Star Wars Land announced for Disney's Hollywood Studios

[GoofGoof]

Yes, but Capex costs are normally capitalized over many years by simply making it so on the books, not by slowing down construction projects to make that happen.

A better reason for slowing down a construction project is that you don't have enough cash/liquidity to pay the costs of the current construction. This is why WDW can't just start building a dozen "Lands" all at once.

It is possible that Disney Inc did not arrange for enough cash to pay for all the projects in a timely manner? I don't know. Seems unlikely. Since these projects are very likely to increase revenue, it doesn't make sense to slow them down for lack of cash. You then borrow money to make it happen and the new revenue will allow for the pay-back.

They have the cash to build it all at once, but they are allocating a lot of it to stock buybacks. They have to manage the capex budget and make sure the street doesn't perceive that they are dumping too much cash into P&R. Remember it's not just WDW. P&R has been building things at parks around the world plus cruise ships, DVC, etc. They do seem to spread projects out to even out capital spend.

 

[MisterPenguin]

They have the cash to build it all at once, but they are allocating a lot of it to stock buybacks. They have to manage the capex budget and make sure the street doesn't perceive that they are dumping too much cash into P&R. Remember it's not just WDW. P&R has been building things at parks around the world plus cruise ships, DVC, etc. They do seem to spread projects out to even out capital spend.

I can see them delaying a project for that reason. But once the project starts? I can't imagine any business slow-building just for the sake of how Capex looks to investors. Just the opposite, once a project starts, investors want to see the project completed quickly and bringing in profits quicker.

 

[GoofGoof]

I can see them delaying a project for that reason. But once the project starts? I can't imagine any business slow-building just for the sake of how Capex looks to investors. Just the opposite, once a project starts, investors want to see the project completed quickly and bringing in profits quicker.

Right. The project plan might not change after it starts but the original plan was to spread out the spend over multiple years.

 

[Goofyernmost]

@ParentsOf4 seems to think that there are reasons to spread project costs. I don't know his actual background but he often does posts analysis of Disney's financial numbers so he seems to know what he is talking about.

"Spreading a project's cost over several years is one well established method used by many companies to reduce impact on the current year's budget. It really should be no surprise that P&R's budget-conscious team uses this old trick."

There are certain construction expenses that do affect the bottom line in the sense that it is an expense. It does have an upside in that it also reduces taxable income. So if they are having a good year, it is better to have more of those expenses then in lean years. However, that actual cost of the attraction build is considered CAPEX. When money goes out toward that it is just transferred into a different asset account. (i.e. Cash to Capex). That doesn't change anything in the overall financial statements. Even sending it to liability really doesn't do anything to the bottom line until it is actually paid. It only effects the net worth. Once it is opened then they can start the depreciation process which lowers net worth and also taxable income. I can think of no reason why they wouldn't want to get this thing in and, presumably, increasing revenue as soon as possible. Whatever cash that they have used needs to be returned, thus (ROI), as quickly as possible.

 

[Goofyernmost]

Yes, but Capex costs are normally capitalized over many years by simply making it so on the books, not by slowing down construction projects to make that happen.

A better reason for slowing down a construction project is that you don't have enough cash/liquidity to pay the costs of the current construction. This is why WDW can't just start building a dozen "Lands" all at once.

It is possible that Disney Inc did not arrange for enough cash to pay for all the projects in a timely manner? I don't know. Seems unlikely. Since these projects are very likely to increase revenue, it doesn't make sense to slow them down for lack of cash. You then borrow money to make it happen and the new revenue will allow for the pay-back.

OR, it could be that we, you know those of us that have never built a land in a theme park, are not taking into account the complexity of engineering that many of the theme park attractions are. It's not like they're building a three bedroom ranch house. There is so much just earth work that must be done in a swamp like location to begin with and then the unique building, technology and detailed sculpturing to build a land should not be treated like it is a simple afternoon and evening project.

 

[Sped2424]

I'm really glad Forbidden Journey started the trend of amazing queues. You spend most your time in it, so why not make it an experience?

I would argue that some classic Disney queue's started that trend long before. Pirates and Haunted Mansion comes to mind

 

[invader]

I would argue that some classic Disney queue's started that trend long before. Pirates and Haunted Mansion comes to mind

Depends on what you consider queue vs preshow.

 

[Sped2424]

Depends on what you consider queue vs preshow.

I don't think of pirates as having any sort of pre show. Haunted I could see!

 

[Sped2424]

Pirates is no slouch! Too bad they took half of it away from people that don't want to burn a fast pass.

imo the stronger half no more chess pirates for me.

 

[ParentsOf4]

@ParentsOf4 seems to think that there are reasons to spread project costs.

Yes, but Capex costs are normally capitalized over many years by simply making it so on the books, not by slowing down construction projects to make that happen.

Think in terms of free cash flow, stock repurchases, and Iger's compensation package.

Since becoming CEO, Iger has spent $9.8B in domestic and international theme park growth capex.

Meanwhile, over that same period, Iger has spent $55.7B on stock repurchases.

Iger is reluctant to invest in theme parks because he'd rather spend company money on stock repurchases.

To understand why, you have to look at Disney's Proxy Statement to see how Iger's compensation is tied to 4 metrics, including "after-tax free cash flow", which is defined as:

cash provided by operations plus cash paid for restructuring costs and less investments in parks, resorts and other properties​

In other words, spending on theme parks reduces Iger's compensation, but spending on stock repurchases does not.

Now, there's something called "return on invested capital", which sounds great for theme parks until you read this is defined as:

the aggregate segment operating income less corporate and unallocated shared expenses divided by average net assets invested in operations​

In other words, the less Iger invests at the theme parks, the lower the denominator! Iger is better off pursuing low-capex schemes like My Disney Experience (whose capex component was relatively small), cabanas, special ticketed events, time shares, etc. Again, stock repurchases have no effect on this metric.

So, a lot of Iger's executive compensation is based on investing as little as possible at the theme parks.

Meanwhile, Iger's compensation is based on EPS. Since a stock repurchase reduces the number of outstanding shares, Iger has a strong incentive to buy company stock. Put it all together, and Iger would rather drag out capex projects than build quickly.

 

[Mike S]

Think in terms of free cash flow, stock repurchases, and Iger's compensation package.

Since becoming CEO, Iger has spent $9.8B in domestic and international theme park growth capex.

Meanwhile, over that same period, Iger has spent $55.7B on stock repurchases.

Iger is reluctant to invest in theme parks because he'd rather spend company money on stock repurchases.

To understand why, you have to look at Disney's Proxy Statement to see how Iger's compensation is tied to 4 metrics, including "after-tax free cash flow", which is defined as:

cash provided by operations plus cash paid for restructuring costs and less investments in parks, resorts and other properties​

In other words, spending on theme parks reduces Iger's compensation, but spending on stock repurchases does not.

Now, there's something called "return on invested capital", which sounds great for theme parks until you read this is defined as:

the aggregate segment operating income less corporate and unallocated shared expenses divided by average net assets invested in operations​

In other words, the less Iger invests at the theme parks, the lower the denominator! Iger is better off pursuing low-capex schemes like My Disney Experience (whose capex component was relatively small), cabanas, special ticketed events, time shares, etc. Again, stock repurchases have no effect on this metric.

So, a lot of Iger's executive compensation is based on investing as little as possible at the theme parks.

Meanwhile, Iger's compensation is based on EPS. Since a stock repurchase reduces the number of outstanding shares, Iger has a strong incentive to buy company stock. Put it all together, and Iger would rather drag out capex projects than build quickly.

This needs to change yesterday.

 

[imperius]

Pirates and Haunted have a themed queu yes, but Forbidden Journey, Gringotts, and Kong are on whole other levels.

 

[Mike S]

Pirates and Haunted have a themed queu yes, but Forbidden Journey, Gringotts, and Kong are on whole other levels.

What about Indiana Jones?

 

[imperius]

Never seen it so can't comment.

 

[Jahona]

What about Indiana Jones?

If talking Disneyland then I would agree with that being a great themed que. Indy and Radiator Springs Racers probably have the best ques on the west coast. As for Uni I can only speak on the Harry Potter attractions. Forbidden Journey is great walking through the castle and seeing rooms that you remember from the films. Gringots for me was hit and miss. Over half the que isn't really themed and is just for crowd control. Once you get into the main section it goes from WOW to just good. The main teller room is amazing but for me, until you get to the loading room, it was just as good as the more modern ride ques at Disney.

 

[roj2323]

I think Avland will look great and will have some good attractions, but they should have been better. Although the Omnimax queue will be a great experience (and very long for standby)

SWL I think will look great and have two great attractions, both with great pre-ride experiences. But it will need and should have a third.

Fortunately they will have room for a third behind GMR if they need it.

 

[Cesar R M]

People who wonder why Disney's construction timelines are so "slow" compared to Universals should take note. Screens take next to zero time to develop, design, install, and open.

Not that I'm taking Iger's timeline of 2019 very seriously, but there was quite the heavy parade of those "in the know" on this project's timeline who swore that WDW's Star Wars land was at the very least a year behind Disneylands- but probably closer to two if not three. Any of those people care to offer up an insight as to why they felt this was the case?

Disneylands will need to be built within the confines of the operating/overcrowded theme park that is also surrounded by city streets. There are locals who aren't going to want to deal with construction noise overnight either. There are also the concerns around how to reopen Rivers of America, Tom Sawyer Island, the Railroad, Mark Twain and Fantasmic 2.0 with all of that construction occurring, which will no doubt slow things down significantly once those things start to come on line this summer (though I have my doubts that any of that will be ready in 4 months time). WDW's Star Wars Land can be built at a decent speed without needing to worry about scheduling around the rest of the park, or local residents, or other rides operating in the vicinity. And realistically, there's always 3 shifts of construction per day if they want to push things. It's all about scheduling and realistically how much they want to spend on labor to get things done quicker.

I guess my actual question is: why did anyone think that Disneyland's was ever going to open so much earlier? Was it just WDW's knack for taking their time (which I agree, sometimes takes forever despite it being the plan all along)? Sure, Disneyland got a bit of a head start, but they've got so much more to do compared to WDW's version. Maybe Disneyland is looking at a Spring 2019 opening and WDW's is headed for closer to Fall?

For those who follows the building of things constantly, and how a simple gazebo in AKL took months. I bet I'm not the only one who feels that 2019 feels very tight schedule compared to the usual (see Pandora).
Very rare to see them really working all the time with the limited ladders they have.

 

[Cesar R M]

With a bit of Transformers for good measure.

And a little Honey Hunt. And a bit of Gringotts.

so, shacking, bouncings and with long falls and very big surround screens?

 

[Cesar R M]

That's debatable.

Walking, I suppose a preshow scene and exit scene plus the queues ?

*edit*
Just read your answers..

STOP.. MY BODY CANT TAKE THIS MUCH!
Forbidden Journey's queue was incredible theme wise.

 

[Cesar R M]

Yes...the ride will contain a TON of batteries.