Disney executives worried about VGF sales?

[GoofGoof]

I understand that DVC hold there value but isn't there also a point where people will not buy resale because of the cost of points?

DVC holds its value in the short to medium term. As time goes on and you get closer and closer to expiry the resale price has to decline to zero. I look at DVC as more of a 10 year investment. If I get what I want for those 10 years then the rest after that are gravy. I can either sell my contract with 40 years left on it or keep it and continue to use it while just paying maintenance fees. Remember that the fees will always go up but so will cash rooms.

 

[dreamfinder]

I understand that DVC hold there value but isn't there also a point where people will not buy resale because of the cost of points?

Yes and no. The original purchaser can hit their breakeven point in 10-15 years. So after that point, if they do resell, it's basically pure profit. Resale will definitely become less attractive, but the original purchaser also requires less of a return on their investment. So with 10 years left on the contract, the seller might only be able to sell them for $20 or so per point, but by then they should have more than gotten their value. However, since DVC has a ROFR clause, they can (if they choose) keep the market prices high by buying any contract that comes up for sale for say under $60. As long as the person selling the contract takes the remaining years and cost of dues into account, they should still be able to sell them.

 

[DVCOwner]

Not to mention the canabalization of the deluxe resorts. Disney loves the short term gain, but how many future stays at deluxe resorts did they lose to owners staying at DVC now. Gains today hurt the future. At least until all those contracts expire and you get to "resell" the points or sell extensions to current owners. Then the gravy train returns.

Here is the point that you are missing. Disney Vacation Club resort's construction cost are paid for up front when the members buy into the resorts. So if Disney needs more rooms at a deluxe resort due to demand, than moving people from a existing deluxe to DVC helps them in two ways. First it frees up rooms to meet the new demand and also free up capital that would have to be invested over a long period to pay for the construction of a "cash" resort. Also remember that the maintenance fees paid by DVC memberoversightte some of the fixed cost of running a joint resort. For example dues include paying Disney fotransportationon, so some of the cost of the monorail system is now paid party by DVC annual dues for members with points at Bay Lake Tower and the Grand Floridian.

So Disney gets to offset sometheirhier sump cost of running the resorts, they get additional rooms on park with little up front cost, and all this adds up to more people sending money on tickets, food, toys, tours, etc.

 

[tikiman]

I am assuming you are saying you do not have a 20 or 30 year contract? The timeshare I had owned was a does not expire contract also. And that was a big problem because no one within family wanted it free now or in the future. Fortunately we found a good timeshare resell. $2500 a year for dues I thought I had it bad. Ya beat me.

Yes, that is what I meant. It is fee simple property not leasehold. Luckly these propertys are very well kept and popular so I am not worried about selling it. My parents still own two so we can still use it but I am considering using the money to buy DVC.

 

[GoofGoof]

Here is the point that you are missing. Disney Vacation Club resort's construction cost are paid for up front when the members buy into the resorts. So if Disney needs more rooms at a deluxe resort due to demand, than moving people from a existing deluxe to DVC helps them in two ways. First it frees up rooms to meet the new demand and also free up capital that would have to be invested over a long period to pay for the construction of a "cash" resort. Also remember that the maintenance fees paid by DVC memberoversightte some of the fixed cost of running a joint resort. For example dues include paying Disney fotransportationon, so some of the cost of the monorail system is now paid party by DVC annual dues for members with points at Bay Lake Tower and the Grand Floridian.

So Disney gets to offset sometheirhier sump cost of running the resorts, they get additional rooms on park with little up front cost, and all this adds up to more people sending money on tickets, food, toys, tours, etc.

I agree with all of this. My point on canabalization was more related to the customers not the actual rooms. A good number of DVC owners would have stayed in a cash room at a deluxe resort in the future. Now they probably won't since they will usually be using their points. With DVC the profits mostly come up front when the points are sold. They are taking profits today which will end up reducing profits on future cash resort stays. For now DVC only makes up maybe 10% of total rooms but it's becoming a pretty significant portion of deluxe rooms.

 

[Phonedave]

I agree with all of this. My point on canabalization was more related to the customers not the actual rooms. A good number of DVC owners would have stayed in a cash room at a deluxe resort in the future. Now they probably won't since they will usually be using their points. With DVC the profits mostly come up front when the points are sold. They are taking profits today which will end up reducing profits on future cash resort stays. For now DVC only makes up maybe 10% of total rooms but it's becoming a pretty significant portion of deluxe rooms.

Right - while with DVC Disney is getting it's capital back quickly, it is also a one shot profit (for the most part - forget re-sales). A Business has to show profit year over year. If DVC stops building, then it stops making profits.


-dave

 

[Cesar R M]

Right - while with DVC Disney is getting it's capital back quickly, it is also a one shot profit (for the most part - forget re-sales). A Business has to show profit year over year. If DVC stops building, then it stops making profits.


-dave

Dont they secure the money due of the parks and other services?

 

[dreamfinder]

Dont they secure the money due of the parks and other services?

DVC only profits when they are selling timeshare. Yes, they get trivial amounts from the cash booking of their points, but that's nothing compared to the lump sum when they sell the points. Under the current structure every division is expected to turn a profit. The days of someone taking a loss for the betterment of the product as a whole are gone. If DVC management wants to stay employed they need to have a steady revenue stream. Hence the continued buildout of new resorts. No new sales? DVC gets folded into another division, like resorts, as a sub division.

 

[flynnibus]

DVC only profits when they are selling timeshare. Yes, they get trivial amounts from the cash booking of their points, but that's nothing compared to the lump sum when they sell the points. Under the current structure every division is expected to turn a profit. The days of someone taking a loss for the betterment of the product as a whole are gone. If DVC management wants to stay employed they need to have a steady revenue stream. Hence the continued buildout of new resorts. No new sales? DVC gets folded into another division, like resorts, as a sub division.

I wouldn't call it trivial... the amounts involved would make most other hotel operators drool. Hundreds of rooms at wildly inflated prices in a location that is popular year round with fantastic occupancy rates. It's not the hundreds of millions in a short period like initial sales are.. but they have plenty of revenue opportunity. And resale is solid money too. Certainly more than what car dealers make on deals, etc.

And DVC is already a subdivision of the P&R division... but they'll always maintain corporate entities for various legal reasons.

But yes, there is a huge carrot enticing DVC to expand expand expand.

 

[rufio]

And that was another selling point with me - DVC ends. Yes, on one hand you really don't own anything, it is more of a lease. But on the other hand, there is a definite out. When my contract with DVC expires, it will be over and done. If I owned a timeshare, I (and my estate/heirs) would be on the hook forever, unless I could unload it. It is a double edged sword. On one hand at contract expiration, you have nothing. But on the other hand, at contract expiration you owe nothing.

-dave

I actually have a question about this. We bought into BLT in 2010 because it was the newest DVC resort and we were told that the contract would last the longest because of that. 49 or 50 years, I think. Because we were in our early 20s when we bought in, this seemed like the best option. From what I understood, the contract will expire when the resort reaches 50 years old. So, for example, BWV opened in 1996, so the contract will expire in 2046. Is this correct? If so, what happens in 2046? Provided the resort is still in tact (which I'm assuming it will be) and DVC still exists (which I'm sure it will), do BWV become just another cash-only resort? Or will the terms begin again, starting over at 50 years. I've been thinking about this as DH and I have been considering adding on at a different resort.

 

[Phonedave]

I wouldn't call it trivial... the amounts involved would make most other hotel operators drool. Hundreds of rooms at wildly inflated prices in a location that is popular year round with fantastic occupancy rates. It's not the hundreds of millions in a short period like initial sales are.. but they have plenty of revenue opportunity. And resale is solid money too. Certainly more than what car dealers make on deals, etc.

And DVC is already a subdivision of the P&R division... but they'll always maintain corporate entities for various legal reasons.

But yes, there is a huge carrot enticing DVC to expand expand expand.

Remember though, some of those cash rentals have to flow back to the owners as breakage (not that I am comlaining, it helps keep my dues low)

One thing that does look good on a P&L sheet for DVC though, is the low embedded capital base they have. Once they have sold the points, they own comparitively very little - a few sales offices, a couple of those snazzy red vans, etc. As a result, while their profit during times when they do not have a lot of new points to sell may be reletively low, the percent return that they have on their embedded capital base looks awesome.

-dave

 

[Phonedave]

I actually have a question about this. We bought into BLT in 2010 because it was the newest DVC resort and we were told that the contract would last the longest because of that. 49 or 50 years, I think. Because we were in our early 20s when we bought in, this seemed like the best option. From what I understood, the contract will expire when the resort reaches 50 years old. So, for example, BWV opened in 1996, so the contract will expire in 2046. Is this correct? If so, what happens in 2046? Provided the resort is still in tact (which I'm assuming it will be) and DVC still exists (which I'm sure it will), do BWV become just another cash-only resort? Or will the terms begin again, starting over at 50 years. I've been thinking about this as DH and I have been considering adding on at a different resort.

Nobody really knows. What does happen is your contract ends and the ownership shares (points) revert back to DVC. They could opt to keep them all and make it a cash resort, turn around and resell them, or even bulldoze the resort into the ground if they wish.

Chances are, however, that they will keep it as a timeshare a allow re-contracting of the points. This has already happened at Old Key West (the oldest property). Owners were given the chance to buy a (i believe 15 year) extension on their contracts. I suspect that as the resorts age, DVC will do a cost benefit analysis of offering extensions ot eventualy letting all of the contracts sunset and then doing something to the property when they once again have complete ownership.

-dave

 

[flynnibus]

I actually have a question about this. We bought into BLT in 2010 because it was the newest DVC resort and we were told that the contract would last the longest because of that. 49 or 50 years, I think. Because we were in our early 20s when we bought in, this seemed like the best option. From what I understood, the contract will expire when the resort reaches 50 years old. So, for example, BWV opened in 1996, so the contract will expire in 2046. Is this correct? If so, what happens in 2046? Provided the resort is still in tact (which I'm assuming it will be) and DVC still exists (which I'm sure it will), do BWV become just another cash-only resort? Or will the terms begin again, starting over at 50 years. I've been thinking about this as DH and I have been considering adding on at a different resort.

It is 50yrs from the start of your resort... so the various DVCs resort contracts expire at different times. Disney may try what they did with one of the earlier resorts.. which was sell extensions.

Basically at the end of the term.. you own nothing and it goes back to DVC. So in theory Disney could turn around and sell it again. What path they will take is unknown... by that time the property is so old I imagine a rebuild/replace would be in the cards so they can sell at a modern full price again.

 

[dreamfinder]

I'd be very surprised if they don't at least gut and heavily revamp the properties after their 50 years are up. Selling points at a 50 yo property will be very difficult to do without a full overhaul. If they had spaced out growth a bit more, say a new property every 5 years, they could easily end up in a 5 year sell cycle where they could cycle through the properties (assuming WDW hasn't sunk into the swamp in 150 years), but with the way they front loaded it all into 20 years, it will be hard for them to continue at their current pace for the next20 until they would want to ramp up again to handle the units all coming back to them.

 

[tjkraz]

DVC only profits when they are selling timeshare. Yes, they get trivial amounts from the cash booking of their points, but that's nothing compared to the lump sum when they sell the points. Under the current structure every division is expected to turn a profit. The days of someone taking a loss for the betterment of the product as a whole are gone. If DVC management wants to stay employed they need to have a steady revenue stream. Hence the continued buildout of new resorts. No new sales? DVC gets folded into another division, like resorts, as a sub division.

Agree. Disney...like most corporations...is very interested in growth. They want (need) to be able to report that guest spending in the parks is up, that Thor 2 made more than Thor 1, that ABC ad revenues are higher than last year and ESPN carriage fees are up.

Stagnation is not good...particularly for the careers of the managers who are in charge when that stagnation sets-in.

DVC is a very unique product--and difficult to compare to any other goods or services--for a number of reasons.

1) It's a very expensive product. At today's prices, more than many new car purchases.
2) It's basically a commitment to continue making a monthly payment for up to FIVE DECADES.
3) In a practical sense, the only real market for DVC is people who really love the Disney theme parks. (Yes there are owners who mostly like HHI, VB and/or Hawaii, but that's a pretty small population.)
4) When you buy the product "used" (resale), it's virtually identical to a "new" purchase. You can't compare to a new vs. used car purchase where the used alternative has years of wear-and-tear. Buying BLT points for $100 resale gets you exactly the same product as BLT direct for $165.

What Disney is trying to figure out is how to continue growing "new" sales when resales are available for so much less money. Anecdotally, one approach they seem to be taking is to build smaller resorts which are harder to get into at 7 months. And I think it's inevitable that we will someday see greater disparity between perks for resale and direct buyers. That's solely my opinion, though. No current rumors or sources suggest that changes are pending.

There is an element of "greater good" in DVC. Owners are guaranteed repeat business for the theme parks. But so far Disney hasn't been willing to abandon its desire to continually make more money off of new point sales.

One of the real dangers owners may face in the coming years is Disney selling-off its management of DVC. If Disney determines that building additional resorts and selling "new" points is no longer worth the effort, they could look to get out of the business altogether. I have to believe that some of the major players like Westgate or WorldMark would at least entertain the idea of absorbing (purchasing) the Disney Vacation Club business. It would have an immediate positive impact on their roster of properties. Disney would still benefit from the related theme park business--plus whatever is paid initially / recurring to acquire DVC--while washing its hands of the administrative headaches.

If something like this were to occur, from an owner standpoint we would still retain all home resort rights and privileges. However, instead of competing with a couple hundred thousand other owners for 7 month availability, we could be battling millions of owners in the new combined system. Of course, the upside would be access to dozens of other non-Disney destinations.

Again keep in mind this is just one observation of what MAY happen down the road. Over the 30-50 years many people will own their DVC points, many things CAN and WILL happen. It would be reasonable for Bob Iger or his eventual successor(s) to at least entertain the idea of outsourcing DVC management. Personally I think the odds are at least 50/50 of it happening in the coming years.

 

[Phonedave]

4) When you buy the product "used" (resale), it's virtually identical to a "new" purchase. You can't compare to a new vs. used car purchase where the used alternative has years of wear-and-tear. Buying BLT points for $100 resale gets you exactly the same product as BLT direct for $165 .

Not any more. Resale contracts (that are not grandfathered) cannot be used for Cruises or the Concierge Collection. Granted, that is not such a big deal, but it is a difference.

It would not suprise me if DVC started to phase in additional difference as time goes on. This is something that many other timeshares do. Things such as more flexible booking, expidited check in, or other perks are par for the course when comparing developer sold vs resold contracts.

-dave

 

[tjkraz]

Not any more. Resale contracts (that are not grandfathered) cannot be used for Cruises or the Concierge Collection. Granted, that is not such a big deal, but it is a difference.

It would not suprise me if DVC started to phase in additional difference as time goes on. This is something that many other timeshares do. Things such as more flexible booking, expidited check in, or other perks are par for the course when comparing developer sold vs resold contracts.

-dave

Splitting hairs. Note I did say "virtually identical." We both know those take backs don't amount to much. It's still essentially the same product. Same booking windows...same nightly point cost...same dues...same expiration date...same level of service, etc.

Those rules may be enough to convince a few people to buy direct rather than resale. And that's exactly why they were created. But when we're talking about the nature of the DVC product, it's virtually meaningless.

 

[DVCOwner]

I actually have a question about this. We bought into BLT in 2010 because it was the newest DVC resort and we were told that the contract would last the longest because of that. 49 or 50 years, I think. Because we were in our early 20s when we bought in, this seemed like the best option. From what I understood, the contract will expire when the resort reaches 50 years old. So, for example, BWV opened in 1996, so the contract will expire in 2046. Is this correct? If so, what happens in 2046? Provided the resort is still in tact (which I'm assuming it will be) and DVC still exists (which I'm sure it will), do BWV become just another cash-only resort? Or will the terms begin again, starting over at 50 years. I've been thinking about this as DH and I have been considering adding on at a different resort.

As a facility engineer with to many years experiencece here is what I think Disney will do. I do not think that they will be selling extensions any more. The problem is that if not everyone extents then you large sections of the building not under DVC and will have to be sold for cash. So I think Disney will let the deeds run out, gut the building to the frames and rebuild and sell for another 50 years.

 

[GoofGoof]

I actually have a question about this. We bought into BLT in 2010 because it was the newest DVC resort and we were told that the contract would last the longest because of that. 49 or 50 years, I think. Because we were in our early 20s when we bought in, this seemed like the best option. From what I understood, the contract will expire when the resort reaches 50 years old. So, for example, BWV opened in 1996, so the contract will expire in 2046. Is this correct? If so, what happens in 2046? Provided the resort is still in tact (which I'm assuming it will be) and DVC still exists (which I'm sure it will), do BWV become just another cash-only resort? Or will the terms begin again, starting over at 50 years. I've been thinking about this as DH and I have been considering adding on at a different resort.

My 2 cents on what may happen when the contracts are up: I think they will probably look to resell the points under a new 50 year contract. There will probably be some structural and/or design changes that will be implemented to "modernize" the resorts and make them appealing to potential buyers. We are talking about 2042 as the earliest time frame so who knows what additions will be needed to make the resorts appealing. Tastes change dramatically and technology is always updatd

They will not need to level buildings or completely gut them since the capital reserve budget covers the majority of major items that could need to be replaced during the contract. Each year a portion of all owner's fees is set aside for things like a new roof, new windows or a refinishing of the pools. Those refurbs will be paid for by the current owners. Ultimately, any refurbs done at the end of the contract would still be less costly than building a new resort from scratch. They just need to figure out a way to earn profits over the next 29 years before the "gift starts giving again". If you assume a 3 year selling cycle for new resorts that's 10 resorts before they can start reselling existing locations. Are there 10 suitable locations left? Will the Aulani experience sour DVC from expanding beyond WDW again? There is certainly room for growth at DLR and I can't imagine they can't find a suitable location in the Northeast to expand into. Maybe the weather limitations and seasonality are a sticking point for a beach location, but how about "the city that never sleeps". Year round appeal.

 

[tjkraz]

As a facility engineer with to many years experiencece here is what I think Disney will do. I do not think that they will be selling extensions any more. The problem is that if not everyone extents then you large sections of the building not under DVC and will have to be sold for cash. So I think Disney will let the deeds run out, gut the building to the frames and rebuild and sell for another 50 years.

For the most part, I agree. However, never discount the desperation of an executive who needs to find a way to cover for a period of slow sales. I'm quite sure that was one of the contributing factors in the OKW extension. A few million dollars from extensions looks pretty good added to the bottom line, on top of whatever "new" sales have been generated. Problem is it's not necessarily the most forward-thinking move.

There is/was some logic in extending at least one of the 2042 resorts. With Boardwalk, Beach Club, Wilderness Lodge, OKW, Hilton Head and Vero all slated to revert back to DVC in January '42, that would have left them with a lot of property to immediately refurbish / resell. OKW was probably the easiest resort to extend from the standpoint that it is 100% DVC villas. Extending BCV, BWV or VWL would have required a commitment to keep the attached hotel open and operating through the extension period. However, I think any one of those 3 would have yielded much stronger extension sales than OKW did.