Case 13
EURO DISNEY: THE DREAM BECOMES A NIGHTMARE, 1987-94
*
At a press conference announcing Euro Disneyland SCA's financial results for the year ended September 30,
1994, CEO Philippe Bourguignon summed up the year in succinct terms: “The best thing about 1994 is that it's over.”
In fact, the results for the year were better than many of Euro Disneyland’s long-suffering shareholders had
predicted. Although revenues were down 15 per cent—the result of falling visitor numbers caused by widespread
expectations that the park would be closed down—costs had been cut by 12 per cent, resulting in a similar operating
profit to that of the previous year. The bottom line still showed a substantial loss (net after-tax loss was FFr 1.8bn)
however this was a big improvement on the previous year (FFr 5.33bn. loss). Tables 1 and 2 show details of the
financial performance.
Regarding the future, Bourguignon was decidedly upbeat. Following the FFr13bn restructuring agreed with
creditor banks in June, Euro Disney was now on a much firmer financial footing. As a result of the restructuring, Euro
Disneyland S.C.A was left with equity of about FFr5.5bn and total borrowings of FFr15.9bn—down by a quarter from
the previous year. With the threat of closure lifted, Euro Disney was now in a much better position to attract visitors
and corporate partners.
Efforts to boost attendance figures included a new advertising campaign, a new FFr600m attraction (Space
Mountain) which was due to open in June 1996, and changing the park’s name from Euro Disneyland to Disneyland
Paris.
In addition, Euro Disney had made large numbers of operational improvements. Mr. Bourguignon reported
that it had cut queuing times by 45 per cent during the year through new attractions and the redesign of existing ones;
hotel occupancy rates had risen from 55 percent in the previous year to 60 per cent; and managers were to be given
greater incentives. The net result, claimed Bourguignon, was that the company would reach breakeven during 1996.
The stock market responded positively to the results. In London, the shares of Euro Disneyland SCA rose 13p
to 96p. However, this did not take the shares much above their all-time low. On November 6 1989, the first day of
trading after the Euro Disneyland initial public offering, the shares had traded at 880p. Since then, Euro Disneyland
stock had been on a near-continuous downward trend (see Figure 1). The Financial Times’ Lex column was also
unenthusiastic:
Still beset by high costs and low attendances, Euro Disney will find it hard to hit its target of break-
even by the end of September 1996. Costs in the year were reduced by FF500m by introducing more
flexible labor agreements (more part-timers, increased job sharing and the use of more students in the
peak season) as well as outsourcing contracts in the hotel operation. But the company admits that the
lion’s share of cost reductions has now been realized. Now it hopes attendances are rising… Getting
people to spend more once they are at the park might be more difficult. Euro Disney is pinning its
hopes on economic recovery in Europe. It’ll have to start paying interest, management fees and
royalties again in five years’ time. Management will not say whether it’ll be able to cope then.
Returning to his office at the end of the press conference, Bourgingnon sighed. Since taking over from
the previous chief executive, Robert Fitzgerald, in 1993, the 46-year-old had been engaged in a continuing
battle to ensure the survival of Euro Disney. Now that survival was no longer an issue, Bourgingnon now faced
his next challenge: could Euro Disneyland ever become profitable?
[Tables 1 and 2 and Figure 1 about here]
DISNEY THEME PARKS
Walt Disney pioneered the theme park concept. His goal was to create a unique entertainment experience
that combined fantasy and history, adventure, and learning in which the guest would be a participant, as well as a
spectator. Current Disney-designed theme parks in California, Florida, Japan, and France are divided into distinct
lands. All the parks include a number of similar lands with identical attractions. These include Main Street,
Frontierland, Tomorrowland, Fantasyland, and Adventureland. The objective is to immerse the guest in the
atmosphere of the particular land. The theme of each land is reflected in the types of rides and attractions, the
costumes of employees, the architectural style of the buildings, and even the food and souvenirs sold within the
boundaries of the particular land. Rather than presenting a random collection of roller coasters, merry-go-rounds, and
other rides, the Disney parks create an all-embracing experience which envelops the guest in carefully-designed,
tightly-managed fantasy experience such as space flight, a Caribbean pirate attack, a flying ride with Peter Pan, or race
down the Matterhorn in a bob-sleigh.
*
© 2002 Robert M. Grant
2
Disney theme parks benefit from the talent and expertise of the Walt Disney "family" of businesses. Parks are
designed by the engineers and architects of a wholly-owned subsidiary - WED Enterprises. The themes for the
attractions and characters that are featured in them often have their origins in cartoons and live action movies
produced by Disney’s studios. The parks also benefit from management and merchandising techniques developed over
many years at Disney. These techniques have led to tremendous successes. In merchandising, Disney retail stores
achieved some of the highest sales per square foot in the United States.
Disney’s success can be traced to the control of the environment to create a unique experience for the visitor.
This control is achieved through highly systematized operations management and human resource management.
Disney has sophisticated procedures for selecting and training employees to ensure the highest levels of service,
safety, and maintenance in the industry. Disney’s ability to reconcile a high level of occupancy with high levels of
service and customer satisfaction is achieved through sophisticated methods of forecasting visitor levels on a daily
basis, and careful design of parks to minimize the frustrations of crowds and waiting. Disney also emphasized the
continual renewal of its theme parks’ appeal through investment in new attractions. It then supports these with heavy
promotion.
Disney parks have historically had higher attendance levels than other theme and amusement parks
throughout the world. During the late 1980s and early 1990s, Disney’s theme parks in Anaheim, Orlando and Tokyo
together attracted over 50 million guest visits annually. (see Exhibit 1).
Los Angeles Disneyland
Shortly after developing the idea of a theme park, Walt Disney hired the Stanford Research Institute to
conduct an economic feasibility study of his amusement park plan and then a follow-up study to analyze
demographics and traffic patterns in order to come up with a recommendation for the site. Based on the results of this
study, Disney acquired 160 acres of land in Anaheim, California in 1953, and later obtained financing from ABC
Television to move forward with the plan. With the financing agreement, ABC owned 34.48% of the shares of the
new “Disneyland” park which was the equivalent of the proportion of shares owned by Walt Disney Productions. In
order to finance construction, ABC put up half-a-million dollars and guaranteed loans for a further $4.5 million. The
Los Angeles Disneyland theme park was finally opened in July of 1955.
Orlando Disney World
The success of Disneyland created a real estate boom in Anaheim resulting in Disneyland being surrounded
by a ring of hotels, motels, restaurants, and other businesses. For his next theme park project, Walt Disney aimed for
undiluted control over the business and its revenue stream. Walt Disney World Resort opened in 1971 on a huge track
of 29,000 acres that Walt acquired outside of Orlando, Florida. Walt Disney World eventually comprised three
separate theme parks: the original Magic Kingdom, the Experimental Prototype Community of Tomorrow (EPCOT)
Center that opened in 1982 which in itself hosted two themes: Future World, and World Showcase, and Disney-MGM
Studios which opened in 1989.
The experience of creating a theme park as a destination resort represented a major development in Disney’s
conception of a theme park and was influential in its expansion plans into Europe. The huge 27,000 acre site allowed
Disney to broaden the scope of its theme park activities to create themed hotels, golf courses and other sports,
convention facilities, night clubs, a range of retail stores, even residential housing. The complementary coupling of a
theme park with resort facilities that could even host commercial activities (conferences, a technology park) became
central to Disney's theme park strategy.
By 1990, Walt Disney World had become the largest center of hotel capacity in the United States with
approximately 70,000 rooms, of which almost 10% were owned and operated by Disney. Even though the room rates
charged by Disney were considerably higher than other hotels in the vicinity, they achieved a remarkable occupancy
rate of 94% during the late 1980s.
Tokyo Disneyland
Tokyo Disneyland, which opened in 1983, was a major departure for Walt Disney Company. The Oriental
Land Company Limited (OLCL), a Japanese development company, had approached Disney with a proposal to open a
Disneyland in Japan. Disney’s top management regarded a Disney theme park in another country with a different
climate and a different culture as a risky venture. Disney insisted on a deal that would leave OLCL with all the risk:
the park would be owned and operated by OLCL while Disney would receive royalties of 10% on the admissions
revenues and 5% on receipts from food, beverages and souvenirs. These royalties represented licensing fees for
Disney’s trademarks and intellectual property, engineering designs for rides, and on-going technical assistance.
Despite the challenges of limited space and cold winter weather, Tokyo Disneyland was a huge success. By the late
1980s it was drawing 15 million visits a year—more than any other Disney park.
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PLANNING AND DEVELOPMENT
Beginnings of Euro Disneyland
The success of Tokyo Disneyland was clear evidence to Disney’s top management of the international
potential for Disney’s theme parks. Europe was considered the obvious location for the next Disney park. Europe had
always been a strong market for Disney movies, and there was a strong European demand for toys, books, and comics
that featured Disney characters—European consumers generated about one quarter of revenues from Disney licensed
consumer products. The popularity of Disney theme parks with Europeans was evident from the 2 million European
visitors to Disneyland and Walt Disney World each year. Moreover, Western Europe possessed a population and
affluence well capable of supporting a major Disney theme park.
In 1984, Disney management made the decision to commit to development of a European theme park and
commenced feasibility planning and site selection. In assessing alternative locations, the following criteria were
applied:
?? proximity to a high density population zone with a relatively high level of disposable income
?? ability to draw upon a substantial local tourist population , availability of qualified labor, and readily
accessible transportation
?? availability of sufficient land to permit expansion of the project to meet increasing demand
?? economical provision of necessary infrastructure, such as water and electricity.
Two locations quickly emerged as front-runners: Barcelona and Paris. While Barcelona had the advantages of
a better year round climate, Paris offered key economic and infrastructure advantages, together with strong backing
from the French government. Disney's interest in a European theme park corresponded with the French government's
plans to develop the Marne-la-Vallée area east of Paris. The result was rapid progress of Disney’s formal negotiations
with the range of local government authorities and public bodies whose cooperation and agreement was essential for a
project of this scale. The proposed site's demographic characteristics offered the right set of conditions for a successful
theme park. The park rested on a 4,500 acre site 32 kilometers east of Paris, providing proximity to a metropolitan
area and room for expansion; the high population of the greater Paris area (over 10 million), and Europe (over 330
million) provided a large consumer market; and existing and planned transportation equipped the park with access to
vital infrastructure. Paris was already a major tourist destination with excellent air, road, and rail links with the rest of
Europe.
On March 24
th
1987, the Walt Disney Company entered into the Agreement on the Creation and the
Operation of Euro Disneyland in France (the “Master Agreement”) with the Republic of France, the Region of Ile-de-
France, the Department of Seine-et-Marne, the Etablissement Public d'Aménagement de la Ville Nouvelle de Marne-
la-Vallée, and the Régie Autonome des Transports Parisiens. This was followed by incorporation of Euro Disneyland
SCA (the “Company”) and the conclusion of an agreement with the SNCF (the French national railway company) to
provide TGV (the French high-speed train) service to Euro Disneyland beginning in June 1994. The agreement
involved commitments by Disney to establish Euro Disneyland as a French corporation, to develop a major
international theme park, and to create 30,000 jobs in the process. The French authorities committed to provide land
(at Marne-la-Vallée 32 km. east of Paris) and infrastructure over the project’s 30-year development period ending in
2017. The real estate deal involved Disney acquiring 1,700 hectares (approximately 4,300 acres
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) of agricultural land
at Marne-la-Vallée. In addition, a further 243 hectares were reserved for public facilities and infrastructure. The
purchase price for the land included the raw land price (FFr 11.1 per square meter or approximately $8,360 per acre),
direct and indirect secondary infrastructure costs, and certain financing and overhead expenses of the French
authorities. The area of the total site was equivalent to one-fifth of the area of the city of Paris. The land for the first
phase of the development was purchased outright by Euro Disneyland SCA with purchase options on the remaining
land. Euro Disneyland S.C.A also had the right to sell land to third parties, as long as the development plans of any
purchasers were approved by the French planning authority.
The agreement provided for motorway links to Paris, Strasbourg, and the two international airports serving
Paris - Charles de Gaulle and Orly, while the planned extension of the RER (the express commuter rail network)
would allow visitors to reach the Magic Kingdom from the center of Paris within 40 minutes. Euro Disney
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would
also be linked to France’s TGV (high speed rail) system, with its own station serving the park. This would also give
rail service from Britain through the Channel Tunnel. In addition to infrastructure, the French government’s financial
inducements included FF4.8 billion in loans and a favorable tax rate (34%). The total package of incentives added up
to roughly FF6.0 billion.
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The Market: Demand and Competition
A key factor attracting Disney to Paris was market potential. The greater Paris metropolis has a population of
over 10 million. Sixteen (16) million people lived within a 160 km. radius of the proposed site; within a 320 km.
radius were 41 million people; and within a 480 km. radius were 109 million people. Paris’ presence as a
transportation hub facilitated access to this huge market. As a result, Euro Disneyland would be capable of achieving a
high level of capacity utilization even with much lower market penetration rates than those achieved by Disney’s
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California and Florida theme parks. European vacation patterns were also seen as conducive to visits - Europeans
received substantially longer weeks of vacation than US workers and in addition to their summer vacation, European
families frequently took shorter vacations throughout the year. Projections of numbers of visitors to Euro Disney and
their expenditures were made by consultants Arthur D. Little as part of their financial projections for Euro Disneyland
SCA (see Appendix A).
The ability of Euro Disney to achieve its visitor targets would depend not only on the size of the market but
also upon the relative attractiveness and number of competing tourist destinations. Although Disney viewed its theme
parks as unique in terms of the quality and intensity of the entertainment experience that it offered, the company also
recognized that, ultimately, a wide range of family vacation and entertainment experiences compete for household
disposable income. Although there were very few large-scale theme parks in Europe to directly compete with Euro
Disneyland (most of the world’s major theme parks were located in the U.S.), there were a number of family-
entertainment destinations within Europe that would be potential competitors (see Table 3). In addition, European
cities—such as London, Paris, Rome, Prague, Barcelona, and many others—offered a richness and variety of cultural
and historical experiences that few US cities could match and represented an alternative to Euro Disney for short
family vacations. In addition, there were a host of traditional forms of family entertainment in Europe including fairs,
carnivals, and festivals, some of which were small and local while others—such as the Munich Sierfest, the Pamplona
bull-running festival, the Edinburgh cultural festival, and the Dutch tulip festivals—were major events attracting large
numbers of international visitors.
Of particular concern was the tendency of Euro Disneyland to create its own competition. Within two years
of Walt Disney Company's announcement that it planned to build Euro Disney, three French theme parks—Mirapolis,
Futuroscope, and Zygofolis— had opened in an attempt to pre-empt Disney’s entry into the market. By the summer of
1989, two more theme parks—Asterix and Big Bang Schtroumph— opened their gates. However, with aggregate
annual losses of about $43 million on a total investment of over $600 million, these parks were considered financial
disasters.
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[Table 3 about here]
The Development Plan
Euro Disney's Development Program provided for a theme park based closely upon the themes and concepts
of Disney’s US theme parks that would be the largest theme park and resort development in Europe. The plan
established two stages for the project:
Phase 1
This, the initial and most significant part of the overall project, was sub-divided into two sections. Phase lA
comprised the Magic Kingdom theme park, the Magic Kingdom Hotel (which would serve as the entrance area to the
theme park), and a camping ground, which were to be completed at a budgeted cost of FFr 14.9 billion. Of the 570
acres allocated for Phase 1, Phase 1A would account for the use of 240 acres to develop the theme park. The rest of
the land would be developed in Phase 1B to accommodate five additional hotels; an entertainment, restaurant, and
shopping complex; and sports facilities with an 18-hole championship golf course. Phase 1A also provided for the
French government to construct two junctions with the nearby motorway, main access roads to the park, a drinking-
water supply and distribution system, storm drainage, sewers, solid waste treatment, and telecommunications
networks. The cost of the additional infrastructure, including links with the RER and the TGV, were to be constructed
by the French authorities and financed by Euro Disneyland SCA.
The Magic Kingdom theme park was to include five themed lands: Main Street U.S.A., the gateway to the
park; Frontierland, a reproduction of wooden streets typical of a mid-nineteenth century frontier town; tropical
Adventure Land, the most exotic of the park settings; Fantasyland, with attractions drawn from well known Disney
characters; and Discoveryland, which, through the sophisticated use of technology, illustrates the past and the future.
Each offers appropriately themed restaurants and shopping facilities.
To permit year round operation, Euro Disney included adaptations designed to make attendance less
dependent on the weather, with more inter-connected covered areas than at other Disney parks. Many modifications
to the themes, architecture, and dining facilities were made to tailor the park to the European market. For example,
while French is the first language of the park, universal signposting is used wherever possible to aid non-French
speaking visitors, and many attractions are identified by visual cues.
Phase 2.
Phase 2 of the Long Term Development Strategy extended to 2011. It envisioned a second theme park (a
Disney-MGM Studios) on a site adjacent to the Magic Kingdom; 15 additional hotels, which would increase the
number of rooms available by 13,000; a water recreation area and second golf course; and residential and commercial
development. This phase was left flexible to accommodate the policies of the French authorities, economic and
market conditions, participant needs, and visitor preferences.
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Construction
Disney exercised close control over design and construction of Phase 1A of Euro Disney. Lehrer McGovern
Bovis Inc. (LMB), an independent construction management firm with international experience in the management of
large-scale construction projects, was the main contractor. LMB reported to Euro Disneyland Imagineering S.A.R.L.
(EDLI), a French subsidiary of Disney that had overall responsibility for designing and constructing Phase 1 and 2 of
the theme park. Also reporting to EDLI were separate Disney companies responsible for design; conceptual and
otherwise; engineering; and the development and equipping of attractions.
Participants
As with other Disney theme parks, at Euro Disneyland Participants played an important role in financial and
in marketing terms. Participants are companies or organizations that enter into long-term marketing agreements with
the Company. Typically, these relationships represent a 10-year commitment and physically tie the Participant to the
Magic Kingdom, where it hosts or presents one or more of the theme park's attractions, restaurants, or other facilities.
Relationships with Participants may also involve marketing activities featuring the association between the Participant
and the Company. Each Participant pays an individually negotiated annual fee, which may contribute to the financing
of a particular attraction or facility. Initial participants at Euro Disneyland included Kodak, Banque Nationale de Paris,
Renault, and Europcar.
FINANCIAL AND MANAGEMENT STRUCTURE
For Euro Disneyland, Disney chose a unique financial and management structure. Rather than a pure
franchise operation similar to Tokyo Disneyland, Disney chose to retain management and operational control of the
park while allowing European investors to take majority ownership and European banks to provide most of the debt
financing. The relationship between Walt Disney Company and Euro Disneyland is depicted in Figure 1.
Euro Disneyland S.C.A.
Euro Disneyland S.C.A. was formed to build and own Euro Disneyland. The company was a societe en
commandite par actions—the French equivalent of a limited partnership. The company was governed by a supervisory
board elected by the shareholders and chaired by Jean Taittinger, the chairman and chief executive of Societe du
Louvre and Banque du Louvre. Disney took a 49% stake in Euro Disneyland S.C.A.; the remaining 51% of equity was
floated through an initial public offering underwritten by three investment banks. The shares were listed on the Paris
and London stock markets. Although Disney held 49% of Euro Disneyland S.C.A. equity it contributed only 13% of
its equity book value (FF273M net of incentives received). The difference was “granted” to the company, both as a
goodwill “gesture” in recognition of Disney’s reputation and credibility in the investment community and as
compensation for Disney’s assumed risk in the undertaking.
The Management Company
Euro Disneyland SCA was managed by a separate management company, Euro Disneyland S.A. (the
“Management Company”), a wholly owned subsidiary of Disney. The Management Company, or gerant, was
responsible under French law for managing the Euro Disneyland S.C.A. and its affairs in the company's best interests.
In turn, the Management Company agreed that the provision of management services to the Company would be its
exclusive business. Under the Articles of Association, the Management Company was entitled to annual fees
consisting of a base fee and management incentive fees. The base fee in any year was set at 3% of the Company's
total revenues, and increased to 6% after five years of operation, or after the Company had satisfied certain financial
targets. On top of the base fee, the Management Company was entitled to incentive fees based on Euro Disneyland
SCA’s pre-tax cash flow. These incentives increased in stages up to a possible maximum of 50% of Euro Disneyland
SCA’s net profit. The Management Company also received 35% of pre-tax gains on the sales of hotels. In addition,
Euro Disneyland S.C.A. was obligated to reimburse the Management Company for all its direct and indirect expenses
incurred in its management role. The management contract was for five years.
The Shareholding Company and General Partner
Disney’s shareholding in Euro Disneyland SCA was held by EDL Holding, a wholly owned subsidiary of
Disney. This shareholding company also owned EDL Participations SA, which held the key role of “general partner”
in Euro Disneyland SCA—it assumed unlimited liability for the debts and liabilities of Euro Disneyland SCA. As
general partner, EDL Participations SA was entitled to a distribution each year equal to 0.5% of Euro Disneyland
SCA’s net after-tax profits.
The Financing Company
Euro Disneyland SNC was formed to buy the park facilities from Euro Disneyland SCA at book value plus
development costs, then lease them back to Euro Disneyland SCA. Euro Disneyland SNC was owned 17% by Disney
and 83% by French corporations. The rationale was to allow French corporations to take advantage of the tax benefits
of Euro Disneyland’s early years of projected losses. Once again, Euro Disneyland SNC was to be managed by a
Disney subsidiary and Disney would act as its general partner with full debt default liability.
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The License Agreement
Under the License Agreement, Walt Disney Company granted to Euro Disneyland SCA a license to use any present or
future Disney intellectual and industrial property rights incorporated in Disney’s attractions and facilities and made
available to the Company for Euro Disney. These included the Walt Disney name, the Disney characters, and the
proprietary technology in theme park attractions. Disney was to receive royalties as follows:
?? 10% of gross revenues (net of TVA, the French value-added tax, and similar taxes) from rides and admissions and
certain related fees (such as parking, tour guide, and similar services) at all theme parks and other attractions
(including the Magic Kingdom and any future theme park)
?? 5% of gross revenues (net of TVA and similar taxes) from merchandise, food, and beverage sales in or adjacent to
any theme park or other attraction or in any other facility (other than the Magic Kingdom Hotel) whose overall
design concept is based predominantly on a Disney theme
?? 10% of all fees due from Participants
?? 5% of all gross revenues (net of TVA and similar taxes) from room rates and related charges at Disney themed
accommodations (excluding the Magic Kingdom Hotel).
CULTURAL ISSUES
Euro Disneyland presented huge challenges for Disney. Climate was a major problem. The long gray winter
of Northern France created complex design problems that were absent from Disney’s sun-drenched California and
Florida parks. However, the challenges posed by adverse weather conditions were mainly technical and amenable to
careful analysis. The issues of culture were much less tractable.
While the success of Tokyo Disneyland was a major factor behind the decision to create Euro Disney, the
cultural challenges of France were very different from those of Japan. Tokyo Disneyland had been conceived, built,
and operated on a wave of popular Japanese acclaim. As a result, Tokyo Disneyland had made very few concessions
to Japanese culture. Although, at first, Disney wanted to adapt some of the attractions to the Japanese context (for
example, Samurai-Land instead of Frontierland), their Japanese partners strongly resisted efforts to “localize”
Disneyland, arguing that the park would attract more Japanese people if it were built as a perfect replica of US
Disneyland. They emphasized that Disney’s cartoon characters were very familiar to the Japanese people and that
visitors would want “the real thing”. As a result, only minor changes were made, such as the addition of Cinderella’s
Castle, and Mickey Mouse Theater.
After the enthusiasm with which the Japanese greeted Disney’s entry, the response of the French could not
have been more different. France presented a very different situation. French intellectuals had long shown antagonism
towards American popular culture, and they were supported by widespread nationalistic sentiment that saw the French
language and French culture as threatened by the global hegemony of the English language. At the political level too,
France had been the most independent of the Western European powers in terms of its independent foreign policy and
unwillingness to accept US leadership in world affairs. The announcement of the Euro Disneyland project was greeted
by howls of outrage from the French media and from the intelligentsia who viewed the park as a “a cultural
Chernobyl”, “a horrifying step towards world homogenization”, “a horror made of cardboard, plastic, and appalling
colors, a construction of hardened chewing gum and idiotic folklore taken straight out of the comics books written for
obese Americans.”
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Euro Disney quickly became a focal point for anti-Americanism fueled by multiple issues. For
example, shortly after opening, Euro Disney was blockaded by farmers protesting US farm policies.
The design of the park incorporated many adaptations of French and European culture. Disney emphasized
the European heritage of many of Disney’s characters and storylines (referred to by chairman Michael Eisner as
“European folklore with a Kansas twist”). Some attractions featured European adaptations: Cinderella lived in a
French inn and Snow White’s home was in a Bavarian village. Other attractions were unique to Euro Disney:
Discoveryland featured a Jules Verne attraction, while an Alice-in-Wonderland attraction was surrounded by a 5,000
sq. ft. hedge maze.
Some “American” themed attractions were adapted on the basis of market research findings. For example,
the finding that European visitors to Disney’s US parks responded positively to themes embodying the American West
encouraged Disney to redesign several attractions around a Wild West theme—including a mining town setting for
one ride, a “Davy Crockett” themed campground, and hotels names the “Cheyenne,” “Santa Fe,” and “Sequoia
Lodge.”
Other adaptations were made to cater to European social behavior and culinary tastes. Concern over
European aversion to queuing resulted in the provision of video screens, movies, and other entertainment for guests
waiting in line. Disney’s no-alcohol policy was adjusted by allowing wine and beer to be served at Feeastival Disney,
an entertainment complex just outside the theme park. In the restaurant facilities, greater emphasis was placed on sit-
down dining and much less on fast-food. At a seminar at UCLA in 1990, Robert Fitzpatrick placed a major emphasis
on the Company’s determination to provide the highest standards of quality at Euro Disney. This was evident both in
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the cuisine and in the furnishings and service standards of the hotels. In both areas, Fitzpatrick argued, quality was
well in excess of the standards at Disney’s US parks.
Human relations management posed an even greater cultural challenge. Central to the Disney theme park
experience was the way in which “cast members” interacted with the guests. Disney was famous for its meticulous
approach to recruitment, its commitment to employee training, and the maintenance of rigorous standards of employee
conduct. For example, Disney’s employee handbook spelled out a strict code with respect to dress and appearance,
including:
?? Above average height and below average weight
?? Pleasant appearance (straight teeth, no facial blemishes)
?? Conservative grooming standards (facial hair or long hair is banned; no mustache; hair length is specified to
be no longer than 1 inch above the collar)
?? Very modest make-up, very limited jewelry (for example, no more than one ring on each hand; size of the
earrings can be no more than ½ inch)
?? Employees were required to wear specific types and colors of underwear; only neutral colors of pantyhose
were allowed.
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Training embraced both general principles and specific knowledge and behaviors. For example, employees
were instructed that their behavior on the job should be governed by three major rules: “First, we practice a friendly
smile; Second, we use only friendly phrases; Third, we are not stuffy.”
To what extent could locally recruited employees provide the level and quality and consistency of service at
Euro Disney that would match that of other Disney theme parks, and to what extent could Disney simply transplant its
US HRM practices? Euro Disney’s section and training were closely modeled on Disney’s US approach. A euro
Disney branch of Disney University was opening and recruitment of 10,000 employees began in September 1991.
Selection criteria were “applicant friendliness, warmth, and liking of people.” The rules for job applicants were
spelled out in a video presentation and in the employee handbook, “The Euro Disney Look”. The rules went far
beyond weight and height requirements, describing the length of the men’s hair, beard and mustache requirements,
tattoo coverage requirements, and hair color specifications (for example, hair had to be of a natural-looking color,
without frosting or streaking). Only moderate use of cosmetics was allowed.
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The goal was a nationality mix that
would match that of Euro Disney’s customers about 45 percent of whom were French. However, in response to local
pressure and the greater availability of local applicants, some 70 percent of employees were French. At the
management level, Disney relied on importing about 200 managers from other Disney parks and training 270 locally
recruited managers (this involved training at Disney’s other theme parks).
Disney’s recruiting practices and employee policies produced a storm of protest. French labor unions started
protesting right from the moment that Euro Disney started interviewing applicants. Representatives of the General
Confederation of Labor handed out leaflets in front of Euro Disney’s HQ warning applicants that the Disney hiring
practices represented “an attack on individual freedom”. Many of Disney’s US hiring and employment practices
contravened French law. Work force flexibility was limited by the restrictions on terminating employees with more
than two years with the company and the high severance payments involved. There were also legal limits over the
recruitment and dismissal of seasonal workers. As for Disney’s dress and personal grooming codes, French law
prohibited an employer from restricting “individual and collective freedoms” unless the restrictions could be justified
by the nature of the objective to be accomplished and were proportional to that end. Since Disney estimated that no
more that 700 employees would be involved in “theatrical actions”, reasonable dress code limitations could only be
imposed on those employees, not on those who would only be “back stage.”
THE FIRST YEAR
Euro Disney’s opening on April 12, 1992 combined both fanfare and protest. An extravagant opening
ceremony involved some of the world’s leading entertainers and was televised in 22 countries. Michael Eisner
proclaimed Euro Disney to be “…one of the greatest man-made attractions in the world” while the French Prime-
Minister described the park as an “…incredible achievement which transcends national frontiers…We are deeply
attached to the links of friendship between our continent and yours. Euro Disney is one of the symbols of this
transatlantic friendship”. However, the opening was marred by a demonstration of local residents, a train strike
affecting lines leading to the park, and a terrorist bomb that attempted to disrupt power to the park.
The park ran into early teething problems. Design problems ranged from insufficient breakfast facilities to an
absence of toilet facilities for bus drivers and a shortage of employee accommodation. During the first nine weeks of
operation, 1,000 employees left Euro Disney, about one-half voluntarily. Long hours and hectic work pace were the
main reasons given for leaving. Nevertheless, visitor reactions were mainly highly positive. Negative comments
related to frustration with long periods of waiting in line and the high cost of admission, food, and souvenirs. Some
voiced concern over the multinational, multicultural flavor of Euro Disney: “They haven’t yet figured out whether it’s
going to be an American park, a French park, or a European park…Differences in waiting line behavior is striking.
†
8
For instance, Scandinavians appear quite content to wait for rides, whereas some of the southern Europeans seem to
have made an Olympic event out of getting to the ticker tape first.”
11
Some visitors had difficulty envisaging Disney
within a European context: "Disney is very much an American culture. Florida is the true Disney World, the true
feeling of Disney, what Disney is trying to project. Americans are part of that, the French aren't."
Start-up difficulties were normal in the theme park business—all major theme parks, including those of
Disney, experienced some teething problems during the period of initial operation. Universal Studios in Florida had a
disastrous first few months, but subsequently rebounded - certainly its visitor numbers were close to projections. With
30,000 visitors daily during the summer of 1992, it seemed that Euro Disney might reach its projected target of 11
million visitors annually. The concern was that visitor numbers would drop substantially during the winter months.
What was very clear was that, despite good visitor numbers during the summer, Euro Disney’s profitability would fall
far below expectations. There were a larger number of day-visitors and fewer period-visits than had been anticipated.
As a result, Euro Disney cut hotel rates by up to 25 percent. Moreover, average visitor expenditure on beverages, food,
and gifts was about 12 percent of the $33 per day that had been anticipated. Part of the problem was the economic
situation—during 1992, most of Western Europe was mired in one of the worst economic downturns since the second-
world-war. The depressed state of the French real estate market also prevented Euro Disney from boosting revenues
through land sales.
By the end of Euro Disney’s first full financial year, the extent of the financial under-performance
was becoming clear. Even with exceptional items, the Company lost over FFr 1.7 billion. In terms of US GAAP, Euro
Disneyland’s pretax loss was over half a billion dollars. Top line performance was a key problem. Instead of the 11
million visitors forecast, Euro Disney attracted 9.8 m visitors during its first full year. Equally serious was the fact that
average visitor spending was below target, and much lower than at Disney’s U.S and Japanese parks. Fewer visitors
than projected were staying in Disney theme hotels, deterred by room rates that were much higher than in comparable
hotels in Paris. Hotel occupancy rates were below 50% in contrast to the 60% figure projected. On the cost side,
Disney’s emphasis on quality had boosted both construction and operating costs, while higher than anticipated debt
together with rising interest rates caused interest charges to spiral upward. Labor costs amounted to a huge 24% of
sales, rather than the forecasted level of 13% of sales. Much of the cost overruns could be attributed to Disney’s belief
that “Lacoste and Polo loving” Europeans would not tolerate anything unsophisticated or cheap. For example, in the
US, "The Walt" restaurant had wallpaper but at Euro Disney the walls were covered in Moroccan leather. When it
came to trading-off sophistication for lower prices, most Euro Disney customers opted for the latter.
For Walt Disney Company, the financial returns were better than they were for Euro Disneyland’s other
shareholders. During 1992 and 1993, Disney’s 49 percent share of Euro Disneyland’s losses were offset by royalties
from its licensing agreement. These amounted to $36.3 million in 1993 and $32.9 million in 1992, however, Disney
agreed to defer its base management fees for 1992 and 1993.
RESTRUCTURING
During the winter of 1993/94, Euro Disney visitor numbers plummeted. Despite a fall of the French franc
against the US dollar, many Europeans found that Disneyland Florida was not only a more attractive destination
during the winter months, it was also cheaper. "It's cheaper to go on a two week holiday in Florida than to come to
Euro Disney for five days," remarked one British traveler with a family of four. With low transatlantic fares,
European visitors to Walt Disney World in Orlando increased sharply during 1992 and 1993. By early 1994, Euro
Disney was in crisis. Faced with mounting losses, rising debt, and doubts about the Company’s capacity to cover its
interest payments, rumors were rife that the park would be forced to close.
Crisis talks between Euro Disneyland, Disney, and creditors resulted in agreement upon a financial
restructuring package in June 1994. The financial rescue package that was announced involved:
?? A $1.1 billion rights offering of which Disney agreed to take up 41 percent.
?? The provision by Disney of $255 in lease financing at an interest rate of 1 percent.
?? The cancellation by Disney of $210 million in receivables from Euro Disneyland.
?? The agreement by Disney to waive royalties and management fees for five years.
?? The agreement that Disney would receive warrants for the purchase of 28 million Euro Disneyland shares and
would receive a development fee of $225 million once the second phase of the development project was launched.
Euro Disneyland’s lenders agreed to underwrite 51percent of the Euro Disney rights offering, to forgive certain
interest charges until September 2003, and to defer all principal payments for three years. In return, Euro
Disneyland issued the lenders 10-year warrants for the purchase of up to 40 million shares of Euro Disneyland
stock.
In a separate agreement, Disney agreed to sell 75 million shares, equivalent to 10 percent of Euro
Disneyland’s total shareholding to Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud. The sale reduced Disney’s
shareholding in Euro Disneyland to 39 percent.
LOOKING AHEAD
9
While the restructuring packaging had staved off disaster for the time being, the traumas of the past year
made Bourguignon cautious about the future. Despite heavy advertising, the addition of new attractions, and the fine
tuning of Disney’s image, customer service, and offering of food, drinks, and souvenirs, Euro Disney had yet to reach
the initial forecast of 11 million visitors annually. Significant cost reductions had been achieved however, the scope
for further cost reductions was limited if Euro Disney was to maintain Disney’s respectable standards and customer
service excellence. While Bourguignon was convinced that the Company would be generating operating profits by
1995, such profits would have been the result of Disney’s agreement to forgo its royalties and management fees. Once
these were reinstated, Euro Disney’s costs would increase by about $500 million annually.
Bourguignon believed that many of the problems that had dogged Euro Disney from the beginning had
been resolved. In particular, the renaming of the park as Disneyland Paris had helped alleviate ambiguity and conflict
over the park’s identity. Euro Disney’s top management avoided the early hyperbole about Euro Disney “meshing the
cultural traditions of America and Europe.” Disneyland Paris was to be a Disney theme park located close to Paris.
Dropping the 'Euro' prefix released the Company from the public’s mistrust of all things Euro, and helped the park to
avoid the debate over what European culture and European identity actually meant. Moreover, the new name firmly
associated Euro Disney with the romantic connotations of the city of Paris. In terms of the need to differentiate Euro
Disney from Disney’s other theme parks, the experience of the past two years suggested that Euro Disney’s expensive
adaptations to meet European tastes and European culture were not greatly appreciated by customers. For the most
part, visitors were delighted by the same rides as existed in Disney’s US parks and generally preferred fast food over
fine dining.
Over the next six months, Bourguignon recognized that key decisions needed to be taken:
?? To what extent should Euro Disney cut admission prices in order to boost attendance. An internal study had
estimated that a 20 percent reduction in admission prices would boost attendance by about 800,000 visitors,
however the net result would still be a reduction in total revenues of about 5 percent.
?? The problems of insufficient demand related primarily to the winter months. In previous winters some senior
mangers had argued for the closure of the park. However, so long as most of Euro Disney’s employees were
permanent staff, such a closure would do little to reduce total costs.
?? Bourguignon had already deferred Phase 2 of the development plan - construction of a Disney-MGM Studios
theme park. The other members of his senior management team were urging him to go ahead with this phase of
development. Only with a second theme park, they believed, would Euro Disney’s goal of becoming a major
destination resort become realized. However, Bourguignon was acutely aware of Euro Disney’s still-precarious
financial situation. With net equity of about FFr5.5bn and total borrowings of FFr15.9bn, Euro Disney was not
well-placed to begin the large-scale capital expenditures that phase 2 would involve.
As Bourguignon arranged the papers on his desk at the end of a long day, he reflected on his success at
pulling off the rescue plan and the continuing uphill struggle to realize the ambitions that had driven the project in the
early days. The wartime words of Winston Churchill summed up the situation well:
“This is not the end. It is not the beginning of the end. It is the end of the beginning.”
10
11
APPENDIX A. EURO DISNEYLAND SCA’s FINANCIAL MODEL
The company has prepared a financial model, based on the principal assumptions described below, which
projects revenues, expenses, profits, cash flows, and dividends of the Company for 12-month periods beginning 1
st
April, 1992 and ending 31
st
March, 2017 as summarized in the table at the end of this section (See Exhibit Z).
Although the Company's accounting year-end is 30
th
September, years beginning lst April have been used for the
projections in order to represent whole operating years from the projected date of opening of the Magic Kingdom.
The projections contained in the model do not constitute a forecast of the actual revenues, expenses, profits, cash
flows or dividends of the Company. The model assumes that the Company will complete Phase 1 as described in this
document and will develop the remaining elements of Euro Disneyland according to the Long Term Development
Strategy. As discussed above, the Company retains the flexibility to change the Long Term Development Strategy
and the designs for Phase IB in response to future conditions.
In addition, the model is based on other assumptions developed by the Company in light of Disney's
experience with existing theme parks and resorts, after taking into account analyses of local market conditions and an
assessment of likely future economic, market and other factors. The major assumptions have been reviewed by Arthur
D. Little International, Inc. ("ADL"), the independent consultancy firm retained by the Company to test and verify
their reasonableness. Set out at the end of "The financial model" is a letter from ADL regarding its reports. While the
Company believes that the assumptions underlying the model are reasonable, there is no certainty that the projected
performance of the Company outlined below will be achieved.
Principal Assumptions and Rationale Underlying the Financial Model
Theme Park Attendance
In order to project the number of visitors expected to visit the Euro Disneyland theme parks, several internal
and external studies were commissioned. The most recent of these studies was undertaken by ADL in 1989 to verify
and confirm the methods and assumptions used in the previous studies, and to make its own estimates of attendance
1. The Magic Kingdom.
The model assumes that the Magic Kingdom will be constructed as described in this document, and that it
will open and be fully operational by April 1992.
Summary figures for assumed attendance at the Magic Kingdom are shown in the table below. Attendance is
measured in terms of the total numbers of daily guest visits per annum. For example, a visitor who enters a theme
park on three separate days will count as three daily guest visits.
1992 1996 2001 2011
Magic Kingdom (in millions of persons) 11.0 13.3 15.2 16.2
The assumed attendance of 11 million for the first full year of operation of the Magic Kingdom is in line with
the average attendance achieved in the first year of operation of the Magic Kingdom theme parks in Florida and Japan,
and is below the range of potential initial attendance estimated to be between 11.7 and 17.8 million in the attendance
study conducted by ADL. Depending upon its seasonal distribution, the higher end of the range could require
acceleration of the attraction investment program. ADL concluded that the attendance target of 11 million could be
achieved if the development program envisaged for Phase 1A is accomplished and a well-conceived marketing
campaign tailored to European patterns is carried out to support the opening of the Magic Kingdom.
Attendance at the Magic Kingdom is assumed to grow over the period covered by the financial model at an
average compound rate of 2% per annum. This growth rate compares with an average growth rate of 3.8% per annum
for the three Magic Kingdom theme parks in California, Florida and Japan.
The assumed growth rate, which is higher in early years, consists of a basic growth rate, adjusted for the
effect of the addition of new attractions every two to three years and for the effect of the opening of a second theme
park. The overall assumed growth rate is broken down as follows:
Years 2-5 6-10 11-20 20+
Annual growth (%) 4.9 2.7 0.6 0.0
The method used by ADL involved three steps: first, individual target markets were identified by distance and
population; secondly, penetration rates (the percentage of the total population in a target market which visits the theme
park) were estimated for each target market; and third, the average number of annual visits per guest from each target
market was estimated.
ADL noted that a number of factors, including the following, contribute to the high attendance levels at
Disney-designed theme parks: -
?? The design and scope of a Magic Kingdom theme park are such that a complete visit requires more than one full
day. This means that visitors are likely either to extend their stay or to return at a future date.
12
?? The quality and capacity available at Disney hotels allow the demand for longer stays to be satisfied.
?? The level of recognition of the Disney name and the quality of the experience make Disney theme parks popular
holiday destination resorts.
In the opinion of ADL these factors distinguish Disney-designed theme parks from existing theme parks and
amusement parks in Europe, which are much smaller and are basically designed for single-day visits. Accordingly, in
determining potential penetration rates and the number of annual visits per guest in order to derive projected
attendance levels at Euro Disneyland, ADL relied largely on the experience at Disney-designed theme parks.
ADL concluded that because of the large number of people living within a convenient traveling distance of
Euro Disneyland, the assumed attendance figures in the model could be achieved with market penetration rates at or
below those experienced at other Disney-designed theme parks.
The Company believes that these factors will exist at Euro Disneyland and will support the assumed
penetration rates and attendance levels, which are consistent with those experienced at Disney-designed theme parks.
The Company also believes that the location of the site at the center of an area of high population density with well-
developed transport links will enable Euro Disneyland to draw visitors from both local and more distant markets.
2. Second Theme Park
The model assumes that a second theme park will be completed and will open to the public in the spring of
1996. Summary figures for assumed attendance at the second theme park are as follows:
1992 1996 2001 2011
Second theme park (in millions) -- 8.0 8.8 10.1
Attendance at the second theme park is assumed to grow at an average compound rate of 2% per annum over
the first 10 years, and 1 % per annum for the next 10 years until 2016. These assumptions are primarily based on
Disney's experience of opening a second theme park at Wait Disney World, where EPCOT Center drew attendance of
over 11 million guest visits in its first year of operation.
Per Capita Spending
Theme parks derive their revenues principally from admission charges, sales of food and beverages consumed by
visitors while at the park and from sales of merchandise available at the park's shopping facilities. Revenues from
these sources are measured in terms of per capita expenditure, which is the average sum spent per daily guest visit.
The Company has assumed per capita expenditure figures separately for the two theme parks under the four
categories below:
Magic Kingdom Second theme park
Amount' Annual Amount' Annual
in 1988 FF growth rate in 1988 FF growth rate
Admissions 137.6 6.5% 137.6 6.5%
Food and beverage 56.7 5.0% 53.2 5.0%
Merchandise 74.9 5.0% 46.5 5.0%
Parking and other 5.2 5.0% 5.2 5.0%
'Excluding Value-added Tax
The assumed real growth rate of admission prices of 1.5% per annum is less than the average 2.6% experienced
at the Disney theme parks since 1972.
The per capita spending assumptions are based upon experience in theme parks designed by Disney, adjusted
for local conditions. A separate report on per capita spending was undertaken by ADL. In order to evaluate the
reasonableness of the assumed admission prices, ADL reviewed the admission prices charged in Paris for major
attractions which could be considered competitive in terms of entertainment value and also the prices charged by
European theme and amusement parks. These reviews showed that the assumed admission prices for Euro Disneyland,
although higher than those charged at other European theme and amusement parks, (i) could be considered low when
related to prices charged in the Paris region for quality adult-oriented entertainment, and (ii) appeared in tune with
prices charged for other family-oriented attractions. ADL concluded that the Company's assumed admission prices
were justified, having regard for the destination resort features of Euro Disneyland and the high quality of its
entertainment.
In order to evaluate the reasonableness of the assumed prices for food and beverage at Euro Disneyland, ADL
analyzed the prices paid by residents of, and tourists to, Paris in those areas which were particularly attractive to
visitors. ADL also examined food and beverage prices at other European theme and amusement parks and reviewed
typical food and beverage expenditure patterns in France as compared with the United States. ADL concluded that
Euro Disneyland's assumptions concerning food and beverage expenditure were reasonable.
ADL determined, in the case of assumed merchandise sales, that there was no comparable experience in the
Paris region of small, high intensity retail shops, exposed to a high volume of visitor traffic, as are found at Disney-
13
designed theme parks. ADL accordingly concluded that it was reasonable to forecast Euro Disneyland's retail sales
revenue on the basis of that at other Disney theme parks.
Revenues
Total revenues projected in the financial model for the two theme parks are summarized in the table below: -
1992 1996 2001 2011 (in FFr. millions)
Magic Kingdom
Admissions and parking 1,909 2,981 4,664 9,314
Food, beverage and merchandise 1,759 2,692 4,065 7,401
Participant fees and other 229 303 417 421
Second theme park
Admissions and parking - - 1,788 2,697 5,794
Food, beverage and merchandise - 1,178 1,660 3,107
Participant fees and other - 162 208 412
The first two categories of projected revenues are based on the attendance and per capita spending assumptions
described above. Projected Participant fees are based on the assumption that approximately l0 Participant contracts
will have been signed by the opening of the Magic Kingdom. Four contracts have been signed, each with a term of at
least 10 years.
Operating Expenses
The principal operating expense assumptions are based on the following estimates:
Labor costs (including related taxes) have been estimated on the basis of experience at Disney parks, adjusted to the
conditions of the French labor market. They include a premium on operating labor rates of approximately 10% over
the market average, intended to attract high quality personnel. On this basis, it has been assumed that gross operating
labor costs will be FF 424 million for the Magic Kingdom and FF 232 million for the second theme park (measured in
1988 French Francs) in the respective opening years of these parks and that they will increase at the rate of inflation,
taking into account increased employment associated with higher attendance levels. Cost of sales have been estimated
on the basis of experience at Disney parks, adjusted to reflect factors specific to Euro Disneyland. The assumptions
are:b
Cost of sales (% of revenue)
Magic Kingdom
Merchandise 40-43
1
Food and beverage 31
Second theme park
Merchandise 41.5
Food and beverage 31
1
Declining from 43% in 1992 to 40% in 1996 and thereafter
Other operating expenses have similarly been based on Disney experience, adjusted to reflect local market
conditions. Individually they are assumed to be as follows:
?? maintenance expenses:
Magic Kingdom: 6% of revenues
Second theme park: 6.5% of revenues
?? general and administrative expenses (which include marketing, legal, finance and data processing):
Magic Kingdom: 14% of revenues
Second theme park: 16% of revenues
?? property and business taxes, which have been estimated according to the French tax regime
?? The base management fee (see "Corporate, management and shareholding structure" below).
Operating Income
Operating income is the difference between revenues and operating expenses, but before royalties,
financing costs and interest income, depreciation and amortization, lease expense, management incentive fees and
income taxes. The summary table below shows the operating income projected by the financial model for the two
theme parks:
1992 1996 2001 2011
Magic Kingdom (in FF millions)....... 1,603 2,773 4,226 8,006
Second theme park (in FF millions)... - 1,334 1,921 4,293
Total 1,603 4,107 6,147 12,299
14
Cost of Construction
The cost of construction of the Magic Kingdom is assumed to be FF9.5 billion and the total cost of Phase IA
is assumed to be FF 14.9 billion, in accordance with the estimated cost for Phase IA. The construction cost of the
second theme park has been assumed to be FF 5.9 billion, with construction and related expenditures being incurred
equally in 1994 and 1995. The construction cost of the second theme park has been estimated on the basis of Disney's
direct experience of recent theme park construction, notably in completing the Disney-MGM Studios Theme Park
within Wait Disney World. The construction cost of that theme park was then adjusted for capacity considerations,
inflation and the construction cost differential between Florida and the Paris region.
Table A.1. Summary of Walt Disney Company financial results, 1984-88
(U.S. $ millions) 1984 1985 1986 1987 1988
Revenue
Theme parks and resorts 1,097.4 1,257.5 1,523.9 1,834.2 2,042.0
Filmed entertainment 244.5 320.0 511.7 875.6 1,149.2
Consumer Products 109.7 122.6 130.2 167.0 247.0
Operating Income
Theme parks and resorts 185.7 255.7 403.7 548.9 564.8
Filmed entertainment 2.2 33.7 51.6 130.6 186.3
Consumer products 53.9 56.3 72.4 97.3 133.7
Net Income 97.8 173.5 247.3 444.7 522.0
Source: The Walt Disney Company annual reports
15
Table A.2. Planned development of Euro Disneyland
Phase 1A Phase 1B Long Term Total
Development
Theme parks 1 -- 1 2
Hotel capacity (rooms) 500 4,700 13,000 18,200
Camping ground (campsite plots) 595 -- 1,505 2,100
Entertainment center (sq. meters) -- 22,000 38,000 60,000
Offices (sq. meters) -- 30,000 670,000 700,000
Corporate park (sq. meters) -- 50,000 700,000 750,000
Golf courses 1 1 2
Single-family homes -- 570 1,930 2,500
Retail shopping center (sq. meters) -- -- 95,000 95,000
Water recreation area -- -- 1 1
Multi-family residence -- -- 3,000 3,000
Time-share units -- -- 2,400 2,400
Source: EURO DISNEYLAND S. C.A. abridged offering circular
16
Table A.3. Euro Disneyland S.C.A.: Projected revenues and profits (FF, millions)
1992-1997
12 months commencing April 1 1992 1993 1994 1995 1996
Revenues
Magic Kingdom 4,246 4,657 5,384 5,835 6,415
Second theme park 0 0 0 0 3,128
Resort and property development 1,236 2,144 3,520 5,077 6,386
Total revenues 5,482 6,801 8,904 10,930 15,929
Profit before taxation 351 620 870 1,676 1,941
Net profit 204 360 504 972 1,121
Dividends payable 275 425 625 900 1,100
Tax credit or payment 0 138 213 313 450
Total return 275 563 838 1,213 1,550
Per share (FF) 1.6 3.3 4.9 7.1 9.1
Later Years
12 months commencing April 1 2001 2006 2011 2016
Revenues
Magic Kingdom 9,730 13,055 18,181 24,118
Second theme park 4,565 6,656 9,313 12,954
Resort and property development 8,133 9,498 8,979 5,923
Total revenues 22,428 29,209 36,473 42,995
Profit before taxation 3,034 4,375 6,539 9,951
Net Profit 1,760 2,538 3,793 5,771
Dividends payable 1,750 2,524 3,379 5,719
Tax credit or payment 536 865 1,908 2,373
Total return 2,286 3,389 5,287 8,092
Per share (FF) 13.4 19.9 31.1 47.6
Source: EURO DISNEYLAND S. C. A. abridged offering circular
17
APPENDIX 2: EXCERPT FROM WALT DISNEY 1994 ANNUAL REPORT
INVESTMENT IN EURO DISNEY
1994 VS. 1993
The Company's investment in Euro Disney resulted in a loss of $110.4 million in 1994. The loss consisted of
a $52.8 million charge recognized in the third quarter as a result of the Company's participation in the Euro Disney
financial restructuring, and the Company's equity share of fourth quarter operating results. The prior year’s loss
reflected the Company's equity share of Euro Disney's operating results and a $350.0 million charge to fully reserve
receivables and a funding commitment to Euro Disney, partially offset by royalties and gain amortization related to
the investment. The funding commitment was intended to help support Euro Disney for a limited period, while Euro
Disney pursued a financial restructuring.
A proposed restructuring plan for Euro Disney was announced in March 1994. During the third quarter of
1994, the Company entered into agreements with Euro Disney and the Euro Disney lenders participating in the
restructuring (the "Lenders") to provide certain debt, equity and lease financing to Euro Disney.
Under the restructuring agreements, which specify amounts denominated in French francs, the Company
committed to increase its equity investment in Euro Disney by subscribing for 49% of a $1.1 billion rights offering of
new shares; to provide long-term lease financing at a 1% interest rate for approximately $255 million of theme
park assets; and to subscribe, in part through an offset against fully-reserved advances previously made to Euro
Disney under the Company's funding commitment, for securities reimbursable in shares with a face value of
approximately $180 million and a 1% coupon. In addition, the Company agreed to cancel fully-reserved receivables
from Euro Disney of approximately $210 million, to waive royalties and base management fees for a period of five
years and to reduce such amounts for specified periods thereafter, and to modify the method by which management
incentive fees will be calculated. During the fourth quarter of 1994, the financial restructuring was completed and the
Company funded its commitments.
In addition to the commitments described above, the Company agreed to arrange for the provision of a 10-
year unsecured standby credit facility of approximately $210 million upon request, bearing interest at PIBOR. As
of September 30th, 1994, Euro Disney had not requested that the Company establish this facility.
As part of the restructuring, the Company received 10-year warrants for the purchase of up to 27.8 million
shares of Euro Disney at a price of FF 40 per share. The terms of the restructuring also provide that, in the event that
Euro Disney decides to launch the second phase of the development of its theme park and resort complex, and
commitments for the necessary financing have been obtained, the Company will be entitled to a development fee
of approximately $225 million. Upon receipt of the development fee, the Company's entitlement to purchase Euro
Disney shares by exercise of the warrants described above will be reduced to 15 million shares.
In connection with the restructuring, Euro Disney Associes S.N.C. ("Disney SNC"), an indirect wholly-
owned affiliate of the Company, entered into a lease arrangement (the "Lease") with the entity (the "Park Financing
Company") which financed substantially all of the Disneyland Paris theme park assets, and then entered into a
sublease agreement (the "Sublease") with Euro Disney. Under the Lease, which replaced an existing lease between
Euro Disney and the Park Financing Company, Disney SNC leased the theme park assets of the Park Financing
Company for a non-cancelable term of 12 years. Aggregate lease rentals of FF 10.5 billion ($2.0 billion) receivable
from Euro Disney under the Sublease, which has a 12-year term, will approximate the amounts payable by Disney
SNC under the Lease.
At the conclusion of the Sublease term, Euro Disney will have the option to assume Disney SNC's rights and
obligations under the Lease. If Euro Disney does not exercise its option, Disney SNC may continue to lease the
assets, with an ongoing option to purchase them for an amount approximating the balance of the Park Financing
Company's outstanding debt. Alternatively, Disney SNC may terminate the Lease, in which case Disney SNC would
pay the Park Financing Company an amount equal to 75% of its then-outstanding debt, estimated to be $1.4 billion;
Disney SNC could then sell or lease the assets on behalf of the Park Financing Company in order to satisfy the
remaining debt, with any excess proceeds payable to Disney SNC.
As part of the overall restructuring, the Lenders agreed to underwrite 51% of the Euro Disney rights offering,
to forgive certain interest charges for the period from April 1
st
1994 to September 30
th
2003, having a present value
of approximately $300 million, and to defer all principal payments until three years later than originally scheduled.
As consideration for their participation in the financial restructuring, Euro Disney issued to the Lenders 10-year
warrants for the purchase of up to 40 million shares of Euro Disney stock at a price of FF 40 per share.
Euro Disney has reported that it expects to incur a loss in 1995, which will have a negative impact on the
Company's results. The impact on the Company's earnings, however, will be reduced as a result of the sale by the
18
Company in October, 1994 of approximately 75 million shares, or 20% of its investment in Euro Disney, to Prince
Alwaleed Bin Talal Bin Abdulaziz Al Saud. The sale will reduce the Company's ownership interest in Euro Disney
to approximately 39%. Beginning in 1995, the Company will record its equity share of Euro Disney's operating
results based upon its reduced ownership interest. The Company has agreed, so long as any obligations to the
Lenders are outstanding, to maintain ownership of at least 34% of the outstanding common stock of Euro Disney
until June 1999, at least 25% for the subsequent five years and at least 16.67% for an additional term thereafter.
1993 VS. 1992
The Company's investment in Euro Disney resulted in a loss of $514.7 million in 1993, including the charge
referred to below, after being partially offset by royalties and gain amortization related to the investment. The
operating results of Euro Disney were lower than expected, due in part to the European recession which affected Euro
Disney's largest markets.
During 1993, Euro Disney, its principal lenders and the Company began exploring a financial restructuring
for Euro Disney. The Company agreed to help fund Euro Disney for a limited period, to afford Euro Disney time to
pursue the financial restructuring. The operating results for the fourth quarter and the year, and the need for a financial
restructuring, created uncertainty regarding the Company's ability to collect its current receivables and to meet the
funding commitment to Euro Disney. Consequently, the Company recorded a charge of $350.0 million in the fourth
quarter to fully reserve its current receivables and funding commitment.
In 1992, the Company's investment in Euro Disney contributed income of $11.2 million. Although Euro
Disney incurred a loss in 1992, the Company's 49% share of the net loss was offset by royalties and gain amortization
related to the investment.
19
APPENDIX C . TIME LINE: MAJOR EVENTS IN THE DEVELOPMENT OF EURO DISNEY.
March 24, 1987
The Agreement of March 24, 1987, "for the creation and operation of Euro Disneyland in France", is signed by the
French Government, the Walt Disney Company, the Ile-de-France Regional Counsel, the Seine-et-
Marne Departmental
Counsel, the Parisian public transport authority (RATP) and the Public Planning Board (EPA) for the new town of
Marne-la-Vallée.
August 1988
Excavation work begins on Site
November 6, 1989
Stock market floatation (Paris, London and Brussels)
April 1990
The first facades of the Disneyland Hotel are constructed
September 1991
The Casting Center opens in Noisy-le-Grand
March 31, 1992
The Marne-la-Vallée - Chessy RER station is inaugurated
April 12, 1992
The Theme Park opens
June 1993
The "Indiana Jones™, the Temple of Peril" Attraction is inaugurated
April 23, 1993
The Disneyland Paris Convention Center welcomes the first joint meeting of the two major international organizations
in the tourism industry: the European Tourism Commission and the European Commission of the World Tourism
Organization.
February 1994
The first European Children's Summit is hosted: over 300 children representing 14 countries reflect on the world of
tomorrow
March 1994
Inauguration of two new attractions: "Casey Jr., le Petit Train du Cirque" and "Le Pays des Contes de Fées"
May 19, 1994
Inauguration of the TGV station at the Park entrance
June 8, 1994
Extraordinary General Shareholders Meeting approves resolutions related to the financial restructuring
October 1, 1994
Euro Disneyland becomes Disneyland Paris Euro Disney S.C.A. remains the company owning and operating
Disneyland Paris and its subsidiaries
May 31, 1995
The "Space Mountain - from the Earth to the Moon" Attraction is inaugurated
20
Table 1. Euro Disneyland S.C.A: Financial Performance 1990-94.
Operating Revenue and Expenditure (millions of French Francs)
1994 1993
Revenue:
Theme Park 2,212 2,594
Hotels 1,613 1,721
Other 322 559
Construction Sales 114 851
=======================================
Total Revenue 4,261 5,725
Direct Costs/Expenses:
Park & Hotels (2,961) (3,382)
Construction Sales (114) (846)
=======================================
Operating Income 1,186 1,497
Depreciation (291) (227)
Lease rental expense (889) (1,712)
Royalties - (262)
General & Admin. (854) (1,113)
Financial Income 538 719
Financial Expenses (972) (615)
=======================================
Loss (1,282) (1,713)
Exceptional loss, net (515) (3,624)
=======================================
Net Loss (1,797) (5,337)
=======================================
Employees (Cast Members)
Number Annual Cost (FF, millions)
At 30 Sept 1993 11,865 2,108
At 30 Sept 1994 10,172 1,892
21
Table 2. Euro Disneyland S.C.A: Financial Statements 1993-94 (under US GAAP)
Balance sheet
1994 1993 1992
Cash and investments 289
211
479
Receivables 227
268
459
Fixed assets, net 3,791
3,704
4,346
Other assets 137
214
873
Total Assets 4,444
4,397
6,157
Accounts payable & other liabilities 560
647
797
Borrowings 3,051
3,683
3,960
Stockholders' equity 833
67
1,400
Total liabilities & stockholders' equity 4,444
4,397
6,157
Statement of Operations
1994
1993
1992
Revenues 751
873
738
Costs and expenses 1,198
1,114
808
Net interest expense 280
287
95
Loss before income taxes and cumulative
effect of accounting change
(727)
(528)
(165)
Income tax benefit -
-
30
Loss before cumulative effect of
accounting change
(727)
(528)
(135)
Cumulative effect of change in
accounting for pre-opening costs
-
(578)
-
Net Loss (727)
(1,106)
(135)
Source: Walt Disney Company, 10K report, 1994
Table 3. Attendance at major theme parks
Estimated attendance in 1988
(millions of guest visits)
Sea World -Florida 4.6
Tivoli Gardens Denmark 4.5
Universal Studios Tour -California 4.2
Knott's Berry Farm -California 4.0
Busch Gardens –Florida 3.7
Sea World –California 3.4
Six Flags Magic Mountain -California 3.1
Kng's Island –Ohio 3.0
Liseberg –Sweden 2.8
Atton Towers -United Kingdom 2.3
De Efteling - The Netherlands 2.3
Phantasialand -West Germany 2.2
Source: EURO DISNEYLAND S. C.A. abridged offering circular
22
Figure 1. Euro Disneyland’s share price in Paris, 1991-94 (in French France)
Euro Disneyland SCA: Share Price 1991-1994 (in French Francs)
0
10
20
30
40
50
60
70
80
October
November
December
January
February
March
April
May
June
July
August
September
October
November
December
January
February
March
April
May
June
July
August
September
October
November
December
January
February
March
April
May
June
July
August
September
October
November
December
1991 1992 1993 1994
Year
Share Price
High
Low
23
Figure 2. The Financial and Management Relationship between Walt Disney and Euro Disneyland.
NOTES
1
“Disney Goes to Tokyo” in Ancona, Kochan, Scully,Van Maanenm and Westney, Organizational Behavior and
Processes, 1999, p. M-10, 25.
2
The conversion factors used in the case are: 1 hectare = 2.47 acres, and 1 acre = 4,047 square meters. The US dollar/
French franc exchange rates at the beginning of each year were: 1987 6.35, 1988 5.36, 1989 6.03, 1990 5.84, 1991
5.08, 1992 5.22, 1993 5.59, 1994 5.93.
3
“Euro Disney” is used to refer to the Euro Disneyland theme park; “Euro Disneyland SCA” or “the company” refers
to the company that owns Euro Disney.
4
“The Euro Disneyland Project” – “Project Financing: Asset-Based Financial Engineering” Case Study: John D.
Finnery, ©1996 by John D. Finnery; John Wiley & Sons
5
“No magic in these kingdoms,” Los Angeles Times, December 15, 1989.
6
“Disneyland goes to Europe” in Ancona, Kochan, Scully, Van Maanenm and Westney, Organizational Behavior and
Processes, 1999, pp.38-39.
7
Ancona, Kochan, Scully,Van Maanenm and Westney. Organizational Behavior and Processes “Disneyland goes to
Europe”: p.15.
8
From Neher, Jacques, “France Amazed, Amused by Disney Dress Code”, The New York Times, Oct.5, 1995.
9
From Neher, Jacques, “France Amazed, Amused by Disney Dress Code”, The New York Times, Oct.5, 1995.
10
Pells, Richard. "Not Like Us: How Europeans have Loved, Hated and Transformed American Culture since World
War II." NY, Basic Books, 1996.
Walt Disney Company
EuroDisneyland S.A.
(Management
Company and Gerant)
EDL Holding Co.
(Shareholder)
Societe de Gerance
d’Euro Disneyland S.A.
(gerant of financing co.)
EuroDisneyland
Participations
S.A.
EDL
Participations
S.A.
(general partner)
Euro Disneyland S.C.A.
49%
Owns
statutory
share
Euro Disneyland S.N.C.
(financing company)
Manage
-ment
contract
17%
French
banks
83%
loans
24
11
Euro Disney: the First 100 Days, Harvard Business School, Case no. 9-693-013, 1993, p. 14.
