Why Launching Disneyland Paris May Be Disney’s Best Ever Deal

Over its 100-year history, Disney has been behind so many blockbuster deals that even experts might struggle to name which one was the most significant. Its acquisitions of 21st Century Fox, Lucasfilm, Marvel Studios and Pixar are often said to be some of the studio’s most pivotal moments whilst the development of Disneyland Paris has historically been seen as one of its biggest let-downs. It’s actually far from it.

The resort at Marne-la-Vallée on the east side of Paris has needed multiple bailouts and financial restructurings to stay afloat since its ornate iron gates swung open in 1992. Its plight wasn’t due to mismanagement or because the product was poor but because it hit several recessions and was burdened with debt.

The dark clouds finally cleared when Disney took over the debt in 2012 and acquired full control of the resort five years later. Over the previous decade alone, it had burned up $1.6 billion (€1.5 billion) of net losses causing some to say that the acquisition could cast a dark spell on Disney’s fortunes. However, the Mouse knew that at the heart of Disneyland Paris is an asset which none of its other resorts around the world can match.

The origin of this star attraction stretches back to 1955 when Walt himself opened the first Disneyland park on 160 acres of former orange groves in Anaheim, California. Its success led to a string of motels and restaurants springing up next to it spoiling the immaculate theming of the resort. Some of these satellite businesses are still there to this day, including the wintry Alpine Inn motel which backs directly on to Disney’s desert-themed Cars Land.

Disney took steps to stop this trend repeating when it was developing its outpost in Orlando in the mid 1960s. It purchased the land for Walt Disney World using several shell companies with anonymous-sounding names such as Tomahawk Properties, M.T. Lott Co and Latin-American Development and Management Corp. If Disney had bought the land directly, the owners might have asked for more money safe in the knowledge that the buyer could afford it. Instead, Disney got it for a good price and made the most of this by buying 43 square miles.

The land was originally covered with swamps but is now prime real estate thanks to Disney’s four theme parks and two water parks sitting on the site. As Disney owns so much land around them it can lock out competitors and control the standards in the surrounding area.

Disney then turned its attention to the far east and opened Tokyo Disneyland in 1983. However, that resort is owned and operated by local leisure conglomerate The Oriental Land Company which licenses the intellectual property from Disney.

In contrast, Disney holds shares in the companies which own its other parks in Asia though it doesn’t have a controlling stake in them. Hong Kong Disneyland was the first to open in 2005 and the local government owns 52% of it with the remainder in Disney’s hands. Shanghai Disney Resort debuted 11 years later and Disney holds 43% of the shares in the companies which own it whilst state-controlled Shanghai Shendi Group has a 57% stake.

Disneyland Paris is Disney’s only other international resort and, like its counterparts in the United States, it is 100% owned by the Mouse. That wasn’t the original arrangement.

Just like in the US, Disney wanted a vast plot of land to control the standards around its European parks but advancements in corporate disclosure methods made it difficult to use shell companies to pull it off. Instead Disney turned to the local government and tempted it with its proven power to drive economic development in the area around its parks.

This brought Spain and France to the negotiating table with Disney’s then-chief executive Michael Eisner, who signed one of the most momentous deals in the company’s history.

In an interview last week from his office in Beverly Hills, Eisner explained that “we picked France instead of Spain because France, and especially Marne-la-Vallée, is easily accessible from the major markets we targeted in Western Europe.

“Spain really wanted the resort and…was eager to gain attention and increase tourism; remember the Seville Expo and Barcelona Olympics, both in 1992, the same year Disneyland Paris opened.

“We understood the dynamics and convinced Laurent Fabius, [at the time, France’s] Prime Minister, to offer a package that included an RER commuter line extension and station right at the front door of what was then called Euro Disneyland.”

That’s just the start. French authorities also entrusted 4,801 acres of land to Disney which committed to develop and transform it in partnership with local governments and EPAMARNE, the local public urban management authority.

“With the package defined, we made a commitment to France in December 1985,” says Eisner. “Before I signed the deal, I took the RER to the end of the line – about five miles from our site – in order to make sure what we were told about how long it took and how crowded the passenger cars were was true. It did what the French officials said, and I took a car back to the government offices and signed the letter of understanding.

“We then took a year and a half to get to a definitive agreement. Jacques Chirac, Mayor of Paris, became the Prime Minister. He was always a fan. As a youth he spent time in New Orleans.”

Eisner and Chirac signed the agreement in March 1987 which set the stage for creation of the fairytale-themed Disneyland Paris whilst a neighbouring park themed to movie studios was already on the table as it was under construction at Walt Disney World. The agreement also encompassed real estate developments around the resort in Paris including, in particular, a business district. It was far from an afterthought as the agreement states that the “overall financial equilibrium of the Project will result from the combination of the operation of the Park, on the one hand, and of the other aspects of the Project developments envisaged in the present Agreement, on the other hand.”

The land was originally home to beet fields and had long been earmarked for development. The plans were frozen following the 1973 oil crisis but were dusted off for Disney on condition that it entered into a public-private partnership with the French government. EPAMARNE and the local governments represented the public and in 1989 Euro Disney became the private party in the partnership.

Euro Disney was listed on the Euronext with only 49% in Disney’s hands and the remainder owned by the public. Eisner says it was hampered by “various factors – the extreme costs associated with going for excellence, for building a castle where castles were real; financing costs of a highly leveraged entity structure; lower per capita spending by visitors who use all their allotted vacation time etc. – hurt the bottom line for a decade or so.”

The wizards who designed Disneyland Paris were Disney’s Imagineers, named for their imaginative use of engineering. Their pursuit of excellence paid off. The park’s centerpiece pink castle is particularly popular with theme park fans all over the world thanks to its spiral shape, elaborate balustrades and the eerily-lifelike full-size animatronic dragon in its basement. Indeed, it’s so popular that when the leading Disneyland Paris news site ED92 asked its 66,000 followers last year to rate the castle it even attracted praise from Disney’s heartland of Orlando with one resident Tweeting that it is “absolutely the most beautiful of all the Disney castles.”

In a recent report, WDW News Today, the worldwide leader in Disney Parks news, added that Disneyland Paris “is well-known for its incredibly immersive, expansive, and walkable landscapes. Attractions such as Alice’s Curious Labyrinth, and superb versions of classics such as Big Thunder Mountain built under the leadership of Imagineer Tony Baxter are well-loved by guests. These details are part of what has helped Disneyland Paris grow in tourism popularity and revenue.”

Baxter is a veteran of Walt Disney Imagineering and was its senior vice president of creative development until 2013. Talking at an event in Disneyland Paris last year, he said that “whatever we did, we had to complement what was already here. You have great castles and beautiful cathedrals that don’t exist in Orlando or Anaheim so you can be the only game in town. But the castle had to be completely rethought to reflect fairytales rather than being an authentic recreation of some of the gothic structures you can see right here within 100 miles from the park.”

Baxter is one of Imagineering’s leading lights but it took more than one man to design a what is widely-considered to be Disney’s prettiest park. He was joined by a number of Imagineers who have gone on to become some of the most renowned, respected and influential names in the industry. They include Imagineering’s former creative executive Tom Morris, the brainchild behind the castle’s design.

“The number one thing that we needed to do was make this castle stand out from the other 40,000 castles that are in France,” he said at the event last year. “We did a lot of research and I went through a whole bunch of story books…and we put together kind of a collage board that said these are the DNA pieces, the feelings we want in the castle – softer, older, a little bit more medieval and not as much renaissance because a castle like the one in Walt Disney World is a classic gothic renaissance castle and those are what you find in the Loire valley.

“So we put together this board and we pitched it to Michael and he liked the idea…I think Mont St. Michel was the number one influence for the overall form and then for the individual details it was some of those story books. Then actually we did put a number of details from some of the best castles in France just to make sure that whatever we created had a French accent to it. So it is a classic story book castle with a French accent.”

His former colleague Eddie Sotto is also a giant of Imagineering who now runs his own acclaimed design studio which has worked with clients including Ferrari, Porsche, Wynn Resorts and Virgin Galactic. Sotto gave a magic touch to the Main Street which runs through the heart of Disneyland Paris and has a turn-of-the-century theme.

“There was a long road to Euro Disney,” he said Sotto at the event. “Even Main Street went through many iterations. Tony and I originally felt that maybe it would even be more appealing than it is to turn the clock forward so we actually designed a 1920s version of Main Street with jazz, elevated trains and frankly we got so excited that the price tag got to be a lot more than they thought so we went back to the Main Street we have today.” Even that was bespoke.

“I couldn’t just copy Walt Disney World with our team so we snuck in the billboards and the excitement and a lot of the magic,” said Sotto. It paid off as he added that his favorite memory came when he gave Walt’s daughter Sharon a tour of the park and she said “my dad would have loved this.” She wasn’t the only one was enchanted by the park.

Since 1992 more than 375 million guests have streamed through the turnstiles at Disneyland Paris. “From day one it was a hit with the people,” says Eisner. “I think we had 10 million people in year one, more than the Louvre.”

Euro Disney’s bottom line wasn’t so rosy due to its capital structure. As Disney didn’t own the company outright it gave it loans rather than pouring money into it as it has done with its parks in the States. The resort also funded its construction with $1.8 billion (€1.7 billion) of bank borrowings and the finance charges on it dragged down its bottom line.

In its second year Euro Disney hit a recession and burned up a net loss of $944 million putting it at risk of bankruptcy. Saudi investor Prince Alwaleed brought some much-needed magic by investing around $430 million which funded new attractions and in 1995 the company made its first net profit of $23.2 million.

It began a seven-year run of net profits which peaked at $51.7 million in 1998. Like every good Hollywood story there had to be a sequel so Euro Disney gave the green light to building a second on-site theme park which opened to coincide with the resort’s tenth anniversary in 2002.

Financed by borrowings and a capital increase, the movie-themed studios park was meant to cement Euro Disney’s standing but bad luck struck again. The huge overheads of running two parks swelled operating costs just as the tourism downturn hit following 9/11.

By 2005 the company needed a $272 million (€250 million) rights issue, backed by Alwaleed. With its new finance, Euro Disney pulled out all the stops and spent an estimated $109 million (€100 million) on the Tower of Terror, a freefall ride set inside a 180 feet art deco tower which opened in April 2008. It brought an immediate glow to Euro Disney’s bottom line.

In 2008 the company made its first net profit in six years and finished $1.8 million (€1.7 million) in the black. Attendance rose 100,000 to an estimated 15.4 million in 2009 and it seemed the Mouse had finally come of age. However, there was another twist to come and debt was the villain of the piece.

The interest and repayments on Euro Disney’s bank loans fuelled losses and left the company with little profit to invest. In 2009, on one of its busiest days of the year, staff protested against a pay freeze by striking and marching through the park. It caused the first-ever cancellation of its parade down Main Street and sparked three years of protests.

Undeterred, in 2010 Disney signed an amendment to its agreement with the French government which increased the area available, extended its duration to 2030 and planned for further developments including a third theme park and three convention centres.

Trouble continued to brew behind the scenes and in 2012 there was another strike down Main Street. This time the embarrassing spectacle was watched by British broadcaster Jonathan Ross who tweeted to his 4.9 million followers: “We are at Disneyland Paris for the 20th anniversary. There’s a dispute and strikers march down Main st. Worst Disney parade.”

It grabbed Disney’s attention and six months later it replaced Euro Disney’s bank borrowings with a low-interest loan. It followed this up with another rights issue in 2014 as well as a $652 million (€600 million) debt-for-equity swap. The final act came in 2017 when Disney took full control of the company putting it on a path to profitability.

At first glance it appeared that Disney was just buying the two theme parks, seven hotels and a sprawling entertainment complex but on looking into the filings it soon became clear that it was getting much more than that.

Euro Disney also manages the real estate development and expansion of the 5,200 acre property, including and surrounding the resort, so Disney took that over too. It is an unparalleled asset. None of the other resorts that are wholly-owned by Disney occupy that much land close to a major metropolis. Paris is one of the world’s most important capitals and the site spans an area which is almost a fifth the size of the city.

Euro Disney Associés (as the resort’s operating company is still known) does not hold land assets which are unrelated to its business. Its real estate development model is simple – it buys land from the government and sells it to companies which fund its development after Disney has signed off the design.

The land is re-sold with a capital gain for Euro Disney Associés so not only does it have control over the standards, it makes a profit too. As the graph below shows, Euro Disney Associés has made $261 million (€240 million) of revenue from real estate development over the past decade alone.

According to Disney’s filings, approximately 50% of the site is still undeveloped so there is tremendous untapped potential. A report produced by valuation experts Lobjoie et Associés in 2017 forecast that Euro Disney’s total net profit from real estate from 2017 to 2035 would come to $657 million (€604 million). That’s not all.

As I recently revealed, last year Euro Disney Associés made a $51 million operating profit – its highest in a decade. Its revenue hit a record $2.6 billion driven by the opening of the studios park’s new Avengers Campus land soon after pandemic restrictions were lifted.

Reflecting on the resort’s roller coaster ride, Eisner says “the deal was very favorable – some might say too favorable – for Disney. But the infrastructure improvements, private investment, job creation, tax generation and rebalancing of development toward the east of Paris exceeded the expectations of the French government.” It is no exaggeration.

A report in 2020 by consultancy firm SETEC revealed that since Disneyland Paris opened in 1992 it has generated 6% of France’s tourism revenue and paid $9.6 billion (€8.8 billion) in taxes. In total the resort has invested $9.9 billion (€9.1 billion) in France and generated $91.9 billion (€84.5 billion) of added value for the French economy.

Disneyland Paris is now the largest single-site employer in France with 17,000 staff who have 124 nationalities and work in around 500 career roles from hotel management to horticulture and engineering. Far from being vacation jobs, 84% of employees are on permanent contracts and 306,750 hours of training were given by Disneyland Paris in 2020.

For every job created at the resort, nearly three are created elsewhere in France, leading to the generation of a total of 63,000 direct, indirect and induced jobs each year. Although the two parks are the most obvious legacy of the agreement Eisner signed 36 years ago, this really is its magic touch.