The Keys to the Kingdom (40 page)

Wilson's job was to come up with a plan to pay for the project—and he saddled it with debt. “The financing of Euro Disney was such a critical, critical issue for the company,” says an executive who worked on it. “An enormous amount of capital was required. And how do you get partners to share the risk?” The answer was a public offering combined with about $3.5 billion in debt as well as the concessions that Disney had wrung from the French government.

The Disney name had such cachet that raising money wasn't a problem, although the company still had to fight hard to do it on Disney's terms. The French found the company's bare-knuckle style jarring. But even so, the government and bankers were determined to do business with Disney,
so the project went ahead. One executive who worked on the financing remembers that Eisner was interested in the financing but didn't want to deal in specifics. “He'd [act] like I was the plague,” that executive says. “He joked with people about me. He'd ask, ‘Things going okay? Okay. Don't tell me [the details].'…His interest was in the [guest] experience, architecture, and design.”

Eventually, however, Eisner had to confront the fact that a major problem was developing. Imagineering was literally hundreds of millions of dollars over budget on Euro Disney. The theme park alone (excluding the hotels that Disney intended to build and sell) had been budgeted at $1.3 billion. Five years before the project's planned opening in April 1992, this source says, the overage was already $850 million. The project was also about nine months behind schedule, which meant the company would have to pay premiums to finish construction on time.

Naturally, Eisner was appalled. “This is how our predecessors lost their jobs,” he said, alluding to the overages that had plagued Epcot and weakened the company. As Euro Disney loomed nearer, it must have seemed as though the doom he had feared for so long was at hand. As he later acknowledged mournfully: “I've always been fearful…because in most of the corporations that I worked at before I came to Disney, I saw the one big mistake bring down companies or people. So I'm very conservative and try to stay away from the one devastating mistake where the risks are extremely high, as in building a multibillion-dollar park in an area where there's a massive recession and we don't really know the culture perfectly.”

As it came time to secure financing from a consortium of European banks, says a source familiar with the situation, Eisner and Wells, along with Wilson, became convinced that they had to conceal the severity of the problems with the project. The banks, with Banque Nationale de Paris in the lead, had hired Coopers & Lybrand to audit the Imagineering organization. That meant Disney had to give the impression that its house was in order. Eisner, Wells, and Wilson considered postponing the financing to give them time to rework plans for the park but decided against it.

Disney did slash some costs by redesigning certain attractions and renegotiating contracts with vendors. But even though these measures saved more than $500 million, it wasn't enough.

Fearful of jeopardizing the financing of Euro Disney, Eisner and Wells were desperate to minimize the impact of the overages. If Eisner thought that the Euro Disney project endangered him, he certainly trusted Frank
Wells to stand with him. “I knew that if we were going to get in trouble,” he said, “we were going to be in trouble together. I wasn't going to be in trouble and he wasn't going to take the rap. We would take the rap—together.”

 

DESPITE THE OVERRUNS
, Disney remained optimistic. Paris was a big city and the French were the world's most avid consumers of all things Disney. More than 310 million people lived within a two-hour flight of the park. There were good airports and the French government had promised to build new roads and to improve the rail system. Europeans took long vacations. And the park would be even more “weatherized” than Tokyo Disney, which was open all year in conditions similar to those in France.

Eisner encouraged the park's designers to make a European version of Disneyland that was exquisitely crafted, more than just a rerun of the American parks. And the more he encouraged the designers, the more the costs went up. A French architect told a friend that he was astonished that Eisner thought nothing about flying him to the United States repeatedly to discuss what seemed rather minor points, such as his opinion of a door that might be used in one of the hotels. And one frequently repeated tale inside Imagineering was that after Eisner looked at an enormous, detailed model of Euro Disney, he said, “I think this building should be over here.” With that, he nudged a model over a bit. No one contradicted him and the building was moved even though the new site posed logistical problems. “The story goes that the nudge cost $1.5 million,” a former Imagineer says.

Another executive who worked closely on Euro Disney says Eisner made a conscious decision to upgrade everything to make a quality statement. This was Disney's debut in Europe and he wanted it to be dazzling. Eisner insisted on adding an entertainment complex called Disney Village to provide after-hours entertainment. Several members of his staff wanted to postpone the project but Eisner would not hear of it. He was offered a choice between a relatively modest plan based on a New England–style village or a daring series of oddly shaped buildings designed by architect Frank Gehry. Eisner's design team voted overwhelmingly for the more conservative village. Eisner commissioned the Gehry design.

Disney courted Italian architect Aldo Rossi to design one of five hotels for the property. But Rossi soon found himself frustrated. In a letter to Eisner, he compared himself with the great Bernini, who, invited to Paris
for the Louvre project, found himself “tormented by a multitude of functionaries” to make changes in his plan. “It is clear that I am not the Cavalier Bernini,” Rossi wrote to Eisner, “but it is also clear that you are not the King of France…. I do not intend to be the object of minuscule criticisms that any interior designer could handle.” With that, Rossi quit.

Eisner fussed endlessly with the hotels. He wanted wood-burning fireplaces installed. The company imported hundreds of cedar, sweetgum, and pine trees for the Sequoia Lodge, an Antoine Grumbach–designed hotel. The costs rose. “There were occasional voices of caution,” Eisner acknowledged later, “but none of them was loud or persistent. If anything, we grew more ambitious over time.” (He also made it clear that he blamed Gary Wilson for the company's decision to build such an enormous number of hotel rooms.)

Even at the last minute, Eisner was ordering changes at the park. At great expense, two steel staircases in Discoveryland were moved because they blocked a view. Even the roller coaster on Thunder Mountain was redesigned. Between Eisner and the Imagineers, the costs kept going up. “We're not reinventing the wheel here—that's what I bitched about constantly,” says a former high-level executive who worked on the project. “But [Imagineering] wanted to do this customized thing. Look at the detail there.”

Meanwhile, some of the bankers and businesspeople were finding that Disney could actually beat the Parisians in an arrogance contest. One evening, when Eisner was visiting Jean-René Bernard, the chief negotiator for the French government, at Bernard's apartment in the western part of Paris, Eisner said, “You live in the west of Paris, as do your friends, but your children and grandchildren will live in the east of Paris” near Euro Disney.

There were other questions about how well Disney understood the European culture. In one strategy meeting, an executive wondered aloud whether Europeans would stand in line during winter. Disney remained convinced that Europeans would wait because the Japanese did. But Europeans were different in many ways from the Japanese. They had a lower per capita income and they tended to parse it out over long vacations instead of splurging on expensive four-day visits to a theme park. Disney was convinced its park could change those habits. And the company's plans stayed the same, including the ambitious program of hotel construction.

“We were arrogant,” said one executive later. “It was like, ‘We're building the Taj Mahal and people will come—on our terms.'”

 

IN OCTOBER
1989, Michael Eisner and Robert Fitzpatrick, the head of Disney's nascent Euro Disney subsidiary, pulled up to the Paris Stock Exchange in cars chauffeured by drivers attired in Mickey Mouse and Pluto outfits. They were there to announce the sale of Euro Disney stock to the public. But others were wearing Disney masks as well—young Communists who had come to pelt Eisner with eggs and ketchup. It was hardly the warm demonstration Eisner had hoped to stage. But the protesters, with banners that read
UNCLE SCROOGE GO HOME
, thought the $6.4 billion that the French government was willing to spend to attract Disney's business should go to schools or unemployment relief.

Despite the protests, the stock offering for the new Euro Disney was a dazzling success. Not only did stock sell out at once but Disney's own stock ticked up six points based on all the excitement. The British investment banking firm S. G. Warburg, which arranged the sale of the stock in Britain, called the project “relatively low risk” and predicted that the new park could bring in more than a billion dollars in its first year and turn a profit of $400 million. That would pour more than $100 million into Disney's coffers. Those predictions were wildly optimistic, but the excitement was undeniable. In October 1990, Euro Disney raised another $770 million from a bond offering.

In fact, the banks were eager to participate and many accepted Disney's rosy revenue projections. But several European institutions, including Disney's own advisers at Lazard Fre`res, worried that Euro Disney was simply strapped with too much debt. Disney brushed those concerns aside. In 1990, Fitzpatrick told
Business Week,
“We're seeing Cartesian skepticism meeting American can-do-ism.”

“Frank and Michael were yin and yang,” says one executive intimately involved in structuring Euro Disney. “These guys were wowing them with these unbelievable presentations and there was nothing there but air. And then they'd go off and spend a lot of money.”

 

ONE OF THE
many questions raised about Euro Disney involved its location outside Paris. Disney also considered Barcelona, which was attractive because of its relatively mild winters. But Eisner says he rejected the site because Spain used a different rail line from the rest of Europe, lacked a
countrywide highway system, and had erratic phone service. The location also did not have a huge metropolitan area nearby that could feed the park during off-peak months (as Disneyland and the park in Tokyo do).

Besides, Disney contended that it got a fabulous deal on about 4,400 acres in Marne-la-Vallée in France. The French government agreed in December 1985 to sell the land on favorable terms. Eisner thought he could wrap up the deal in three months, but the negotiation was so complex and Disney was so relentless in its demands that the deal didn't close until March 1987. Eisner and Wells pushed for better terms by repeatedly telling general counsel Joe Shapiro, their lead negotiator, that “almost nothing his team got was enough,” Eisner said later.

An executive closely involved says the great deal on the French land was more an excuse to select the location that Eisner wanted in the first place. Eisner never seriously considered Barcelona, that executive says. “Michael had never been to Barcelona,” he continues. “They didn't do any due diligence.” The acquisition of the French land, he says, was nothing more than “going to a shitty area and getting a great real estate deal…. Nothing grew out there but beans and even they suffered because of the wind and the cold and the microclimate.”

And Disney failed to take into account an advancing European recession. Admission to Euro Disney cost more than Disneyland's or Disney World's. And the Disney hotels—many of which had been upgraded to three-and four-star quality as Disney's ambition swelled—cost a hefty $340 a night. But with the franc strong, a Disney board member points out, it turned out that a Briton could visit sunny Florida more cheaply than traveling to Euro Disney. Gary Wilson had been betting on higher inflation, which would allow the parks to keep prices high, and lower interest rates, which would have cut the burden of the company's debt service. On both counts he was wrong. Meanwhile, the real estate market fell on hard times, putting a crimp in Disney's plans to reduce its debt by selling its hotels. (Disney said it had buyers but didn't like the prices being offered.)

There were also troubles with the contractors that had been hired. In January 1992, sixteen subcontractors demanded that they be paid about $155 million because of cost overruns on construction. They alleged that Disney ordered up extra work without paying. (One painter reportedly was asked to apply twenty different shades of pink to a hotel before the company settled on its choice.) Other subcontractors sought about $20 million they
said they were owed after a Euro Disney contractor, Gabo-Eremco, went bankrupt. Disney settled the claims.

Even before the park greeted its first visitors, Euro Disney executives were forecasting $35 million in losses for the company's first six months. Opening day on April 12, 1992, was a disappointment. Only about twenty thousand people—considerably short of the projected sixty thousand visitors—showed up. By June, Disney acknowledged that its earlier projections of a small profit by the end of the fiscal year in September were wrong. Attendance picked up, and by October, the park had entertained more than seven million guests. Eisner told the French newspaper
Le Monde
that the park was off to a “splendid” start. “We are happy with the…reception from the public,” he said staunchly. “We cannot allow the idea to take root that we have in part failed.”

But that impression was hard to escape. Not only did the profits predicted by Wilson fail to materialize, but the costs of building and servicing the debt were simply too high. In August, Richard Nanula, the company's chief financial officer, wrote a memo warning that the company should reduce its losses by making dramatic cutbacks at the park. Nonetheless, Eisner committed to spend an additional $200 million to add attractions.