‘Unequal’ Disney deal leaving Hongkongers to foot the bill

Inked in 1998, the arrangement sees a good portion of the local theme park’s profits go directly to its parent company, even in years of loss

PUBLISHED : Monday, 20 February, 2017, 7:05pm
UPDATED : Monday, 20 February, 2017, 8:55pm

The deal between the Hong Kong government and Walt Disney has long been labelled an “unequal treaty”, which sees the American parent company receive millions in potential profits while the city’s taxpayers are left to foot most of the park’s bills.

The arrangement, similar to that of other Disney parks around the world, requires the park to pay its California-based parent royalties for using copyright images and management fees for operating the park’s facilities.

Though Hong Kong Disneyland has never disclosed the amount of such fees, lawmaker Michael Tien puk-sun estimated HK$50 million in management fees and HK$200 million in royalties were being paid to the American conglomerate every year.

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The New People’s Party deputy chair said the Lantau Island amusement park would not be losing money if it did not have to fork out those charges.

Industry insiders described it as a good deal for Walt Disney, as the company could pocket a big portion of its parks’ revenue before profits are generated. And in loss-generating years, the company would not have to pay corporate tax to local governments – which has been the case eight of the past 11 years for Hong Kong Disneyland.

“Disney might not care about the profitability of the park, because it is still getting all sources of revenues through management fees, royalties, etcetera,” Pascal Martin, partner at OC&C Strategy Consultants, said.

The arrangement, first negotiated after the 1998 Asian financial crisis, prompted lawmakers to urge the Hong Kong government – the park’s biggest shareholder – to renegotiate a better deal.

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Industry insiders said the terms of the Hong Kong arrangement were similar to other Disney theme parks, and such an arrangement is not unique to Hong Kong.

About 10 per cent of Euro Disney’s annual revenue is taken up by such fees and royalties, Reuters reported in 2015. And they cost Tokyo Disneyland about 7 per cent of its revenue.

But Chris Yoshii, global director of leisure department at consultancy AECOM said such charges were necessary to maintain a theme park’s appeal.

“The understanding is the brand IP (Intellectual Property) adds a great deal of value to the experience and results in higher attendance,” Yoshii said.