Don't Blame Shanghai for Cuts at Disneyland and Disney World
Over the past week, Disney fans have been Tweeting with the hashtag #ThanksShanghai
— a sarcastic shout-out to Disney's newest theme park, whose cost overruns the fans blame for cut-backs at Disney's American theme parks.
Shanghai Disneyland opens on June 16, but Disney's target for the park was late last year. The delay has inflated the price of construction and has cost Disney its share of six months of income from what might end up becoming the world's most popular theme park. At the same time, fans are seeing cuts at the Walt Disney World and Disneyland Resorts, with fewer entertainment options, reduced capacity at some attractions and reports of cast members seeing reductions in their hours scheduled.
It's easy to put two and two together, and... #ThanksShanghai. But blaming Shanghai Disneyland for operational cuts at Disneyland and Disney World reflects a simplistic conclusion. This just isn't the way that publicly-traded companies run.
To start, one basic rule of accounting is that capital expenditures — money spent on construction, new equipment, and buying land — is accounted differently that money for operations — such as paying employees. If Disney had to pay more than it planned to build Shanghai Disneyland, that's a hit to its capital budget. And no amount of cutting its operational budget will change that.
If Disney wants to offset an unexpected expense in its capital budget, it would need to do that by delaying or canceling another construction project. Now, there's a strong consensus within the analyst community that Disney already did that... by delaying Star Wars Land for nearly two years. Yes, the company was waiting for the start of the new trilogy, and yes, the company's board sent the original plans back to Imagineering for another go. It's possible, even likely, that Disney would have ended up delaying Star Wars Land even if it had never started the project in Shanghai. But it was a lot easier for Disney management to justify those capital delays when Shanghai was running over budget.
So what about that loss of six months' income? That is an operational issue. But in accounting terms, that delay was a one-time, extraordinary event. One-time items are the "get of of jail free" cards that companies hand to analysts, hoping not to be punished for a loss that doesn't reflect an ongoing problem in the company. Disney doesn't have to make cuts to balance that — analysts know what's up.
Of course, all of Disney's capital and operational expenses get thrown together on the company's bottom line. And any corporate executive who wants to keep her or his job wants that bottom line to look as black and as fat as possible. But any analyst with the ability to read a spreadsheet looks far beyond the bottom line. They know exactly what's happening in Shanghai. Nothing that Disney does stateside will hide that.
But... aren't cast members hearing from their managers that they're under orders to cut costs due to Shanghai? Here's where the corporate game of telephone comes into play. Of course, Disney wants to deliver the best bottom-line performance that it can, despite a hit from delays in Shanghai. So that's why upper-level executives would tell their department managers to take a hard look at all aspects of their operations, to see what might be cut to improve their departments' contributions to the bottom line. And yet... executives tell managers to get out the scissors all the time. With Bob Chapek taking over the Parks division from Tom Staggs last year, it's likely that such a call would have come anyway, with or without Shanghai in play. An immediate boost to the bottom line is an immediate boost to a new leader's reputation.
Disney always cuts labor hours in the shoulder season between Spring Break and the start of summer. And with Star Wars Land construction taking over large sections of Disneyland and Disney's Hollywood Studios, several attractions were going to close — whether for a short time or forever. But managers now are looking for whatever other cuts they can make to their labor and operational budgets, to see which ones they can "get away with," without resulting in a loss of income or attendance.
Many fans are citing the elimination of the Pixar Play Parade at Disney California Adventure for the next month as an example of #ThanksShanghai. But the festival marketplace food booths for the DCA Food & Wine Festival effectively block the park's parade route, making the parade impossible to run during the festival. Sure, Disney could have found other locations in the park for the booths, allowing both the parade and the festival to run at the same time. But here's how that cost-cutting analysis comes into play — Disneyland management is betting that it doesn't need the parade to draw visitors while the festival is running. And if the parade isn't going to improve the bottom line during the festival, why run it? Why not save the expense and let that flow to the bottom line?
Here's how you know that the current cuts at Disneyland and Disney World ultimately don't have anything to do with Shanghai. Imagine if Shanghai Disneyland becomes a wild financial success, earning more than Disney anticipated and contributing billions to the company's profit. What happens then?
Here's what happens — If the cuts at Disneyland and Disney World do not result in a loss of income or attendance at those parks, Disney won't change a thing. Disney will bank the extra profits from Shanghai and the extra profits from cutting superfluous expenses at DLR and WDW. The only way that Disney will back off cuts at its U.S. resorts will be if those cuts result in losses for the company. Ultimately, the parks' direction is not determined by what's happening in China. It will be determined by the decisions of Disney's theme park customers.
If fans decide that they'd rather go spend their money at Universal, Knott's, SeaWorld, Six Flags, or other parks and attractions, than put up with cuts at Disney, then Disney will have a reason to open its checkbook to win back its former customers. But if fans continue to support Disney's theme parks — deciding that Disney with cuts is still better than the competition — then why of Earth should Disney increase marginal spending on labor and operations? It's making its money without that expense.
Every time Disney raises its ticket prices or cuts something in its parks, fans go online and wail and moan. Many say that's the final straw and that they will stop spending money at Disney's theme parks. And year after year, Disney's theme park attendance and income grow anyway.
Disney knows exactly what it is doing. And it does it better than anyone else in this industry, which is why Disney is far and away the industry leader in attendance and income.
Don't like what's happening at Disney's theme parks? Don't say #ThanksShanghai. Give credit where credit is due and say... #ThanksDisneyFans.
This is spot on. The loss in ESPN subscribers may be impacting other divisions who need to boost their bottom line so overall the consolidated P/L for Walt Disney is in line with forecasts. However I've always been skeptical of the blame Shanghai for the reasons you outlined. Has no impact on the P/L, perhaps it impacts the cash flow statement, but Disney is probably borrowing the money anyways so Balance sheet ratios stay in line. Why use your money when you can use someone else's mantra when it comes to paying for Capital Expenditures
Why do I feel that under Walt, fan loyalty would of resulted in a desire to give that fan even more. You seem to be saying that fan loyalty should be a reason for the world's leading theme park innovator to give the fan a cynical service reduction. Why should that make any fan stand up and cheer? Isn't this why Disney Inc. has to continually purchase outside talent, (Pixar, Marvel, Star Wars) because they've lost their own inward drive to surpass customer expectations with mind blowing innovation and excellence?
Bob, you are absolutely correct. Disney knows what its doing. But they DON"T know what the public will do. The highest cost in operating any business is personnel. And, in the words of Dick Nunis, "you can always get people." And that seems to be true for Disney Parks. But Imagineering has been working overtime to eliminate the human factor in future rides. Isn't that what animatronics is all about?
Wow. You really just blamed Disney fans. Fans shouldn't be punished for corporate bs. Disney has never made this many cuts at one time.
I don't blame Shanghai, more the competitiveness of the marketplace (Universal raises prices annually, too, and cuts hours/closes old attractions as well). Disney is watching Universal take over more of the market in Orlando (not to mention all other competition), and Knotts continue to rebound in SoCal.
No blame Shanghai for the increased cost at the parks. Shanghai has went so far over budget that they are making up for it by raising prices
The real issue with goods and service providers including Disney is the greed factor "bottom line". Why do so many believe that as long as they can get away with it no matter what it might be then it's all fair. Disney for the last three years been basically printing money due to movies and parks, but have sacrificed cast members for cheap foreign workers and cut benefits of those that are still with them. Now for the guest experience that has been impacted by unhappy staff and long lines.
I do not agree. Walt Disney was one amazing man, with more imagination and drive than most of his or any other era. But Walt was ALSO a tremendously successful businessman and the philosophies he developed have carried on in the ways that Disney does business today. If not, Disney wouldn't be the fantastic entity it is. In business, tough decisions have to be made sometimes to ensure that a successful company remains so. I've been traveling to Disneyworld every year since I was 28 (now 45) and there is NO ONE who does it better, more extravagantly, or more efficient and with the ideal of putting the customer first. ALL the others aim to emulate what Disney does.
Yes, capital is accounted for differently than operational expense. But that is only one of the three accounting sheets; Profit and Loss, Balance Sheet, and Cash Flow. While most focus on the P&L, all 3 matter.
So your explanation for the budget cuts is that Bob Chapek wants to look good, but I heard that Iger gave Chapek a mandate to make cuts at Imagineering, so it sounds like it's not just Chapek's initiative.
Tom "cold as ice" Staggs was, at one time, Disney's CFO. For Tom it's all about giving less for more. Uncle Bob Chapek so Tom's bro. Under Uncle Bob many small licensees were dropped when their yearly quotas were doubled. Meaning if your contract was for 500 hand bags now you had to sell twice that to maintain your Disney license. Many licensees left Disney because they didn't sell enough. Oh, BTW, Disney doesn't help their licensees sell their merchandise. You'd think they would do features in the Disney Insider. Nope. A Mass press release. Nope. Nada. Disney's fantasy line slogan is: "In the world of fantasy we mean business". Let's face it folks, Disney is in business to make money. They're serious about it. It's their business to be serious about it. Don't get cross with then or anyone for being serious about their income. Are you serious about YOUR income? Do you work for free? You might say, "hell no!" Well, don't blame Disney for feeling just the same.
"there's a strong consensus within the analyst community that Disney already did that... by delaying Star Wars Land for nearly two years."
I think "National Lampoon's Christmas Vacation" has it pretty well covered...
I do think it is wrong to state that Shanghai Disneyland is the primary reason for operations budget cuts elsewhere, but I also think it's wrong to say that the project had no influence on the cuts. My guess is that after Shanghai ran over budget and got delayed, the operations departments were asked to make cuts just so that everything looked better and not directly to recover the money lost. Would they still have happened if Shanghai was on schedule? Possibly, but I have a feeling they would be a lot slower and a lot less noticeable.
Wow. You're blaming the fans for the greed of the execs, and their need to bolster their reputation? When did you go on Disney's payroll?
While it is true that capital expenditures and operating expenses are kept separate, the bottom line is a combination of both. That bottom line is what has to look good.
So who is to blame? I know who i blame ... BOB IGER. The worst CEO in history for the theme park division. Not one e-ticket attraction under his tenure in Orlando. Disgrace.
Once someone makes up their mind about a topic, they tend to take any development and twist it to substantiate their viewpoint. You can present facts (like the difference between capital and operating budgets), but it won't matter.
Who's to blame for $16 hamburgers at Pecos Bills? Is that passholders faults as well? Silly apologists.
It's wonderful that Disney execs want to give their visitors the proverbial middle-finger by cutting hours to their CM's even if Shanghai is a convenient scapegoat. The complaints at Epcot front entrance are through the roof because they only have enough budget to run 1 tram BUT the attendance to the park requires them using parking areas that 1 tram can't cover. And I'm so thankful I am not a Disney CM having to deal with my hours having been cut back where I would barely be making ends meet with 40 hours a week. It';s all a sad state.
I agree with AJ's points and think he's right on with his analysis.
There is just one issue--Cast Member hours were cut before, during, and after spring break. So the argument thT Disnry always cuts hours during the shoulder season doesn't fly. Also, not since right after 9/11 have hours been cut like this: scheduling full time cast members 7:45 so the don't get a second paid break during their shift.
No mention of something else that particularly affected budgets at Walt Disney World, My Magic + ?
My family has been annual passholders to WDW since 2005.We have seen the trends in when they cut labor after spring break or when the construction of New Fantasyland. I personally have not a loss in labor force, but a loss in general courtesy. I have seen more C.P.s than ever before that have had a lack of knowledge of where a bathroom is to just plain being ignored. I will gladly spend my money in a park that has construction going on with a lack of ride choices(DHS). The loss I've seen over this time has been in lack of training and "buy in" from New CMs. We visit the Parks in average of once a week and cruise once a year with Disney,we spend with them. We have also had annual passes at Sea world and 6 flags as well. From what I have seen is the Over the top Service now turn into the same service we get at Universal or Sea World.People have choices and are willing to over look certain things.Going to Disney used to be for the Service they provided. We get that in the Ships.We have seen the slip in the Parks for awhile. Please don't revamp your Parks without revampming Traditions and making sure the new CMs are bought in. #disney4life2005
It's just like Walmart, people complain about the long lines. But they continue to shop there. A company has no push to change u keep spending money there.
How about #ThanksDisneyMonopoly, #ThanksDisneyManagement, or #DisneyPennywisePoundfoolish?
Like most things, there a multitude of causes. But there is no doubt that Disney has pulled out most every trick in the book, especially in Florida, to pull more money out of guests right now.
Sometimes I have to wonder where all the monies disappear to. Disney charges a lot to stay at any of their Hotels. Their Theme park tickets are pretty high - add in Food, parking, souvenirs, tee-shirts, soda, water, vacation clubs, cruise’s…. And I can go on….
Im sure the average new guest or once in a while guest won't notice much of anything or won't know any better. People who go frequently though I think are starting to feel a bit used. We are getting a lot less for a lot more. the difference in 2 years or 10 years is huge. I don't personally feel like I get what I got. I also don't think the sky is falling. It's still a great trip down to WDW, still a great place to have fun with family and friends, but it is getting harder to justify spending so much yet getting what you know is less.
Its kinds of like commercial aviation... Planes are packed, no amenities, and no little to know incentives... yet we still keep coming back..
When the budget cuts were announced to the Cast Members, Shanghai was specifically mentioned as why they were losing up to a day if pay each week.
It's truly a shame that Americans have to pay higher prices and get less for their money cause Disney execs make poor decisions investing in foreign countries. Disney world and land are iconic American parks that have flourished from Americans spending their hard earned money. The Disney company should remember this and write off their foreign losses and keep investing in the American parks instead of short changing us just to offset the losses around the world. Stop trying to expand around the globe,instead expand the parks,the hotels,and the quality people right there in Florida and the rest of the world will find a way to make the trip to Disney world here and bring more money to our economy after all like I said Disney is an american icon,let's keep it that way.
I love both WDW and DL parks and yes will continue to be a long time patron. I however do not like the continuing rising of costs, construction that limits access in both parks, and lack of what used to be that customer service we knew and loved.
I will always love wdw. I first went in '98 on my honeymoon and we fell in love with the parks and resorts. Our 13 year old girl has already been there 5 years in a row, but if you're looking for another park that you can stay at for a week that gives awsome thrills and inspires lifelong memories, go to cedar point in Sandusky ohio. A Midwestern secret that sits on a peninsula in beautiful lake Erie. Full of the best rollercoasters on earth and amazing beach front hotels.you and your family will love it.
"Sometimes I have to wonder where all the monies disappear to."
i feel like Disney wouldn't wait to see whether or not they lose customers before reverting schedules/hours, etc. back to how they were before; that's too much of a risk.
And the workers or employees suffer. I don't believe that Shanghai is to blame as much as the company in wholes mentality. Cut the loss of whatever by cutting the lowest denominator which is the employees. It's a real kick in the arse if you are working for a company that decides to layoff and find your position is expendable. It's also a shame how the worlds best theme parks or zoos treat their employees. You might have a different opinion Niles but I was working for a zoo where you could work for them but be on a seasonal basis so they wouldn't have to pay insurance. Only a select few were full time and the wait to get those position was until someone retired. I've heard other places go the other route and work you to death paying ya minimum wage and then end up having an accident on the monorail because the operator fell asleep because working a long shift.
"Sometimes I have to wonder where all the monies disappear to."
I'm sorry. Do any of you actually work for the company? Are any of you aware that the company has ACTUALLY come out and said that the cut backs are because of Shanghai? Because that's what they have told the CM's. I know this first hand. My wife is a cm. I have countless friends who are cm's. I, myself, used to work for the company. I have seen how poorly the castmembers are being treated because of this. Hours are being cut right and left. Benefits are being cut. And the castmembers are being told it IS because of Shanghai! So maybe you should check all the sources ahead of time.
There is also what Cast Members are being told, which is that Shanghai is what is causing at least some of the cuts.
But... If they upped their game even more, then maybe there would be even MORE gains in attendance and per guest spending.
But... If they upped their game even more, then maybe there would be even MORE gains in attendance and per guest spending.
CapEx wouldn't impact the P&L but would decrease Free Cash Flow and decrease the equity value of the firm.
IMO what is sad is the loss of the legacy characters, the legacy rides and, of course, the shunning of Walt's legacy. In addition, there is no care about the longtime Disney fans, the families of the 70's and especially the late 80's who saw the incredible growth in parks and resorts in the early 90's.
Rob after those DISNEY MOM rewards
Disney is a large company. Everybody makes cuts. It allows companies to stay in business. These cuts should be made in September in order to account for the slow down of kids going back to school. Maybe there were less cuts then. Ticket prices are high, but I was on line yesterday and found an room for $120. I paid twice as much when I went to gen-con.
it might not be the way companies like this generally run but the cast members at disney world are being told by management that the budget cuts are specifically to fund shanghais budgeting mistake so you can type out a breathy excuse as to why this isnt true but all over walt disney world park people are being told they are working 1 day a week because of shanghai so
My friend, Sarah, is a single mom of three. After reading this article, she only knows one thing for sure. A day of pay will be missing from her pay check as hours have been cut indefinitely. How does she stretch her remaining meager compensation for all her hard work. Food, rent, medications, diapers, clothes.....just a few necessities that will suffer.
IDK why we don't blame the fans more? They are determined to visit Disney no matter what and complain it's crowded or there isn't enough to do. They renew annual passes supporting the company year after year. They join DVC and contract themselves to a Disney vacation for a decade or 2.
What I think maybe this article misses is the tongue in cheek aspect of #thanksShanghai. Is the author not familiar with thanks Obama type memes/videos/quotes? I believe the overwhelming majority of cast understand Shanghai to be a convenient scape goat and smoke and mirrors. To consider it anything else is to discredit the labor force and an insult to their intelligence. #thanksShanghai should be read aloud with heaps of sarcasm coupled with a very large eye roll. There have been and will continue to be various practices put into place at the parks & resorts designed specifically to minimize if not outright eliminate certain labor costs. Just as everything else is budgeted so too is the acceptable amount of guest dissatisfaction that can be reasonably sustained as long as profit continues to grow. The sad thing is building attractions on the cheap is one thing but keeping your front line workers at/near/or below poverty wages then cutting their hours even further has irreparable consequences to employee morale. Something has to give when you set expectations that guests are traveling to the happiest places on earth. Cast members are real people with families and dreams of their own. If they can't suddenly pay their bills the system can only bend so much before it breaks. Sure their seems to be an inexaustable supply of bodies to continually step into job vacancies when someone leaves however the talent pool gets more and more shallow each time. The most educated, creative, intelligent, experienced, passionate, and loyal cast will only remain so long as they are appreciated, recognized, supported, nurtured, inspired, motivated, and treated fairly. That is not the case anymore behind the magic. Exceptional cast have left after giving their all to the company without receiving their due in return. The damage is done. That kind of company resource/asset can never really be replaced. The results are the guests continue to pay more for less.
Dissapointed in this article, it seems you want to write something positive so you'll get invited to a free preview or something. Blaming the Disney fans? That's low.
I've said it before and I will say it again. The stateside Disney parks offer a lousy value compared to overseas. The Tokyo Disney resort offers two of the best theme parks in the world and charge on average 30% to 40% less than Disneyland or WDW.
The problem with this analysis is that it ignores Disney's history. For decades whenever one portion of the company has money issues, another portion suffers. You don't even have to go back that far. Magic Bands overruns? Delay the much-needed Star Wars lands! This has happened for DECADES! Back before Marvel and Pixar, whenever the movie division suffered, the theme parks - and their fans - are the ones who end up suffering. Projects are canceled, shows and parades are cut, prices are increased. When Disney spent too much buying television channels, that money would come out of the theme park budget.
I have voted with my wallet. Last year we skipped Disneyworld and spent 5 nights at Universal Orlando. It was fantastic. Not many bigger Disney fans around than our family. We still fly to Disneyland resort almost annually. Just not a fan recently of Disneyworld lately Lack of new attractions, Hollywood studios..., magic bands and the advance planning required, now raising prices on anything/everything. I get it. Parks have record attendance . Just not a priority for us now to spend our money there.
I couldn't give a flying damn why they're making these draconian cuts. The parks are booming, the crowds keep coming, prices keep spiralling up...and they're cutting left and right. Utter B.S.
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