or less. They are all of the same reasons that seemed obvious to me when I posted. I have to say I'm with Caskbill here for the most part because I do feel DVC prices would be high on the resale market with or without ROFR. There is a huge demand for DVC. Demand = high price.

Why do I still feel like we are missing something? Am I just thinking too hard? To add to my first post I'l throw this out: If ROFR is pure genius as some suggest then why aren't all of the big timeshare companies utilizing ROFR? Wouldn't Marriott, Westin, Sheraton and other follow this same path?

In the end I feel like my thoughts are closest to Deans on this issue. I feel DVC uses ROFR to simply steer buyers back to DVC. They simply want to sell there current offering at retail price.

Any thoughts as to why other companies aren't doing this would be great. You can buy Marriott and other timeshare for pennies on the dollar resale. These companies don't have any problem selling the new resorts at retail price even with this low resale competition. Seems to me even if DVC didn't exercise ROFR most would still buy direct through DVC.

Thanks again guys.

 

[greenban]

...snip...emphasis added....A post entitled "Got the Call??" by Corpcomp set my wheels in motion. This poster just got BCV $92 pp through DVC. I have to wonder why DVC exercises ROFR because there simply isn't much money in re-selling these points. $2-$3 pp profit hardly seems worth it to exercise ROFR. This brings us to my poll and my question. Why does DVC exercise ROFR? Please vote and feel free to speculate or provide any facts about this. The reason seems obvious but I have to wonder some times.

Having spent years working on my own reverse engineered ROFR formula (which I previously posted), and fine tuning it to the point that I just closed on VB at $59.00 BEFORE the price reduction, and recently got an OKW at $73.00, when some had been ROFR'd at $76.00, I feel well qualified to answer the OPs question. I did some additional financial and matrix analysis, Laplace transforms and ODE (Ordinary Differential Equations) before using ANOVA to solve this delema.



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Why does DVC exercise ROFR?



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BECAUSE THEY CAN



-Tony


P.S. I'm now working on which came first, the DVC or the DVD.