Star Wars Land announced for Disney's Hollywood Studios

[jt04]

It was built in a quite different financial environment. Getting it done ASAP was absolutely necessary.

Exactly. And some people finally recognize we need to recreate those economic conditions. And they are fixing the mistakes of the last 30 years to do just that.

It is going to be amazing.

 

[jt04]

Interesting that SWL went vertical at almost the same time as the announcement of a 2019 opening for both lands.

And people still doubt it will happen. Such intellectual laziness. Easier to regurgitate memes than to think critically obviously.

 

[Rodan75]

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.

All very true, and typical of US Corps and important to remember it isn't just IGER under those performance metrics, but the entire leadership team.

I think the dynamic that is changing is partly due to ESPN and partly due to Comcast. P&R needs to show growth because ESPN has started to slow/contract and Comcast is showing excellent returns on their P&R. So while in the past Iger and the entire leadership team had a benefit of doling out CapEx slowly, they can't sustain that any longer and need to show greater return/growth on the P&R division.

The Interactive group also has to stop being a drag on revenues (even if they hid it in CP), so I suspect a lot more announcements similar to the Square/Marvel agreement. And they should really take a look at how they righted the ship at Warner Interactive.

 

[gorillaball]

@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."

@ParentsOf4 certainly does know his stuff, I agree. My interpretation of the above quote is it's talking about budget, you are alloted to spend X. Well if you are alloted to spend X and you need to spend 3X then yes, you have to find a way to make that happen. I think I'm talking from a more global perspective - the ones that make the budget, not the ones trying to work within said budget.

 

[marni1971]

Interesting that SWL went vertical at almost the same time as the announcement of a 2019 opening for both lands.

And people still doubt it will happen. Such intellectual laziness. Easier to regurgitate memes than to think critically obviously.

What are you going on about now?

 

[Chef Mickey]

I know Eisner had his faults, but any fan of WDW knows some of the best attractions and meaningful expansion came on Eisner's watch.

The only reason Iger can ignore the parks (I mainly speak of WDW) as much as he does today is because he's standing on the shoulders of what Eisner (and others) built before he arrived. When he leaves, the parks will be in worse shape than when he arrived (even with Pandora, Star Wars, Pixar and New Fantasyland).

I don't know all of Iger's incentives, but I can assure you he is heavily stock incentivized and park expansion doesn't move the stock in the short term. He's discovered acquisitions, movies, and consumer products get the market excited and produce shorter term results. My argument is, yes Star Wars was great, but you need the circle to be complete in the parks quicker and more often than he's executing.

I say this in the midst of record theme park profits...so who am I to question it? However, I think longer term, there might be challenges and perhaps we will never know how great the parks COULD have been under a better leader. I know the product has suffered even if the profits haven't, but who is to say they couldn't have generated even MORE profit today and for the longer term with more investment?

 

[Goofyernmost]

I'm still shocked that EPCOT Center was built in 2 years.

Please remember it was pretty much all built at the same time.That means the each attraction took 2 years to complete. How is that different from right now. More people, more crews, more building in separate, but, close proximity. All done in two years. It was a different crew on each project and it took two years, back in the "glory" days. The planning was done well in advance of it as well. Today, we seem to know about it at conception and many start counting from that time. Two years, from my knowledge, was from the ground breaking, which already had all the soil testing, surveying and engineering needs determined before hand.

 

[GoofGoof]

Please remember it was pretty much all built at the same time.That means the each attraction took 2 years to complete. How is that different from right now. More people, more crews, more building in separate, but, close proximity. All done in two years. It was a different crew on each project and it took two years, back in the "glory" days. The planning was done well in advance of it as well. Today, we seem to know about it at conception and many start counting from that time. Two years, from my knowledge, was from the ground breaking, which already had all the soil testing, surveying and engineering needs determined before hand.

Good point. I think what a lot of people would prefer is that they bring in more people to build things simultaneously like they did for EPCOT. I personally don't get as bent out of shape over the long construction times as some people here, but it does seem to drag on at times.

 

[Earl Sweatpants]

Interesting that SWL went vertical at almost the same time as the announcement of a 2019 opening for both lands.

And people still doubt it will happen. Such intellectual laziness. Easier to regurgitate memes than to think critically obviously.

 

[Goofyernmost]

Good point. I think what a lot of people would prefer is that they bring in more people to build things simultaneously like they did for EPCOT. I personally don't get as bent out of shape over the long construction times as some people here, but it does seem to drag on at times.

I really wouldn't work that way. Things are built in teams, there's ground work, then foundations, then carpentry, then plumbing and electrical, then detail installation, then detail creation of background and paint and plaster, then mechanical installation testing and tweaking, finish work, interior and exterior, landscaping, etc. basically in that order. Two years for a detailed creation is really not all that long when one considers the degree of difficulty. Like I said, it ain't no three bedroom ranch with municipal water, sewer and electricity. I must all be created from scratch. On top of that the creation of AA's, (if applicable) props, plastic and otherwise, lighting, sound, etc., etc.

 

[bgoofy]

Good point. I think what a lot of people would prefer is that they bring in more people to build things simultaneously like they did for EPCOT. I personally don't get as bent out of shape over the long construction times as some people here, but it does seem to drag on at times.

I've been watching ShesInLosAngeles & FreshBakedDisney on You Tube and it gives a basic understanding of what is going on behind the fence, since DL is running ahead of WDW....amazing to watch. Also they just went vertical!

 

[GoofGoof]

I really wouldn't work that way. Things are built in teams, there's ground work, then foundations, then carpentry, then plumbing and electrical, then detail installation, then detail creation of background and paint and plaster, then mechanical installation testing and tweaking, finish work, interior and exterior, landscaping, etc. basically in that order. Two years for a detailed creation is really not all that long when one considers the degree of difficulty. Like I said, it ain't no three bedroom ranch with municipal water, sewer and electricity. I must all be created from scratch. On top of that the creation of AA's, (if applicable) props, plastic and otherwise, lighting, sound, etc., etc.

I get that any one single project can't necessarily be sped up. I think where the rub comes in is that in recent history they wait for 1 project to be mostly finished before starting the next. As an example, FLE was wrapped up by the time ground broke on Avatar. They could work on 2 projects simultaneously. I know that Pandora is still technically finishing up and the DHS projects have started so there is some overlap, but there are also rumors of multiple potential projects at EPCOT and a potential replacements for Stitch as well as GMR.

Building new lands at separate times gives the opportunity to offer something new over a multi year period... Frustrating for those who frequent WDW and want lots of new stuff quickly, but great from a marketing perspective to attract new guests, or those who visit infrequently.

But that has only been the case for the better part of a decade. Between Everest in 2006 and FLE was a long stretch with not much new and then between FLE and Avatar this year. In the past (as recent as the late 90s) multiple projects were worked on at the same time so something new was opening every year and a lot of years had multiple new things when you include new resorts being added. This next 5 years leading into the 50th Anniversary might actually be pretty good as far as something large scale and new opening each year:

• 2017 Pandora
• 2018 Toy Story
• 2019 Star Wars
• 2020 and 2021 could be any number of rumored projects.

 

[Master Yoda]

I get that any one single project can't necessarily be sped up. I think where the rub comes in is that in recent history they wait for 1 project to be mostly finished before starting the next. As an example, FLE was wrapped up by the time ground broke on Avatar. They could work on 2 projects simultaneously. I know that Pandora is still technically finishing up and the DHS projects have started so there is some overlap, but there are also rumors of multiple potential projects at EPCOT and a potential replacements for Stitch as well as GMR.

That is not always possible either. The skilled labor needed for many of these projects is often in short supply and Disney is far from the only place that uses said skilled labor.

I have seen multi-million dollar projects sit idle for weeks to months waiting for a particular contractor to be available.

 

[GoofGoof]

That is not always possible either. The skilled labor needed for many of these projects is often in short supply and Disney is far from the only place that uses said skilled labor.

I have seen multi-million dollar projects sit idle for weeks to months waiting for a particular contractor to be available.

True, and it's not just at Disney, it's a national problem. There are probably many reasons why these projects get spread out so much. Some are legit and unavoidable and some relate more to managing cash flows. That's why I don't get too worked up over the timelines. Once these things are done we will have decades to enjoy them anyway (God willing).

 

[RSoxNo1]

Pandora was always slated to be Q3FY2017.

September 13, 2012: At the 2012 Media, Communications & Entertainment Conference, Disney CFO Jay Rasulo said the following, “Avatar is coming for Walt Disney World” in “15-16? and will be funded out of the normal capital expenditure profile.”

First mention of 2017 I could find was:
May 3, 2013: George Kalogridis told the Orlando Business Journal that the new Avatar land will open by summer 2017.

 

[Next Big Thing]

September 13, 2012: At the 2012 Media, Communications & Entertainment Conference, Disney CFO Jay Rasulo said the following, “Avatar is coming for Walt Disney World” in “15-16? and will be funded out of the normal capital expenditure profile.”

First mention of 2017 I could find was:
May 3, 2013: George Kalogridis told the Orlando Business Journal that the new Avatar land will open by summer 2017.

Construction had yet to start in 2013 though, so you could technically call that a success as far as having no hiccups in pushing back the expected opening as of May 2013.

 

[Cesar R M]

SWL at DLR has gone vertical with steel beams.

already? thats fast!

 

[Cesar R M]

I'm still shocked that EPCOT Center was built in 2 years.

Yep. But that was a long time ago.

Which with modern technology and better building methods.. it should be building faster.. not slower and with 50x the cost.

 

[Master Yoda]

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Which with modern technology and better building methods.. it should be building faster.. not slower and with 50x the cost.

Not necessarily on pretty much everything you said.

Some things have gotten faster, but they often do not apply for one off construction you see in theme parks. Also, as someone that has been involved in two of the Extreme Home Makeover houses, faster is not always better.

As to cost, steel, concrete, wood, etc are all traded commodities that often raise in price much faster than inflation and can change at a moments notice. I had a simple $50k remodel project go up by $8k because the price of concrete spiked the day before we poured.

 

[sedati]

Read "Building a Better Mouse" by Steve Alcorn and David Green. The title may be sarcastic. It depicts the construction of Epcot Center and will definitely give you pause about the building practices of the day.