Star Wars Land announced for Disney's Hollywood Studios

[MickeyMinnieMom]

I'm of the mind that the previous practice of spreading the cost of one big project over many quarters and years only really 'works' to the advantage of the accounting financials if you have just one really big project happening in that time frame. When you have many, many overlapping big projects, that kind of spreading doesn't provide any accounting benefits.

How do you figure that?

 

[MisterPenguin]

How do you figure that?

If you're spending $4B for a single project, like a new land, then slow-building it over 4 years, means you're outlaying $1B per year, rather than a $4B outlay for one year.

Now, let's say you're spending $4B to update all your parks with many projects and you want there to be a new project to debut every year. Well, that's $1B per year. Slow building the project that will debut 4 years from now puts that cost into your current year which already has a $1B project happening.

Spreading projects purposely so that you have new projects continually debuting already spreads out costs. No need to artificially spread cost by slow building a project, you already have the projects spread out in time.

 

[kthomas105]

If you're spending $4B for a single project, like a new land, then slow-building it over 4 years, means you're outlaying $1B per year, rather than a $4B outlay for one year.

Now, let's say you're spending $4B to update all your parks with many projects and you want there to be a new project to debut every year. Well, that's $1B per year. Slow building the project that will debut 4 years from now puts that cost into your current year which already has a $1B project happening.

Spreading projects purposely so that you have new projects continually debuting already spreads out costs. No need to artificially spread cost by slow building a project, you already have the projects spread out in time.

Spreading out capital expenditures helps with earnings reports, marketing and responsiveness for the company should the market slump.

 

[MisterPenguin]

Spreading out capital expenditures helps with earnings reports, marketing and responsiveness for the company should the market slump.

Spreading out the debut of projects already bakes in the spreading out of capex. There's no need for delaying projects for the sole purpose of spreading out capex... it's already happening thanks to marketing department and not accounting.

 

[MickeyMinnieMom]

Spreading out the debut of projects already bakes in the spreading out of capex. There's no need for delaying projects for the sole purpose of spreading out capex... it's already happening thanks to marketing department and not accounting.

I haven’t thought about this much at all — off the top of my head: That method would be prone to more variability / uncertainty if any one big project comes in way over budget, let’s say (just one example). Spreading out multiple projects’ capex is a bit akin to have a diversified portfolio. Safer.

 

[kthomas105]

Spreading out the debut of projects already bakes in the spreading out of capex. There's no need for delaying projects for the sole purpose of spreading out capex... it's already happening thanks to marketing department and not accounting.

Correct, in this case Disney is using marketing as its main driver for project timelines

 

[MisterPenguin]

I haven’t thought about this much at all — off the top of my head: That method would be prone to more variability / uncertainty if any one big project comes in way over budget, let’s say (just one example). Spreading out multiple projects’ capex is a bit akin to have a diversified portfolio. Safer.

If a big project is overbudget, it's over budget whether they spread it or not. Also, if Ratatouille is suddenly way over budget, they're not going to delay its opening just to spread capex. They need a project to open in 2020.

 

[MickeyMinnieMom]

If a big project is overbudget, it's over budget whether they spread it or not. Also, if Ratatouille is suddenly way over budget, they're not going to delay its opening just to spread capex. They need a project to open in 2020.

But they might have the flexibility to slow or stall another project if they have multiple overlapping, spread over longer periods. A way of smoothing things out some.

ETA: I know that the thing on boards like this is to assume we all know better than Disney management. They seem like they’re doing pretty well — I’m not going to assume I know better from the outside about the optimal way for them to spread out their capex. I’ll leave that to others who specialize in that.

 

[Goofyernmost]

I can agree with your sentiment but there are other projects whose timelines have been stretched longer while building detail/complexity is lesser; which can be argued was for the benefit of quarterly/annual financials or marketing.

Accounting wise, capital expansion doesn't affect the annual financials. They are assets and so is cash. Any cash spent on them just cancels itself out in the net worth column. One asset for another. The costs are realized via depreciation on a yearly basis. What amount they spend on expense, (i.e. Imagineer salaries etc.) are used to expense some of it, but, most of that is done during R&D processes.

 

[kthomas105]

Accounting wise, capital expansion doesn't affect the annual financials. They are assets and so is cash. Any cash spent on them just cancels itself out in the net worth column. One asset for another. The costs are realized via depreciation on a yearly basis. What amount they spend on expense, (i.e. Imagineer salaries etc.) are used to expense some of it, but, most of that is done during R&D processes.

Yes... assuming they don’t use debt to finance said capital investments. I think it’s safe to say most companies will finance with debt, espescially for large investments, in order to keep steady cash flows.

 

[Goofyernmost]

Yes... assuming they don’t use debt to finance said capital investments. I think it’s safe to say most companies will finance with debt, espescially for large investments, in order to keep steady cash flows.

To some degree, it's the other way around. If they are using cash they are just swapping one asset for another. No net gain or loss I would be totally surprised if they didn't borrow money to do it, but, then the only deductible is the interest paid on the dept. I, of course, have no idea how the complex accounting system a company the size of Disney handles it's accounting, but, holding off on finishing something because of P&L statements when finishing it should increase business and make the P&L look better makes no sense to me. Paying liabilities transfer value of net worth from less to higher, but, those are two different things. Profit and Loss and Net Worth tell different stories.

 

[kthomas105]

To some degree, it's the other way around. If they are using cash they are just swapping one asset for another. No net gain or loss I would be totally surprised if they didn't borrow money to do it, but, then the only deductible is the interest paid on the dept. I, of course, have no idea how the complex accounting system a company the size of Disney handles it's accounting, but, holding off on finishing something because of P&L statements when finishing it should increase business and make the P&L look better makes no sense to me. Paying liabilities transfer value of net worth from less to higher, but, those are two different things. Profit and Loss and Net Worth tell different stories.

Yes... But as I and others stated there is more than just financial statements that come into play. The main reason capital investment projects seem to take Disney so long is not because of intricacy or complexities but instead due to marketing and expense. If Disney wanted to fast track a capital project they could if they are willing to pay the price tag that comes with it.

 

[Goofyernmost]

Yes... But as I and others stated there is more than just financial statements that come into play. The main reason capital investment projects seem to take Disney so long is not because of intricacy or complexities but instead due to marketing and expense. If Disney wanted to fast track a capital project they could if they are willing to pay the price tag that comes with it.

More marketing, I suspect.

 

[Incomudro]

What I don't understand is how can anyone look at the photos and still say.... "Why does it take so long to build the land? Or, Disney is always trying to stretch out the time to make the financials look better." The complexity of those buildings and sets are mind bending. Can anyone imagine just how long it would have taken and the number of blue prints needed to engineer a complex like that one.

I like looking at what areas they clad with rockwork etc., and which they don't.
It would be interesting to see how the sight line were determined.
I'd imagine computer imaging helps to determine this.

 

[MisterPenguin]

I like looking at what areas they clad with rockwork etc., and which they don't.
It would be interesting to see how the sight line were determined.
I'd imagine computer imaging helps to determine this.

It does. Unless you forget to model the giant MuppetVision building abutting the land and have to scramble to do something about it...

 

[Goofyernmost]

It does. Unless you forget to model the giant MuppetVision building abutting the land and have to scramble to do something about it...

I think that they totally took the place into account and that It will not be visible from ground level anywhere in the land except for the parts that they painted go away gray.

 

[MisterPenguin]

I think that they totally took the place into account and that It will not be visible from ground level anywhere in the land except for the parts that they painted go away gray.

If they took it into account, they'd have spires or an extended berm to block it from view instead of painting it grey.

 

[Goofyernmost]

If they took it into account, they'd have spires or an extended berm to block it from view instead of painting it grey.

Why spend that kind of money when paint is so cheap. Besides, I will bet within 5 years trees will block the view. I could be wrong, but, I think it was completely intentional from the get go.

 

[MisterPenguin]

Why spend that kind of money when paint is so cheap. Besides, I will bet within 5 years trees will block the view. I could be wrong, but, I think it was completely intentional from the get go.

You are free to think that.

I'm free to base my supposition on what a reliable insider intimated.

 

[Goofyernmost]

You are free to think that.

I'm free to base my supposition on what a reliable insider intimated.

Whatever you want... It really doesn't matter and is totally irrelevant if it cannot be noticed and I am sure that it won't be by 99.9% of all the guests in there. And you are indeed free to base your supposition based on that, as I am free to base my supposition strictly on my opinion. I always feel that insiders sources, no matter what level, are only being fed what Disney wants them to spread.