Acquired
02:46:16 · David Rosenthal, Ben Gilbert
[02:46:16] S1: Just incredible. [02:46:17] S0: So, there is one problem though, which is great. We found the perfect site. It's a 160 acres, and we're gonna do this much bigger and better than we were before. We're gonna need some money. [02:46:27] S1: We're gonna need a lot of money. So Walt goes back to the company. [02:46:33] S0: Yes. And remember, they had no interest in pursuing this, which is why he had to set up wed in the first place. It's becoming clear that this is happening. I mean, Walt Disney is a force of nature, and Roy becomes supportive or at least as supportive as [02:46:47] S1: strong armed into supporting this.
02:46:47 · David Rosenthal, Ben Gilbert
[02:46:47] S1: strong armed into supporting this. [02:46:49] S0: Right. While still trying to protect the company. And so in 1953 in April, Walt Disney Productions board of directors, this is a public company, agreed to a personal services contract with Walt and contracts with WED to design and build the Disneyland Park attractions. This is done as a cost plus contract. So WED and Walt personally don't have to take any risk, at least in in this part of it. It is just like, we will pay you whatever it is plus your profit margin to go build stuff, and, you know, it's kind of a blank check. There are some pretty wild other terms in this personal services contract according to a 1990 article decades later in the LA Times. Walt is allowed to pursue outside projects, which effectively gives him all the benefits of being a free agent while still drawing his $153,000 salary from Walt Disney Productions. K. Another point. Walt argues that he should be compensated for the use of his name. He ends up getting it. Again, worked into this deal, and the contract awards him 10% of all merchandise sold. [02:47:58] S1: Wow. I actually didn't find this. [02:48:00] S0: This is wild. So here's the next bullet point. He will now get the right to invest alongside Walt Disney Productions in each live action film project, which he would later do on Mary Poppins and other films.
02:48:00 · Ben Gilbert, David Rosenthal
[02:48:00] S0: This is wild. So here's the next bullet point. He will now get the right to invest alongside Walt Disney Productions in each live action film project, which he would later do on Mary Poppins and other films. [02:48:12] S1: So why did he negotiate for this? I mean, my feeling about Wald after doing all this research is that he didn't actually really care that much personally about money. Was he trying to accumulate cash so that he could fund Disneyland? [02:48:28] S0: Exactly. Exactly. There's also some, like, personal stuff tied up in here, his relationship with the company where he's like, it's not really mine anymore, so I kinda want more out of it. That's sort of the less generous take on it. But he and Roy definitely kinda came to this understanding of, well, if Walt is gonna have to fund a lot of this, then we need to figure out a way for Walt to get more cash so that he can [02:48:51] S1: do that. This is happening no matter what. So we can do it the easy way, or we can do it the hard way.
02:48:51 · David Rosenthal, Ben Gilbert
[02:48:51] S1: do that. This is happening no matter what. So we can do it the easy way, or we can do it the hard way. [02:48:57] S0: It is interesting on his relationship with money. He was interested in money, but for the sake of deploying it. I mean, hoarding money was never his thing. Like, he did live extravagantly compared to most people. He had that train and, you know, a vacation house in Palm Springs and all that. But it's not what the other big Hollywood moguls were doing. Lillian Disney has a comment in 1956. She said, I've always been worried. I have never felt secure. Never. He's always telling us how wealthy we are, how much we've got, and we haven't got anything. And she's kinda right. [02:49:30] S1: Because he's always putting it back in. [02:49:32] S0: Yes. And it's all tied up in the enterprise value of Disney, which he keeps sort of remortgaging and rebetting the farm. Yes. So there's that angle. He also always believed in the park just like he always believed that animation feature animation had a a long runway ahead of it. And I I was trying to think of the best way to contextualize this. So to validate him there, this is a crazy stat on just how right he was about all of this. Walt built this company over his entire lifetime from age 21 until he died in 1966. And if you look at the company's market cap today compared to where it was in 1966, ninety nine point nine five percent of the value was created after Walt Disney died. [02:50:15] S1: Yep.
02:50:15 · David Rosenthal, Ben Gilbert
[02:50:15] S1: Yep. [02:50:15] S0: There was just so much more running room with his concept than he had time on this earth to execute. [02:50:21] S1: Yep. [02:50:22] S0: Do you know how I know the 1966 market cap? Is this ringing any bells for you, David? No. So during the Buffett partnerships, Warren Buffett saw that Disney was an underpriced asset in 1966 right before Walt died. Wow. So Buffett bought a bunch of the stock in '66 since it had a market cap under $90,000,000 at the time. [02:50:49] S1: $90,000,000. The company [02:50:51] S0: was doing 21,000,000 in pretax earnings. And at this point, because this is after Disneyland, this is after a bunch of stuff, it had more cash than debt. Wow. [02:51:01] S1: This is like Ben Graham bargain investing. [02:51:03] S0: And even more so like Charlie Munger investing because it was a great business at a great price. [02:51:09] S1: Yeah. [02:51:09] S0: Wow. A $90,000,000 company doing 21,000,000 in pretax that has Disney's flywheel is the buying opportunity of a lifetime when Buffett bought it. [02:51:18] S1: That's why he's the goat. [02:51:19] S0: He did, of course, sell it. So Right. [02:51:23] S1: Well, that was the right move after Walt's death as we will see in a few minutes.
02:51:23 · David Rosenthal, Ben Gilbert
[02:51:23] S1: Well, that was the right move after Walt's death as we will see in a few minutes. [02:51:27] S0: Anyway, that's sort of how I would characterize Walt's relationship with wealth and sort of what his his goal was in this personal services contract. This whole thing ultimately becomes so contentious that three board directors actually resign from the public company. There's also a shareholder lawsuit that gets brought. And for sort of strange reasons, it doesn't end up going through. But the remaining board members end up approving it. Essentially, was Roy's way of saying, okay. Company doesn't wanna be too tied up in this project if it fails, but we will provide you a way to get more cash flows from the company so you can figure out how to do more of the funding of this thing yourself. Wow. Fascinating. So, like, just to reflect to to this point in history, this is something I really never realized. The origin of Disneyland is, at least so far in the story, not about the company intentionally looking for more places to put its intellectual property. [02:52:20] S1: No. It's very intentionally not the flywheel in the beginning. [02:52:23] S0: There are essentially zero synergies as conceptualized so far for Disneyland. [02:52:30] S1: Yep. But all of that's about to change because Disneyland, even post all of the budget expansion after SRI and moving to Orange County and a 160 acres, is getting so out of hand in its budget that it needs to actually come back to the company.