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Hong Kong may seek to renegotiate Disneyland management fees due to losses

Hong Kong Disneyland HKDL. Fiscal. Losses. Double.

The Hong Kong government may renegotiate management fees for Hong Kong Disneyland with the Walt Disney Company following the park doubling its losses in 2017.

Hong Kong Disneyland (HKDL) saw its losses increase to HK$345m ($44.1m) in 2017, despite increases in attendance and revenues. As the financial performance has not met expectations, the government, which is the majority shareholder in HKDL, may look to renegotiate management fees.

“When reading the financial report, of course there are things not up to expectations,” Edward Yau Tang-wah, secretary for commerce and economic development, told a panel at the Hong Kong legislature, the South China Morning Post has reported.

Yau added that the next opportunity to discuss matters related to management fees with The Walt Disney Company would come when the second phase of the park’s development began after 2020.

“The existing contract terms are the result of past discussions. If we look ahead at what would happen with a phase two development, it would be a fresh negotiation,” Yau said.

Other members of the Hong Kong legislature accused the park of not making best use of 60 hectares of land set aside for a potential expansion of the park. The government and Disney need to agree before 2020 whether a second phase of construction is needed, however this decision can be pushed back to 2025.

Financial performance

For the fiscal year that ended on 30 September 2017, HKDL generated revenues of HK$5.1bn ($652m), an 8% increase on the previous year. Earnings before interest, taxes, depreciation and amortisation (EBITDA) were HK$914m ($117m), a 28% increase.

The increase in revenues was powered by a 3% increase in attendance. The park welcomed 6.2 million guests in 2017, including 1.6 million international guests, which is a 5% rise.

However, despite the increases in attendance and revenues, the Lantau Island theme park posted a net loss of $44.1m, more than double the $21.8m loss it recorded in 2016.

Disney charges a base management fee of 6.5% of EBITDA and a variable management fee of zero to 8% of EBITDA. The company waived the variable fee for 2018 and 2019 following calls for a review from the government last year.

Hong Kong Disneyland Frozen zone

The park’s EBITDA for 2017 entitles Disney to a base management fee of approximately HK$59m ($7.5m). It also receives a further 5% to 10% of revenue as a royalty charge.

The exact amounts paid in management fees and royalties were not public until last year.

Last October, HKDL kicked off construction of the multi-year transformation of the park. It is adding a Marvel-themed area that will feature attractions based on the Avengers and S.H.I.E.L.D as well as a Frozen-themed area that will include characters and stories from the film.

Taxpayers will fund $700m of the $1.4bn expansion with Disney covering the rest. The Hong Kong government is the controlling shareholder in HKDL with a 53% stake, the other 47% is owned by Disney.

The new areas are expected to open in 2023.

Images: c. Hong Kong Disneyland.

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