DeSantis vs. Disney (DIS)

the state of play, as I understand it

Don’t Say Gay

In an attempt to burnish his credentials as a 2024 presidential candidate, Governor Ron DeSantis orchestrated the passage of a bill in Florida that limits the ability of the state’s schools to permit discussion of LGBTQ issues. Pressured by its Florida employees after saying nothing about the bill, DIS–the state’s largest taxpayer and one of its largest employers–issued a statement in opposition to it.

a new tourist board

DeSantis and the state legislature responded with a new law that unilaterally terminated the operating agreement that induced DIS to open a theme park in Orlando a half-century ago. The governor also threatened to harm Disneyworld financially (presumably thereby lowering tax revenue and increasing unemployment in the state) through higher taxes, new tolls on roads leading to Disneyworld, more frequent safety inspections, building a prison nearby and encouraging competing theme parks to locate in Orlando…

While this was happening, the Disney-friendly supervisory board–which the new law replaced–reacted essentially transferring operating control of Disneyworld public infrastructure away from the state to DIS before the new law went into effect.


DIS is also suing DeSantis, on two grounds: the DIS press release in question is Constitutionally-protected free speech, so Florida’s punitive actions after/because DIS made it violate the fifth amendment of the Constitution; the state’s unilateral ending of the Disneyworld operating agreement, in essence a contract with DIS, violates the company’s property rights under the first amendment

looking at DIS

The company has four main businesses:

–ESPN + ABC. ABC is a publicity outlet for DIS that doesn’t make much money. ESPN has long been a cash cow, a valuable source of cash flow but not of earnings growth

–movies/streaming. The acquisition and revitalization of Marvel (which made me a DIS shareholder) and Lucasfilm over the last decade or so turned DIS into a motion picture powerhouse. The company had great hopes for streaming as the next source of video profit growth, but for now at least the market share any one entity can grab seems to be much smaller than generally anticipated

–merchandise sales. I think this aspect of DIS is mostly overlooked. But the company is a brilliant seller of themed merchandise. Also underappreciated, I think, is that the additions of Marvel and Star Wars lines gave DIS merchandise to sell to boys as well as girls. Before this, Jack Sparrow was its #1.

–theme parks. Yes, there is a DIS park in France plus one in Japan and two in China. But the serious money comes from the US. Here by far the most important is Disneyworld in Florida. Domestic parks made a bit over $5 billion in operating income for DIS last fiscal year (ended October 1st). Let’s say Disneyworld made $4 billion of that.

(One other thing: Hulu. DIS is a majority owner; Comcast (CMCSA) holds the rest. Starting on 1/1/24, DIS has the right to buy this minority interest for about $25 billion. CMCSA will also have the right to compel DIS to buy the minority interest for the same price. Not so important for this post but still a lot of money.)

Yes, income from the theme parks ebbs and lows with the ups and downs of the domestic economy. So this has typically been a low PE business. But the maturity of the other DIS businesses + the boost to income potential from Marvel/Star Wars characters means that the theme parks are much more important to the company than previously and the main potential for its growth comes from Disneyworld in Florida.

DIS vs DeSantis

Given that DIS is the largest taxpayer in Florida and one of the bigger employers, one would think that DeSantis is well-aware of the composition of DIS businesses and the crucial importance of Disneyworld in its plans. But maybe not. He most likely reasoned that DIS has such a gigantic investment in not-easy-to-move land and plant and equipment, plus intangible equity built up over a half century, that the company would be compelled to meekly accept whatever harm to its property that DeSantis decided to dish out.

What I find really strange is that DeSantis doesn’t seem to have been able to do what players in any game (checkers, for instance) automatically considers–what’s my opponent’s net move.

DIS’s preferred position would have been to say nothing about Florida’s anti-LGBTQ legislative actions. But its Disneyworld employees wouldn’t allow that. They demanded a pro-children, pro-schooling statement. So the company made one.

DeSantis’s counter was, in essence, to punish DIS by trying to turn Disneyworld from a $4 billion yearly business to, say, $3 billion…and shrinking. No apparent thought about how this would harm the state financially, or how other businesses might have second thoughts about investing in a place with such touchy and vindictive lawmakers.

DIS’s response? Yes, it can’t move. But it doesn’t have to continue to expand in Florida. Maybe it breaks out its contingency plans and begins to look for another state to build a new theme park in. My guess is that it also has to reassess its neutral political stance in Florida. I can’t imagine that this would involve further support for DeSantis. No way it wants him to be anywhere near the nuclear codes.

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