Ex-Disney accountant alleges major accounting fraud in parks and resorts division

[larryz]

my criticism is the systemic distrust of the media, which has been bred by certain people in power, coupled with the erosion in perception of what people consider journalism.

No, it's been bred by certain people in journalism. Today's issues didn't start in 2016 -- they started well before the current day, and transcend any one political party or administration.

If you ask me, it all started when every story got a by-line, and was compounded by the advent of the 24-hour news cycle.

 

[larryz]

If people were worried, they’d already be selling.

They won't sell until the dividend gets cut.

 

[Sir_Cliff]

I would just like to point out what makes more sense here...

On one hand we can say she is right, Disney overstated the revenue by 6 billion... what does that mean? Well Universal made 5 billion dollars in 2015 on 50 million attendees. Putting the “right” revenue into 2017 dollars means that Disney in 2009 made 4.57 billion on 120 million guests? Does that really seem right? Or does the stated 10 billion from Disney adjusted too 11.68 in 2017 dollars for 120 million guests make more sense?

Seeing as Disney makes about $15 dollars more per park attendee then Universal, I guess they both must be into some shady business...

This is it.

It's hard to know one way or the other what is going on. The evidence we can see from the outside, though, suggests that the claims are overblown at the very least. It wouldn't surprise me if some of what is mentioned regarding gift cards, free meals, etc. does occur as managers try to make their numbers look good. But to the tune of $6 billion a year? And it turns out that even with wildly rising costs and attendance Disney wasn't making money hand over fist after all? In fact, they were possibly bringing in less revenue than Universal?

Something doesn't stack up here.

 

[SteamboatJoe]

No, it's been bred by certain people in journalism. Today's issues didn't start in 2016 -- they started well before the current day, and transcend any one political party or administration.

If you ask me, it all started when every story got a by-line, and was compounded by the advent of the 24-hour news cycle.

Bingo. 2016 just brought sentiments that had long existed, especially in middle America, to the fore.

 

[Goofnut1980]

They

They use SAP. I work with SAP, so I find this hard to believe unless the ghost of Ken Lay and AA are pulling the strings.

Yea, we use SAP at my company... Its pretty cut and dry.

 

[DDLand]

I want to comment further on this particular accusation.

I've seen several posts encouraging us to give the article and whistleblower the benefit of the doubt, but I do want to completely debunk the possibility of $4-6 Billion USD being over reported in a single calendar year. While I'm at it, I do think it is worth exploring what aspects of the accusations might (emphasis on might) be true.

Let's take the low end number, $4 Billion USD, and say they over reported by that sum. The most important number to determine the likelihood of this being feasible is the percentage of revenue this would represent. For example, if a company was making 200 Billion USD a year, the 4 Billion USD could be spread out over a wide variety of sales. That makes it more likely. Over reporting 4 Billion at a company with 4 Billion USD revenue is extremely difficult. Why? Because hiding 4 Billion USD would mean that there were essentially no sales. Any outside accountant would see red flags immediately and even the most brazen executive wouldn't dare pull off a stunt like that.

At 4-6 Billion in over reporting and 10.6 Billion in reported revenue, we'll say that the over reported sales represented ~40% of sales. That is ginormous! For every dollar the accounting firm looked over, they would find 40 cents were nonexistent. This would be like taking home a salary of 100K, and suddenly finding it was really only 60K. This level of over reporting would leave a paper trail. Operations costs would be off, and attendance would be out of wack. Instead of an accounting trick in TDO, this would take massive amounts of coordination at Walt Disney World and Disneyland from the most senior executives to the entry level cast member.

It gets worse. With revenue at ~6 billion USD, P&R would have lost ~3 Billion USD during FY 2009. This would change the parks from what the financial press has called “Disney’s Rock of Gibraltar,” into the rock that sunk Disney. Essentially Disney would have made no money in FY 2009.

There are other reasons, but I think these numbers should give anyone trying to take the story at face value reason to pause. Disney would have never been so clumsy as to let something this big happen, and then not get in front of it when it came out.

But what if certain aspects of the story are true? What if, though the exact details are off, there is some truth. This is still unlikely, but not impossible. This is how I could see it playing out...

During the recession, TDO is under extreme pressure to control costs and meet revenue targets. The travel industry is soft and is showing no signs of getting better. Is it possible that Burbank sent strong signals to achieve certain revenue targets? Yes, I think so. Is it possible, that in the face of extreme pressure, accountants used some magic to make more money appear? Not Billions, but tens of millions. Enough to just meet certain targets executives were crazy about. Is it possible? Yes, it is possible.

Even then, I’d be hard pressed to believe it. But if this journalist has a bombshell, I’ll be waiting for it. Parks and Resorts is about as conservative an organization as possible. Not speculators, in finance, in tech. They’re in the business of day after day, month after month, and year after year providing the same consistent experience. Consistency might by ops motto.

This wreaks of the exact opposite of consistency and conservatism. It’s out of character. Still, stranger things happened...

 

[BGibby]

I want to comment further on this particular accusation.

I've seen several posts encouraging us to give the article and whistleblower the benefit of the doubt, but I do want to completely debunk the possibility of $4-6 Billion USD being over reported in a single calendar year. While I'm at it, I do think it is worth exploring what aspects of the accusations might (emphasis on might) be true.

Let's take the low end number, $4 Billion USD, and say they over reported by that sum. The most important number to determine the likelihood of this being feasible is the percentage of revenue this would represent. For example, if a company was making 200 Billion USD a year, the 4 Billion USD could be spread out over a wide variety of sales. That makes it more likely. Over reporting 4 Billion at a company with 4 Billion USD revenue is extremely difficult. Why? Because hiding 4 Billion USD would mean that there were essentially no sales. Any outside accountant would see red flags immediately and even the most brazen executive wouldn't dare pull off a stunt like that.

At 4-6 Billion in over reporting and 10.6 Billion in reported revenue, we'll say that the over reported sales represented ~40% of sales. That is ginormous! For every dollar the accounting firm looked over, they would find 40 cents were nonexistent. This would be like taking home a salary of 100K, and suddenly finding it was really only 60K. This level of over reporting would leave a paper trail. Operations costs would be off, and attendance would be out of wack. Instead of an accounting trick in TDO, this would take massive amounts of coordination at Walt Disney World and Disneyland from the most senior executives to the entry level cast member.

It gets worse. With revenue at ~6 billion USD, P&R would have lost ~3 Billion USD during FY 2009. This would change the parks from what the financial press has called “Disney’s Rock of Gibraltar,” into the rock that sunk Disney. Essentially Disney would have made no money in FY 2009.

There are other reasons, but I think these numbers should give anyone trying to take the story at face value reason to pause. Disney would have never been so clumsy as to let something this big happen, and then not get in front of it when it came out.

But what if certain aspects of the story are true? What if, though the exact details are off, there is some truth. This is still unlikely, but not impossible. This is how I could see it playing out...

During the recession, TDO is under extreme pressure to control costs and meet revenue targets. The travel industry is soft and is showing no signs of getting better. Is it possible that Burbank sent strong signals to achieve certain revenue targets? Yes, I think so. Is it possible, that in the face of extreme pressure, accountants used some magic to make more money appear? Not Billions, but tens of millions. Enough to just meet certain targets executives were crazy about. Is it possible? Yes, it is possible.

Even then, I’d be hard pressed to believe it. But if this journalist has a bombshell, I’ll be waiting for it. Parks and Resorts is about as conservative an organization as possible. Not speculators, in finance, in tech. They’re in the business of day after day, month after month, and year after year providing the same consistent experience. Consistency might by ops motto.

This wreaks of the exact opposite of consistency and conservatism. It’s out of character. Still, stranger things happened...

It’s literally this and you said it about 6 billion times better than what I spewed out.

 

[TwilightZone]

Boy am I glad to decide to be bored today. This is some juicy stuff!
Now how this is gonna turn out...hmm...
well either way popcorn is involved!

 

[rudyjr13]

It’s spreading!!! This is a general movies/tv news site.

Disney Accused Of Inflating Revenue By Supposed Whistleblower

A whistleblower claims Disney has used dishonest tactics to inflate revenue.

screenrant.com

 

[cosmicgirl]

I asked you to explain because you overstated the error by saying 250%. Good thing we have the finance team to explain.

4.6 to 10.6 isn't a 250% or 230% increase. It's 130%.

More simply, if the number was $5B and reported as $10B, the overstatement would be 100% overstated, not 200%. You're getting percentages confused with saying 2X as much or 3X as much. Yes, $10B is twice as much as $5B, but the percent increase is only 100%, not 200%. Similarly, if you buy a stock at $5 and sell it at $10, you're up 100%, not 200%.

And don't come back saying that's what you meant. You said "blown up by a mere 250%" which is objectively wrong. If the SEC asked how much were the numbers inflated, they would have to answer 130%. You don't have to apologize to me, but don't act so smug unless you're 100% (pun intended) sure you're right.

That said, the stock is barely reacting so it's likely a big nothing or at least something the authorities and Disney already knew.

Like it or not, that was in fact what I meant as should have been perfectly clear by doing the simple math.
My mistake was indeed using the word "by" instead of "to". I didn't call it an increase. I should have written blown up to 250% (well 230) of the "true" revenue.

English is my third language, so you'll have to excuse the occasional slip-up. If you don't, well then so be it. I don't intend to apologize for it, so there's no need to act smug about that, either.

Believe it or not, the world does not revolve around the good ol' US of A and there's no need to insult my intelligence just because I'm from another country and speak another language.

Edit: and actually, upon further inspection I don't even have to correct myself. Grab a dictionary: https://dictionary.cambridge.org/dictionary/english/factor.

factor noun [ C ] (NUMBER)
mathematics specialized in mathematics, any whole number that is produced when you divide a larger number by another whole number:
Two, three, four and six are all factors of twelve.
by a factor of
If an amount becomes larger or smaller by a factor of a particular number, it becomes that number of times larger or smaller:
Cases of leukaemia in the area near the nuclear reactor have risen by a factor of four.

An increase by a factor 2.5 = an increase by 250%. What you're talking about is an increase of 130%.

 

[Kingoglow]

completely disagree. there are PLENTY of them. they're just constantly under siege by an american public that prefers to be lied to. the new york times or the washington post or many, many other outlets don't run a story without two, independent sources. that's how it works. we make people go to j-school just to make sure.

Meh. I work in the communications field and I can tell you that most 'journalists' are closer to Maury Povich than they are to Woodward and Bernstein. Most of what you see in papers or online or blogs are pitches from PR departments. The PR team does all the work and the reporter turns it in with a by-line. Investigative journalism is dead because no one wants to pay for news.

 

[BGibby]

Like it or not, that was in fact what I meant as should have been perfectly clear by doing the simple math.
My mistake was indeed using the word "by" instead of "to". I didn't call it an increase. I should have written blown up to 250% (well 230) of the "true" revenue.

English is my third language, so you'll have to excuse the occasional slip-up. If you don't, well then so be it. I don't intend to apologize for it, so there's no need to act smug about that, either.

Believe it or not, the world does not revolve around the good ol' US of A and there's no need to insult my intelligence just because I'm from another country and speak another language.

Edit: and actually, upon further inspection I don't even have to correct myself. Grab a dictionary: https://dictionary.cambridge.org/dictionary/english/factor.

An increase by a factor 2.5 = an increase by 250%. What you're talking about is an increase of 130%.

So you’re both right, semantics... on another note, still don’t believe it’s possible to magically conjure up those numbers, that’s why I choose to not believe this accusation.

 

[baymenxpac]

Meh. I work in the communications field and I can tell you that most 'journalists' are closer to Maury Povich than they are to Woodward and Bernstein. Most of what you see in papers or online or blogs are pitches from PR departments. The PR team does all the work and the reporter turns it in with a by-line. Investigative journalism is dead because no one wants to pay for news.

so do i. i don't agree with your assessment of the landscape. sure, there are outlets that have sold their mastheads to contributors (like forbes), but there are plenty of good journalists around. i work with them daily.

 

[Chef Mickey]

Like it or not, that was in fact what I meant as should have been perfectly clear by doing the simple math.
My mistake was indeed using the word "by" instead of "to". I didn't call it an increase. I should have written blown up to 250% (well 230) of the "true" revenue.

English is my third language, so you'll have to excuse the occasional slip-up. If you don't, well then so be it. I don't intend to apologize for it, so there's no need to act smug about that, either.

Believe it or not, the world does not revolve around the good ol' US of A and there's no need to insult my intelligence just because I'm from another country and speak another language.

Edit: and actually, upon further inspection I don't even have to correct myself. Grab a dictionary: https://dictionary.cambridge.org/dictionary/english/factor.

An increase by a factor 2.5 = an increase by 250%. What you're talking about is an increase of 130%.

Woah, woah, woah!

First of all, I don't know you...so I don't know you're from another country. Accordingly, I didn't "insult your intelligence just because you're from another country and speak another language." That absurd. You have no idea where I'm from or with whom I associate that would make your accusation ridiculous. Even in the current environment, not everyone in the "good ol US of A" is a racist. Don't jump to that conclusion or you're no better than the racists you despise.

Secondly, I only questioned your original number of 250% because I couldn't get to that exact number. You've since admitted you rounded it up for added emphasis. That kind of fraud ($6B worth in a single year) would require coordinated cooperation from auditors and willful fraud by executives...and not just in that year. You'd have to keep it up year after year to avoid that year sticking out like a sore thumb.

Third, I'm not going to argue basic math skills. I think we can both agree either calculation isn't complex. You originally insulted me by saying you were surprised you'd have to tell someone that works in finance how to calculate your number (which was wrong). I work with numbers and financial reports all day, and the way you presented it was unclear (to me). If you disagree, that's fine, but your number was wrong originally. In this profession, percentages are almost always used to calculate percent increases or decreases from the original number. If you're saying two and half times, you would just say that...not use 250%. I would make you re-write it if you were on my team.

Now you're telling me to get a dictionary and continuing to be disrespectful and unfair. Just wanted to make it clear your accusations are unfounded and unfair. Throttle it back a little. It's OK for someone to ask a question. I wasn't disrespectful until you were.

 

[Jimmy Thick]

For what it’s worth my broker enthusiastically encouraged me to buy DIS right now. This is the same guy who told me to put all my money into HD when it was 50 bucks a share.

I’ll leave it at that.

 

[Captain Neo]

The fact that Disney is currently under SEC investigation really should be in the thread title as this is very serious


It’s funny this is the news I was originally coming to wdwmagic to discuss and then ended up getting bogged down in the infiltration of the fan community thread.

 

[lazyboy97o]

The fact that Disney is currently under SEC investigation really should be in the thread title as this is very serious


It’s funny this is the news I was originally coming to wdwmagic to discuss and then ended up getting bogged down in the infiltration of the fan community thread.

An actual investigation has not been confirmed.

 

[larryz]

For what it’s worth my broker enthusiastically encouraged me to buy DIS right now. This is the same guy who told me to put all my money into HD when it was 50 bucks a share.

I’ll leave it at that.

Like I've said -- I'd buy DIS again at 30 per share.

 

[Jimmy Thick]

Like I've said -- I'd buy DIS again at 30 per share.

Thats about a 4 to 1 split which I don't see anytime on the horizon. Personally the $135 and change share price is really not that bad. I would like it around $100 personally in order for me to buy but right now $135 is fair.

 

[larryz]

Thats about a 4 to 1 split which I don't see anytime on the horizon. Personally the $135 and change share price is really not that bad. I would like it around $100 personally in order for me to buy but right now $135 is fair.

I'm calculating a 2:1 split and the imminent recession...