Who will be the winners and losers in the Fox World dispute?

November 28, 2018, 5:46 PM · Who's ready for a deep dive into the Fox World theme park lawsuit?

To recap, the developer of the Fox World theme park is suing Fox and its new owner Disney, claiming that Disney ordered Fox to pull out of its licensing deal with the park, which was on track to open in the spring.

In a 29-page filing, the developer, Genting Malaysia Berhad, alleges that Fox caused it to miss several "Key Milestone" deadlines by withholding necessary digital assets and style guidance, as well as failing to provide legal clearances for the use of film clips in the park's attractions. Genting claims that Fox dragged its feet because it wanted Genting to renegotiate Fox's licensing deal to give the studio a cut of the theme park's admission revenue, in addition to the licensing fee and cut of food and souvenir revenue that it had agreed to take as compensation for the use of its IP.

Then, once Disney made a deal to obtain Fox, Genting claims that Disney ordered Fox to get out of the licensing deal entirely, since Disney did not want to be associated with a resort development that included a casino. Fox World is part of the Resorts World Genting integrated resort in Malaysia, which includes the only legal land-based casino in the country.

Disney called the allegations "utterly without merit," and Fox has disputed them as well, claiming it alone broke the deal and only because Genting had repeatedly missed its deadlines.

After reading the 29 pages and the companies' responses, the last thing that failed the sniff test this badly was my gym class locker in high school. But let's start our deep dive into this stink by taking Fox at its word and assume that it killed the deal only because Genting missed its deadlines. So after doing all the work over several years to support an often-delayed project, Fox is going to bail now, just a few months before the park finally opens and starts generating revenue for the studio?

The only rational explanation that I can imagine for that decision at this late date would be if Genting's use of the Fox properties turned out to be so bad that Fox feared they would damage its franchises. But if that were the case, it's not a good look for Fox that it could not better manage its development relationship with a company whose corporate sibling managed to turn out a well-regarded park with Universal in Singapore. (FWIW, I do think it is quite possible that Disney did not interfere, and that Fox managers decided that this deal needed to die before Disney took over. That doesn't mean it's the truth — just that I think it's possible.)

Now let's flip this and take Genting at its word. A developer that is spending hundreds of millions of dollars on a project is going to run the risk of losing the park's opening by playing a game of chicken with a licensor who wants a bigger cut? Are you kidding me?

Let's take a detour into Robert's Geekland for a few moments. Contrary to what Genting seems to be professing to believe in its filing, contract law does not set the rules by which business is played in this world. A branch of mathematics called game theory is what describes those rules. And looking at this dispute through the context of game theory can give us a good idea how it might play out.

Game theory uses math and logic in an attempt to describe and anticipate how people make decisions in a variety of environments. Let's say you are thinking about buying a lottery ticket. The ticket costs two bucks. The jackpot is a million dollars and you have a one-in-two-million chance of winning. In game theory, you assign an expected value to each available option. In this case, if you take the option not to buy a ticket, you spend nothing and get nothing. So your expected value from not playing is zero.

If you take the other option and do buy the ticket, you have a one-in-two-million chance of winning a million bucks. Multiply the million dollars by the 1/2,000,000 chance and you get 1,000,000/2,000,000, or 1/2 dollar. That's a hypothetical 50 cent return on $2 spent, for an expected value of minus $1.50.

In this case, the expected return of nothing for the first option beats the expected return of losing a buck fifty in the second, so you should take the first option and not buy the ticket.

Genting basically had two options with Fox in Genting's version of what happened: Renegotiate the deal, or hope Fox sticks to it. Genting would give up money for certain by renegotiating, but it would reduce the risk that Fox might walk away from the project. Now, if Fox did kill the project, Genting could sue, but then it would have to figure an expected value based on the odds that it would win the suit and how much it might win.

That's where we are in this process now. Genting (which runs a casino, for heck's sake, and ought to know about conditional probability) by its own filing rolled the dice and lost on Fox sticking with the deal. Now it's going to take its chances in court.

In commercial lawsuits, the plaintiff often bets that the defendant will do the math and decide its best option is to settle rather than going to trial. Even if the odds of getting a jury to rule in its favor are long, a plaintiff can get a settlement if the potential award is big enough that a defendant won't want to take even what looks like a minimal risk of losing. That's why Genting is asking for more than a billion dollars — more than it has spent building the Fox World theme park to date. It wants to push the math in its favor to increase the chance that Fox and Disney will agree to settle for some lower amount.

But game theory isn't this simple. When you have two parties making decisions, each has to figure expected outcomes based on the others' actions as well as their own. So you have to guess how the other side might read the expected outcomes and act. Meanwhile, the other side is trying to guess what you are guessing about it. And so on. The basic linear algebra of my simple lottery ticket examples quickly escalates into a complicated, multi-variable calculus.

(For the record, I used to do this math. The only Ph.D-level course I ever took was a Game Theory course with Roger Myerson at Northwestern University's Kellogg Graduate School of Management. Years later, in 2007, Myerson won the Nobel Prize in Economics for his work in game theory. FWIW, I've lost pretty much all that math ability over years of inactivity, and the only lecture I remember of Prof. Myerson's was when he abandoned the math for several minutes to talk about his memories of John Nash and to tell us that he thought that someone ought to make a movie about Nash one day. Fourteen years later, A Beautiful Mind won the Oscar for Best Picture. I guess somebody agreed with him!)

Genting's immediate problem is that everything I know about Disney's management supports a conclusion that Disney assigns significant value to taking a hard line on litigation. In other words, Disney believes that it saves money in the long run if potential litigants believe that there's a less-than-average chance that Disney will settle, so they will have to face the odds of going to trial. Disney sees value in that because people are probably going to be less likely to sue if they see little or no chance of getting the easy payday of a settlement. And Disney is rich enough that it can afford to take the chance of a big loss in order to intimidate people from trying to beat it. Disney's willingness to take the risk of going to trial is another factor that Genting needs to consider when doing its game theory math.

That said, Genting's best option probably was to give Fox the bigger cut that Fox wanted and do what it needed to play along long ago so that its park would have been open by now. With the park not yet open and Fox pulling out, Genting's only hope now of recouping any part of the money it would need to retheme the park is taking Disney and Fox to court.

Genting's filing reveals a lot of information about Fox World, including the names of many of its attractions:

The first two rides have been cleared by regulators for operation, according to Genting, while the rest will be cleared within 60 days, the developer said. In addition, the filing reveals a Century City Lake Spectacular show, as well as proposals for attractions themed to Planet of the Apes, Titanic, and Sons of Anarchy. (That was to be the Dynamic Attractions Duel Power Coaster ride.) However, the filing alleges that Fox pulled the approval for using Sons of Anarchy in the park. There's no word on the fate of the Planet of the Apes or Titanic attractions.

The big IPs here are Independence Day, Night at the Museum, Ice Age, Rio, Alien, and possibly Planet of the Apes and Titanic, so if Genting were to seek another IP partner, it would need one that owned franchises that could substitute for these without requiring major demolition and reconstruction of these existing attractions. Going without IP would require crafting original stories and settings that support these rides and shows, so finding the right IP partner likely would get the park to opening quicker.

With Disney and Fox off the table, the next biggest options are Universal and Warner Bros. Universal worked with Genting sibling Resorts World Sentosa on its Singapore park, but is Universal in the mood to license another property, especially one located so close to Singapore? That park is Universal's smallest and lacks room for expansion, so maybe a "second gate" next door in Malaysia appeals. But would Universal Creative accept Fox World's hand-me-down attractions without demand a complete rebuild?

Warner Bros. might offer more flexibility, especially with its deep bench of DC and Looney Tunes franchises that could fit a wide variety of experiences. Sony offers James Bond, Jumanji, and Terminator, in addition to the Hotel Transylvania, Smurfs, Ghostbusters, and Cloudy with a Chance of Meatballs franchises now featured its licensed land at Motiongate Dubai. There's also Paramount, but they just bailed on the proposed London Resort as well as selling off all its theme parks in the United States, so I don't know that Paramount would be high on my call list if I needed a reliable theme park development partner, fast.

Regardless, I can't imagine that any of these studios would not demand a bigger cut of the park's overall revenue than Genting was planning to share with Fox. And even with a perfect match of replacement franchises and minimal reconstruction time, it would be many months before the park could open with a new theme. That means even more lost revenue for Genting.

As a theme park fan, I hate the idea of a nearly completed park sitting unfinished and unopened. This whole dispute stinks, to me. But it's real, and I cannot imagine that Genting is either going to bring Fox back to the project or push Disney into cutting a quick check for Genting to complete the project with another partner.

If the park formerly known as Fox World is to welcome guests within the next year or so, Genting is going to have to sink a lot more money into it ASAP to either strip or replace its theming. As a fan and long-time observer of this industry, I hope that Genting takes a long view and completes this park to its full potential, even if that means another years-long delay. Patience often pays in this business, if it leads to higher quality and better guest satisfaction.

The Fox World dispute is getting the attention of everyone in the themed entertainment design and development industry, and not in a good way. This is the nightmare no one in the business wants to endure. Here's hoping that at least someone is learning from this how to avoid a similar mess in the future.

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Replies (17)

November 28, 2018 at 10:58 PM

So Genting’s complaint was used as the foundation of this blog post???

Even a non-lawyer understands, a plantiff’s complaint is designed to make the defendant look as guilty as possible. It’s also designed to stretch the truth.

So, is this post based on facts or bias???

November 29, 2018 at 1:10 AM

Geez, is it too much to ask that people actually read the post before commenting?

November 29, 2018 at 6:04 AM

I can't figure out while the park continued to be build. There must have been intent from Fox to continue this. I can imagine they kept them hanging while finding out what the sales of the company was going to do.
Disney having a problem with a casino doesn't make sense when you look as some of the content Fox has (look for the movie Shame with the significant talent of Michael Fassbender on display for instance).
I really liked the calculation for when to go to trail or not. I always thought it was about justice but when it involves corporations it's only about money (how naif from me).
I hope the park gets compensated and they produce their own IP's and I hope they will be very successful because it's clear they weren't the one who wanted Fox to leave.

November 29, 2018 at 6:13 AM

But Robert, there were SO MANY words to read. And making snotty comments takes so few to type.
;-)

Actually, that was an interesting (and well balanced) article, that goes over the situation very well.

November 29, 2018 at 10:12 AM

I learned a lot from it Robert, thank you!

November 29, 2018 at 11:04 AM

yep. A really balanced and informative article.
The situation appears to be the Brexit of Malaysia! (i.e.: no good outcomes available.....)

November 29, 2018 at 12:49 PM

This article is a fantastic bit of journalism and if anything goes lighter on the defendants than I would have... which of course makes that first comment completely ridiculous.

November 29, 2018 at 1:26 PM

Seriously? They wanted Night at the Museum instead of me?

No wonder Fox is trying to back out of the deal with people making such ridiculous decisions.

What will fix this problem is this.....Fox can have all of their IP back in exchange for replacing all of that stuff with me!

Deadpool's Nutty Adventure
Deadpool's Space Defender
etc
etc
etc

About a dozen gallons of red paint and some cardboard cutouts of me and they will be back in business.

MAKE THIS HAPPEN!

I want my own theme park, even if it is in Malaysia.

I might be able to get Disney to throw in Freddy Savage in the deal.

November 29, 2018 at 9:00 PM

I don't think I need to say this but I will....

A Deadpool theme park? Shut up and take my money!

November 30, 2018 at 2:36 AM

I'm pretty sure Fox only has the movie rights to deadpool. The deadpool IP for theme park use would need to be bought from Marvel. Which is now owned by Disney....

November 30, 2018 at 8:45 AM

Robert, I really hope you've managed to stop people from wasting money on lottery tickets ??!

November 30, 2018 at 4:05 PM

Ok so I left Disney after 25 years to go work on the Genting project. So having seen the inner workings of Genting an fox it’s the delays were based off of Genting holding up the project and causing many delays. It was so bad I left just after Disney expressed interest in it. I also expressed to Genting officials that this exact thing was going to happen and they better have a backup plan ready, they laughed at me. There management team knows nothing of attraction safety or guest services. The creative team did evtthry could to get that park open However Genting stopped them at every turn. I knew there was no way once Disney bought it it would remain and that was a year ago. They will lose this law suit as I know much more than I can say here. It’s NOT Fox’s fault or Disney I don’t blame them a bit

November 30, 2018 at 6:41 PM

On the money, good piece. I worked on the project in a key role and I see my reflections very much in this article. The question remains , what next...?

November 30, 2018 at 11:02 PM

did gentling really spend all of those millions without having an ironclad licensing agreement signed. It would not be without precedent for a CEO to be so foolish. It happened (also in Asia) and involved the Disney corp. Nara dreamland was for many years partnered with Disney. Walt himself gave input in and blessed the design. then, after spending a lot of money on construction (not as late as here but fairly late in the game) Disney decided the oriental land company offered a better deal. It turns out the whole agreement was verbal only and only in principle. no percentages were actually agreed upon

December 1, 2018 at 10:46 AM

Good article. I like your review of the alternative options.... This park must open... really saddened to hear this drama.

December 3, 2018 at 12:02 AM

Genting will be better off with their own IP. Save the time and just revamp everything into Genting Theme Park. Look at the classic Efteling. No so called famous IPs, yet a world class theme park on its own attracting millions from all over the world.

December 3, 2018 at 12:17 AM

I have few ideas on potential IPs Genting should approach.

1) Harley davidson for the sons of anarchy ride. They could be selling lots of harley's merchandise.

2) Find some video game developers to create a new theme park. Will be awesome to have a park based off Blizzard's game. Starcraft, warcraft, diablo, overwatch. Definitely fit the theme LOL

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