Euro Disneyland SCA
Euro Disneyland SCA
Sales: FFr 4.97 billion
Stock Exchanges: Paris London
SICs: 7996 Amusement Parks; 7999 Amusement & Recreation, Not Elsewhere Classified
Opened for just five years by 1997, Disneyland Paris (officially conducting business as Euro Disneyland SCA) has already made its mark on the French landscape—physically, culturally, and financially. Operating on part of a total 1,943-hectare (4,400-acre) site roughly one-fifth the size of Paris, the Phase I development of Disneyland Paris features a theme park, nearly 5,800 rooms among seven hotels, the Disney Village entertainment center, which includes a Planet Hollywood and an eight-screen Gaumont multiplex theater, a convention center, and a 27-hole golf course—all within 32 kilometers (20 miles) of the center of Paris. Linked to the world by its own high-speed TGV train station, with direct connections to London, Brussels, the west of France, and the Paris region’s international airport, as well as with its own station for the Paris intercity RER train line and access ramps to the A4 autoroute, Disneyland Paris hosted 11.7 million visitors in 1996, making it Europe’s largest entry fee-based, short-stay tourist destination. With a workforce, called “Cast Members,” of more than 10,000 directly employed by Euro Disneyland, and supporting indirect employment of some 40,000 in the theme park’s Marne-la-Vallee region and throughout France, Disneyland Paris has had a significant impact on a French economy troubled through much of the 1990s by a lingering economic recession and high unemployment levels.
Yet Disneyland Paris has experienced a mixed welcome through much of the years of its operation. Beset by low attendance levels, lower visitor spending levels, a withering debt brought on, in part, by Euro Disneyland’s own overly optimistic financial projections, as well as labor problems and cultural miscalculations in adapting Disney’s decidedly American theme park concept to a European market, the theme park—the fourth after the original Disneyland, Walt Disney World in Florida, and the Tokyo Disneyland—has already teetered on the brink of bankruptcy, and remains far behind its initial targets. Much of the site—approximately 1,300 hectares (3,300 acres)—remains undeveloped, although the company has finally reached agreements with the French authorities to begin its long-delayed Phase II development plan. After a staggering first-year (1992) loss of more than FFr 5 billion, the company has crept into profitability, posting a FFr 114 million gain on FFr 4.57 billion in 1995 and a FFr 202 million gain on FFr 4.97 billion in 1996. Meanwhile, Euro Disneyland continues to bear a FFr 15.1 billion debt load.
Principal shareholders in Euro Disneyland SCA are the Walt Disney Company, with 39 percent, Saudi Arabian Prince al-Waleed bin Talal bin Abudaziz, with 24 percent, and a collection of more than 60 banks, principally French, as well as individual shareholders, primarily from the European Community, holding the remaining 37 percent. Full development of the Disneyland site, originally projected to be completed in the year 2017, calls for the addition of 700,000 square feet of office space, a 750,000-square-foot corporate park, a 95,000-square-meter shopping mall, 2,500 single-family homes, 2,400 apartments, and 3,000 time-share apartments.
Mickey Goes to Europe, the 1980s
Flush with the huge and instant success of the Tokyo Disneyland, which opened in 1983, the Disney company immediately began looking for a site to build a European version of the popular tourist destination. On the one hand, Disney sought to capitalize on their first experience gained from operating a theme park in a foreign market—and, given the long-established European embrace of Disney’s products, especially its films, which found even larger audiences in Europe than in America, Europe, with a population of 320 million within airplane distances of less than three hours, seemed a logical choice. On the other hand, Disney looked to correct what it saw as mistakes made with its previous parks. The Tokyo Disneyland was not owned by the Disney company, which meant that Disney was forced to content itself with only royalties on that theme park’s massive revenues. At Walt Disney World in Florida, the company had not foreseen the mushrooming development of hotels and other theme parks and recreation centers outside of the relatively limited confines of the park, reducing Disney’s hotel room take to merely 14 percent of the area’s total.
Between 1983 and 1987, Disney considered sites in various countries, including the United Kingdom, Germany, and Italy, but by 1985 the choice had been narrowed down to the Costa del Sol in Spain and the suburban area around Paris. In 1987, the choice fell to Paris—despite the fairer Spanish climate—in part because of Paris’s larger population, its well-developed transportation system, and its role as one of the primary tourism destinations in the world, but also because of a number of important concessions made by the French government, eager to secure the plum job- and revenue-generating theme park, including: using the government’s right of eminent domain to sell the large, principally farmland Marne-de-Vallee site at the cut-rate price of $7,500 per acre; the French guarantee of some FFr 1.5 billion for new road construction, including access to the nearby autoroute; the extension of the RER train system to the theme park, as well as the building of a rail link and station for the TGV train line; an agreement to drop the value-added tax rate on ticket sales from 18.6 percent to just seven percent; and, finally, the French agreement to provide water, sewage, gas, electricity, and other services. Signing the contract with Jacques Chirac in March 1987, Disney head Michael Eisner was confident that the Paris theme park would be a success, despite France’s winter climate— indeed, the Tokyo Disneyland experienced much the same weather conditions, but remained a year-round tourist draw for an eager and freely spending Japanese public.
The 4,400-acre site purchased by Disney was far larger than the company—now operating through a wholly owned development subsidiary, Euro Disney Associés SNC, which in turn would give way to theme park operator and publicly held company Euro Disneyland SCA—needed to build its theme park. But, remembering the experience of the Orlando-area Disney World, the company proposed to develop the site in several phases, excluding “mosquitoes” from the area. In addition, with the booming French real estate market of the 1980s, the company expected easily to recoup much of its development costs—initially slated at FFr 15 billion for the Phase I construction—by selling off the properties it developed, while retaining ownership of the land, and maintaining control of both the commercial use and design of the properties surrounding the theme park. These real estate sales were projected to supply 22 percent of Euro Disneyland SCA’s revenues in 1992, when the park was scheduled to be opened, and rise to 45 percent of revenues by 1995.
The Disney Company itself would limit itself to a 49 percent stake (satisfying the French government’s requirement that at least 51 percent of the company would be owned by Europeans); with the backing of the powerful Disney brand name and financial clout, the initial financing for the venture, completed in 1989, took two primary forms. The first was a loan package covering much of the projected Phase I cost raised among seven French banks. The second was a public offering of 51 percent of Euro Disneyland SCA, which raised US$1 billion to complete the financing. Disney was determined to build a state-of-the art theme park, “perfecting” the concept of its other theme parks, which in turn led to a number of so-called “budget breakers,” that is, last-minute design changes, many of which were inspired by Disney chief Eisner himself. As the Phase I project neared completion two years later, Euro Disneyland, in order to cover construction cost overruns was forced to arrange additional capitalization of US$144 million and added loans of US$522 million, raised from a collection of what eventually became more than 60 banks. Confidence in the venture ran high, with Euro Disneyland forecasting an attendance figure of 11 million visitors in the park’s first year, rising past 16 million annual visitors soon after the turn of the century.
Disney’s French Folly of the Early 1990s
Euro Disneyland opened on schedule in April 1992—and from there its fortunes quickly dwindled. By the end of 1993 the company was facing bankruptcy—with a first-year loss of more than FFr 5 billion and a rise in its debt load to over FFr 21 billion—and Eisner was publicly suggesting his willingness to close the park altogether. A variety of factors had brought the company to this point.
Euro Disneyland had severely miscalculated the health of the French real estate market. When this collapsed in the early 1990s, the company’s hoped-for property development sales failed to materialize. Indeed, the company was forced to abandon its planned 1994 start of the Phase II development of the theme park, from which the company had expected to pay down much of its debt load. At the same time, interest rates on the company’s vast loans were rising rapidly.
Meanwhile, the company had underestimated the impact of the recession of the early 1990s, by then already taking hold in Europe, and refused to postpone the opening of the theme park, or to reduce its risk by allowing outside investors into the park’s hotels and other properties, reasoning that it could weather the course of the economic downturn. But the recession slashed severely at consumer spending budgets—while Euro Disneyland nearly reached its first-year goal of 11 million, visitor rates swiftly declined, dipping to a low of just 8.8 million. Worse for the company, visitors proved reluctant to provide the company with important concession revenues, including gift sales, and restaurant and hotel revenues. As sales slumped and visitor attendance fell, and virtually stalled through much of the winter season, the company was confronted with another serious miscalculation: Its pre-opening calculations had projected labor costs would demand just 13 percent of total revenues; instead, labor costs drained 24 percent of revenues in 1992 and rose to 40 percent of revenues by 1993.
While the recession—and the company’s delay in recognizing its effects—bore responsibility for many of Euro Disneyland’s startup pains, the company itself had to be held accountable for a series of cross-cultural gaffes that reduced much of the consumer goodwill the company had expected. Chief among these was the company’s seeming ignorance of the fact that its European audience was very much unlike its American and Japanese audiences. Trouble started in the theme parks marketing efforts, which emphasized the grand size and scope of the project, an issue which may play well to an American or Japanese visitor, but which left the Europeans largely indifferent. High admission costs—running some 30 percent higher than a Disney World ticket—and a refusal to offer discounted prices for winter admission helped discourage the European visitors, who, unlike their American and Japanese counterparts, were less likely to take frequent short vacation trips, particularly during the school year, but preferred instead to spend their vacation budget on fewer, long vacations. Euro Disneyland hotels, which had geared up for receiving guests for average four-day stays, were surprised to find that the majority of their room bookings were only for overnight stays.
Inside the park, visitors found other oversights. Euro Disneyland’s restaurants, geared toward the American feeding style of eating snacks at various times of the day, were not prepared for the more fixed schedules of France—projected to account for as much as 50 percent of all visitors—where the country all but shuts down at 12:30 every day to allow a leisurely lunch. But the park’s restaurants had not been provided with the seating or staffing to accommodate the sudden influx of diners, resulting in long lines. Worse—and most famous—Euro Disneyland maintained the alcohol-free policy of its other parks, arousing the ire of a country where wine is an integral part of the culture. The company proved no more popular with its employees. Largely French and highly jealous of their individualism, the park’s cast members chafed at the strict and elaborate dress and behavior codes imposed on its employees. Even at the corporate level, the Disney culture found itself at odds with its French hosts, which found the company’s manner to be overbearing and patronizing—a manner which seemed to reach its peak when Eisner all but threatened to shut down the park in December 1993, arousing the ire of Euro Disneyland’s creditors. But by then, with its losses mounting to FFr 5 billion and its debt load nearing FFr 22 billion, Euro Disneyland was in desperate need of its bankers’ goodwill.
A Princely Rescue in 1994
By the end of 1993, Euro Disneyland had run out of cash. The Disney Company agreed to keep the company afloat, but only until the end of March 1994, when it required Euro Disneyland to have completed a restructuring of its finances. Euro Disneyland hoped to convince its creditors to waive up to half of its debt load; in return, the banks, concerned that the Disney Company should bear its share of the liability, sought concessions from Disney as well, particularly a waiver of the company’s management fees of three percent of revenues, and a reduction in the Disney Company’s royalty fees of 10 percent on ticket sales and five percent on concession sales. Negotiations faltered, however, in part because of Eisner’s suggestion that he allow the park to close—seen as a bullying tactic by the banks—and in part because the Disney Company refused to reduce its royalty fees.
Less than a month before the deadline, the parties reached an agreement to rescue Euro Disneyland. The restructuring plan featured a rights issue, jointly subscribed by the banks and the Walt Disney Company, which raised some US$1 billion in cash. The Walt Disney Company also agreed to pay FFr 1.4 billion to purchase some of the Euro Disneyland assets in a sale-leaseback agreement; in addition, Disney waived its management and royalty fees for five years—worth some US$450 million per year—and thereafter to halve its royalty fees. The banks also agreed to waive interest payments for 18 months, and then to defer subsequent payments for three years, adding additional yearly savings of nearly FFr 2 billion to Euro Disneyland’s relief.
With its debt load cut in half, Euro Disneyland next found help from a surprise rescuer: Prince al-Waleed, nephew of King Fahd of Saudi Arabia and a businessman who had built up a personal fortune estimated at over US$4 billion in just a decade, announced his intention to buy into Euro Disneyland, eventually spending over US$500 million to take a 24 percent stake in the company.
On with the Business of Fun in the Mid-1990s
With its refinancing completed, and with new management in place—American Robert Fitzpatrick, who had overseen the Phase I construction was replaced by Frenchman Phillippe Bourguignon in 1993—Euro Disneyland began addressing its internal problems. In 1994, the park’s name was changed to Disneyland Paris, emphasizing its proximity to the Paris capital. The company made concessions toward resolving its poor labor and press relations. The no-alcohol policy was changed, allowing wine and beer to be served at the park’s restaurants, while the company lowered its admission prices, some of its hotel room rates, introduced lower-priced menu choices, and instituted discount pricing for winter admission. In addition, the TGV link to the theme park was completed in 1994, complete with a direct linkup with the Eurostar Chunnel train service.
After narrowing its losses to FFr 1.8 billion on FFr4.1 billion in revenues in 1994, Euro Disneyland turned profitable in 1995. The company also began moving forward on its Phase II development, attracting a Planet Hollywood restaurant and an eight-screen, state-of-the-art movie complex, owned by Gaumont, to the company’s free-admission Festival Disney (renamed Disney Village in June 1997) entertainment complex located next to the theme park. The company also started construction on a second convention center, and began eyeing plans to open a Disney-MGM Studios theme park on the site. Meanwhile, the passing European recession and stronger marketing campaigns were spurring increasing attendance, rising from 10.7 million visitors in 1995 to 11.7 million in 1996. Posting its second year of profits in 1996, Euro Disneyland seemed finally to be rousing from its European nightmare and moving into the dreamland Disneyland Paris should have been all along.
EDL Hôtels S.C.A.
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—M. L. Cohen