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Thursday, Feb 22, 2024

Disney Enters ‘No-Win Situation’ in Florida

ENTERTAINMENT: How could conflict affect bottom line?

Walt Disney Co. has embroiled itself in a public political controversy in Florida. But will it impact the Burbank company’s bottom line?

Disney’s unusual right to essentially act as its own government in Walt Disney World in Florida – escaping local taxes and regulations – is in peril. If Disney loses that, it could cost the company tens of millions of dollars a year, according to some reports, and it could be far more burdensome for the company. Several experts believe that the fight may simmer down, but others point out that the culture war Disney has entered may dent the company’s standing with many customers.

The imbroglio began last month when Gov. Ron DeSantis signed Florida’s Parental Rights in Education Law, which takes effect July 1 and prohibits classroom instruction on sexual orientation or gender identity in kindergarten through third grade.

Supporters thought the topics are too confusing and inappropriate for such young children. Opponents deemed the legislation the “don’t say gay” bill. Initially, Disney declined to take a side on the issue. After employees staged a walk-out in late March, Disney released a March 28 statement saying, “our goal as a company is for this law to be repealed by legislature or struck down in the courts.”

Last week, Florida legislators took steps to begin to revoke the company’s special privileges; the result would dismantle the Reedy Creek Improvement District Act, a 1967 measure that gave Disney control over 47,000 acres that straddle two counties in Florida where Disney World is located. The company decides on its own public services, zoning and land use decisions and effectively allows Disney World to act as its own government.

If the law is repealed, Disney may be required to submit to building inspections by the two counties. It may be stuck with fees and taxes it now escapes, and various regulations could be imposed by local politicians.

‘No-win situation’

From a marketing perspective, Disney finds itself caught between both sides of the political spectrum. Conservatives are bashing the company for opposing the bill, which they see as an attack by Disney on parents’ rights. Left-leaning critics are upset for Disney’s past political donations to various Republicans, including DeSantis.

Marty Cooper, owner of PR firm Cooper Communications in Encino and a Disney shareholder who worked as advertising and promotion manager at Disneyland when Walt Disney was alive, said that “Disney is in a no-win situation. They offend the left and they offend the right. That’s what happens whenever they choose to do political donations.”

Disney is arguably the most powerful company in Florida. It is the state’s largest single-site employer, with 70,000 employees at its Orlando theme parks. It has control of 43 square miles. Walt Disney World, which is comprised of four theme parks and two water parks, welcomed an estimated 58 million people in 2018, making it the most-visited resort in the world.

In the past decade, Disney’s dollars flowing to the statehouse in Tallahassee have skyrocketed: The company spent a total of $2.1 million on state elections in 2010, according to reporting by Florida Trend, including donations to candidates, state parties, political committees and constitutional amendment campaigns. By 2018, when DeSantis was elected governor, that figure ballooned to $28.3 million on Florida state elections.

In 2020, Disney donated $4.8 million just to individual candidates in Florida, including $50,000 to DeSantis.

The question stands as to how far Florida Republicans plan to go in seeking to punish Disney.

Cooper, for one, does not believe the state will go far. “Disney is too big a cash cow for Florida to do more than a slap on the Mouse’s wrist.”

Florida and Disney need each other economically.

“They’re irrevocably locked together,” Cooper said. “Disney is not going to pack up and move, and the state government is not going to do anything to put Disney in dire straits. Their actions will be more symbolic than substantive.”

‘Political theater’

Assuming the special privilege is revoked and Disney gets saddled with tens of millions of dollars’ worth of direct costs and obligations each year, it may amount to a rounding error for a company that had $67 billion in revenue and $2 billion in earnings last year.

Michael Morris, an analyst at Guggenheim who follows Disney, said, “I have seen nothing specific or helpful that would indicate this will have a financial impact on the business. I do think prolonged disagreements between management and employees run the risk of having an economic impact. It’s not clear to me how serious the disagreement is when it comes to how many employees are impacted and how that will ultimately impact the guest experience.”

However, Morris noted that “the relationship between The Walt Disney Co. and the state of Florida has not come up as a key thesis driver in the past. That is definitely new ground for us.”

Marty Kaplan, media professor director of the USC Annenberg Norman Lear Center, does not believe it will affect Disney’s bottom line much.

“It’s a lot of political theater, pandering to various interest groups,” Kaplan said. “I’d be surprised if it has any impact on any revenue or regulation.”

Kaplan believes that DeSantis, who may have presidential aspirations, is milking the controversy to play to his base.

Disney’s stock has dropped since the fight started. From March 22, the day of the walkout by Disney staffers, to April 20, shares declined 11%. That’s much steeper than the 1% decline in the S&P 500 index over the same span.

It’s unknown, of course, if the fracas will have other impacts. Disney has been slowly beefing up its Florida operations and last year announced that 2,000 of its Parks department employees will move from California to Florida. Disney reportedly will get $570 million over 20 years from Florida for that move. Disney and Florida have been silent on whether that move or future ones will continue. 

Disney had 11,250 employees locally as of last year, a fraction of the 70,000 or so in the Orlando area.  

What’s more, the political position could hurt Disney’s standing among moderate and conservative consumers – which some believe could be the biggest peril for Disney. 

A survey by Issues & Insights earlier this month found only 43 percent of respondents were following the story. A second question was: “As a result of the recent stories, how much trust would you place in Disney’s programming for your children, assuming you have any?” Among those following the story, 54% said they trusted Disney, while 21% expressed “little trust” and 20% had “no trust.” “That’s four of every 10 Americans (with little or no trust), a dismal result for such a once-beloved corporation,” the researchers said.

“Disney has alienated a lot of people now,” DeSantis said at a March 31 press conference. “And so the political influence they’re used to wielding, I think has dissipated.”

Michael Aushenker
Michael Aushenker
A graduate of Cornell University, Michael covers commercial real estate for the San Fernando Valley Business Journal. Prior to the Business Journal, Michael covered the community and entertainment beats as a staff writer for various newspapers, including the Jewish Journal of Greater Los Angeles, The Palisadian-Post, The Argonaut and Acorn Newspapers. He has also freelanced for the Santa Barbara Independent, VC Reporter, Malibu Times and Los Feliz Ledger.

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