Hongkong Disney

HKU-107
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Hong Kong Disneyland (A):

The Walt Disney Perspective
The Chinese people love Mickey no less than Big Mac.
- Mr. Michael Eisner, Walt Disney Chairman and Chief Executive
Walt Disney Company
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In 1998, Walt Disney Chairman and Chief Executive Mr. Michael Eisner returned to the
States after his trip to China. Looking at the success of McDonalds in the most populous
country in the world, Mr. Eisner was confident that Mickey would be welcome by the
Chinese with a huge bearhug. In a letter to the shareholders published in early 1999,
Chairman Michael Eisner said the time looked right for a major move into China.2 Yet, Walt
Disney was treading cautiously after having learned their lessons in Paris. The companys
proposal for a theme park in China had been on its agenda for at least seven years before it
was presented to a potential partner in Hong Kong.
tC
The Walt Disney Company owned 100% of Disney Enterprises Inc. which, with its
subsidiaries, was a worldwide entertainment company with operations in five business
segments: media networks, studio entertainment, theme parks and resorts, consumer products
and Internet and direct marketing. The company employed over 120,000 people worldwide,
and had diversified investments in the following areas:
Amusement parks and resorts

Filmed entertainment, such as live action motion pictures, animated motion pictures and
original television programmes
Real estate development for commercial and industrial properties
General real estate brokerage financing and resort and property management services
No
1
2
Iritani, E., Middle Kingdom or Magic Kingdom?, Los Angeles Times, 13 June, 1999.
Iritani, E., (1999), Middle Kingdom or Magic Kingdom?
Do
Mary Ho prepared this case under the supervision of Dr S. H. Chan and Prof. Ko Wang for class discussion. This
case benefits from a meeting with Mr. Mike Rowse, Tourism Commissioner of Hong Kong SAR. This case is not
intended to show effective or ineffective handling of decision or business processes. This case is part A of a threepart case series about Hong Kong Disneyland (Part B, Part C) from the University of Hong Kong. It may be
taught on a stand-alone basis or combined with the others into a joint-negotiation exercise.
This case is part of a project funded by a teaching development grant from the University Grants Committee
(UGC) of Hong Kong.
Copyright 2000 The University of Hong Kong. No part of this publication may be reproduced or transmitted in
any form or by any means - electronic, mechanical, photocopying, recording, or otherwise (including the Internet)
- without the permission of The University of Hong Kong.
Ref. 00/77C
This document is authorized for educator review use only by Hoa Pham, at HE OTHER until February 2015. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu
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Production of consumer products such as computer software products for the educational
market, and publishing books, magazines and comics
A television station
Marketing and distribution of mainstream music
Disney stores carrying Disney merchandise
Marketing of childrens educational toys, play equipment, classroom furniture and
activewear apparel
Licensing of the companys characters and other intellectual property for use in
connection with merchandise publications
Radio stations
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Although Walt Disney had one of the best-known brands in the world and was the worlds
second-largest media company (behind Time Warner), its presence in the US market was
threatened by a series of setbacks. During the year ended 30 September, 1999, the company
reported a 30% slump in net income to US$1.3 billion. Its studio division was hard hit by the
sluggish home video market and posted a 85% fall in operating income. The consumer
product division, whose profits were derived from the sales of Disney toys and merchandise
at its Disney Stores and the stores of other vendors, was also suffering. Income was down
24% for the year 1999. Disney's catalogue and Internet operations reported an operating loss
of US93 million. Mr. Michael Eisner, Chairman and Chief Executive of Walt Disney,
responded by trimming capital expenditure, restructuring operations and closing some
businesses. Regional entertainment centres were closed and staff were laid off in television
production. The store-opening schedule was postponed, and the number of manufacturers
licensed to make Disney character products was reduced by a third.
tC
While most of its divisions reported lacklustre financial results, the theme park and resorts
division was a strong performer and provided the steadiest source of growth for Walt Disney.
During the year 1999, income from this sector increased 12% to US$1.4 billion, while
revenue increased 10% to US$6.1 billion. To Walt Disney, cost-cutting at home alone might
not bring a dramatic reversal of the groups fortune. It was imperative for the company to find
a growth driver. The move of the theme park and resorts division into China might be able to
bring the group back to the growth track from which it strayed since May 1998, when the
companys stock price reached its peak in the1990s.
Disney Theme Parks and Resorts
No
Adding parks had been on Disneys agenda at least since 1961, i.e. six years after Disneyland
opened in Anaheim, Southern California, in July 1955. It had cost US$17 million dollars to
make and was built within one year. The companys second theme park opened in Florida in
1971. Having completed two large theme parks in the United States, Disney began to look
for opportunities elsewhere. After five years of negotiations, the first foreign Disney theme
park was opened in Tokyo, Japan, in 1983.
Tokyo Disneyland
Do
To limit its risks, Walt Disney took no ownership in Tokyo Disneyland, which was
controlled by a Japanese company known as Oriental Land Co. Oriental Land Co. was a
land-reclamation company in partnership with Mitsui Real Estate and the Keisei Railway
Company. According to the contract signed in 1979, Oriental Land was the owner and
licensee while Disney was the designer and licensor. The contract gave Disney 5% of the
gross revenue on all food and merchandise, 10% of the gross revenue on admissions, and 10%
of any corporate sponsorship agreement, in exchange for US$2.5 million investment in the
park. In 1980, the construction cost was estimated to be around US$250 million. Disney
earned a fee for developing the park, retained complete design control, and retained
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significant control over park operations through a series of highly detailed operating manuals.
The basic facts of the park are presented in Exhibit 1A.
However, by minimising its risks and taking no ownership in Tokyo Disneyland, Walt Disney
wound up limiting its return on what turned out to be one of the most popular theme parks in
the world. [Refer to Exhibits 1B & C for the financial performance of Oriental Land.]
Although royalties received had grown from US$40 million in 1983 to about US$125 million
in 1999, Walt Disney had given up the chance of maximising its return from the success of
this first foreign theme park. The company had even given up paying US$20 million for the
sole right to sell merchandise to Tokyo Disneyland, which turned out to be a high-profit
business that generated US$350 million in 1998 3.
Disneyland Paris
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The failure to take an ownership in Tokyo Disneyland was exceptionally

costlyFrank (Wells) and I were determined to be primary owners if we
undertook a new theme park in Europe.
- Mr. Michael Eisner, Chairman and Chief Executive of Walt Disney 4
When Mr. Michael Eisner and then-president Mr. Frank Wells came to the company in 1984,
they were determined to avoid the mistake made in Tokyo. Disneyland Paris, then called
Euro Disney, was opened in France in 1992. Mindful of the costly mis-step in Tokyo, Walt
Disney decided to become a partner in the investment.
The US$4 billion debt posed a huge financial burden on the park;
Interest rates were double those estimated;
Tourist spending was lower because of the recession in Europe;
Half the revenue projected to come from real estate development did not materialise as a
result of the collapse of the property market in France;
A strong franc made it expensive for visitors, resulting in a low attendance that fell below
the expected annual 10 million for the period.
No
tC
Talks between Disney and the French government started in the early 1980s and lasted for
two-and-a-half years. At first, the project was estimated to be worth about US$1 billion and
the original name was Euro Disney. The initial financial arrangement was that Walt Disney
would hold a 49% equity in the project, while the French government would put in a cash
grant and a loan and would finance much of the infrastructure. However, the theme parks
early performance did not meet Walt Disneys expectations. It was overbuilt and overloaded
on debt. Costs escalated to US$5 billion due to a number of design and construction changes,
with the aim of making the park perfect. Between 1992 and 1994, the park was in the
financial doldrums, for the following reasons 5:
Do
In late 1994, Euro Disney was saved by a huge financial restructuring effort: lenders
temporarily suspended interest payments on the debt for 24 months and allowed the park to
postpone paying back the principal for three years; Disney agreed to forgo management fees
from 1992 to 1998 and sold off its equity to raise funds; and a Saudi Arabian prince invested
US$500 million in the park. The name of the park was also changed to Disneyland Paris in
order to add a connotation of romance and magic that might attract more European visitors.
Refer to Exhibit 2A for the basic facts about Disneyland Paris. By 1995, the park announced
3
Reckard E., Disney Discovering Its a Small World After All, Los Angeles Times, 19 December, 1999.
Reckard E., Disney Discovering Its a Small World After All, Los Angeles Times, 19 December, 1999.
5
Liu, E. and Wong, E., Information Note - Disneyland Paris: Some Basic Facts, Legislative Council Secretariat, 10
November, 1999.
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A Third Foreign Theme Park Model
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its first profit of US$23 million after slashing interest costs from US$265 million to US$23
million. Exhibits 2B & C present the financial statements of Euro Disney SCA, a company
that was set up to provide for the agreement on the creation and operation of Disneyland in
France. Exhibit 3 compares the financial data of Oriental Land and Euro Disney SCA.
After learning the lessons from Tokyo and Paris, Walt Disney realised the difficulty in
striking a balance between maximising return while minimising risks in a foreign stake.
While still looking to invest in new theme parks, Walt Disney decided to proceed cautiously.
The company saw investors flocking to mainland China and was therefore keen to gain a
toehold in the Chinese market by opening a new theme park.
Hong Kong Disneyland
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However, there were enormous barriers to entry in China. Compared to the mainland, Hong
Kong as a Special Administrative Region seemed to be a more flexible and attractive place
for the third foreign theme park. To Walt Disney, the territory met the essential requirements
for building a Disneyland, with its strong infrastructure, openness towards visitors and the
governments commitment to developing tourism.
Walt Disney came to casual talk with the Hong Kong Government in the second half of 1998
with the objective of positioning Disney for bigger movie, video and merchandise revenue as
China became more affluent. The company believed that Hong Kong Disneyland could
become a big advertisement for Disneys products. To avoid repeating the mistakes in Paris,
Walt Disney originally preferred to take part in the management of the park instead of
becoming a partner in the investment. However, Walt Disney changed its mind after
discussions with the astute negotiators from the Hong Kong Government.
Economic conditions in Hong Kong
No
tC
As a major international trading and financial centre in Asia, Hong Kong had been declared
the worlds freest economy and the third-most competitive economy in the world in 1999. 6
Despite these achievements, the economy was in the midst of a serious recession.
Government officials were troubled by the steady erosion in visitor arrivals soon after its
handover to China, which coincided unhappily with the outbreak of the Asian financial
turmoil in mid-1997. The unemployment rate jumped from 2.5% in 1997 to over 6% in 1999.
The GDP fell to a historical low of minus 5.1% in 1998, with a slight improvement to 0.7% in
the second quarter of 1999. 7
Do
Although tourism accounted for only about 4% of the economys activity in 1998 to 1999, the
Hong Kong Government hoped that more tourism products would help the economy to
diversify away from its over-reliance on the property sector for growth. In 1996, nearly 12
million people visited Hong Kong to have a final look at a British colonial outpost, bringing
in foreign exchange of HK$104 billion to the territory. However, the crowds went elsewhere
once the territory faded out of the spotlight after the handover, resulting in a sharp decline in
foreign exchange earned to HK$55 billion in 1997. It seemed that Hong Kong badly needed a
tourist attraction in order to reinvigorate its tired-looking tourism industry and to remind
tourists that it was still one of the most cosmopolitan cities in Asia.
Hong Kong SAR Government, URL://www.info.gov.hk/hkbi/enghkbi/4/4-1a.htm , Achievements of Hong Kong in the World
Economy, March 2000.
7
Hong Kong SAR Government, URL:// info.gov.hk/hkbi/enghkbi/4/4-1a.htm , Gross Domestic Product, March 2000.
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Infrastructure and Suitable Site
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Hong Kongs Attractions
With a spectacular airport at Chek Lap Kok and a gleaming network of roads, railways,
tunnels and bridges, Hong Kong had the best infrastructure and the easiest accessibility in
Asia. While Walt Disney was searching for a site that could meet their requirements for
building a theme park, the Government had earmarked a quiet area on Northeast Lantau for
tourism and recreational purposes. In the second half of 1998, both parties began talks based
on a site near Yam O, close to the Chep Lap Kok flight path. Later, they realised that Pennys
Bay, Northeast Lantau, where there was virtually no intrusion or incompatible land use,
would be a more appropriate location for a Disney theme park.
Tourists from China
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The Mainland China, Taiwan, South and Southeast Asia, Japan and the United States were the
major sources of visitors to Hong Kong [See Exhibit 4]. In 1998, the total number of visitors
from the Mainland was 2.6 million and accounted for 27% of the total number of visitor
arrivals. 8 These mainland visitors also contributed to 60% of the total visitor arrivals for
Ocean Park a major theme park in Hong Kong.
The growth potential of visitors from the mainland was one of the major factors that attracted
Walt Disney to Hong Kong. Both Walt Disney and the Government believed that the success
of the proposed Disneyland would depend on the number of mainland visitors, especially
those living in the Pearl River Delta region, who had the highest average earnings in mainland
cities. In order to have a manageable inflow of mainlanders to the Special Administrative
Region, there was a quota for mainland visitors coming to the territory. In 1999, the quota
was 1,500 people per day, but on average a third of the permits had not been taken up. 9
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Feasibility Study
To assess the financial feasibility of Hong Kong Disneyland, Walt Disney developed a set of
assumptions based on its operating experience in its international theme parks and resorts and
the operating environment in Hong Kong. It then projected the financial performance of the
proposed theme park.
Scale of the New Theme Park
Do
No
The Hong Kong Government had persuaded Walt Disney to participate as an equity investor
in a joint venture company, Hongkong International Theme Parks Limited, which would
develop and operate Hong Kong Disneyland. The proposed Disneyland would be divided into
two phases. Phase I of Hong Kong Disneyland would include a Disney theme park, offering
new and traditional Disney entertainment experiences through the delivery of attractions,
shows and cutting-edge technology. Two to three Disney-themed resort hotels with a total of
2,100 hotel rooms would be constructed adjacent to the theme park. In addition to the theme
park and the hotels, there would be a 28,000 square metre retail, dining and entertainment
complex. Both the Government and Walt Disney anticipated a Phase II project, which would
include a second Disney theme park, additional hotels and an expansion of the retail, dining
and entertainment complex. It was estimated that the total cost for developing Phase I
(excluding the land premium) would amount to HK$14.1 billion. Exhibit 5 presents the
proposed financing arrangements for Hong Kong Disneyland.
Hong Kong SAR Government, URL://info.gov.hk/hkbi/enghkbi/6/6-9a.htm, Incoming Visitors by Place of Residence, March
2000.
9
Manuel G., The other sides of the bay, South China Morning Post, 18 November, 1999.
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Assessment of Attendance
Exhibit 6 shows the attendance projections of Hong Kong Disneyland from 2005 to 2024.
Attendees were classified into four categories: local residents, base tourists, induced tourists
and business visitors. Induced tourists were expected to come from three major sources within
East Asia, largely the Mainland and to a lesser extent Taiwan and Southeast Asia. The
projection is prepared based on the assessment methodology adopted by the Hong Kong
Government and other historical data regarding the population and tourist growth rate.
The closest comparisons Hong Kong had with a Disney scale were Ocean Park and the Shatin
racecourse. Ocean Park attracted up to 35,000 people a day while the Shatin racecourse drew
up to 75,000 people a day.
Assessment of Income
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During the negotiations with the Hong Kong Government, the two sides agreed on the
following terms:
Royalties: 5% on gross revenues for merchandise, food and beverage, and hotels; 10% on
gross revenues for admission and participants who invested money toward the
construction of specific rides;
Base management fee: 2% of gross revenues
Variable management fee: 2 8% of EBITDA
If Walt Disney formed a joint venture with the Hong Kong Government, it would be entitled
to dividends pro rata from operating profits of Disneyland when business results permitted.
tC
Local residents spending in the theme park was estimated to be HK$680 per head. This
covered the cost of travelling to the theme park, their spending in the theme park itself, and
their spending in the related retail, dinning and entertainment facilities. The entrance fee per
person would range between HK$250 and HK$300. 10
Assessment of Costs
The major cost components of the Hong Kong Disneyland project included the following:
Land reclamation at Pennys Bay and infrastructure construction costs
Do
No
The Hong Kong Government estimated that land formation and infrastructure
construction costs would amount to HK$13.6 billion. This expenditure forecast included
the reclamation of Pennys Bay. Walt Disney envisioned that the infrastructure
construction costs would not be borne by the proposed joint venture with the Hong Kong
Government. This was because much of the infrastructure would have formed part of the
Governments capital works programme to prepare Northeast Lantau for tourism and
recreation development anyway, even if a Disney theme park and resort were not being
built.
Based on the land formation costs, it was determined that a land premium of HK$4 billion
could be charged for Phase I of the Disneyland project. The land premium represented
the estimated pro rata cost for reclamation and land formation. 11 The projection worked
out by Walt Disney showed that the park would not be profitable enough to pay for the
10
Lai, C., Magic Kingdom trip will cost $680, South China Morning Post, 10 December, 1999.
Based on the proposed use (theme park), the market value of land was zero. As such, the Hong Kong Government used the
cost of land for estimating the land premium.
11
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Superstructure and facilities erection costs
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land. Walt Disney therefore bargained for free land during negotiations with the Hong
Kong Government.
This included capital costs for building Phase I of the theme park and its associated
facilities. The costs were estimated at around HK$10.5 billion in gross value terms [See
Exhibit 7].
Recurrent operating costs of the theme park
The recurrent operating costs of the theme park could be estimated by reference to the
operating costs of Disneyland Paris and Tokyo Disneyland.
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Assessment of Risks
There were a number of risk factors that had to be considered by Walt Disney in order to get
the best deal with the Hong Kong Government:
No
The ability of the theme park to attract adequate patronage both from within and outside
Hong Kong;
The recovery speed of South-east Asian economies from the Asian financial turmoil;
Uncertainty in respect of the amount of spending by attendees, especially those from
mainland China, who generally spent the least in Hong Kong when compared to visitors
from other countries;
The ability of Walt Disney to exit from the deal if the park was not profitable;
Timing of the cash flow generated from the park;
The possibility of cost overruns;
The ability of the joint venture to bear the debts of the project;
The political stability of Mainland China, Hong Kong and other regions, e.g. Taiwan;
Illegal sales of counterfeit Disney products that might have a negative impact on the sales
of merchandise in the theme park;
Uncertainty as to whether US culture would be welcome on Chinese soil at a time when
Japanese culture was sweeping Hong Kong and other Asian cities;
The fear that the Beijing Government might exercise quiet censorship of Disney films,
creative ventures or news coverage by its subsidiary, ABC News.
tC
Assessment of Alternatives
During negotiations with the Hong Kong Government, Walt Disney had considered the
potential of building a theme park in another Asian country. While Hong Kong was the most
serious suitor, there were other cities in Asia that courted the world-class brand name.
Shanghai
Do
Shanghai was one of the largest cities in China and had been a key entrance point for
international capital. Because of its central location, it took only two hours or so for people to
reach most of the major Chinese economic cities from Shanghai. Backed up by the abundant
Yangtze River Delta, the River Valley and the vast hinterland market with a population of 400
million, Shanghai was blessed with low labour costs and many business opportunities. When
Walt Disney held the preliminary talks with the Shanghai Government about the development
of a theme park, the Shanghai Government boasted its advantage of fewer travel restrictions
for mainlanders relative to Hong Kong and a larger catchment area. However, the following
factors made the deal with Shanghai less impressive than that with Hong Kong, from Walt
Disneys viewpoint:-
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Inferior infrastructure as compared to Hong Kong;

The investment climate was not as stable as in Hong Kong;
Lack of a Western legal system;
Lack of an easily convertible currency;
Lower GDP and fewer middle-class people who could afford steep entry fees for the park;
Lower accessibility to the rest of Asia; and
The population was relatively decentralised as compared to Hong Kong.
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Zhuhai
The Zhuhai Government had given up clinching a deal with Walt Disney early in the race. As
compared with Shanghai and Hong Kong, Zhuhai seemed to have the fewest conditions for
the construction of Disneyland, due to its inferior infrastructure and lower GDP.
Singapore
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If Walt Disneys primary objective was to gain a foothold in the Chinese market, this option
appeared infeasible as Singapore lacked the proximity that Hong Kong and Shanghai
possessed.
There was another alternative in Walt Disneys mind, i.e. to bring other partners into the deal
with the Hong Kong Government. However this alternative was not pursued in order to avoid
further delays in the negotiations.
Concessions
tC
While the Disneyland project was still in the feasibility stages, there had been voices of
dissent and doubts about the project from the Hong Kong community. Rumours about the
high investment stake of the Hong Kong Government were spread around the territory. Some
people in Hong Kong believed that Walt Disney would take advantage of the Governments
eagerness to get a Disney theme park.
No
Yet the bargaining strength of Hong Kong was not as weak as the community thought.
Although the Hong Kong Government was prepared to take a majority stake in the theme
park, it was very reluctant to give ground on certain terms demanded by Walt Disney. These
included the granting of tax concessions and tax grants that were enjoyed by the company in
Paris. (As of 1999, the profits tax rate for corporations in Hong Kong was 16%.) The
Government had also rejected Walt Disneys demand for free land as politically
unacceptable and having too many adverse implications economically.12 Both parties
struggled to find ways of solving the deadlock. Exhibit 8 presents the capital market and
inflation information for Hong Kong, which are useful for the evaluation of Hong Kong
Disneyland.
Intensive Negotiation
Do
Although the talks between Walt Disney had moved from casual dating to serious courting,
the relationship had not been all wine and roses. By June 1999, Walt Disney officials still
refused to confirm openly that a Hong Kong Disneyland was in the works. There are
discussions about the possibility, but its entirely possible the decision will be not to go, said
John Dreyer, a Disney spokesman. 13 However, if the deal could be completed, it would be no
12
Lai, C., Government refused to hand over site or give tax breaks, says leading negotiator; Disney wanted free land and cash,
South China Morning Post, 30 December, 1999.
13
Iritani, E., (1999), Middle Kingdom or Magic Kingdom?
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small accomplishment for Walt Disney whose movies had been blocked in China in 1997
after the release of a politically sensitive film. Given the obstacles on the mainland, was the
Hong Kong Disneyland project too good to miss?
Do
No
tC
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The challenge for Walt Disney, therefore, was to evaluate the feasibility of the project,
assuming that there would be no subsidies from the Hong Kong Government, and to identify
the concessions that it was seeking from the Hong Kong Government.
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Investment
Oriental Land
Not available
Walt Disney
US$2.5 million
Return
Oriental Land and the Japanese economy
13,600 jobs, of which 19% are full-time
Led to development of 60 other theme parks
across Japan since 1983
1995
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Attendance
(million)
Recurring
profits
(million Yen)
21,657
Total sales
(mln Yen)
Recurring
profit/ total
sales
Term Profit
(mln Yen)
Net Profit/
Total sales
Share price
(adjusted
Yen)
Walt Disney
Management fee of 10% of admissions and
corporate sponsorship agreements
5% royalties from gross revenues on food and
merchandise
Operational statistics
1996
1997
17.37
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EXHIBIT 1A
TOKYO DISNEYLAND SOME BASIC FACTS
1998
17.45
1999
Not available
28,076
28,134
25,832
29,315
153,923
171,502
180,965
175,471
187,772
14.07%
16.37%
15.55%
14.72%
15.61%
13,123
14,690
15,902
14,292
15,068
8.57%
8.79%
8.14%
8.02%
7,790
6,130
5,950
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8.53%
-
No
Remark: Fiscal year ended in March. Listing was granted in December 1996.
Part-time
Full-time
Staff: 13,600
81%
19%
Nationalities of visitors
Japan
Outside Japan
95%
5%
Do
Attractions: Seven theme lands

Shops: 56
Restaurants: 43
Average spending: US$74 per visitor in 1997
Source: Liu, E. and Wong E., Information Note Tokyo Disneyland: Some Basic Facts,
Legislative Council Secretariat, 10 November, 1999 and Datastream.
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(All Figures in million Yen)
1997
1998
Turnover
Cost of sales
180,965
(132,829)
175,471
(133,045)
Gross profit
48,136
42,426
(12,334)
894
(998)
(7,564)
(9,858)
1,833
(699)
(4,808)
Profit before tax

Tax (note a)
Net income
Common dividends
Retained profit
1999
Average % of
sales
187,772
(141,151)
46,621
25%
(12,095)
2,183
(2,905)
(4,489)
6%
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Administration expenses
Interest/ investment income
Interest payable
Other expenses (net)
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EXHIBIT 1B
ORIENTAL LAND CO LTD INCOME STATEMENTS
FOR THE YEARS ENDED 31 MARCH 1997 TO 1999
28,134
28,894
29,315
(12,232)
(14,602)
(14,247)
15,902
14,292
15,068
(1,115)
(1,400)
(1,400)
14,787
12,892
13,668
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Note a: Income tax rate in 1998 = 46.4%

Analysis of Business Turnover
No
Attractions and shows

Consumer products
Food and beverages
Other
1998
1999
79,020
64,694
31,149
608
82,131
70,458
34,429
754
175,471
187,772
Do
Source: Sequencer and Worldwide Tax Daily
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1997
Current assets
Stocks
Trade debtors
Prepays/accrued income
Misc debtors
Cash & equivalents
Trading investments
Note, bills & investments
Misc current assets
4,816
15,849
766
(20)
3,654
161,337
1,103
Fixed assets
Intangible assets
Tangible assets
Financial assets
Misc fixed assets
1999
5,369
2,859
1,677
(16)
15,912
139,447
-
4,375
3,205
1,940
(16)
42,763
194,764
-
165,248
247,031
567
152,095
12,164
3,113
176,997
19,204
4,637
219,437
30,682
6,282
167,939
200,838
256,401
5,145
9,930
2,136
9,502
5,528
2,307
2,050
9,737
4,108
10,500
4,499
7,435
6,619
15,833
4,269
8,225
5,962
27,858
8,824
22,460
46,335
48,994
77,598
17,873
561
3,080
13,765
493
2,433
109,496
476
1,879
21,514
16,691
111,851
Total liabilities
67,849
65,685
189,449
Share capital
Share premium
Legal reserves
Retained earnings
63,201
111,403
466
112,525
63,201
111,403
615
125,182
63,201
111,403
764
138,615
Net assets
287,595
300,401
313,983
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Current liabilities
Short-term debt
Trade creditors
Accruals & deferred income
Payments on account
Revenue tax
Taxation
Current provisions
Misc creditors
No
Deferred liabilities
Long-term debt
Misc other long term liabilities
Provisions
Do
1998
op
yo
187,505
rP
os
t
EXHIBIT 1C
OREINTAL LAND CO LTD BALANCE SHEETS
FOR THE YEARS ENDED 31 MARCH 1997 TO 1999
Source: Sequencer
12
or 617.783.7860
Ownership
Owner
The Walt Disney Co.
Saudi Prince Alwaleed
Free-float/publicly held
1992*
6.58
rP
os
t
EXHIBIT 2A
DISNEYLAND PARIS SOME BASIC FACTS
Percentage share
39%
24%
37%
Operational statistics
1993
1994
1995
9.8
8.8
10.7
1996
11.7
1997
12.6
1998
12.5
72%
NA
NA
903.2
887.9
897.9
36.7
35.5
44.2
2,700
NA
NA
3.24%
2.39%
3.34%
3.44%
3.87%
4.61%
10.90
8.15
8.25
0.00
0.00
0.00
tC
op
yo
Attendance
(million)
Hotel occupancy
37%
55%
60%
68.5%
(5,700 rooms)
Revenue
NA
886.2
754
831.2
(US$million)
Net income
NA
-970.4
-326.7
20.7
(US$million)
Total debt
NA
3,700
2,800
2,700
(US$million)
ROE
-7.62%
-205.40%
-26.15%
0.85%
Annual earnings
-1.51%
-52.85%
-29.36%
0.94%
yield
Annual Stock
16.24
13.20
8.00
15.85
Price (in French
francs)
Dividends (in
0.00
0.30
0.00
0.00
French Francs)
* 1992 statistics are partial: operation started on 12 April,1992 only
Staff: 10,000
French
Other European
From other countries
67%
13%
20%
Nationality of visitors
No
France
Germany
Holland
Belgium
United Kingdom
Rest of Europe
All others
40%
15%
10%
10%
10%
8%
7%
Do
Rides and attractions: 40, in five theme lands

Restaurants: 61, serving 27 million meals in 1996
Boutiques: 42, selling more than 21 million articles in 1996
Source: Datastream and Liu, E. and Wong E., Information Note - Disneyland Paris: Some
Basic Facts, Legislative Council Secretariat, 10 November, 1999.
13
or 617.783.7860
1994
1995
Turnover
Cost of sales
4,261
(3,225)
4,667
(3,089)
Gross profit
1,036
1,578
Administration expenses
(note a)
Lease rental expenses
Depreciation/ amortisation
Interest/investment income
Interest payable
Exceptional charges
(995)
(1,111)
(889)
538
(972)
(515)
(285)
309
(489)
112
(1,797)
Profit before tax

Tax (note b)
Net income
Ordinary dividends
Retained profit
1996
1997
1998
5,009
(2,874)
5,582
(3,253)
5,895
(3,291)
2,135
2,329
2,604
37%
(1,132)
(1,151)
(1,150)
22%
(428)
(279)
302
(442)
46
(590)
(298)
298
(423)
52
(823)
(311)
400
(472)
42
114
202
217
290
(1,797)
114
202
217
290
(1,797)
114
202
217
290
op
yo
(All figures in million Franc)
rP
os
t
EXHIBIT 2B
EURO DISNEY SCA INCOME STATEMENTS
FOR THE YEARS ENDED 30 SEPTEMBER, 1994 TO 1998
Average
% of sales
5%
tC
Note a: Included marketing and general expenses.

Note b: No income tax payable as a result of the utilisation of tax loss carryforwards. Income tax rate
in 1998 = 33.3%
Analysis of Business Turnover

1994
1995
1996
1997
1998
Theme park
Hotels/Disney village
Other Disneyland revenues
Construction/other
2,292
1,533
322
114
2,468
1,772
332
95
2,699
1,915
354
41
2,964
2,167
346
105
3,041
2,392
457
5
4,261
4,667
5,009
5,582
5,895
No
(All figures in million Francs)
Do
Source: Sequencer and Worldwide Tax Daily
14
or 617.783.7860
Fixed assets
Total assets
1994
1995
184
201
271
408
154
308
899
2,425
166
26
270
222
154
308
799
1,945
13,301
13,090
1996
1997
1998
180
291
332
194
316
913
2,226
188
310
469
193
248
1,256
2,664
216
408
472
163
134
1,618
3,011
13,040
13,001
13,031
op
yo
(All figures in million Franc)

Current assets
Stocks
Related companies
Trade debtors
Tax recoverable
Misc debtors
Cash & equivalents
Notes, bills & investments
rP
os
t
EXHIBIT 2C
EURO DISNEY SCA BALANCE SHEETS
FOR THE YEARS ENDED 30 SEPTEMBER 1994 TO 1998
15,726
15,035
15,266
15,665
16,042
77
961
187
402
303
1,930
156
700
225
219
170
1,470
179
655
269
234
200
1,537
1
243
778
279
285
203
1,789
3
273
731
290
321
231
1,849
7,680
392
228
8,300
7,312
379
264
7,955
7,333
251
332
7,916
7,376
172
290
7,838
7,416
148
294
7,858
Total liabilities
10,230
9,425
9,453
9,627
9,707
Share capital
Share premium
Legal reserves
Retained earnings
Shareholders' funds
3,825
2,818
32
(1,179)
5,496
3,825
1,887
32
(134)
5,610
3,827
1,888
44
54
5,813
3,833
1,891
56
258
6,038
3,838
1,894
68
535
6,335
Net Assets
5,496
5,610
5,813
6,038
6,335
Current liabilities
Short-term debt
Payable related companies
Trade creditors
Tax & social security
Taxation
Misc creditors
Do
No
tC
Deferred liabilities
Long-term debt
Provisions
Deferred income etc
Source: Sequencer
15
or 617.783.7860
EXHIBIT 3
FINANCIAL DATA OREINTAL LAND CO LTD AND EURO DISNEY SCA
1998
OREINTAL
0.48
P/E
NA
52.3
24
MV/ BV
2.72
1.43
1.98
Dividend
yield
0.28
Dividend
Payout
0.07
0.1
Interest
coverage
before tax
37.41
1.34
45.45
EURO
0.4
47.5
44.8
39.7
0.82
1.9
0.87
0.24
0.09
1.53
12.95
1.31
op
yo
Beta
1999
OREINTAL
EURO
rP
os
t
1997
ORIENTAL
EURO
Do
No
tC
Source: Datastream and Annual Reports
16
or 617.783.7860
rP
os
t
EXHIBIT 4
THE TOURISM INDUSTRY IN HONG KONG
(A) TOTAL NUMBER OF VISITORS (1990 1998)
11.7
12
10.41
10.2
10
8.94
9.33
6.99
5.93
6.03
1990
1991
6
4
2
0
9.58
op
yo
Number of visitors (in million)
14
1992
1993
1994
1995
1996
1997
1998
(B) VISITORS BY PLACE OF RESIDENCE
1990
1.33
NA
1.34
0.86
0.61
1.79
5.93
1991
1.26
NA
1.30
1.01
0.62
1.84
6.03
tC
No. of visitors (in million)

Japan
The mainland of China
Taiwan
South and southeast Asia
USA
Other regions
Total
1992
1.32
NA
1.64
1.24
0.69
2.1
6.99
1993
1.28
1.73
1.78
1.24
0.76
2.15
8.94
1994
1.44
1.94
1.67
1.20
0.78
2.30
9.33
1995
1.69
2.24
1.76
1.42
0.75
2.34
10.20
1996
2.38
2.31
1.82
1.62
0.97
2.60
11.70
1997
1.37
2.30
1.78
1.50
0.80
2.66
10.41
1998
0.95
2.60
1.81
1.20
0.77
2.25
9.58
Note: Excluding international arrivals from Macau.

(C) HOTEL ROOM RATES AND OCCUPANCY RATES
No
Average hotel room rates for high tarrif-A hotels (1998 - 1999)
Average hotel room rates for all hotels (1998 - 1999)
HK$1,137
HK$645
Average hotel occupancy rate for high tarrif-A hotels (1990 -1998)
81.7%
Average hotel occupancy rate for all hotels (1990 -1998)
81.4%
Do
Source: Hong Kong Tourist Association: Visitor Arrival Statistics, CEIC DRI Asia Database
and Tourism Commission, Economic Services Bureau, Hong Kong SAR Government, Briefing
Paper: Hong Kong Disneyland, November 1999.
17
or 617.783.7860
Equity, of which
- Hong Kong Government
- Walt Disney
Amount
(HK$ billion)
5.7
???
???
Debt, of which
- Hong Kong Government
- Commercial
Total
8.4
???*
???*
14.1
% of Total
40.4%
59.6%
100%
op
yo
Funding Sources
rP
os
t
EXHIBIT 5
PROPOSED FINANCING ARRANGEMENT FOR HONG KONG DISNEYLAND
*The loan would come from both the Hong Kong Government and the commercial banks.
One proposal was that the Government offered a HK$6.1 billion loan while the commercial
banks offered a HK$2.3 billion loan. The Government debt would include capitalised interest
of HK$0.5 billion. To help the project in its early years, it was proposed that the government
loan would be offered at a below-market interest rate.
The reason for raising only a quarter of the debt component in the open market was because
projected cash flows in the early years of operation could only prudently cover that amount.
A high loan amount would definitely require the Disneyland project to pay a higher interest
rate.
tC
For projection purposes, assume that the loan will be fully repaid in 2024.
Do
No
Source: Tourism Commission, Economic Services Bureau, Hong Kong SAR Government,
Briefing Paper: Hong Kong Disneyland, November 1999.
18
or 617.783.7860
t
s
o
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r
00/77C
Hong Kong Disneyland (A): The Walt Disney Perspective
EXHIBIT 6A
PROJECTION OF ATTENDEES AT HONG KONG DISNEYLAND (2005 2015)
2005
2006
2007
2008
2009
2010
2011
Year
Local residents (note a)
Population in HK
Market penetration rate
Visits-per-guest ratio
7,524,731
19%
1.35
7,652,651
19.21%
1.35
Annual attendance
1,930,094
1,984,652
Total tourists (note b)
14,898,671
15,864,105
Base tourists (non-business) (note c)

10,429,070
15.65%
1.17
11,104,873 11,824,469
15.65%
15.65%
1.17
1.17
Annual attendance
1,909,615
2,033,358
Business tourists (note c)

4,469,601
4%
1
4,759,231
4%
1
Annual attendance
178,784
190,369
Ratio of induced tourists to base tourists
11.40%
11.600%
Induced tourists
1,698,448
100%
1.15
1,840,236
100%
1.15
Annual attendance
1,953,216
5,971,708
Total annual attendance
2013
2014
2015
7,782,747
19.42%
1.35
7,915,053
19.63%
1.35
8,049,609
19.84%
1.35
8,186,453
20.05%
1.35
8,325,622
20.26%
1.35
8,467,158
20.47%
1.35
8,611,099
20.68%
1.35
8,757,488
20.89%
1.35
8,906,365
21.11%
1.35
2,040,508
2,097,689
2,156,225
2,216,144
2,277,478
2,340,257
2,404,512
2,470,275
2,537,579
16,892,099
17,986,707
19,152,246
20,393,311
21,714,798
23,121,916
24,620,217
26,215,607
27,914,378
12,590,695 13,406,572
15.65%
15.65%
1.17
1.17
14,275,318
15.65%
1.17
15,200,358
15.65%
1.17
16,185,342
15.65%
1.17
17,234,152
15.65%
1.17
18,350,925
15.65%
1.17
19,540,065
15.65%
1.17
o
y
p
o
C
2,165,119
2,305,419
2,454,810
2,613,882
2,783,262
2,963,617
3,155,659
3,360,146
3,577,884
5,067,630
4%
1
5,396,012
4%
1
5,745,674
4%
1
6,117,993
4%
1
6,514,439
4%
1
6,936,575
4%
1
7,386,065
4%
1
7,864,682
4%
1
8,374,313
4%
1
202,705
215,840
229,827
244,720
260,578
277,463
295,443
314,587
334,973
11.800%
12.000%
12.200%
12.400%
12.600%
12.800%
13.000%
13.200%
13.400%
1,993,268
100%
1.15
2,158,405
100%
1.15
2,336,574
100%
1.15
2,528,771
100%
1.15
2,736,064
100%
1.15
2,959,605
100%
1.15
3,200,628
100%
1.15
3,460,460
100%
1.15
3,740,527
100%
1.15
2,116,272
2,292,258
2,482,166
2,687,060
2,908,086
3,146,474
3,403,546
3,680,722
3,979,529
4,301,606
6,324,651
6,700,590
7,101,114
7,527,922
7,982,832
8,467,791
8,984,883
9,536,336
10,124,537
10,752,041
t
o
2012
Notes:
(a) Population in 2005 = Population in Hong Kong in 1998 x (1+ population growth rate)7 = 6,687,200 x (1 + 1.7%)7 [The average population growth rate for 1987 to 1998 = 1.7%]
(b) Total tourists in 2005 = Total tourists in 1998 x (1 + tourist growth rate) 7 = 9,600,000 x (1 + 6.48%)7 [The average tourist growth rate for 1987 to 1998 = 6.48%]
(c) Business tourists = 30% of total tourists
o
D
Projection prepared by Case Writer
EXHIBIT 6B
19
This document is authorized for educator review use only by Hoa Pham, at HE OTHER until February 2015. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860
t
s
o
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00/77C
Hong Kong Disneyland (A): The Walt Disney Perspective
PROJECTION OF ATTENDEES AT HONG KONG DISNEYLAND (2016 2024)

2016
2017
2018
2019
2020
2021
2022
Year
Local residents (note a)
Population in HK
9,057,774
21.32%
1.35
9,211,756
21.53%
1.35
Annual attendance
2,606,458
2,676,945
Total tourists (note b)
29,723,230
Base tourists (non-business) (note c)

Visit-per-guest ratio
9,368,356
21.74%
1.35
9,527,618
21.95%
1.35
9,689,587
22.16%
1.35
9,854,310
22.37%
1.35
10,021,833
22.58%
1.35
2023
2024
10,192,205
22.79%
1.35
10,365,472
23.00%
1.35
3,135,647
3,218,409
46,128,815
49,117,962
13.6%
13.800%
Induced tourists
4,042,359
100%
1.15
4,367,603
100%
1.15
o
y
p
o
C
4,506,387
100%
1.15
4,644,817
100%
1.15
4,782,266
100%
1.15
4,918,024
100%
1.15
5,051,296
100%
1.15
5,181,188
100%
1.15
5,306,705
100%
1.15
Annual attendance
4,648,713
5,022,743
5,182,345
5,341,540
5,499,606
5,655,728
5,808,990
5,958,367
6,102,710
2,749,076
2,822,885
2,898,410
2,975,686
3,054,753
31,649,295
33,700,169
35,883,940
38,209,220
40,685,177
43,321,576
20,806,261
15.65%
1.17
22,154,506
15.65%
1.17
23,590,118
15.65%
1.17
25,118,758
15.65%
1.17
26,746,454
15.65%
1.17
28,479,624
15.65%
1.17
30,325,104
15.65%
1.17
32,290,170
15.65%
1.17
34,382,573
15.65%
1.17
Annual attendance
3,809,730
4,056,601
4,319,469
4,599,370
4,897,409
5,214,762
5,552,678
5,912,492
6,295,621
Business tourists (note c)

8,916,969
4%
1
9,494,788
4%
1
10,110,051
4%
1
10,765,182
4%
1
11,462,766
4%
1
12,205,553
4%
1
12,996,473
4%
1
13,838,644
4%
1
14,735,389
4%
1
356,679
379,792
404,402
430,607
458,511
488,222
519,859
553,546
589,416
13.37%
12.94%
12.52%
12.09%
11.66%
11.23%
10.80%
Annual attendance
Ratio of induced tourists to base tourists
t
o
11,421,580 12,136,081 12,655,291 13,194,403 13,753,936 14,334,398 14,936,280 15,560,051 16,206,156

Total annual attendance
Notes:
(a) Population in 2005 = Population in Hong Kong in 1998 x (1+ population growth rate) 7 = 6,687,200 x (1 + 1.7%)7 [The average population growth rate for 1987 to 1998 = 1.7%]
(b) Total tourists in 2005 = Total tourists in 1998 x (1 + tourist growth rate) 7 = 9,600,000 x (1 + 6.48%) 7 [The average tourist growth rate for 1987 to 1998 = 6.48%]
(c) Business tourists = 30% of total tourists
o
D
Projection prepared by Case Writer
20
This document is authorized for educator review use only by Hoa Pham, at HE OTHER until February 2015. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860
rP
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t
EXHIBIT 7
PROJECTED CONSTRUCTION OUTLAYS FOR HONG KONG DISNEYLAND
Attractions in the
theme park
($Mn)
Hotel
($Mn)
Retail, dining
and
entertainment
($Mn)
Others
($Mn)
Total
($Mn)
2000
2001
2002
2003
2004
2005
151
536
856
1,563
2,064
580
0
59
80
601
1,315
113
0
54
110
224
686
58
85
83
84
206
954
0
235
732
1,129
2,593
5,018
751
10,459
op
yo
Year
Note: The figures were based on Walt Disneys estimates, which were originally expressed in
money-of-the-day terms but converted into 1999 prices by using the projected rate of increase
in construction costs over the period 2000-2005, at about 5% per annum.
Do
No
tC
Source: Economic Analysis Division, Financial Services Bureau and Government Secretariat,
Hong Kong SAR Government, Briefing Paper: Economic Assessment of the Hong Kong
Disneyland Project, November 1999.
21
or 617.783.7860
Month
1998
Jan 31
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
1999
Jan 31
1 week
5.7
4.46
4.76
5.66
6.6
8.04
7.24
15.55
5.8
6.34
4.86
5.21
5.26
5.72
5.14
4.33
4.7
5.54
5.39
5.75
4.79
5.76
4.78
5.97
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov (note)
tC
Average yield
(Jan 98 to Nov 99)
Average yield
(Jan 95 to Nov 99)
Exchange Fund Bills/ Bonds

Yield (%)
1 month
2 years
6.91
11.06
5.24
7.55
5.21
7.85
5.71
7.8
7.19
8.74
8.74
10.55
7.56
9.53
14.03
10.64
6.64
8.51
6.06
7.16
4.94
6.65
4.87
5.96
5.55
7.06
5.47
6.91
5.19
6.61
4.48
5.95
4.77
6.46
5.35
6.45
5.56
6.29
5.83
6.43
5.15
6.31
5.41
6.44
4.81
6.3
6.12
7.53
10 years
10.35
8.13
8.14
8.42
9.2
10.45
9.9
9.9
8.55
7.46
6.96
6.36
7.13
7.3
7.16
6.82
7.33
7.71
7.48
7.44
7.38
7.53
7.64
8.03
op
yo
Year
rP
os
t
EXHIBIT 8
HONG KONG CAPITAL-MARKETS INFORMATION
5.66
5.79
6.87
NA
Note: Prime rate as at November 1999 = 8.5%
No
Period
Average Return on
AOI * (%)
17.79
14.35
17.82
January 1998 to November 1999

* AOI (All Ordinaries Index) is a market value-weighted index that includes all the ordinary
shares listed on the Stock Exchange of Hong Kong.
Do
Year-on-year
Rates of change
(%)
Composite CPI
INFLATION RATES
1992
1993
1994
1995
1996
1997
1998
9.6
8.8
8.8
9.1
6.3
5.8
2.8
Average
7.31
Source: Datastream, CEIC DRI Asia Database and http://www.info.gov.hk/hkbi/enghkbi/5/57a.htm
22
or 617.783.7860

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Hongkong Disney

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HKU-107

Hong Kong Disneyland (A):

- Mr. Michael Eisner, Walt Disney Chairman and Chief Executive

Walt Disney Company

Amusement parks and resorts

The failure to take an ownership in Tokyo Disneyland was exceptionally

- Mr. Michael Eisner, Chairman and Chief Executive of Walt Disney 4

A Third Foreign Theme Park Model

Hong Kong Disneyland

Infrastructure and Suitable Site

Hong Kongs Attractions

Land reclamation at Pennys Bay and infrastructure construction costs

Superstructure and facilities erection costs

Recurrent operating costs of the theme park

Inferior infrastructure as compared to Hong Kong;

Attractions: Seven theme lands

(All Figures in million Yen)

Profit before tax

Note a: Income tax rate in 1998 = 46.4%

Attractions and shows

Source: Sequencer and Worldwide Tax Daily

(All Figures in million Yen)

Rides and attractions: 40, in five theme lands

Profit before tax

(All figures in million Franc)

Note a: Included marketing and general expenses.

Analysis of Business Turnover

(All figures in million Francs)

Source: Sequencer and Worldwide Tax Daily

(All figures in million Franc)

Source: Datastream and Annual Reports

Number of visitors (in million)

(B) VISITORS BY PLACE OF RESIDENCE

No. of visitors (in million)

Note: Excluding international arrivals from Macau.

Average hotel occupancy rate for all hotels (1990 -1998)

Hong Kong Disneyland (A): The Walt Disney Perspective

Total tourists (note b)

Base tourists (non-business) (note c)

Business tourists (note c)

Ratio of induced tourists to base tourists

Total annual attendance

Projection prepared by Case Writer

Hong Kong Disneyland (A): The Walt Disney Perspective

PROJECTION OF ATTENDEES AT HONG KONG DISNEYLAND (2016 2024)

Total tourists (note b)

Base tourists (non-business) (note c)

Business tourists (note c)

11,421,580 12,136,081 12,655,291 13,194,403 13,753,936 14,334,398 14,936,280 15,560,051 16,206,156

Projection prepared by Case Writer

Exchange Fund Bills/ Bonds

Note: Prime rate as at November 1999 = 8.5%

January 1998 to November 1999

Source: Datastream, CEIC DRI Asia Database and http://www.info.gov.hk/hkbi/enghkbi/5/57a.htm

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