Yes, the project most likely will be depreciated over 25 to 40 years, so it will have a relatively small impact on today's bottom line, perhaps $50M to $80M annually. (Obviously, free cash flow will be impacted.) Divide that by a relatively modest (for WDW) 5% bump in annual attendance, and it's pretty easy to imagine how a $2B investment could readily pay for itself in increased hotel, ticket, food, and merchandise sales.
Why hasn't Disney already done this in the recent past?
Because they haven't had to.
Up till a few years ago, the Orlando theme parks had excess capacity. MyMagic+ was about optimizing that pre-existing capacity. Get Guests to preplan their trips so they would be less likely to leave 'The Bubble'. Even though that hasn't materialized,
an improving economy, new South American markets, and Harry Potter have drawn millions more to Orlando. WDW's attendance is up double digits since the opening of WWOHP in 2010 and is projected to rise even more in the coming decade.
The parks are becoming oppressively overcrowded. In fact, so overcrowded that Disney risks disappointing its
current Guests, resulting in decreased return business.
Disney already is taking small steps to address this issue. The New Fantasyland, MK bus terminals, Hub redesign, 3rd Soarin' theater, and 3rd Toy Story Mania track are examples of recent projects designed to improve capacity.
But it isn't enough.
WDW's attendance is horribly lopsided, with MK bursting at the seams even as other parks struggle to maintain consistent attendance throughout the day.
Frozen/
Maelstrom and what effectively has become a twice-a-year Food & Wine Festival are Disney's attempt to draw more to Epcot.
Pandora (and other projects) should help DAK. But DHS is a mess. There is no quick & easy fix for DHS.
After 15 years of low capex investments in Orlando, WDW is in need of a major expansion. Based on historical Disney data, I estimate that Iger has undercapitalized WDW to the tune of about
$2.5B since taking charge. WDW desperately needs an infusion of capital and DHS could use all of it.
In recent years, there have been excuses to ignore WDW. Over $1B spent in DLR. Nearly $2B more on 2 new cruise ships. Over $2B spent in China. However, with the Shanghai project winding down, WDW is now front-and-center.
It was one thing to dump profits into stock buybacks when DIS was at $30, $50, or even $70 per share. However, with stock now at a ridiculously high $114 per share, DIS is a poor choice for "investing" company funds. The company will continue to spend billions on repurchases, but the peak years should be behind us until the stock takes a tumble. (And it
will tumble during the next recession.)
Right now, Disney needs to find a place to park the roughly
$9B it's going to make in net income this year.
Looking up the road, Universal has scored a grand slam not once but twice with
Harry Potter. Disney hit its own homerun with
Cars Land. Disney has seen that a well-themed and immersive land based on a popular IP can be a clear financial success.
Given its options, investing in Disney's domestic theme parks with a surefire winner like the
Star Wars IP is looking like a pretty good choice.