Hong Kong Disneyland Case Study
Economic Conditions in Hong Kong
Unemployment went from 2.5% in 1997 to over 6% in 1999
GDP fell to historic low of minus 5.1% in 1998, with slight improvement to 0.7% in 2nd qtr. of 1999.
Property sector was dominant growth driver in Hong Kong, over 65% of stock market valuation and 50% of bank lending.
Tourism was only 4% of economy activity in 1998 and 1999.
Gov’t. hoped to diversify with a tourist attraction.
$104B to territory from tourism in 1996, dropped to $55B in mid-1997.
The Walt Disney Company
Cali in 1955, Florida in 1971, Tokyo in 1983, Paris in 1992
Paris deal was heavily gov’t. involved
Investment
Paris
Sold Disney 4,400 acres of land at farmland price
Lent Disney $770M at interest rates considerably lower than market rates
Finance most of the infrastructure of the park at $400M
Cash grant of $30M
Accelerated depreciation for capital investment of 10 yrs. In stead of 20.
VAT for Disney at 5.5% instead of 18.6%
Disney
Designed & built park
Equity investment of $100M
Arranged for $1B public offering of shares in 1989 on French exchange
Arranged for borrowing of $1B from banks at favorable interest rates
Return
Paris
10,000 jobs in Paris
30,000 jobs in neighboring countries
$10M additional annual visitors
Increase of billions of revenue
Disney
Management fee as % of revenue
Base mgt. fee of 3% for years 1-5; 6% from year 6
Variable mgt. fee: 1-50% or pre-tax cash flow above a pre-determined threshold
Royalties from gross revenues on food, merchandise, etc.
Admission: 10%
Merchandise, Food: 5%
Hong Kong Disneyland
2nd half of 1998 – preliminary discussions
Decided on site near Penny’s bay, Northeast Lantau
Feb. 1999 – Serious discussions
Developed assumptions with Walt Disney taking into acct. Disney’s operating experience in international theme parks & resorts
Gov’t. projected financial performance of proposed park
Scale of New Theme Park
In preliminary discussions, Disney preferred to take part in
Unemployment went from 2.5% in 1997 to over 6% in 1999
GDP fell to historic low of minus 5.1% in 1998, with slight improvement to 0.7% in 2nd qtr. of 1999.
Property sector was dominant growth driver in Hong Kong, over 65% of stock market valuation and 50% of bank lending.
Tourism was only 4% of economy activity in 1998 and 1999.
Gov’t. hoped to diversify with a tourist attraction.
$104B to territory from tourism in 1996, dropped to $55B in mid-1997.
The Walt Disney Company
Cali in 1955, Florida in 1971, Tokyo in 1983, Paris in 1992
Paris deal was heavily gov’t. involved
Investment
Paris
Sold Disney 4,400 acres of land at farmland price
Lent Disney $770M at interest rates considerably lower than market rates
Finance most of the infrastructure of the park at $400M
Cash grant of $30M
Accelerated depreciation for capital investment of 10 yrs. In stead of 20.
VAT for Disney at 5.5% instead of 18.6%
Disney
Designed & built park
Equity investment of $100M
Arranged for $1B public offering of shares in 1989 on French exchange
Arranged for borrowing of $1B from banks at favorable interest rates
Return
Paris
10,000 jobs in Paris
30,000 jobs in neighboring countries
$10M additional annual visitors
Increase of billions of revenue
Disney
Management fee as % of revenue
Base mgt. fee of 3% for years 1-5; 6% from year 6
Variable mgt. fee: 1-50% or pre-tax cash flow above a pre-determined threshold
Royalties from gross revenues on food, merchandise, etc.
Admission: 10%
Merchandise, Food: 5%
Hong Kong Disneyland
2nd half of 1998 – preliminary discussions
Decided on site near Penny’s bay, Northeast Lantau
Feb. 1999 – Serious discussions
Developed assumptions with Walt Disney taking into acct. Disney’s operating experience in international theme parks & resorts
Gov’t. projected financial performance of proposed park
Scale of New Theme Park
In preliminary discussions, Disney preferred to take part in