Recently, Hong Kong taxpayers, the majority owners and biggest investors in Hong Kong Disneyland, were told that the park's losses had narrowed to HK$237 million. But, as ever, they were denied all information about how the minority owner, the Walt Disney Company, has continued to profit from its very modest investment in this venture.
Memories are short when it comes to recalling the terms of the extraordinary deal under which Disney secured an initial 43 per cent of the park's equity (it now owns 47 per cent) 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.
But the reality was that all-in 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 for an investment totalling less than 10 per cent of the total cost.
But the good deal for the American company did not end there. 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 per cent to 8 per cent of the operating (not the net) profit.
The deteriorating performance reached such a dire level in 2007 that Disney was forced to waive its management and royalty fees for two years. As there has been no announcement of a continuation of this waiver, it can only be assumed that payment resumed in 2009.
It is little wonder the government is so anxious to conceal the true picture of Disneyland's financial status. What is surprising is that it has been under so little pressure to reveal more.
Yet all the warning signs were there for anyone who might have been sceptical of the government's Disney propaganda. When making the case for building the theme park a decade ago officials assured the public that it would break even by as early as 2009, and no later than 2011. It also confidently predicted that 5.6 million visitors would show up in the first year of operation and that attendance would increase to 6.49 million in 2009, rising to an impressive 11 million visitors.
The reality is that the park has yet to break even. Visitor numbers in the first year were 5.4 million and in 2007 slumped as low as 4.27 million. Even in 2010 visitor numbers only reached 5.2 million, below the first-year target. Last year the visitor total climbed to 5.9 million, but this is still way below the estimates confidently pumped out when the project was pushed through the legislature.
The government went on to produce even more exotic figures claiming that billions of dollars would indirectly flow into the economy as a result of building the park. Quantifying the indirect impact of an investment regularly invites voodoo-type calculations but some of these numbers can be pinned down.
It was said, for example, that 11,000 new jobs would be created in the first year of the park's operation. The reality is only 4,400 full-time jobs were created and that number was subsequently cut. The average number of staff is now up again, to some 4,500 full-time workers and 1,700 part-time workers.
The core of the theme park's problems is well known. Hong Kong Disneyland is by far the smallest of the Disney theme parks around the world and its small size greatly discourages repeat visitors, a key revenue driver for the theme park business. Moreover, the park relies for almost half its patronage on mainland visitors. But they will eventually have their own, bigger, Disneyland in Shanghai. The park is addressing visitor disappointment over its size by expanding and some speak hopefully of attracting more visitors once this happens.
But Disney and Hong Kong government officials no longer put out any figures to accompany this brave talk. They seem to have learned how dangerous this is. Yet before signing the deal with Disney, the government might have listened to former Queensland Premier Peter Beattie who was offered a rather better arrangement by Disney in Australia but said, 'Only Goofy would have picked up such a deal.'