Spirited News, Observations & Thoughts Tres

[ParentsOf4]

I agree with your ultimate conclusion, but if the main impetus for purchasing DVC in the first place is to save money, then aren't DVC members a lost cause after the initial purchase no matter what? Stagnation only causes them to spend less on park tickets--they wouldn't be buying as many souvenirs and food in the first place so you can't factor that in. Stagnation didn't cause them to become cheap--they always were, which is why they bought DVC.

My original post on DVC concerned the proposition that DVC members somehow were guaranteed revenue streams for WDW. In the end, DVC members are not much different from everyone else who visits WDW frequently. Disney needs to invest to get them into the theme parks, just like any repeat guest. Disney cannot assume DVC members will visit the parks in perpetuity.

The financial downside facing Disney is that DVC eventually does save money for those staying at Deluxe Resorts. In the long run, Disney is losing revenue by letting DVC members invest today for a cheap stay 5, 10, 20, even 50 years from now. Again, Disney is sacrificing long-term profits for short-term gains. They're going to want to make up the lost revenue somewhere. That means higher prices all around for everyone. Ultimately, DVC becomes a financial burden for anyone who is not a DVC member.

 

[Goofyernmost]

Even at today's direct sale prices, DVC saves money, potentially lots of money over the long haul. However, it takes the right type of person to realize that savings, mainly someone who wants to vacation at WDW regularly and someone who wants to stay at Deluxe Resorts. Depending on what set of assumptions you make, you can, for example, reach the break-even point at BWV, even at Disney's current $130/point, in about 8 years.

But that's the problem facing Disney. For about the first 8 years or so they are ahead of the game. After that, they are behind, way behind. See my previous example of BWI vs. BWV. Every night I stay beyond 8 years (a lot less from me because I paid less than half the direct price) is a night WDW loses an incredible amount of profit. BWV originally opened in 1996. They are well past the break-even point on nearly all the deeds there.

As I wrote earlier, DVC sacrifices long-term profit for short-term profit. With many DVC deeds well past their original break-even points, DVC is starting to cost Disney a lot of missed profit opportunities. Disney needs those DVC guests spending money on tickets, restaurants, and merchandise if it hopes to even begin to make up for that lost profit. Otherwise, it needs to charge non-DVC guests even more to make up the difference.

Based on what you just said...maybe Disney has some type of study that states that after 7 years people get tired of doing Disney all the time and sell their DVC. Wouldn't it start all over for Disney, if they handled the deal? I'm not sure how it works, as you can tell, I never had a desire to buy into the mouse and pay that far into the future.

 

[WDWFigment]

My original post on DVC concerned the proposition that DVC members somehow were guaranteed revenue streams for WDW. In the end, DVC members are not much different from everyone else who visits WDW frequently. Disney needs to invest to get them into the theme parks, just like any repeat guest. Disney cannot assume DVC members will visit the parks in perpetuity.

The financial downside facing Disney is that DVC eventually does save money for those staying at Deluxe Resorts. In the long run, Disney is losing revenue by letting DVC members invest today for a cheap stay 5, 10, 20, even 50 years from now. Again, Disney is sacrificing long-term profits for short-term gains. They're going to want to make up the lost revenue somewhere. That means higher prices all around for everyone. Ultimately, DVC becomes a financial burden for anyone who is not a DVC member.

I understand and agree with your overall point, I was just taking issue with the contention that DVC members aren't potentially big spenders.

To clarify, I agree with everything else you and @flynnibus have said.

 

[lebeau]

I still remember the German theme of Octoberfest and when Rivertown actually had a feel of a river town. . . That being said, the current rendition is not short on thrills and a season pass is defintely worth the money. Still, the original enchanted voyage will always hold a special spot for me. SO MUCH BETTER than IASW.

Agreed on all counts. Nothing more to contribute. Just quoting for truth. A modern day season pass is too good of a deal to pass up, but I miss the days when it was more of a theme park. Too bad those days can't come back.

 

[ParentsOf4]

Based on what you just said...maybe Disney has some type of study that states that after 7 years people get tired of doing Disney all the time and sell their DVC. Wouldn't it start all over for Disney, if they handled the deal? I'm not sure how it works, as you can tell, I never had a desire to buy into the mouse and pay that far into the future.

Except for some minor admin fees, Disney receives no money on resales. Essentially all of Disney's DVC profits are realized upfront during the initial sale.

Disney can exercise Right Of First Refusal (ROFR) on any DVC sold on the secondary market (a.k.a. "resale"). In this case, Disney becomes the buyer. They then can sell these same points as "new".

The problem is that resale prices are high enough that Disney gets a much better rate of return building than buying resales. Buying a BLT resale might cost Disney $95/point. They can sell it at $165/point so it sounds great. However, it cost Disney only about $25/point to build BLT so, from Disney's perspective, profit margins for resales stink. They'd rather invest their capital (DVD does not have infinite capital) where it's most profitable. As a result, they'd much rather build a new resort such as VGF and realize much higher returns.

There's also the quantity issue. Building a new resort means creating millions of points to sell. By comparison, the resale market is tiny. Disney would much rather sell millions of new points then deal with the few thousand that exchange hands on the resale market in a typical month. My guess is resales make up less than 20% of the market.

Disney will continue to build new DVC properties as long as they remain more profitable. It's not that Disney doesn't want to deal in the resale market; it's just that the big money lies in building.

 

[the.dreamfinder]

@ParentsOf4, how well do you think the GFV will sell. It seems like the future of DVC at WDW could be greatly impacted by either its success or failure.

 

[flynnibus]

Disney will continue to build new DVC properties as long as they remain more profitable. It's not that Disney doesn't want to deal in the resale market; it's just that the big money lies in building.

I think you downplay the easy money resale offers Disney... but I think your last sentence makes the difference. The BIG money is in selling a new building - but that doesn't mean there isn't attractive money in resell for Disney.

Like we've talked about in the last few pages... recurring vs upfront.. and today's dollars vs tomorrows. Resell is a recurring revenue stream (with tiny overhead) that they can continue to recognize (and at today's dollars too!). The issue is it too declines in value over time as the contract term gets closer to expiration. It may not be a billion dollars in 1-3 years.. but I bet its pretty rich

I've love to hear Disney's true insider plans on what they think they'll do at the contract expiration. My guess is try to convert existing buyers and fund a renovation to try to sweeten the pot. These properties are just too big to tear down.. and converting to hotels maybe too disruptive to the existing model.

 

[ParentsOf4]

I think you downplay the easy money resale offers Disney... but I think your last sentence makes the difference. The BIG money is in selling a new building - but that doesn't mean there isn't attractive money in resell for Disney.

I'm sure there are many businesses who would love to have Disney's margins on resale. But for Disney Vacation Development, Inc resale is only a supplemental source of income. Margins on direct sales are huge.

I sometimes wonder if there's someone at DVD begging corporate for additional capital to be more aggressive on the resale market but imagine, like any large conglomerate, they end up battling other business units within TWDC for funding.

 

[asianway]

I think you downplay the easy money resale offers Disney... but I think your last sentence makes the difference. The BIG money is in selling a new building - but that doesn't mean there isn't attractive money in resell for Disney.

Like we've talked about in the last few pages... recurring vs upfront.. and today's dollars vs tomorrows. Resell is a recurring revenue stream (with tiny overhead) that they can continue to recognize (and at today's dollars too!). The issue is it too declines in value over time as the contract term gets closer to expiration. It may not be a billion dollars in 1-3 years.. but I bet its pretty rich

I've love to hear Disney's true insider plans on what they think they'll do at the contract expiration. My guess is try to convert existing buyers and fund a renovation to try to sweeten the pot. These properties are just too big to tear down.. and converting to hotels maybe too disruptive to the existing model.

There are considerable sales related expenses, commissions to the sales people, overhead that need to be considered. Theres less meat on that example than it appears.

 

[Sneezy62]

I think you downplay the easy money resale offers Disney... but I think your last sentence makes the difference. The BIG money is in selling a new building - but that doesn't mean there isn't attractive money in resell for Disney.

Like we've talked about in the last few pages... recurring vs upfront.. and today's dollars vs tomorrows. Resell is a recurring revenue stream (with tiny overhead) that they can continue to recognize (and at today's dollars too!). The issue is it too declines in value over time as the contract term gets closer to expiration. It may not be a billion dollars in 1-3 years.. but I bet its pretty rich

I've love to hear Disney's true insider plans on what they think they'll do at the contract expiration. My guess is try to convert existing buyers and fund a renovation to try to sweeten the pot. These properties are just too big to tear down.. and converting to hotels maybe too disruptive to the existing model.

One other issue re: profits on resale is that the more aggressive Disney is on ROFR the higher the asking prices go. We saw that this spring when Disney did the promo and began ROFRing BWV and others to replenish inventory. Asking prices increased 15% -20% overnight. That darned internet just makes it harder to sneak up on a good deal.

ETA: most contracts were not being ROFRed either.

 

[ParentsOf4]

@ParentsOf4, how well do you think the GFV will sell. It seems like the future of DVC at WDW could be greatly impacted by either it's success or failure.

First, the next DVC almost certainly will be at the Poly. Strong rumors from reliable sources suggest groundbreaking will begin later this year.

Second, VGF should sell out quickly, faster than any DVC resort in a while.

• VGF is at WDW's flagship resort and on the Monorail.
• Only 2.5 million points at VGF, making it one of WDW's smallest. It's about the same size as VWL.
• Opening price was $145/point for existing DVC members. That's $50/point less than many predicted. Don't be surprised to see it reach $175/point or higher by the end of the year.
• Unlike when WDW had 3 large DVCs competing with each other (BLT, AKV, and SSR), VGF will be on its own once AKV sells out by early 2014. (AKV has about 800K points left and is selling over 100K points per month.)
• Improving economy. Combined, BLT, AKV, and SSR had over 20M points to sell. Disney managed to sell many of those in a poor economy.

The only thing that might hinder VGF is the Poly DVC. The Poly has a lot of fans and some of the descriptions I've read suggest the Poly could end up becoming the best DVC at WDW. There could be some who decide to wait for the Poly. Like VGF, it's going to be a relatively small DVC.

 

[asianway]

First, the next DVC almost certainly will be at the Poly. Strong rumors from reliable sources suggest groundbreaking will begin later this year.

Second, VGF should sell out quickly, faster than any DVC resort in a while.

• VGF is at WDW's flagship resort and on the Monorail.
• Only 2.5 million points at VGF, making it one of WDW's smallest. It's about the same size as BCV.
• Opening price was $145/point for existing DVC members. That's $50/point less than many predicted. Don't be surprised to see it reach $175/point or higher by the end of the year.
• Unlike when WDW had 3 large DVCs competing with each other (BLT, AKV, and SSR), VGF will be on its own once AKV sells out by early 2014. (AKV has about 800K points left and are selling over 100K points per month.)
• Improving economy. Combined, BLT, AKV, and SSR had over 20M points to sell. Disney managed to sell many of those in a poor economy.

The only thing that might hinder VGF is the Poly DVC. The Poly has a lot of fans and some of the descriptions I've read suggest the Poly could end up becoming the best DVC at WDW. There could be some who decide to wait for the Poly. Like the VGF, it's going to be a relatively small DVC.

They didnt go through with the two tiered trading plan with VGF right? I think thats where a lot of the $195/pt rumors were coming from. (GF could only trade with Aulani and BLT and so on)

 

[ParentsOf4]

They didnt go through with the two tiered trading plan with VGF right? I think thats where a lot of the $195/pt rumors were coming from. (GF could only trade with Aulani and BLT and so on)

Nope. Instead, VGF has a high per night point requirement. For example, it takes 10 points to stay in a standard view studio at BWV in September in the middle of a week, 17 points at VGF. For perspective, a regular cash room at the Grand Floridian costs about 20% more than a cash room at the Boardwalk Inn.

People were surprised by the VGF's high initial MF, $5.41/point. In hindsight, VGF is about the same size at BCV so it wasn't too surprising it had a similar MF since common costs have to be shared among fewer rooms. It probably was unrealistic to expect a low MF similar to the enormous SSR or high-rise BLT.

 

[asianway]

Nope. Instead, VGF has a high per night point requirement. For example, it takes 10 points to stay in a standard view studio at BWV in September in the middle of a week, 17 points at VGF. For perspective, a regular cash room at the Grand Floridian costs about 20% more than a cash room at the Boardwalk Inn.

People were surprised by the VGF's high initial MF, $5.41/point. In hindsight, VGF is about the same size at BCV so it wasn't too surprising it had a similar MF since common costs have to be shared among fewer rooms. It probably was unrealistic to expect a low MF similar to the enormous SSR or high-rise BLT.

Geez hadnt been paying attention, that is high. Its not like its an island, theyre only paying for prorata share of the hotel management and a share of the pool. BCV has their own pool they pay 100% for. Interesting, I need to do a little digging.

 

[flynnibus]

There are considerable sales related expenses, commissions to the sales people, overhead that need to be considered. Theres less meat on that example than it appears.

Expenses that are rolled into an organization that is already doing these things in large volume. So their overhead is very optimized. 200 pts bought at 70 and sold at 130 equals

-$14000 cash out to seller
$26000 cash in from buyer
-$2000 less commission and paperwork (take an estimate based on 5% commission)
Still $10k in profit for only risking $14k. That's a 70% profit return on their dollars.

Even if you boosted the commission rates substantially, and called their expenses $4k.. that's still $8k on $14k.. still over a 50% return for basically doing exactly what they are already doing.

Even if that was a high risk scenario.. those types of returns would make it worth it.

Imagine if you could make 50% return on your money 'on the side'... and keep doing so for a decade or more. And it's money you can quickly turn around.. you don't need to sit on it for years to get the return.

 

[asianway]

Expenses that are rolled into an organization that is already doing these things in large volume. So their overhead is very optimized. 200 pts bought at 70 and sold at 130 equals

-$14000 cash out to seller
$26000 cash in from buyer
-$2000 less commission and paperwork (take an estimate based on 5% commission)
Still $10k in profit for only risking $14k. That's a 70% profit return on their dollars.

Even if you boosted the commission rates substantially, and called their expenses $4k.. that's still $8k on $14k.. still over a 50% return for basically doing exactly what they are already doing.

Even if that was a high risk scenario.. those types of returns would make it worth it.

Imagine if you could make 50% return on your money 'on the side'... and keep doing so for a decade or more. And it's money you can quickly turn around.. you don't need to sit on it for years to get the return.

Finding a buyer to pay $165 from DVD when they can resale for $100 is going to cost more than 5% in sales expenses.

But regardless, I agree they will make money, and I would certainly take that money if I could get it. But if Disney has proven anything in the past 5 years, its not about making money, its about making ENOUGH money. Most would be shocked at how much the margins play into some decisions at an organization like DIS.

 

[Calvin Coolidge]

I'll be going to DLR/SoCal later this summer. I think may not have communicated my point clearly, WDI designed major facade redos for the Animation Building and the Hyperion theater that got jettisoned from Phase I. I was just commenting on how WDI had a solution to make Hollywood Blvd. completely 1930s era, but wasn't able to execute that plan. I'm quite pleased that project sparkle happened as I watched the progress last year, followed MiceChat's DCA tracker thread religiously last year. It's just that the Anim. Building and Hyperion are the last vestiges of the old DCA.

Mostly agree with the last point but...that awkward corner of Paradise Pier (Jumpin' Jellyfish or whatever) and a Bug's Land are pretty DCA 1.0, in my opinion, minor cosmetic enhancements notwithstanding.

 

[Computer Magic]

Finding a buyer to pay $165 from DVD when they can resale for $100 is going to cost more than 5% in sales expenses.

But regardless, I agree they will make money, and I would certainly take that money if I could get it. But if Disney has proven anything in the past 5 years, its not about making money, its about making ENOUGH money. Most would be shocked at how much the margins play into some decisions at an organization like DIS.

Disney must want the money since Disney changed the policy so that resale outside of Disney can't use points at other locations.

 

[The_Mesh_Hatter]

Then, you missed some great Disney attractions. Cinemagique is one of Disney's best attractions anywhere and has won numerous industry awards and honors. Anamagique isn't quite as good, but still a fun and unique black lit character show. Armageddon is one of the best effects shows in any theme park. The RnRC is better than O-town's and ToT is the weaker Anaheim ride, but has some of the best CMs anywhere.

Shame you didn't give the place a chance.

We only had a day at the resort so it seemed like a waste to spend any more time there when we were right across from the most beautiful Magic Kingdom park. The lines were very long so it was either Rock'n'Roller Coaster or Phantom Manor. Wasn't a tough choice.

 

[flynnibus]

Finding a buyer to pay $165 from DVD when they can resale for $100 is going to cost more than 5% in sales expenses.

We already know they pay their feeder sales force a pittance... about $11/hr. I can't imagine them paying more than 5% commission... then the rest is the paper shuffle and county fees. Stand-alone resell brokers can get by on 10%.... Disney has the economies of scale as well as the benefit of 'all insider job' except when it comes to the county paperwork. Even at 10% overhead... they would still be making a killer margin. All for doing work - they are already doing! That's the beauty of the system... you make great money doing it, for work you already doing, and doing it in a way that protects your other sales. It's a win win win for Disney.

It also provides diversity in the portfolio for those that want it.

Imagine if you could flip houses without doing any renovation at all...that's effectivly what DVC resale is. The properties are already being maintained, and by putting out a little money, they basically 'create' inventory. It's freaking awesome as long as you can keep the buyer funnel filled. And considering we just went through one of the worst housing depressions in decades and DVC skated through without dropping their drawers... I have to imagine they see lots of customers still.