Acquired
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.
02:52:30 · David Rosenthal, Ben Gilbert
[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. [02:52:50] S0: Sort of. Sort of. So here's the corporate structure. Originally, they thought they would need about $5,000,000 for the Anaheim Disneyland. Spoiler, they would go way, way over that. But because they thought it was gonna be this expensive, Walt went back to the company again and said, look. I know we did this personal services contract thing, but, like, I think it's better if this is actually a Disney thing, and let's figure out a way to really tie it all together here. At a $5,000,000 price tag, the company cannot afford to fund this. Yep. If you look at 1952 when planning began, Walt Disney Productions made less than half $1,000,000 in net income. So 10 times that for the park's budget is is is not gonna fly. There's not cash for it. But at this point, the company is kinda like, alright. The proverbial train is moving forward here. There is actually a good plan to integrate a whole bunch of Disney stuff into the park. This can be a a Walt Disney productions thing in one way or another. We're good for $500,000, but we need to go find the bulk of the $5,000,000 somewhere else.
02:52:50 · Ben Gilbert, David Rosenthal
[02:52:50] S0: Sort of. Sort of. So here's the corporate structure. Originally, they thought they would need about $5,000,000 for the Anaheim Disneyland. Spoiler, they would go way, way over that. But because they thought it was gonna be this expensive, Walt went back to the company again and said, look. I know we did this personal services contract thing, but, like, I think it's better if this is actually a Disney thing, and let's figure out a way to really tie it all together here. At a $5,000,000 price tag, the company cannot afford to fund this. Yep. If you look at 1952 when planning began, Walt Disney Productions made less than half $1,000,000 in net income. So 10 times that for the park's budget is is is not gonna fly. There's not cash for it. But at this point, the company is kinda like, alright. The proverbial train is moving forward here. There is actually a good plan to integrate a whole bunch of Disney stuff into the park. This can be a a Walt Disney productions thing in one way or another. We're good for $500,000, but we need to go find the bulk of the $5,000,000 somewhere else. [02:53:52] S1: Yep. What can we do? So in order to go get the bulk of the financing for the park, Walt comes back fully into the fold at the Disney studio and does something that no other movie executive is willing to do at this point in time. He embraces television. He goes to the TV networks for money.
02:53:52 · David Rosenthal, Ben Gilbert
[02:53:52] S1: Yep. What can we do? So in order to go get the bulk of the financing for the park, Walt comes back fully into the fold at the Disney studio and does something that no other movie executive is willing to do at this point in time. He embraces television. He goes to the TV networks for money. [02:54:18] S0: Yeah. And the fascinating thing is it's in part because they don't really want a pure financial partner for the park. Like, they don't wanna just go raise a bunch of debt that they'll then have to pay back. This has hamstrung them so many times. They're trying to think creatively of how can we do, like, a one plus one equals five thing here where we have this Disneyland Inc joint venture, and someone else is, you [02:54:44] S1: know, building this thing and funding it. So, yeah, at the time, the prevailing sentiment in Hollywood was that TV was a threat, that if Hollywood movie studios started putting their content on TV, it would steal audiences away from the theaters. It's just like in our NFL episode where baseball was deathly afraid of television. I think the quote was radio whets the appetite for attending baseball games live, and TV satiates it. [02:55:12] S0: Yes.