Euro Disneyland. A Cost Benefit Approach


Research Paper (postgraduate), 2018
24 Pages, Grade: A

Excerpt

Table of Contents

Introduction
The Project
The 1987 Convention
Literature Review

Calculation of the benefits of Euro Disney
The Benefits Included in the Analysis
The Benefits not Included in the Analysis

Calculation of the Costs of Euro Disney
The Costs Included in the Analysis
An Estimation of the Environmental Costs of Disneyland Paris
The Cost not Included in the Analysis

Final Results of the Analysis
Did the French government really benefited?
The impact of the failure

Conclusion

Bibliography

Annex 1: Structure of the Euro Disneyland Project

Annex 2: French Minimum Wage Table

Annex 3: Estimate of the Benefit

Annex 4: Attendance

Annex 5: Total Benefit with adjusted for created tourism

Annex 6: Estimate of the Costs

Annex 6: Estimate of the Environmental costs

Abstract:

This paper has for main objective to calculate the costs and benefits of the Euro Disneyland project signed between the Walt Disney Company and the French government in 1987. The Euro Disneyland project was the most ambitious project for any French government under the 5th Republic and coincided with a decade of economic turmoil. As we shall analyze, the French government accorded many benefits to the Walt Disney Company in order to have the park built in France, with the hope that the French version would be as attractive as its Japanese and American counterparts.

Although the reports conducted by the French government and the Walt Disney Company are not public, enough has filtered to calculate a basic benefit-cost analysis. Thus, this paper regroups the available data and forecasts made in 1987 by the company and the government, calculates the benefits and costs, and then analyzes the government incentives to pursue this project. In addition, the paper discusses both the importance of the forecasting failure from the Walt Disney Company in the results of the analysis, and the important data that we could not include in the analysis but would have to be added if available.

Introduction

In 1965, the French Minister Paul Delouvrier in the De Gaulle administration decided to create “new cities” (villes nouvelles) around Paris to organize its spreading. The largest new city was Marne-La-Vallée, which is one and a half times larger than Paris (15.000 hectares). The new city was divided into four different sectors with different development goals. The first sector around Noisy-le-Grand became an office area where many companies opened their second headquarters. The second sector, Val-Maubuée, was focused on science and education, with the opening of the Cité Descartes and the Descartes University. However, by 1980 the two first sectors, which are closer to Paris, were considerably more developed than the other two (Bussy-Saint-Georges and Val D’europe). As a symbol, the metro line stopped right after the second sector. Thus, when The Walt Disney Company started to look into Europe to open a new park, Marne-La-Vallée quickly became a serious option.

The French government of President Francois Mitterrand was also interested in hosting a park. In the 1980s, the French economy was in turmoil and the President’s support was falling. Unemployment nearly doubled in the space of 7 years1 (1979-1986) and the socialist policies of the government were largely criticized2. When Disney emerged as a serious project, the government saw it as a potential major win3.

For years, the negotiations were ongoing. The Walt Disney Company was hesitant between the sun of Catalonia, Spain, and the geographical hub that Paris represented. It was looking for considerable concessions, while the French government was looking for guarantees. In the end, both parties reached a historical agreement: The Walt Disney Company got the concessions it was looking for in terms of applied taxes, protections, and public financing, while the French government made sure that Disney would support the local economy and allow European companies to participate in the project.

The Project

In 1987, Disney’s CEO Michael Eisner, the French Government, the region of Ile de France, and the department of Seine et Marne signed the “Convention” that includes all the engagements from both sides. Although the private financing aspect of the project is not included in this paper, it is interesting to analyze how the French government negotiated for French and European companies to benefit from the parks. In order to operate in France, the Walt Disney Company created Euro Disneyland SCA. The French subsidiary would pay annual management fees and royalties to be able to operate the park. However, the French government required Euro Disneyland SCA to be a company publicly traded. Even further, the government imposed that the Walt Disney Company could not own more than 49% of the share. Thus, Euro Disneyland SCA was held at 49% by EDL Holding Company (a subsidiary of 100% owned by The Walt Disney Company), and the other 51% were shared by the IndoSuez Bank, the National Bank of Paris, S.G. Warburg & Co, and Crédit Agricole. The following graphic captures a simple repartition of the shares, while the first annex gives a detailed approach to the financing of Euro Disneyland SCA.

Abbildung in dieser Leseprobe nicht enthalten

The 1987 convention does not only include the financial model Euro Disneyland SCA must be built upon, but it also contains social guarantees in terms of employment and development.

The 1987 Convention

Although the official document is still not publicly available, the information on the engagement taken from both sides has now filtered. The construction of Disney was divided into three different phases. The phases were divided as follows:

Phase 1 (1987-1997)4

Abbildung in dieser Leseprobe nicht enthalten

Abbildung in dieser Leseprobe nicht enthalten

Phase 2 (1997-2006)5

Abbildung in dieser Leseprobe nicht enthalten

Abbildung in dieser Leseprobe nicht enthalten

Phase 3 (2003-20010)6

Abbildung in dieser Leseprobe nicht enthalten

Abbildung in dieser Leseprobe nicht enthalten

In addition to these engagements, the convention also included employment conditions. The Walt Disney Company agreed to employ at least 10,975 people directly with 6550 of them being full-time employees, 2400 part-time employees, and 2025 being seasonal contracts.7 Finally, the convention also fixes the price and purchasing conditions of the land purchased by the Walt Disney Company to the French government.

In 2014, the French government and the Walt Disney Company renewed the 1987 agreement that was expiring and agreed on a new development phase from 2014 to 2023. The extension includes an enlargement of the parks, new Disney hotels, a new convention center, and the development of eco-tourism. It also included a minimum of 16,000 direct employment and 14,000 indirect jobs.8

Finally, it is important to mention the financial aspect of the agreement for the purpose of this cost-benefit analysis. In the convention, the French government agreed to a 3 billion French Franc loan at an interest rate of 7.85%9. Converted into euros, the interest rate charged by the French government was 1.1967%. As this is the rate of the largest loan taken by the Walt Disney Company, it will be used as one of our three discount rates, along with 3%, as it is recommended in the European Union, and 7%, as it is recommended in the United States for these types of public investments.

[...]


1 Inflation

2

3 Roffat, Sebastien, Disney et la France, Les Vingt ans D’Euro Disney, p63

4 30 ans de Convention, Capitale de l’Hospitalité, Once upon a Town, Capitre 2- Tout Savoir sur la Convention de 1987, 03/21/2017, web

5 30 ans de Convention, Capitale de l’Hospitalité, Once upon a Town, Capitre 2- Tout Savoir sur la Convention de 1987, 03/21/2017, web

6 IBID

7 IBID

8 30 ans de Convention, Capitale de l’Hospitalité, Once upon a Town, Capitre 2- Tout Savoir sur la Convention de 1987, 03/21/2017, web https://www.realestate-valdeurope.com/chapitre-2-tout-savoir-sur-la-convention-de-1987/

9 Roffat, Sebastien, Disney et la France, Les Vingt ans D’Euro Disney, p71

Excerpt out of 24 pages

Details

Title
Euro Disneyland. A Cost Benefit Approach
College
The George Washington University  (Trachtenberg School of Public Policy and Public Administration)
Course
Cost-Benefit Analysis
Grade
A
Author
Year
2018
Pages
24
Catalog Number
V465022
ISBN (eBook)
9783668944053
ISBN (Book)
9783668944060
Language
English
Tags
Public Finance, Economics, Disney, Disneyland Paris, France, Cost benefit analysis
Quote paper
Alexandre Aubard (Author), 2018, Euro Disneyland. A Cost Benefit Approach, Munich, GRIN Verlag, https://www.grin.com/document/465022

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