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

[thomas998]

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.

Ah the classic claim troll when someone points out your glaring mistake.

 

[Chef Mickey]

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.

The parks could be a huge growth engine, but require a longer timeline than he's willing to invest...perhaps until now. But I do agree that he's more focused on things he can grow without putting shovel to dirt. Those ideas are quite expensive, take a long time to develop, and again, cost a lot of money.

 

[Chef Mickey]

Ah the classic claim troll when someone points out your glaring mistake.

Sorry, but you are trolling if you actually think I don't understand they make more total dollars. Like I said, I can't take you seriously if you believe that based on the context of the thread and all you have to know is 3 is bigger than 1.

 

[njDizFan]

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.

Huh?...paging @ParentsOf4.

I'm a little confused by your side of this debate. Clearly Disney is growing revenue, nobody is arguing that. But income is stagnant. I think the OPs questions is why? and that is a great question. And it certainly is not because they are spending such a huge percentage on new attractions and infrastructure. Just go back and look at some graphs posted by @ParentsOf4 showing the capital expenditures compared against depreciation. This past decade has been historically low.

 

[DManRightHere]

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 understand what you are saying. I would like to see the percentages between 2002 - 2015 too. Mainly because 2015 is the beginning of big spending for Disney.

 

[Chef Mickey]

I understand what you are saying. I would like to see the percentages between 2002 - 2015 too. Mainly because 2015 is the beginning of big spending for Disney.

Someone posted the graph. The 2 years I picked happened to be similar, but it has been even worse. Interestingly, it's been much higher and I don't think people would predict that based on all the chatter about cost increases.

 

[thomas998]

Huh?...paging @ParentsOf4.

I'm a little confused by your side of this debate. Clearly Disney is growing revenue, nobody is arguing that. But income is stagnant. I think the OPs questions is why? and that is a great question. And it certainly is not because they are spending such a huge percentage on new attractions and infrastructure. Just go back and look at some graphs posted by @ParentsOf4 showing the capital expenditures compared against depreciation. This past decade has been historically low.

No income is not stagnant, the numbers shown by the OP clearly show that operating income is up almost 2 billion dollars. If you go with those same number their expenses went from about 5.3 billion in 2002 to just over 13 billion in 2015... Clearly they are seeing a lot more expenses that you seem to realize, whether it's from increased salaries, increased marketing or benefits from Obama care... no way of really knowing given the limited amount of data.

But you would expect a pretty significant increase in expenses from 2002 to 2015 on the face of it because during that time period they increased the number of room by about 25% on the domestic side. But again the original numbers are difficult to put in perspective because they also include Paris and Hong Kong in 2015 but only Paris in 2002 because Hong Kong wasn't even open yet.

To me a more interesting thing to look at when you are looking at the ever escalating price of admission is to view that with respect to the per guest spending.... Over the 2002-2015 time period per guest spending at domestic parks only excluding resorts went up an average of 4% per year... If you applied that to the ticket prices the should only be about 76 dollar for a day pass today instead of the current 105... Which to me would indicate that as they are charging more for admission the visitors are spending less for the food and mouse ears than they did before otherwise the total guest spending should have increased by an average of about 6%... I guess they prefer selling admission tickets over food and mouse ears.

 

[draybook]

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....

We went to a non Disney park(s) a few miles up the road and there wasn't "trash and filth everywhere". Heck, there have been times that we've seen overflowing garbage cans at Disney. Shoot, the one night at DHS, we watched a handful of roaches do their rendition of the Kentucky Derby around a trash can by LMA. It happens at all parks, let's leave the rose colored spectacles on the nightstand.

 

[BuddyThomas]

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.

It is pointless arguing with this person. He "went to Wharton", remember? As he has bragged about in multiple threads in the past. As if anyone cares, especially when he's advocating for Disney to double the prices to clear out the parks for him and the rest of the elite. He fancies himself to be some sort of omnipresent financial guru, and if any of us commoners off the street dare to disagree with him, we can all just go jump in a lake and drown.

 

[Goofyernmost]

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 don't doubt it at all, but, it all comes out of the same overall pocket no matter what it is based on. All share the cost in one form or the other.

 

[Chef Mickey]

I don't doubt it at all, but, it all comes out of the same overall pocket no matter what it is based on. All share the cost in one form or the other.

I haven't looked it up, but isn't Iger the highest paid CEO (Or top 3) in 2014 or 2013? I know he owns over 1m shares of Dis, which is almost $100m. Guy has done well for himself, huh?

 

[Goofyernmost]

I haven't looked it up, but isn't Iger the highest paid CEO (Or top 3) in 2014 or 2013? I know he owns over 1m shares of Dis, which is almost $100m. Guy has done well for himself, huh?

Yea, he has. I still maintain that there is no single individual worth being paid that much money. It's totally immoral. Not that I am moral, but, no one has ever paid me that much money to be a human bobble head.

 

[Chef Mickey]

Yea, he has. I still maintain that there is no single individual worth being paid that much money. It's totally immoral. Not that I am moral, but, no one has ever paid me that much money to be a human bobble head.

I *GUESS* one could argue he's helped create a lot of shareholder value, but I'm kind of with you on these enormous "gifts" of shares and huge bonuses. There are A LOT of people that made it happen along with Iger (maybe inspite of him in some cases), but he gets such a huge piece. I guess it's one of those things that if it goes well, you get too much credit and if it goes bad, you get too much blame (and probably fired).

Trouble is, CEOs get a sweet deal even when they are fired.

 

[Goofyernmost]

Trouble is, CEOs get a sweet deal even when they are fired.

Kinda would take away the incentive to give a damn how it ends up doesn't it. Today's BOD's are apparently composed of idiots or people that want to set an example so they can have the same lifetime security for themselves, or both. When you can latch on to a company that seems to be able to make a fortune no matter what they do, it is a sweet deal for sure.

 

[ParentsOf4]

Well... apparently he is worth being paid that much, since the BoD set his salary... You may not agree with the BoD, but many Boards do feel the CEO position is worth the high $$$.

Now, whenever I hear/read that someone is paid too much, I have to ask: what is the correct amount the person should be paid? And, instead of the market dictating what a role/person is worth, who would you have dictate that worth?

When it comes to senior executives, one measure to consider what someone else equally capable would be willing to accept to do the job. (It's pretty much the standard companies use to set pay elsewhere. )

In Iger's case, I know of numerous highly qualified and outstanding executives who would jump at the chance to take Iger's job for a 90% pay cut, or about $4 million.

Most modern corporations don't work that way though. The BoD's are pretty much in the CEO's back pocket while those executives under the CEO want the CEO making as much as possible in order to justify THEIR compensation packages.

 

[Goofyernmost]

When it comes to senior executives, one measure to consider what someone else equally capable would be willing to accept to do the job. (It's pretty much the standard companies use to set pay elsewhere. )

In Iger's case, I know of numerous highly qualified and outstanding executives who would jump at the chance to take Iger's job for a 90% pay cut, or about $4 million.

Most modern corporations don't work that way though. The BoD's are pretty much in the CEO's back pocket while those executives under the CEO want the CEO making as much as possible in order to justify THEIR compensation packages.

That's the reason, but, does that really justify it. Just because they want to pay that, the question is should they! Shouldn't the pay be higher then, but, not insanely higher then, the people that actually do the work to make success happen. I'm not saying equal, but, shouldn't there be a ratio that creates incentive to do better, but, not get ridiculous about it?

As is the habit of companies today... let's not look into the future and realize what decisions like that do to their future flexibility and financial health. It's simple, if you are the recipient of the riches it's all the way it should be. If not, then it is much easier to see the lopsidedness of it all. It's the live for today attitude. If they are lucky it will continue for a long time, but, I don't see how it can be sustainable over the longer haul. For the lucky few that are at the right place at the right time all I can say is congratulations, but, to me it comes under the heading of if it's too good to be true, it probably is and will bite them in the hand at some point. Ask some of the companies that once were powerhouses just a few years ago and are now not even listed in the yellow pages.

 

[asianway]

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

The spike is due to Tokyo, all revenue, no expenses. You could theoretically back out the Tokyo effect but Im too lazy.

There is a LOT more managerial bloat in G&A now than there was back then. How did they possibly operate before they built the TDO building?