So.....are we saying the article is not accurate??
Quoting from the article:
"Just in 2012 alone, Disney invested roughly $3 billion improving, upgrading and enhancing its theme parks."
Let’s recall what CFO Jay Rasulo said about capex in 2011:
“Five years ago or so we used to be pretty demonstrative about $1 billion number being an ongoing level without special projects added to it.
You have to remember though that in those five years in the capital projects that we have put in the ground, which each have their own growth strategy, each is filling in different parts of the portfolio, when they are back on board they all need ongoing FF&E and maintenance capital to keep them going.
So I would say that that $1 billion number is low.”
In other words, back in 2006, Disney was spending $1B in capex for routine maintenance of its facilities “without special projects”.
As Rasulo mentioned, additional projects have been brought online, requiring additional capex dollars in order to maintain those assets.
Taking into account additional assets and inflation since 2006, baseline capex is at least $1.5B today, probably more.
Most of what Disney calls “investments” is simply the cost of maintaining its tremendous facilities.
In 2012, special projects spending was focused at DLR, not WDW. Prior to that, it was the addition of 2 new cruise ships.
The New Fantasyland's cost was around $425M while we all know about MyMagic+.
The costs of these projects were spread out over years.
Iger and Rasulo repeatedly have warned Wall Street about the ongoing expense and depreciation costs associated with MyMagic+. At the 4Q2013 earnings call, Rasulo took it one step further and noted that "Relative to the front-end of your question on spending, continued spending and ramp-up of new initiatives in Florida" "we're looking at about a $300 million expense item". "[A]s you can imagine with a project like MyMagic+, which had a very heavy IT investment, which depreciates on a much more rapid basis than the normal assets we put into place in World."
MyMagic+ is a hungry beast that will need to be fed for years to come.
When one considers the incredible revenue stream generated by WDW, the amount of true capital re-invested back into the Orlando parks is quite small.
Quoting further from the article:
"Disney had the courage and gumption to invest in its theme park properties during the recession of 2008 and 2009."
Let's look at that a bit closer. In 2008, domestic P&R investment was $793M. (Total company investment was $1.5B.) In 2009, it was $1,039M. (Total company investment was $1.7B.) Per Rasulo's own words, the lion's share of that "investment" was in the form of "ongoing FF&E."
Quoting one last time:
“That profit rise was the result of increased guest spending and higher ticket prices, largely the result of bold investments made in the properties.”
Profit margins rose because WDW raised prices
without making major investments at WDW. That’s not “bold”, that’s gutless.
The author has no idea what he's talking about.
