But Disney siphons off revenue from WDW to spend elsewhere all the time.
Are you suggesting that using WDW revenue to spend elsewhere is ok, but using other revenue to invest in WDW is not?
Now you are thinking like Iger.
As far as relative sizes, my point is that today's Disney is much more capable of investing $7.5 billion over 15 years for a significant WDW upgrade than the 1971 Disney was capable of investing $400M over 4 years to create the original WDW.
Some might ask, "$7.5B over 15 years? Where is that number coming from?"
In addition to the $2.5B over 10 years (2011-2020) mentioned by
@GoofGoof, WDW really does need a 5th theme park by about 2025 to handle crowds and maintain growth. The extra $5B is a rough estimate of a fully realized 5th theme park in Orlando.
Between 2015 and 2025, total Parks & Resorts (P&R) revenue will be well over $200B, probably over $250B. $5B is a drop in the bucket to invest in Disney's largest single source of revenue.
WDW's attendance is at record levels and, 10 years from now, will be even higher. WDW needs the extra capacity (and revenue
) provided by a 5th theme park.
I've written the following point a couple of times but people seem to miss it, so I'll write it again:
New lands at DHS and DAK are not enough. Adding a few attractions (which will attract even more Guests) is not going to solve WDW's capacity problem.
In addition to the work already planned at DHS and DAK, WDW is going to need a 5th theme park next decade to handle the increased demand.
Capital expenditure (capex) generally is measured against revenue, not operating income. Even if a company is losing money, it needs to spend on its facilities and products to stay afloat. In fact, wise capex investment is one way for a company to restore profitability.
Disney's domestic P&R revenue in 2014 was $12.329B while domestic P&R capex was $1.184B.
"Wow," you say, "Disney spent $1.2B domestically. That's great."
There are a couple of misconceptions with this line of thinking.
First, at 9.6% of revenue, domestic P&R capex is less than half Disney's historical average over the decades. In fact, 9.6% is one of Disney's lowest ever.
Second, the capex being spent is for maintenance, not for investment.
In the business world, there tends to be two types of capex: growth and maintenance.
Growth (or investment) capex is aimed at expansion. When a factory adds an assembly line to its plant, it’s expanding capacity. It’s investing in growth. The New Fantasyland, Toy Story Mania, and Pandora are examples of growth capex.
When a factory replaces a machine in an existing assembly line, it’s updating something that’s no longer serviceable. It’s not expanding capacity. It’s simply trying to maintain its old capacity. That’s generally considered
maintenance capex. A few years ago, much of Main Street U.S.A. was covered in tarps for repairs to the structures, which were rotting after years of use. This is an example of maintenance capex.
It’s possible for the exact same item to be growth capex in one instance and maintenance capex in another.
Let’s say WDW replaces an old bus. That’s maintenance capex. Conversely, let’s say WDW increases the number of buses in its fleet. That’s growth capex.
A project such as the Magic Kingdom hub redesign can be difficult to classify. Is Disney maintaining something that’s more than 40 years old or expanding capacity? It’s probably a bit of both.
Companies are not required to distinguish between growth and maintenance capex in their public disclosures. Therefore, it’s hard for outsiders to distinguish between the two. The combined costs of depreciation and amortization sometimes are used as a guide.
At Disney, P&R amortization is essentially $0.
However, in 2014, domestic P&R depreciation was $1.117B.
So, domestic P&R capex was less than $1.2B while domestic P&R depreciation was over $1.1B.
Overwhelmingly, the money being spent at WDW today is just to keep an aging facility from falling apart.
