Like hapless losers at the roulette table, Hong Kong government officials are planning to place even bigger bets on their reckless Disneyland gamble, the difference being that they are leaving other folks to pick up the tab and the bad news is that we, the public, are those other folks.
Getting accurate figures about the true cost of the Disney folly is really hard.
But as a long-time follower of this project, my best estimate is that it has already cost the public more than HK$30 billion (US$3.87 billion). On top of this, the government has just announced that it is planning to splash out another HK$5.8 billion to expand the park.
The theme park has never come close to meeting the promise of some 11 million visitors per year, a figure banded about with great certainty by officials when the project was agreed.
The reality is that visitor numbers slumped back to 6.8 million last year from a high of 7.5 million in 2014.
The facts are that Hong Kong Disneyland has only managed to make a profit in three of the 10 years since it opened.
These modest profits, totaling just under HK$700 million, were never returned to the taxpayer but have been ploughed back into the park. They are anyway dwarfed by cumulative losses running into the billions.
However, it is Hong Kong taxpayers who are left to carry these losses as Disney Corp. got the suckers in the government to agree to a deal under which it made sure that they could not lose any money.
The suckers, who were seen donning Mickey Mouse costumes and took to parading around as if they were Hollywood moguls, were taken for a roller coaster ride by the guys from Florida and still don’t seem to know how they ended up with this crummy deal.
But they must have had some inkling because they were at pains to mislead the public about the true costs of their investment and did their best to conceal the terms of the deal that were so heavily weighted in Disney’s favour.
In fact, Disney had been trying to sell a deal of this kind to a number of other governments, none of them were stupid enough to take it.
At around the same time that Hong Kong signed up for the world’s first nationalized Disneyland, a rather better package was offered to the Queensland Premier Peter Beattie in Australia, who memorably turned it down saying “only Goofy would have picked up such a deal”.
So, let’s remind ourselves what was agreed.
Disney secured an initial 43 per cent of the park’s equity (it now owns 47 percent) after investing a modest HK$2.45 billion in the joint venture. At the time the government proclaimed that public investment in the company was HK$3.25 billion, so the ownership split seemed fair.
However the reality was that total investment amounted to HK$27.7 billion when value of the land, land reclamation and associated costs were taken into account.
In other words, Disney ended up gaining a 43 per cent stake by putting in what amounted to less than 10 per cent of the total cost.
Moreover, the American company’s benefits did not end there because it was also guaranteed 5 per cent royalty payments for all food and merchandise sold in the park and a 10 per cent royalty on admission charges.
On top of this, it is paid 2 per cent of revenues as a management fee and receives incentive payments ranging from 2 to 8 per cent of the operating (not the net) profit.
The park’s deteriorating performance reached such a dire level in 2007 that Disney was forced to waive its management and royalty fees for two years. However, because of these payments, good ole’ Disney makes money out of the Hong Kong park even when it is in the red.
Because the loss figures are so spectacular they no longer seem real but just think what could be done to improve the tourism infrastructure with the HK$5.8 billion that the government is now planning to add to the loss pile.
This is more than enough to fund a myriad of cultural, sporting and other entertainment events with plenty left over for beautification and conservation projects that do not yield immediate benefits but overtime make Hong Kong a more attractive tourist destination.
However bureaucrats just love a big splash. Disney’s current interlocutor from the government, Greg So, the commerce minister, has followed his predecessors in kidding himself that he is mixing it up with big league entertainment industry players and, of course, he willingly takes part in their stupid stunts.
And, guess what, he’s back claiming that the new investment will yield an attendance level of 10 million visitors, just one million below the original estimate that has not even vaguely been met.
Think how much better it would be if Hong Kong had a really hard-nosed negotiator who could tell Disney that it’s name sits atop this mess and it really needs to pay to get it fixed. As matters stand, the government is throwing good money after bad, frightened stiff that Disney will run away.
That will not happen while the folks in the USA are milking this project but Hong Kong Disneyland will never be truly profitable.
Oh, and by the way, besides being a tourist attraction, how exactly is Disneyland providing an abiding source of entertainment to the citizens who paid for it in the first place?
– Contact us at [email protected]