A Spirited Perfect Ten

[Soarin' Over Pgh]

Disney with its 2% annual domestic theme park growth capex under Iger has seen revenue increase by 62% over 9 years, equating to a compound annual growth rate of 5.5%.

The unremarkable Six Flags, with a negative growth capex budget (capex is actually less than depreciation), has seen a compound annual revenue growth rate of 5.3% in recent years.

Wow, so Disney's domestic Parks & Resorts invests more than Six Flags yet its revenue growth is about the same, even though Six Flags is not spending enough to properly maintain its amusement parks.

With a little perspective, 62% over 9 years doesn't seem so good, does it?

Why would someone want to invest intelligently?

With Eisner's higher investment levels over his 21 years, Parks & Resorts compound annual growth rate was about 11%.

Universal's Theme Parks division, with a similar investment level, has realized a compound annual growth rate of about 13% since 2006.

Interesting.

Intelligent theme park investment produces superior growth.

The Polynesian Villas & Resorts (PVR) membership lasts for 50 years. Based on the performance of similarly sized DVC resorts, PVR memberships should sell out within 3 years.

After their initial purchase, it will cost PVR members $145/night to stay during spring break or summer at WDW's second-most expensive resort in rooms that normally start at $543/night and go up from there.

PVR means great cash flow at the Polynesian for 3 years and subpar cash flow for 47 years.

Does anyone recall when Iger plans to retire? Did I read somewhere that they extended his contract to 2018, 3 years from now?

Are we talking about the same Disney?

Between Disneyland, the Magic Kingdom, Epcot, and TDL, Walt Disney Productions (later The Walt Disney Company) was operating or had ties to the 4 most successful and profitable theme parks in the world.

Michael Eisner wasn't hired to fix Parks & Resorts. Even in 1984, Disney's Parks & Resorts was the world leader in theme parks. In 1984, Disney's Parks & Resorts was profitable, the only successful segment in the company at that time. Eisner was hired to fix the rest of Walt Disney Productions, which was performing abysmally.

In addition to completely turning around the rest of the company, Eisner was the one who oversaw the creation of the modern WDW. He built 2 theme parks, 2 water parks, and 14 hotels. He doubled the size of DLR and invested internationally in Paris and Hong Kong. Eisner was the one who created Disney Cruise Line.

Despite inheriting the #1 theme parks in the United States (and the World), Eisner grew Disney's domestic Parks & Resorts revenue by over 650%, and total Parks & Resorts revenue by over 800%.

Kinda makes Iger's 62% domestic and 67% total seem paltry, doesn't it?

Gross margin is a function several types of expenses, with operating expense comprising the lion's share. Capex (in the form of depreciation) actually is Parks & Resorts smallest expense.

Heck, Disney spends more on the nefarious "Selling, general, administrative and other" than it does on depreciation (i.e. capex).

The problem with basing growth on higher prices is that you slowly price yourself out of your core market.

Let's look at the P&R numbers a bit more closely.

As we've already discussed, domestic P&R revenue is up 62% since Iger took charge while WDW ticket prices are up 63%. If attendance was flat, this would make sense.

However, attendance is not flat. Since 2005, domestic attendance is up 24%.

The problem is median household income is up only 17% from 2005 to 2013. (2014 numbers won't be released until September.) Vacationers can't keep up with WDW price increases. They still want to visit the parks but they can't spend like they used to. That means they spend less on all the other high margin items that Disney sells.

For example, in 2005, the "theme-park-admission-to-food,-beverage,-and-merchandise" ratio was 1.04. In other words, for every $1 Guests spent on admission, they spent $1.04 on food, beverage, and merchandise. In 2014, that number was down to 0.88, a number without precedent since Disneyland's opening in 1955.

In the end, higher prices boomerang on Disney. They've got 24% more people in the park but, relative to what they spent in 2005, those people are spending less. Disney's opex is up to handle all those extra people, yet Disney isn't realizing comparable revenue gains in other areas to offset those extra expenses.

Thus, despite an attendance increase of 24% along with higher ticket prices of 63%, domestic revenue is only up 62%. Margins become increasingly difficult to maintain because of higher attendance, resulting in Disney making quality cuts to keep margins up. This also results in Disney stretching out growth initiatives in order to prop up those same margins.

I'm not sure what your definition of financial success is, but I see a lot of red flags that suggest all is not well at WDW.

See comment below...

@ParentsOf4 Muhahahahahaha. Let’s just hand that to Iger on pink paper and see if he gets the message. Better yet print out lots of copies and distribute at the shareholders meeting.

This. This needs to happen. Because it'd be perfect.

Always try mole. Always.

You live by the mole you die by the mole. I can't walk past a "Mexican" place without checking their menu for mole, carnitas, Pozole and flautas. If these items aren't present, it's not a Mexican restaruant.

 

[BrerJon]

It appears someone wants to be COO.
http://variety.com/2015/biz/news/ja...inges-on-bob-igers-choice-for-coo-1201407531/

If Staggs gets the job there won't be any shortage of work for Team Doom and Gloom any time soon, but if Rasulo becomes CEO... jeepers we might as well wave the white flag and give up. The only ray of light I see is that both have worked P&R... now obviously both have done an appalling job and don't understand theme parks at all, but at least they should have a little more interest in them than Iger does.

My hope is that if Jay or Tom get the top job, a new head of P&R gets hired who is someone who really gets it, understands the Walt Disney difference, loves theme parks, and is a strong enough personality to browbeat their boss into green-lighting amazing stuff, which the CEO can then of course take the credit for. Unlikely, sure, but at this point I fear we're running out of straws to clutch at!

 

[Gabe1]

They seem to have the mentality that because they can raise prices and people still pay when it comes to things like park tickets, that across the board the same amount of guests are going to purchase activities regardless of the price, and discounting is thus a needless waste of money.

I bet surveys have told them that there is just enough of a percentage of users of those amenities who would still pay the price that the income would be more, even if the amount of people using them is less.

.

Yeah, it is the mentality of the twits of the 21st century I question.

My DD participated in so many surveys a few months back because she just graduated wit mathematics and statistics majors. She found their pattern of questions opening into addition questions about any negative low score. The further prodding attempting to raise the negative score assigned. If that was negative also it again opened into another series of questions.

One of these surveys at AK exit was to be a 5 to 10 minute survey at a kiosk of desktops. The CMs kept coming back to check on her. The survey finally ended 35 minutes later all the while programmed only to score a good to above average satisfaction rating. There was also a post trip survey that aborted mid survey stating thank you for your time however you are not the demographic we were looking for. Obviously they knew the demographic she was by sending her the survey. They just aborted as the results would not mesh with the other results from her demographics.

So if the Statistics Department is messing with the guests responses and opinions while the figure heads are using this same data to make decisions there is no wonder why logic has escaped Disney overall and their business model for the parks is convoluted.

 

[ford91exploder]

HFCS is very similar to honey and glucose, fructose, and water do exist in nature. I would be willing to bet that the "honey sauce" used by KFC is HFCS. You could argue quite convincingly that it is over used in the food industry, but if you're arguing that it is inherently bad because the precise mixture of these molecules doesn't exit in nature then I could postulate that the pizza I just ate will certainly kill me.

The problem with Fructose (and HFCS) is that while Glucose (found in cane sugar) triggers the release the peptide leptin which increases metabolism and sends the satiety signal to the brain to stop eating, Fructose has no such receptor (an evolutionary adaptation of fruits) so the fruit will be eaten and the seeds spread but the body never knows WHEN to stop the intake of fructose in whatver form it takes.

That's why mom used to say no coke before dinner it will spoil your appetite, back in the days when it contained cane sugar it indeed WOULD spoil ones appetite, Not so with HFCS.

The use of HFCS is probably the largest single contributor to the obesity epidemic, There are of course other factors but you only see obesity epidemics where HFCS is in wide use.

 

[ford91exploder]

If Staggs gets the job there won't be any shortage of work for Team Doom and Gloom any time soon, but if Rasulo becomes CEO... jeepers we might as well wave the white flag and give up. The only ray of light I see is that both have worked P&R... now obviously both have done an appalling job and don't understand theme parks at all, but at least they should have a little more interest in them than Iger does.

My hope is that if Jay or Tom get the top job, a new head of P&R gets hired who is someone who really gets it, understands the Walt Disney difference, loves theme parks, and is a strong enough personality to browbeat their boss into green-lighting amazing stuff, which the CEO can then of course take the credit for. Unlikely, sure, but at this point I fear we're running out of straws to clutch at!

If Staggs gets the job, Well it will be time for some of us to relegate Disney to the same hall of memories that the Easter Bunny and Tooth Fairy occupy.

 

[ford91exploder]

I've seen Allain Litaye is ending his blog, which is sad as it was one of the better ones out there.

I read his column on DLP's future and he has heard many of the same things I've been told regarding upgrades to existing attractions and plans for new ones down the road as we move toward the 25th anniversary, which will kick off in HUGE fashion in just 27 months.

You do know the resort is closing down to be replaced by condos and Walmart, right?

Thought it already was, Just needed new signage

 

[ford91exploder]

Corn syrup is 100% glucose. High Fructose Corn Syrup has had some of it's glucose enzymatically changed to Fructose. What has been found is that for the body to actually use complex carbohydrates the body must first turn it into fat before it can burn it.

Erm - not correct

Glucose Molecule

Fructose Molecule

Glucose is absorbed DIRECTLY into the bloodstream, Where fructose needs to be metabolized into glucose and any glucose which is not immediately used by the body is stored as fat.

 

[ford91exploder]

The sad thing is Disney uses SAS (a powerful statistical software) in their parks division. They probably ran analysis to come up with that number. Obviously, there is something to be said about picking the right variables.

SAS is for weenies, Real statisticians use SPSS

 

[ford91exploder]

Yep...the odds of me going to play mini golf on WDW property just went down by 35%

In my case it went down 100% - WDW's mini golf was expensive even at the 50% discount level, At the 15% percent level - well there are mini golf courses where I live which easily equal Disney's for far less money.

 

[ford91exploder]

For those of you who are interested, Disney released its 2015 proxy statement today.

Total Compensation:

• CEO Bob Iger: $46.5M, up 35%
• CFO Jay Rasulo: $16.2M, up 51%

Anyone care to calculate the CEO-to-CM pay ratio on that one?

As a STOCKHOLDER I am NOT happy - year over returns on my holdings do not justify that level of increase in executive compensation I'd much rather see that money either returned as dividends or reinvested in growth activities.

This is why CONGRESS needs to mandate shareholders ability to approve proposed executive compensation. I'm a free market guy but this is obscene, This is not a guy who doubled the stock price this is a stock which roughly tracked the larger market it dropped when others dropped and rose when others rose.

 

[ford91exploder]

It all comes down to the survey.

I was tagged at HS this summer upon entering the park just prior to the daily Frozen parade. The surveyor was fishing so hard for me to give Frozen as the reason I was at HS. I refused to bite and she was almost in tears by the end of her statistically unbiased inquisition.

Oh you got that one too.

 

[ChrisFL]

Much of it springs from nostalgia and the fact that Universal is at its best in Florida and Disney nearly at its worst. There is absolutely a place for both in theme parks and they can both be used when appropriate to make for a more immersive setting.

There's something to be said for nearly careening into an angry combine, being swung at by a whomping willow, getting screamed at by a lava monster, having a massive monkey shake your aerial tram, sailing in the middle of a pirate battle, having cop cars burst out of the bushes. Those really wouldn't have worked as effectively with a screen. A movie (generally) won't get the sympathetic drive tee'd up, but a 2 tonne hunk of animatronic coming at you sure will.

Screens are much better at creating a sense of speed, motion or flight (when there isn't one). AA's do a much better job with vignette's.

Oddly enough, in typing that up, I've actually come to realize exactly what my issue with Gringott's is that I never could put words to. Many of the vignettes or scenes the coaster parks you in front of could have been far better communicated with AA's (a couple of them aside). On the other hand, I'd never advocate for AA's in lieu of most of the screens on the likes of Spiderman/Transformers and portions of Forbidden journey.

Motion works with screens (even Soarin', Despicable Me, Star Tours and Simpsons get this), stagnant scenes (like much of Gringott's) just feel like the ride has parked you in front of a movie.

As much that has been said about SDMT being disappointing or too short, the fact that they were so effectively able to give the dwarfs animated faces (Screens) while still using animatronics should be greatly commended.

 

[George]

The problem with Fructose (and HFCS) is that while Glucose (found in cane sugar) triggers the release the peptide leptin which increases metabolism and sends the satiety signal to the brain to stop eating, Fructose has no such receptor (an evolutionary adaptation of fruits) so the fruit will be eaten and the seeds spread but the body never knows WHEN to stop the intake of fructose in whatver form it takes.

That's why mom used to say no coke before dinner it will spoil your appetite, back in the days when it contained cane sugar it indeed WOULD spoil ones appetite, Not so with HFCS.

The use of HFCS is probably the largest single contributor to the obesity epidemic, There are of course other factors but you only see obesity epidemics where HFCS is in wide use.

HFCS has almost as much glucose and fructose (in most formulations) and I still feel pretty full after drinking a soda (much more full than any other beverage). What "obesity epidemics" have in common is the modern western diet and to a large degree the modern western lifestyle. I reject any reductionist approach that tries to find just one culprit. However, I concur that HFCS is overused. Also, I am never posting on this topic again, because truth be told, I don't care that much.

 

[ford91exploder]

Thank you! I work in R&D in the food inductry and it's unbelievable the misconceptions regarding sugar (cane vs. corn)....

Yes it's amazing the BRAVO-SIERRA that comes out of the food industry, Some of us know the rudiments of biochemistry and well the food industry just lies about so many things fructose vs glucose for instance. The fact that HFCS is 1/10 price of cane sugar has NOTHING WHATSOEVER to do with its wide adoption. Or that other countries are not so enamored of it.

Heck even MEXICO uses CANE SUGAR in soft drinks not HFCS, Of course ADM does not own the Congress of the Union like it owns the US Congress.

 

[GoofGoof]

Despite inheriting the #1 theme parks in the United States (and the World), Eisner grew Disney's domestic Parks & Resorts revenue by over 650%, and total Parks & Resorts revenue by over 800%.

Kinda makes Iger's 62% domestic and 67% total seem paltry, doesn't it?

Good post as usual. I'm not really looking to defend Iger since I while heartedly agree that the amount of spending (especially at WDW) under his leadership is embarrassingly low. However, I think you have to consider what Eisner had to work with and what he accomplished. Particularly these 2 factors:

1. Eisner may have inherited the #1 theme park in the world, but it wasn't the vacation destination it is today. Adding the resort hotels is a big driver of that revenue growth. WDW went from a theme park driven business to a hotel driven business. I don't have the breakdown, but I would assume that the hotels make more money than the parks. Eisner transformed WDW from a 1 or 2 day diversion to a week long vacation destination by adding the hotels, extra parks and side diversions like water parks and PI. It was a brilliant strategy and his execution was nearly perfect.
2. Eisner also inherited a theme park business that was grossly underpriced. He oversaw huge price increases in the beginning years to get the parks up to "market" level. That also adds to the large revenue growth.

I'm not knocking anything that Eisner did. I'm just saying that what Iger inherited was a much more mature business than what Eisner inherited. Realistically speaking could Iger have added 2 more parks, 2 water parks and 20,000 hotel rooms to WDW? No way. So he had less of an opportunity to "grow" the business. His P&R focus has been more international and DCL driven. I don't agree with a lot of the neglect that has taken place under Iger's leadership, but even if we unfroze Walt's head and revived him he couldn't have competed with the growth under Eisner. He probably would have done a better job than Iger, even without a body

 

[FutureCEO]

This is why CONGRESS needs to mandate shareholders ability to approve proposed executive compensation. I'm a free market guy but this is obscene, This is not a guy who doubled the stock price this is a stock which roughly tracked the larger market it dropped when others dropped and rose when others rose.

Congress will never do that

 

[lazyboy97o]

If Staggs gets the job there won't be any shortage of work for Team Doom and Gloom any time soon, but if Rasulo becomes CEO... jeepers we might as well wave the white flag and give up. The only ray of light I see is that both have worked P&R... now obviously both have done an appalling job and don't understand theme parks at all, but at least they should have a little more interest in them than Iger does.

My hope is that if Jay or Tom get the top job, a new head of P&R gets hired who is someone who really gets it, understands the Walt Disney difference, loves theme parks, and is a strong enough personality to browbeat their boss into green-lighting amazing stuff, which the CEO can then of course take the credit for. Unlikely, sure, but at this point I fear we're running out of straws to clutch at!

In many ways it seems that Walt Disney Parks and Resorts just needs to be outright neglected the way Feature Animation was in the mid-to-late 1980s. It needs to be a ladder climbers dead end where passion keeps people around and budgets are so constrained they must be worked around. It won't be pretty during such a time, but it would sure as hell be better than micro mismanagement from Burbank. GE neglected their theme parks and the Wizarding World of Harry Potter burst forth from that neglect and kick starting what we have been seeing since then.

 

[ford91exploder]

HFCS has almost as much glucose and fructose (in most formulations) and I still feel pretty full after drinking a soda (much more full than any other beverage). What "obesity epidemics" have in common is the modern western diet and to a large degree the modern western lifestyle. I reject any reductionist approach that tries to find just one culprit. However, I concur that HFCS is overused. Also, I am never posting on this topic again, because truth be told, I don't care that much.

Go to Europe and visit a grocery store and find things also sold in the US, You will find that in the EU cane sugar is used, Yes the EU has a heathier lifestyle but you will only find HFCS in Karo syrup and similar products.

One of my favorite squashes from the UK is Ribena (the kind with Blackcurrants) amazingly no HFCS.

Final point Fructose is a lower energy molecule than Glucose, So it's taken up FIRST by the body.

 

[Goofyernmost]

It appears someone wants to be COO.
http://variety.com/2015/biz/news/ja...inges-on-bob-igers-choice-for-coo-1201407531/

I was surprised by two things. One was that I realized that I had no idea what Rasulo looked like and second that anyone would have even thought that he had a ghost of a chance to be Iger successor. He's overweight, balding, wears nerd glasses and is sporting a laughable beard. All of those things I am and consider to be an asset, but I'm retired. Any single one of those things would disqualify him from holding that in the public view that Iger's job requires. This is the newest and most obvious of the shallowness of corporate America. If you don't fit the mold... you might as well bend over and kiss your butt goodbye.

In my case it went down 100% - WDW's mini golf was expensive even at the 50% discount level, At the 15% percent level - well there are mini golf courses where I live which easily equal Disney's for far less money.

I don't think that charging more for less is a new concept to the Disney Co. Build it and overcharge for it and they will come.

 

[Clamman73]

Erm - not correct

Glucose Molecule

Fructose Molecule

Glucose is absorbed DIRECTLY into the bloodstream, Where fructose needs to be metabolized into glucose and any glucose which is not immediately used by the body is stored as fat.

Props for the spirited organic chem. I took organic chem 1 and 2 in college and it makes me shudder just thinking about it.