Disney looking to cut theme park capital investment?

[peter11435]

I have been reading these forums for a while, but this is my first time posting. I felt like I had to clear some things up. The announcement that Disney was decreasing the capitial investment to well below $1B means no more E ticket rides, no shows with more than a few AA figures, only little updates and rehads (see Stitch, Tiki Under New Management, Journey into YOUR Imagination, etc.).

That $1B is for WDW, The Disney Cruise Line and Disneyland (It does not include international projects, they are tracked seperately). It is for all unscheduled maintenance, WDI projects, Creative Entertainment, Special Events, New Marketing, etc. The $1B is used up real fast! It is for everything not built into the Operating Budget. The most expensive projects are big new attractions like Everest (well over $100M). This announcement means layoffs at WDI and no new attractions for several years.

That’s really not true. This announcement does not mean there will be a reduction of new show and attraction construction. Think about since 1997 Disney has built: Animal Kingdom, California Adventure, Downtown Disney Anaheim, Wide World of Sports, DTD West Side, Grand Californian, Pop Century, Animal Kingdom Lodge, Coronado Springs, All-Star Movies, Wilderness Lodge Villas, Beach Club Villas, and Saratoga Springs. All of that takes up far more of the budget than building things like EE and M:S. Also 1B is not used up as quickly as it would seem. Remember even if EE will cost 120,000,000. That cost is not all in a single year; you have to divide that by 3 or four. Trust me, while this statement means few new parks and resorts, as far as for new rides, and attractions it is a good thing.

 

[HauntedPirate]

Are the DVC properties included in "Domestic Theme Parks", or whatever the name of the category is?

In Florida alone, anywhere from $500+ million (2003) to $719 million (2004) has been spent over the past 3 years each. I understand that things aren't going to grind to a halt. But it sounds to me like they are going to leave things as they are as much as possible, and see "if they can get away with it (less cap. spending). Either way, the theme parks are looking at around $200 million less in cap. investment, if not more. If you factor in HK Disneyland and EuroDisney, that number increases to over $500 million.

Maybe I should attend the shareholder meeting next Friday and ask about it. It's only a 45 minute commute.

 

[HauntedPirate]

That’s really not true. This announcement does not mean there will be a reduction of new show and attraction construction. Think about since 1997 Disney has built: Animal Kingdom, California Adventure, Downtown Disney Anaheim, Wide World of Sports, DTD West Side, Grand Californian, Pop Century, Animal Kingdom Lodge, Coronado Springs, All-Star Movies, Wilderness Lodge Villas, Beach Club Villas, and Saratoga Springs. All of that takes up far more of the budget than building things like EE and M:S. Also 1B is not used up as quickly as it would seem. Remember even if EE will cost 120,000,000. That cost is not all in a single year; you have to divide that by 3 or four. Trust me, while this statement means few new parks and resorts, as far as for new rides, and attractions it is a good thing.

For the record, AK opened in 1998, AS:Movies was open in Dec. 1997 when I went, so I don't know where their $$$ came in.

 

[peter11435]

For the record, AK opened in 1998, AS:Movies was open in Dec. 1997 when I went, so I don't know where their $$$ came in.

Yes AK opened in 1998, however that is certainly after the 1997 date. The costs of construction for anything are distributed over a period of a few years. Disney was certainly still spending money on Animal Kingdom construction in their budget in 1997 and 1998, possibly even in some years after that. Also, check your facts because All-Star Movies opened January 15, 1999.

 

[CaptainMichael]

You can't jsut keep expanding year after year after year. You have to have periods of settling in and working on your existing products to keep them "up to snuff".

Yes, but attractions don't get built overnight. 3 years from now, Everest will be over a year old, and the celebration will be over. Disney will need something to pull people back to the parks, especially the Magic Kingdom. 3 years is about the time needed to build something along the lines of Bald/Villian Mountain which has been rumored to being tossed around, or any major e-ticket.

 

[Mr. Eggz]

Sorry

That’s really not true. This announcement does not mean there will be a reduction of new show and attraction construction. Think about since 1997 Disney has built: Animal Kingdom, California Adventure, Downtown Disney Anaheim, Wide World of Sports, DTD West Side, Grand Californian, Pop Century, Animal Kingdom Lodge, Coronado Springs, All-Star Movies, Wilderness Lodge Villas, Beach Club Villas, and Saratoga Springs. All of that takes up far more of the budget than building things like EE and M:S. Also 1B is not used up as quickly as it would seem. Remember even if EE will cost 120,000,000. That cost is not all in a single year; you have to divide that by 3 or four. Trust me, while this statement means few new parks and resorts, as far as for new rides, and attractions it is a good thing.

Sorry, It does mean fewer big rides and attractions for the existing parks. Animal Kingdom received the bulk of its capital investment in 1995, as did the All Star Resorts, the Disney Cruise Line (Magic), and DCA was turned on in 1996 along with the Grand Californian and Downtown Disney Anaheim. The money is not evenly distributed over the period of construction. Start-up of any project is the largest investment. But none of that is the point.

The point is that Wall Street investors think theme parks are a bad investment. They have lower margins than TV, Home Video and Consumer Products. By putting this statement in the report, TWDC is saying that they are doing what Wall Street investors want and lowering their investment in the Parks. Most of the Capital costs go to Marketing and Maintenance. These budgets will not be cut. Entertainment will not be cut much because it has a big return on investment in the short term. WDI will be cut. Park projects will be cut. Even a cut of $50M would be devastating to WDI, and this proposal suggests cutting $750M. Jay Rasulo clarified "meaningfully below $1B" to mean between $700M and $800M at an investors' conference last February. This is down from a $1.5B average. I don't expect you guys to believe me, but this summer there will be massive layoffs at WDI. It will be similar to what happed to Feature Animation. And as far as WDI staffers expecting routine layoffs, I guess that is sort of true, but it doesn't make it less painful when dreams are crushed. Anyway, there will be no new E tickets for WDW for years to come, and it seems to me that bingeing and purging isn't healthy for any company. A diet of steadily improving quality attractions to keep the talent busy and allow them to develop their skills is a healthier model.

 

[peter11435]

Sorry, It does mean fewer big rides and attractions for the existing parks. Animal Kingdom received the bulk of its capital investment in 1995, as did the All Star Resorts, the Disney Cruise Line (Magic), and DCA was turned on in 1996 along with the Grand Californian and Downtown Disney Anaheim. The money is not evenly distributed over the period of construction. Start-up of any project is the largest investment. But none of that is the point.

The point is that Wall Street investors think theme parks are a bad investment. They have lower margins than TV, Home Video and Consumer Products. By putting this statement in the report, TWDC is saying that they are doing what Wall Street investors want and lowering their investment in the Parks. Most of the Capital costs go to Marketing and Maintenance. These budgets will not be cut. Entertainment will not be cut much because it has a big return on investment in the short term. WDI will be cut. Park projects will be cut. Even a cut of $50M would be devastating to WDI, and this proposal suggests cutting $750M. Jay Rasulo clarified "meaningfully below $1B" to mean between $700M and $800M at an investors' conference last February. This is down from a $1.5B average. I don't expect you guys to believe me, but this summer there will be massive layoffs at WDI. It will be similar to what happed to Feature Animation. And as far as WDI staffers expecting routine layoffs, I guess that is sort of true, but it doesn't make it less painful when dreams are crushed. Anyway, there will be no new E tickets for WDW for years to come, and it seems to me that bingeing and purging isn't healthy for any company. A diet of steadily improving quality attractions to keep the talent busy and allow them to develop their skills is a healthier model.

You can believe what you want. However as Lee and other people have said on these boards don't expect a reduction in new attraction construction. A hotel like Pop century or AKL takes up around 400 million of that $1.5B. Even $700M to $800M is more than they have been spending on new attractions in a single year. Try and come up with how the WDC spent $800M on new attractions in a single year. And remember no resorts, parks, or other large expansions can be included.

 

[longfamily]

A diet of steadily improving quality attractions to keep the talent busy and allow them to develop their skills is a healthier model.

First and foremost, welcome to the boards!

No one here will disagree with the above statement, but I think it's important to point out that Disney has gone through a major overhaul during the last few years and has overspent in the process. You could argue that quality films/attractions/hotels/details require alot of money to be successful but the question I pose is, where does it stop?

Over the last few years Disney has had more flops in film (animated and non-animated) than is appropriate for a business of this nature. Several of their theme parks have gone into the red do to poor decision making, or perhaps because of spreading to thin. The economy has been a little less than good which, of course, effects travel too. With these things going on, Disney has also lost much from merchandising. They have created projects that are now being completed to bring attention back to the parks and they have truely ridden a fine line to do it. It is difficult from a business standpoint to spend and spend to hire imagineers (or keep them onboard), to create new projects, ect. when the money coming in is less than being spent.

We could argue that Disney makes a ton of money, why can't they spend it to improve something? However, it just doesn't read that way on paper. In 1998 Disney's stock was priced at $100 per share. Today Disney's stock is valued at $29 (on a good day) per share.The money just isn't there but let's take a look at what Disney has done specifically for WDW lately...
Everest, Soarin', Stitch's great escape, pop century, saratoga springs, demolition of 20K, major refurb of IASW, Phillharmagic, Alladin's carpets, Triceratop spin, Dinorama, implementing "crush" and nemo in Living seas, Major rehab of the Land, Wishes and Motor car stunt show. If we reach back a decade we could also add test track, major rehab of JII, and Pooh. Forgive me if I missed something.

With this in mind, it is no wonder that they cannot, or refuse too, spend anymore money on something new for a few years. These were major projects that required alot of $$$ and they only happened at WDW. Imagine the projects that are taking place at other parks. They have spent a ton trying to "fix" other parks like California Adventure, and Disney Paris and it's studio park. They have dumped a ton of money into building Disney Seas and Disney Hong Kong. This is not an easy task when your films are flopping and no one wants to buy the 100,000 Koda bears you put out there because they didn't care for the movie (or didn't see it), or when park attendence drops, or they won't go to your park period because it isn't up to snuff with your other parks.

At this point we can only expect that the powers that be make the reasonable decision to back off to see if these projects will make the parks gain attendence. If this works, attention will be brought back to the company, more merchandise will be sold, parks will be making enough $$ and, In theory, trust for the company by the consumer will gaurantee success in future film projects. This of course is a very simplistic idea, but this is how long range business decisions work.

Sometime during this point, Disney can begin spending again.

 

[tomm4004]

They have dumped a ton of money into building Disney Seas and Disney Hong Kong

I don't think they dumped any money into Tokyo. It is owned and paid for by the Oriental Land Company. I would imagine OLC also footed the bill for the development of any rides. As for HK, while Disney owns (I think) 41 per cent, they've pumped much less cash percentage-wise into the project. Most of it has come from the government (ie citizens) of HK.

 

[marni1971]

Mr Eggz; welcome! Nice to see you diving straight in!

A hotel like Pop century or AKL takes up around 400 million

I seriously doubt Pop cost this; even including both phases. Remember it even shares its services with CBR!

Forgive me if I missed something.

The closure of Centre Street (West) for Emporium expansion

They have spent a ton trying to "fix" other parks like...Disney Paris and it's studio park. They have dumped a ton of money into building Disney Seas

I think you`ll find EuroDisneySCA and the investment banks coughed up for WDSP (not that they had a choice for several reasons) - TWDC mainly just cut its profit share. Again. The Oriental Land Company paid for TDS - they put the lions share in, and they get the lions share out. WDI are subcontracted by TOLC to design for TDLR. Disney originally invested a mere $2.5million in TDLR, and only recoup 25% of total profits (only 10% of admissions and 5% of food and merch) - and will continue to do so until 2024.

Sometime during this point, Disney can begin spending again.

Depending on who is on the board... this year will be rather interesting. This (interesting) thread kind of make you wonder what would have happened had Frank Wells still been with us.

 

[HauntedPirate]

Yes AK opened in 1998, however that is certainly after the 1997 date. The costs of construction for anything are distributed over a period of a few years. Disney was certainly still spending money on Animal Kingdom construction in their budget in 1997 and 1998, possibly even in some years after that. Also, check your facts because All-Star Movies opened January 15, 1999.

Oh, good grief... I was thinking AS:Sports, my apologies. :hammer:

 

[Mr. Eggz]

You can believe what you want. However as Lee and other people have said on these boards don't expect a reduction in new attraction construction. A hotel like Pop century or AKL takes up around 400 million of that $1.5B. Even $700M to $800M is more than they have been spending on new attractions in a single year. Try and come up with how the WDC spent $800M on new attractions in a single year. And remember no resorts, parks, or other large expansions can be included.

I don't have to come up with how they spent $800M on an attraction in a single year. We aren't talking about attraction spending, we are talking about domestic captial investment, which inclues a lot more than just attractions and hotels (but does not include Oriental Land Company investment, Hong Kong SAR investment or TWDC investment in Euro Disney SCA as several people have pointed out). Maintenance is the largest piece of Captial investment going all the way back to 1971 (as it should be), then after you take out marketing, special events, creative entertainment, the remainder goes to new attractions. Even though maintenance, marketing, special events are "capital investments," because they have become a part of the yearly routine they can now be seen as fixed costs and will be spent every year regardless, leaving new attraction spending with a very small piece of that $700M to $800M. When they cut capital domestic investment, they cut new additions to the park.

 

[HauntedPirate]

Maintenance is the largest piece of Captial investment going all the way back to 1971 (as it should be)...

Amen! But we all know about how important maintenance is lately.... Deteriorating/rotting wood between City Hall and the Fire Station, cracked steps leading to the train station, rather poor (in my eyes) cleanup and maintenance at some of the resorts - sidewalks that have large spots of paint peeled off, garbage strewn about, unkempt bushes, unclean rooms.... and these are just the things that I noticed in December, at AS:Movies.

I honestly believe that some in management believe that they can scrimp on some maintenance items, because guests are so busy trying to enjoy everything that they don't notice. But guess what? People notice.

I agree with the above statement that, 24-30 months from now, there will need to be something to draw people back. 18-month Celebrations every other year aren't going to cut it much longer, people need a better reason to return. They can assure that by building quality attractions with lasting value, not cheap thrills you can get at any regional amusement park. I'm not totally against cloning rides, after all, MK has many of them. But they must be GOOD to clone - i.e. your "classic" attractions. We'll see about Soarin' when it opens, and there are a lot of high expectations about E:E. But those two things alone won't draw people back. Disney cannot afford to, to quote Roy Disney, "Do things on the cheap" anymore. In other words, they can't rest on their laurels, or think the Disney name holds the clout it once did.

 

[longfamily]

As for HK, while Disney owns (I think) 41 per cent, they've pumped much less cash percentage-wise into the project. Most of it has come from the government (ie citizens) of HK.

There is no denial that outside sources have contributed large bits of revenue to foot the bill for these parks. That was never the point. The point is that over a specific time frame, monies have been allocated for these parks by Disney.I never said that this is where all of the money went. I think it's pretty obvious that moneis are mainly tied up in the states. I was merely trying to explaine where all of the money had gone and the reason why Disney must put a halt to big project spending for the time being.

 

[longfamily]

Depending on who is on the board... this year will be rather interesting. This (interesting) thread kind of make you wonder what would have happened had Frank Wells still been with us.

I am curious about what will happen with the turn over. I believe that the current powers-that-be have mismanaged some things finacially and I think that we will see the effects of tht for a while to come. Someone brilliant, or a brilliant team, needs to step in to bring the company up to speed. And the bit about Mr. wells, well, it kind of makes you wonder how impressive Eisner would have been without him. I really wonder if he would have found himself in the position that he is in without Frank to hold his hand

 

[marni1971]

I really wonder if he would have found himself in the position that he is in without Frank to hold his hand:

Amen and rest in peace, Frank.

 

[tomm4004]

...Maintenance is the largest piece of Captial investment going all the way back to 1971 (as it should be), then after you take out marketing, special events, creative entertainment, the remainder goes to new attractions. Even though maintenance, marketing, special events are "capital investments," because they have become a part of the yearly routine they can now be seen as fixed costs...

I need clarification. From Disney's annual report: Cost and expenses, which consist principally of...repairs and maintenance, entertainment, marketing and..."

Aren't marketing and maintenance costs and not capital expenses. I thought capital expense were something that you then depreciated. You don't depreciate marketing and maintenance, do you? Isn't there a difference between patching a roof and putting in a new one? If they are fixed costs are they still part of capital expense?

 

[peter11435]

I need clarification. From Disney's annual report: Cost and expenses, which consist principally of...repairs and maintenance, entertainment, marketing and..."

Aren't marketing and maintenance costs and not capital expenses. I thought capital expense were something that you then depreciated. You don't depreciate marketing and maintenance, do you? Isn't there a difference between patching a roof and putting in a new one? If they are fixed costs are they still part of capital expense?

You are correct. If they read the annual report they will understand that marketing and maintenance are not part of the capital investment budget. Those along with refurbs are only in the cost and expenses budget.

As far as the cost of Pop Century goes. I don't know for sure but the number reported on WDWmagic a few years ago was $435m for the entire resort and infrastructure.

 

[peter11435]

I don't have to come up with how they spent $800M on an attraction in a single year. We aren't talking about attraction spending, we are talking about domestic captial investment, which inclues a lot more than just attractions and hotels (but does not include Oriental Land Company investment, Hong Kong SAR investment or TWDC investment in Euro Disney SCA as several people have pointed out). Maintenance is the largest piece of Captial investment going all the way back to 1971 (as it should be), then after you take out marketing, special events, creative entertainment, the remainder goes to new attractions. Even though maintenance, marketing, special events are "capital investments," because they have become a part of the yearly routine they can now be seen as fixed costs and will be spent every year regardless, leaving new attraction spending with a very small piece of that $700M to $800M. When they cut capital domestic investment, they cut new additions to the park.

No it does not include a lot more. Capital Expenses do not include marketing, Maintenance, special events or entertainment. Those are all Costs and Expenses. Capital Expenses really is only new construction: new parks, hotels, attractions, etc.

 

[Dayma]

Spending money in a smart way is not a bad thing. I think they need to concentrate on some minor refurb stuff in the next five years rather than new rides. The last few years has seen a good amount of new rides and I think this may have taken the attention away from some of the other aging rides.