Hong Kong may renegotiate fees with Disneyland after park posts HK$345 million loss, minister says

Edward Yau says he understands concerns about investing public resources in the theme park

PUBLISHED : Monday, 26 February, 2018, 7:02pm
UPDATED : Tuesday, 27 February, 2018, 10:24pm

Hong Kong Disneyland’s financial performance has not met expectations and the government may renegotiate management fees the park charges it, the city’s commerce minister said on Monday.

The resort last week reported a loss of HK$345 million for 2017 due to park expansion and asset depreciation. That was despite revenue of HK$5.1 billion – the second best figure since the park opened in 2005.

“When reading the financial report, of course there are things not up to expectations,” Secretary for Commerce and Economic Development Edward Yau Tang-wah told a panel on economic development at the Hong Kong legislature.

The disappointing figures came despite the number of visitors rising 100,000 last year to reach 6.2 million.

Yau said 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 government holds 53 per cent of the theme park’s shares. The Walt Disney Company, which owns 47 per cent, charges the government a management fee.

“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.

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The two parties would before 2020 consider the need for a second phase of construction, which would depend on factors including visitor numbers, he said. But a decision could be pushed back to 2025.

The minister said he understood concerns about investing public resources in the theme park. He said the government would maintain its negotiations with Disney.

Disney currently charges a base management fee set at 6.5 per cent of the park’s earnings before interest, tax, depreciation and amortisation (Ebitda). A variable management fee of zero to 8 per cent of the park’s Ebitda is also applicable.

The park’s HK$914 million Ebitda for 2017 entailed a base management fee of about HK$59 million.

Last year Disney agreed to waive the variable management fee for the fiscal years 2018 and 2019, but shot down proposals to adjust the base fee.

The waiver came after local lawmakers called for a review.

The resort’s American parent company also charges the park’s owners royalties ranging from 5 to 10 per cent of revenue.

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The exact amounts paid in management fees and royalties have never been made public.

At Monday’s panel meeting, lawmaker Holden Chow Ho-ding, of the Democratic Alliance for the Betterment and Progress of Hong Kong, the city’s largest political party, said if the theme park continued to post deficits the variable management fee should be waived beyond 2019.

Hong Kong Disneyland Resort managing director Samuel Lau said the issue concerned the park’s shareholders.

Chow accused the theme park’s management of not making good use of 60 hectares of land reserved for a second phase of construction.

“The land is just being roasted under the sun,” he said. “Can Hong Kong Disneyland consider using it for a short-term purpose, such as for recreation?”

Yau agreed that the land should not lie idle. The government would discuss the issue with the park’s management, he said, since both parties would benefit from putting the land to good use.

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Michael Tien Puk-sun of political party Roundtable suggested Disney “offset” the management fee with the royalties it collected.

If the park’s finances were in the red, the company should waive part of the management fee so the government would not lose money, Tien said.

“Phase two development must go ahead to maintain the theme park’s competitiveness,” he said. “The government can seize the opportunity to negotiate new terms.”