Star Wars Land announced for Disney's Hollywood Studios

[Cesar R M]

I never noticed how...manly that building is.

definitively a nice standing structure..the choice of colors definitively pulsates compared to the rest of the area.

 

[Cesar R M]

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.

I dont think this applies to Disney, since they can still smooch money with upcharges even without opening things.

 

[KingOfEpicocity]

Think trackless spiderman, with more physical sets to complement the (still very present) screens.

Is it as bad as ratatoullie?

 

[MisterPenguin]

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.

OK... but, once a project starts. Once they've committed to building SWLs, TSL, and Avatar; is there any benefit for Iger to slow down construction and make it last two years more than it should?

Because, that's what some people are claiming: The construction, once started, is purposely spread out over extra years because that makes the books look better.

 

[Mike S]

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.

I get it but how exciting can a bank hallway really be? Even if it is Gringotts?

 

[yensidtlaw1969]

Queue being a bigger part of the ride. Don't get me wrong, a great queue and preshow adds to the experience but the ride should be the finale, not something lesser than the pre ride.

Is that symptomatic of anything that's about to come online, or a trend you're foreseeing for attractions that are further out than this year?

 

[csmat99]

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

This is the problem. Everyone knows there should be a third ride. They have plenty of space. But we may never see it and if we do I would probably say it will be at least 10 years until they actually do it. Why would Disney spend more money for a ride when you know they will be making tons of money off SWL.

 

[marni1971]

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

Which is one of the flaws of this project.

 

[marni1971]

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.

Or it could be you could take one of dozens of examples already built in the swamps - in far worse locations and conditions than this - that didn't take as long. TSL I'm looking at you.

The construction of SWL should be pretty normal. It was the farce of the planning by committee that was the real mess.

 

[ParentsOf4]

OK... but, once a project starts. Once they've committed to building SWLs, TSL, and Avatar; is there any benefit for Iger to slow down construction and make it last two years more than it should?

Because, that's what some people are claiming: The construction, once started, is purposely spread out over extra years because that makes the books look better.

Sorry for not being clear. Slowing down construction duration has limited benefit to Iger. However, slowing down a project's overall development cycle does benefit Iger.

Don't think in terms of what's best for the company. Instead, think in terms of what's best for Iger. Iger is the one making these decisions, and it's Iger who personally benefits by delaying theme park capex.

It's one of the reasons Iger loves cruise ships. Even though a cruise ship takes years to build, Disney's overwhelming cost is paid upon delivery. In other words, Iger doesn't pay for a cruise ship until the year the company realizes revenue from it. Theme park capex projects aren't like that. Disney pays these costs as they are incurred, not realizing any revenue until the project is complete.

Let's consider a theoretical construction project that's going to cost $1B and take 2 years to build. For simplicity, let's assume these construction costs are linear, or $500M for every 12 months. For simplicity, let's also assume that for every $1B Iger spends at the parks, his personal compensation is reduced by $1M. Remember, Iger's compensation package is organized to penalize Iger for spending company money on theme parks, a direct result of Eisner's wild spending sprees of the 1990s.

Now let's look at how the schedule for this theoretical project might be affected by the structure of Iger's compensation package.

Iger has the option of starting construction now and incurring company costs of $500M in the current and next fiscal year, reducing Iger's compensation by $500K in each year, or Iger can delay construction by 6 months and impact his compensation by only $250K this year, $500K in the second year, and $250K in the third year. Better yet, Iger can tell Disney Imagineering to spend an extra year (or two) making sure the plans are right (giving Iger & co. time to find ways to reduce that $1B budget to $900M) and push off the start of construction by 18 or even 30 months.

Even though senior executives are supposed to be long-term strategic planners, they more often than not are laser focused on this year's bonus. Come next year, they'll figure out ways to focus on that year's bonus.

 

[P_Radden]

...compensation is reduced by $1M. Remember, Iger's compensation package is organized to penalize Iger for spending company money on theme parks, a direct result of Eisner's wild spending sprees of the 1990s....

Okay well I think that pretty much explains everything right there. No wonder the parks are in the condition they are. He could not be a greedy , and sacrifice some personal salary for the greater good of the domestic parks, if he wanted to do so. What is the big deal in the grand scheme of things if he loses a mere mil here or there in salary compensation? If he is already loaded anyway, and the sacrifice he makes benefits park attendance & guest spending in the long term, wouldn't that look good on him and benefit the company as well?

Hope I am wording this correctly to make my point.

 

[Mike S]

Sorry for not being clear. Slowing down construction duration has limited benefit to Iger. However, slowing down a project's overall development cycle does benefit Iger.

Don't think in terms of what's best for the company. Instead, think in terms of what's best for Iger. Iger is the one making these decisions, and it's Iger who personally benefits by delaying theme park capex.

It's one of the reasons Iger loves cruise ships. Even though a cruise ship takes years to build, Disney's overwhelming cost is paid upon delivery. In other words, Iger doesn't pay for a cruise ship until the year the company realizes revenue from it. Theme park capex projects aren't like that. Disney pays these costs as they are incurred, not realizing any revenue until the project is complete.

Let's consider a theoretical construction project that's going to cost $1B and take 2 years to build. For simplicity, let's assume these construction costs are linear, or $500M for every 12 months. For simplicity, let's also assume that for every $1B Iger spends at the parks, his personal compensation is reduced by $1M. Remember, Iger's compensation package is organized to penalize Iger for spending company money on theme parks, a direct result of Eisner's wild spending sprees of the 1990s.

Now let's look at how the schedule for this theoretical project might be affected by the structure of Iger's compensation package.

Iger has the option of starting construction now and incurring company costs of $500M in the current and next fiscal year, reducing Iger's compensation by $500K in each year, or Iger can delay construction by 6 months and impact his compensation by only $250K this year, $500K in the second year, and $250K in the third year. Better yet, Iger can tell Disney Imagineering to spend an extra year (or two) making sure the plans are right (giving Iger & co. time to find ways to reduce that $1B budget to $900M) and push off the start of construction by 18 or even 30 months.

Even though senior executives are supposed to be long-term strategic planners, they more often than not are laser focused on this year's bonus. Come next year, they'll figure out ways to focus on that year's bonus.

Eisner's spending sprees of the 1990's? Oh, you mean what catapulted Disney parks to the popularity they enjoy today?

 

[HauntedMansionFLA]

SWL at DLR has gone vertical with steel beams.

 

[RobbinsDad]

Okay well I think that pretty much explains everything right there. No wonder the parks are in the condition they are. He could not be a greedy *******, and sacrifice some personal salary for the greater good of the domestic parks, if he wanted to do so. What is the big deal in the grand scheme of things if he loses a mere mil here or there in salary compensation, if the he is already loaded anyway and the sacrifice he makes benefits park attendance and guest spending in the long term through more park investments. Wouldn't that look good on him and benefit the company as well?

Hope I am wording this correctly to make my point.

What is the incentive to do that? His last name is not Disney. We are so far removed from the entrepreneurial spirit of Walt Disney that sacrificing personal income to re-invest in a company doesn't even come into the equation. Iger is not Disney - he could be the CEO of any major corporation and he would operate in the same manner - maximize shareholder (and personal) income while investing as little as possible into product development. He's a professional mature-organization steward.

 

[RustySpork]

Eisner's spending sprees of the 1990's? Oh, you mean what catapulted Disney parks to the popularity they enjoy today?

Oh the glory days of WDW, how I miss thee.

 

[GoofGoof]

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.

It seems about in line with other projects. Avatar didn't officially break ground until early 2014 so it will be a few months over 3 years from ground breaking until opening. They started demo at DHS last summer so if SWL opens some time in the second half of 2019 it will be 3+ years of actual construction or about the same as Avatar. I think Carsland was somewhere in the same ballpark, maybe a little faster. TSL will be shorter, but it's a very basic land compared to Avatar, Cars and SW.

 

[P_Radden]

It seems about in line with other projects. Avatar didn't officially break ground until early 2014 so it will be a few months over 3 years from ground breaking until opening. They started demo at DHS last summer so if SWL opens some time in the second half of 2019 it will be 3+ years of actual construction or about the same as Avatar. I think Carsland was somewhere in the same ballpark, maybe a little faster. TSL will be shorter, but it's a very basic land compared to Avatar, Cars and SW.

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

 

[GoofGoof]

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

Yep. But that was a long time ago.

 

[P_Radden]

Yep. But that was a long time ago.

yes, however, it was not in a galaxy far far away...




I'll see myself out now

 

[Master Yoda]

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

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