Why Euro Disney Is A 22-Year Money-Losing Failure

Even Mickey Mouse is not exempt from France’s financial troubles.

Walt Disney announced on Monday a €1 billion ($ 1.25 billion) bailout plan to rescue its subsidiary Disneyland Paris, the Financial Times reported.

The French theme park is still Europe’s top tourist destination, but has been hit by the financial crisis more than other competitors. To make a profit, the park needs about 15 million visitors a year: there were 14.1 in the last 12 months. Losses are expected in the order of €110-120 million ($138-150 million).

The park is burdened by its debt, which is calculated at around €1.75 billion ($2.20 billion) and roughly 15 times its gross average earnings. Speaking with the FT, Mark Stead, the company’s financial director, said: “Our Achilles heel has always been our debt ratio, which compared to our rivals is off the charts.”

French labour law and planning regulations also make it difficult to replicate in France the success of the other Disney enterprises. For instance, Disney vastly underestimated the cost of employing French workers in France, according to the journal of the Canadian Center of Science and Education:

Before the opening of Euro Disneyland executives had estima ted labour cost would be 13% of their revenues. This was another area where the executives were wrong in their assumptions. In 1992 the true figure was 24% and in 1993 it increased to a whopping 40%. These labour cost percentages increased Euro Disneyland’s debt.

Bleak situations tend to repeat at Disneyland Paris, which injected $US1.7 billion in 2012 to partially cover its debt. In its 22-year history so far, the European park rarely made a profit. When it first opened in 1992, critics dubbed the resort a “cultural Chernobyl.” In 1994, two years after it opened its doors, it was saved from bankruptcy by a $US350 million investment from the Saudi royal family, which now owns 38% of shares, as reported by Arabian Business.

In 2010 the resort made headlines by the suicides of two of its chefs, although a direct link to the working conditions in the park’s kitchens has never been proved.

In addition, most of the visitors’ home countries share the same problems: with Italian, French and Spanish economies all in recession, people are not spending on Goofy and Donald Duck. Between April and June this year, Disneyland Paris sold 12,000 fewer hotel room nights compared to the same period the previous year. Fewer visitors from France and business trips counted for the biggest drop.

The European malaise is a stark contrast with the soundness of the American parks in Florida and California, which recorded revenues growth of 10% in the last financial year as reported by Disney’s latest financial report.

Back in France, much is expected from a new Star Wars-themed attraction set to open in 2017, on the 25th birthday of the European operation: may the force be with them.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.