Profit Margin at Disney Parks Hasn't Increased Since 2002?

[Chef Mickey]

I got curious about all the ticket price increases and wanted to see just how much more money Disney makes as a % of revenue at their parks. I compared the numbers an was pretty surprised.

2002 ..................Revenue......Operating Income.............%
...........................$6,465M .............$1,169M..................18.1%

2015 ..................Revenue......Operating Income.............%
..........................$16,162M............$3,031M.................18.7%

Operating margin is around 18% in both years.

This surprises me because although ticket prices have increased significantly over that period, Disney really isn't making more money.

That said, I actually think the parks are currently in worse shape than in 2002. Pretty much everything is just 14 years older, with not a lot of new besides New Fantasyland, Toy Story, and an officially opened Everest and Mission Space (these projects were already underway).

Perhaps there are some other factors like new parks coming online around the world or some larger capital expenditures on the book in the current year versus the year I compared, but it still surprises me. I always saw Iger as a margin extractor at the parks and he actually hasn't done that great of a job from that perspective either. Seems the parks are worse, more expensive, and he's still making little more margin than back in 2002.

 

[thomas998]

I got curious about all the ticket price increases and wanted to see just how much more money Disney makes as a % of revenue at their parks. I compared the numbers an was pretty surprised.

2002 ..................Revenue......Operating Income.............%
...........................$6,465M .............$1,169M..................18.1%

2015 ..................Revenue......Operating Income.............%
..........................$16,162M............$3,031M.................18.7%

Operating margin is around 18% in both years.

This surprises me because although ticket prices have increased significantly over that period, Disney really isn't making more money.

That said, I actually think the parks are currently in worse shape than in 2002. Pretty much everything is just 14 years older, with not a lot of new besides New Fantasyland, Toy Story, and an officially opened Everest and Mission Space (these projects were already underway).

Perhaps there are some other factors like new parks coming online around the world or some larger capital expenditures on the book in the current year versus the year I compared, but it still surprises me. I always saw Iger as a margin extractor at the parks and he actually hasn't done that great of a job from that perspective either. Seems the parks are worse, more expensive, and he's still making little more margin than back in 2002.

Not sure what you are talking about... Operating Income increased from 1.2 billion to 3.0 billion. Yes you can say the ratio between revenue and income stayed near constant but what difference does that make? Bottom line if you were Disney is that you made more Income.... Not sure where you got your number from or even if they are only from parks... but assuming they are only park number then the other interesting thing to look at would be the operating expenses and other expenses.

As for Iger he is not concerned with percentage increase in margin as he is increase in income per share and I assure you that has increased based on the numbers you provided.

 

[Schneewittchen]

I don't understand the "parks are worse now" mentality. I started visiting the parks about once a year about 10 years ago and every time I'm impressed with the facilities and conditions. You have to move heaven and earth to keep such a busy place neat, clean and functional. The old rides work, the paint is fresh, there is plenty of new stuff to do, and it is clean!!!!

What does "worse shape" mean?

If you've ever been to a non-Disney theme park you know how horrifying the bathrooms and food service areas can get. Trash and filth everywhere. Disney is not building a bunch of janky midway rides from the county fair either....

 

[Andrew Czornohalan]

Interesting take on the numbers, i just looked up an article I read on the Bloomberg web site that stated:

"Price increases in California and Florida helped boosted profit at Disney’s theme parks by 24 percent. The company is benefiting from investments made during leaner years to attract guests who are spending more in an improved economy."

I would love to see profit plotted over time or earnings per share, that will tell the real story of the business.

See link for the Bloomberg article:
http://www.bloomberg.com/news/artic...s-views-on-theme-park-consumer-products-gains

 

[Andrew Czornohalan]

 

[Andrew Czornohalan]

Above taken from:
http://qz.com/174552/disney-has-espn-to-thank-for-another-blowout-quarter/

 

[Chef Mickey]

Not sure what you are talking about... Operating Income increased from 1.2 billion to 3.0 billion. Yes you can say the ratio between revenue and income stayed near constant but what difference does that make? Bottom line if you were Disney is that you made more Income.... Not sure where you got your number from or even if they are only from parks... but assuming they are only park number then the other interesting thing to look at would be the operating expenses and other expenses.

As for Iger he is not concerned with percentage increase in margin as he is increase in income per share and I assure you that has increased based on the numbers you provided.

They aren't making more margin. They have gotten more people into the parks, so their sales have increased, but they aren't making more profit per dollar.

People seem to think they are gouging people by charging more and more for everything Disney, but I just proved they were making the same margins they were 14 years ago.

You do understand margin, right?

No one is arguing they aren't making more total dollars....that is pretty clear. A lot more people go. My point is that if they are not overcharging people based on 15 years ago..

I looked up 1999 and operating margin was over 20% at that time, indicating it's a better value now.

Numbers are from Disney.com annual reports, for just Parks and Resorts.

Again, you called it "ratio" but the what you mean is the operating margin has not increased, meaning they aren't overcharging you. Their expenses went up too.

 

[Chef Mickey]

I don't understand the "parks are worse now" mentality. I started visiting the parks about once a year about 10 years ago and every time I'm impressed with the facilities and conditions. You have to move heaven and earth to keep such a busy place neat, clean and functional. The old rides work, the paint is fresh, there is plenty of new stuff to do, and it is clean!!!!

What does "worse shape" mean?

If you've ever been to a non-Disney theme park you know how horrifying the bathrooms and food service areas can get. Trash and filth everywhere. Disney is not building a bunch of janky midway rides from the county fair either....

Worse shape:

1) Essentially nothing new at EPCOT since Mission Space.
2) Much of EPCOT underutilized or completely closed.
3) Half of HS closed.
4) Almost no new E-Tickets since Eisner left.
5) Almost everything awesome or at least ambitious at Disney was built or conceived at least 10 or more Years ago (Pre Iger):
Tower of Terror, Splash Mountain, Space Mountain, Thunder Mountain, Fantasmic, American Adventure, Haunted Mansion, Pirates, Festival of Lion King, Spaceship Earth, Everst, Test Track, need I go on?

Hopefully Star Wars, Toy Story, Avatar are awesome and I reserve the right to change my mind.

 

[Chef Mickey]

Not sure where you got your number from or even if they are only from parks... but assuming they are only park number then the other interesting thing to look at would be the operating expenses and other expenses.

As for Iger he is not concerned with percentage increase in margin as he is increase in income per share and I assure you that has increased based on the numbers you provided.

Operating margin by definition looks at expenses, meaning after expenses, they are making the same profit (before taxes) per dollar. This indicates that they have charged more, but their own costs have increased at a similar rate.

From Investopedia:

"Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc

Operating margin gives analysts an idea of how much a company makes (before interest and taxes) on each dollar of sales."

And we aren't talking about EPS here. They have obviously increased because Disney makes more total profit and has bought back shares. We are talking about Margin.

This one one way I thought of to check how much Disney is really charging compared to 15 years ago. The surprise is, they were making the same profit per dollar then, indicating it was just as "expensive" then.

 

[ParentsOf4]

The following charts Disney Parks & Resorts (P&R) operating margin since WDW opened in FY1972:

IMHO, there are 3 major factors affecting operating margin since 2001:

1. Post 9/11 economy - The travel industry was severely impacted by 9/11. Disney's theme park business was no exception. In the wake of massive cancellations, WDW was forced to temporarily close entire hotels. It took years to recover. Even then, much of the attendance recovery was driven by deep discounts and a new type of less expensive theme park ticket, affecting margin.
2. International Parks & Resorts - Beginning in 2004, Disney was required to start including Disneyland Paris (DLP) and then (in 2005) Hong Kong Disneyland (HKDL) in its financial results. Both have performed worse than Disney's domestic operations, dragging P&R margin down.
3. Managerial changes - Instead of concentrating on delivering compelling products, the focus shifted to controlling cost. The recent successes at Universal as well as Disney's own Cars Land in CA have demonstrated the shortcomings of this one-sided approach. As a result of Universal's focus on delivering appealing products, their operating margin has skyrocketed to double that of Disney's.

Still, it would be wrong to think that Disney's domestic parks are doing poorly. Quite the opposite. As a result of recent new offerings, an improving economy, and market penetration in South America, domestic P&R margin is back to where it was in the 1990s. The climb has been steady since margin bottomed out in 2010.

At this point, it's really DLP and HKDL that are dragging down P&R.

Looking ahead, another recession will likely drive P&R business down until Disney's new offerings become available.

 

[Chef Mickey]

The following charts Disney Parks & Resorts (P&R) operating margin since WDW opened in FY1972:

View attachment 126900


IMHO, there are 3 major factors affecting operating margin since 2001:

1. Post 9/11 economy - The travel industry was severely impacted by 9/11. Disney's theme park business was no exception. In the wake of massive cancellations, WDW was forced to temporarily close entire hotels. It took years to recover. Even then, much of the attendance recovery was driven by deep discounts and a new type of less expensive theme park ticket, affecting margin.
2. International Parks & Resorts - Beginning in 2004, Disney was required to start including Disneyland Paris (DLP) and then (in 2005) Hong Kong Disneyland (HKDL) in its financial results. Both have performed worse than Disney's domestic operations, dragging P&R margin down.
3. Managerial changes - Instead of concentrating on delivering compelling products, the focus shifted to controlling cost. The recent successes at Universal as well as Disney's own Cars Land in CA have demonstrated the shortcomings of this one-sided approach. As a result of Universal's focus on delivering appealing products, their operating margin has skyrocketed to double that of Disney's.

Still, it would be wrong to think that Disney's domestic parks are doing poorly. Quite the opposite. As a result of recent new offerings, an improving economy, and market penetration in South America, domestic P&R margin is back to where it was in the 1990s. The climb has been steady since margin bottomed out in 2010.

At this point, it's really DLP and HKDL that are dragging down P&R.

Looking ahead, another recession will likely drive P&R business down until Disney's new offerings become available.

Awesome visual and confirmation of the years I picked. Interesting how high margins were in the 80s.

 

[thomas998]

They aren't making more margin. They have gotten more people into the parks, so their sales have increased, but they aren't making more profit per dollar.

People seem to think they are gouging people by charging more and more for everything Disney, but I just proved they were making the same margins they were 14 years ago.

You do understand margin, right?

No one is arguing they aren't making more total dollars....that is pretty clear. A lot more people go. My point is that if they are not overcharging people based on 15 years ago..

I looked up 1999 and operating margin was over 20% at that time, indicating it's a better value now.

Numbers are from Disney.com annual reports, for just Parks and Resorts.

Again, you called it "ratio" but the what you mean is the operating margin has not increased, meaning they aren't overcharging you. Their expenses went up too.

I assure you I understand the number and probably have analyzed more companies than you could ever imagine in my past job.

You missed my point. They are making over 100% more operating income. The fact that it is from churning in twice as many people or however many more they did doesn't matter. In the end they have a park that can only hold so many people.... they churn through as many as they possibly can and try to extract as much from each one as possible. What your numbers are saying is that the parks should over all be more crowded which is what my experience in going there over the past 10 years would seem to be true.

Frankly I'm impressed that the margin as a percent has increased over that time because the increase in traffic was probably due to a significant increase in marketing to suck in visitors.

In the end I really just don't understand what point you are trying to make except that you don't think the parks are as well maintained today as they were 10 years ago... Frankly considering they are apparently churning more visitors I would expect to see a decline in the parks... After all the park is like carpet, the more people that walk on it the more worn it is bound to be.

 

[freediverdude]

I would be interested in seeing the margin numbers for just the Disney World resort Orlando. They probably don't release those though. And they're probably still depreciating the huge costs of My Magic+ which would skew the numbers a little bit trying to compare condition of the parks and value of purchases over the years.

 

[Chef Mickey]

I assure you I understand the number and probably have analyzed more companies than you could ever imagine in my past job.

You missed my point. They are making over 100% more operating income. The fact that it is from churning in twice as many people or however many more they did doesn't matter. In the end they have a park that can only hold so many people.... they churn through as many as they possibly can and try to extract as much from each one as possible. What your numbers are saying is that the parks should over all be more crowded which is what my experience in going there over the past 10 years would seem to be true.

Frankly I'm impressed that the margin as a percent has increased over that time because the increase in traffic was probably due to a significant increase in marketing to suck in visitors.

In the end I really just don't understand what point you are trying to make except that you don't think the parks are as well maintained today as they were 10 years ago... Frankly considering they are apparently churning more visitors I would expect to see a decline in the parks... After all the park is like carpet, the more people that walk on it the more worn it is bound to be.

I didn't miss it. I totally get it. I went to Wharton and analyzed thousands of companies.

The point I'm making is people complain about price increases and the park ticket increases hit the news, but Disney made the same margins and even more 15+ years ago. Their costs have gone up too.

 

[Goofyernmost]

I think that there are two words that also enter into the numbers for profit margin... "Executive Bonus". Never has so much been given out to so few for so little contribution to success. And even rewards for failure.

 

[Chef Mickey]

I think that there are two words that also enter into the numbers for profit margin... "Executive Bonus". Never has so much been given out to so few for so little contribution to success. And even rewards for failure.

Problem is, Iger's crazy bonus has been directly related to stock price...which has increased tremendously.

Iger has done a great job making deals, but probably been the worst parks CEO, at least for WDW. He's been more focused on new projects, TV, and movies. Hopefully, we'll get some park content out of all the deal making.

 

[Raineman]

Looking at the data on this graph, if you extracted a linear trendline for the media network data and for the theme parks data, both are trending upward, but media is trending upward at a higher rate then theme parks. I am assuming that the numbers represent total revenue-if so, would it not be an optimal situation for Disney as a company to have both major sources of revenue growing at a similar rate? And could this not be achieved by taking a portion of media revenue and investing it into the theme parks, ie developing new major attractions, utilizing all available space at the parks (empty buildings) and refurbishing older attractions? Over time, major investment in the theme parks should correlate to an increase in theme park revenue, while still maintaining the numbers from media. Of course, if Iger and Co are more focused on the media networks and not on the parks, it's all a moot point.

 

[thomas998]

I didn't miss it. I totally get it. I went to Wharton and analyzed thousands of companies.

The point I'm making is people complain about price increases and the park ticket increases hit the news, but Disney made the same margins and even more 15+ years ago. Their costs have gone up too.

Well of course their costs have gone up, inflation alone during the period your talking about was over 30% from 2002 to 2015... But the real problem with your numbers that you're playing with is that they haven't been normalized so that you can do a valid comparison on what they are making off each visitor. Did you include the cost of the magic band plus implementation? Cost associated with the development of new attractions? Lots of information is missing from what you provided to make a really meaningful analysis and honestly the Disney Annual reports don't give enough detail for anyone to really analyze the parks in any meaningful way, which is probably by design.

In the end the real problem with your original post is that you said:

"This surprises me because although ticket prices have increased significantly over that period, Disney really isn't making more money."

When clearly from your own numbers they had operating income almost 2 billion dollars greater... I guess for a Wharton guy that's a rounding error... but at HBS we were taught that 2 billion is a bit more than a rounding error.

 

[Chef Mickey]

Well of course their costs have gone up, inflation alone during the period your talking about was over 30% from 2002 to 2015... But the real problem with your numbers that you're playing with is that they haven't been normalized so that you can do a valid comparison on what they are making off each visitor. Did you include the cost of the magic band plus implementation? Cost associated with the development of new attractions? Lots of information is missing from what you provided to make a really meaningful analysis and honestly the Disney Annual reports don't give enough detail for anyone to really analyze the parks in any meaningful way, which is probably by design.

In the end the real problem with your original post is that you said:

"This surprises me because although ticket prices have increased significantly over that period, Disney really isn't making more money."

When clearly from your own numbers they had operating income almost 2 billion dollars greater... I guess for a Wharton guy that's a rounding error... but at HBS we were taught that 2 billion is a bit more than a rounding error.

LOL, OK big guy. I researched and posted the numbers....clearly they make more total dollars. That was never my point because the thread title says margin. They aren't making more profit per dollar sold. Now you're questioning my ability to see that $1.1b is smaller than $3b? I posted the numbers!! I can't take you seriously.

Go troll somewhere else.

Better yet, my mistake. You are right and know more about finance than me. I don't care to mince words with you, so you win.

 

[thomas998]

Problem is, Iger's crazy bonus has been directly related to stock price...which has increased tremendously.

Iger has done a great job making deals, but probably been the worst parks CEO, at least for WDW. He's been more focused on new projects, TV, and movies. Hopefully, we'll get some park content out of all the deal making.

I think the argument he would make is that the parks are a fairly mature business while things like hulu are a new business that has a lot more opportunity for growth. Anytime a company has various business units that are all engaged in different businesses you will have a issue of where should you invest money. It tends to go to the areas that people see having the greatest potential. Going forward there may be a time when the best option for the parks will be a spin off into a company that only focuses on parks and resorts.... but I don't see them doing that anytime soon.