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City wants a new deal: Hong Kong Disney sends billions of dollars back to US parent company while reporting losses

Visitors play smartphones inside Disneyland on April 19, 2016 in Hong Kong, Hong Kong.
Lam Yik Fei | Getty Images
Visitors play smartphones inside Disneyland on April 19, 2016 in Hong Kong, Hong Kong.

The government – the biggest shareholder in Hong Kong Disneyland – has been urged to renegotiate what critics call an "unfair treaty" with Walt Disney after it was revealed for the first time that the theme park needs to pay between 5 and 10 per cent of its revenue to its American parent as royalties every year.

This means the Lantau-based park could have paid between HK$1.68 and HK$3.37 billion to the California-based conglomerate since it started releasing financial figures in 2009, the Post has calculated – despite recording losses in eight of its 11 years.

The Hong Kong government, which holds 53 per cent of the park's shares, was pressed by lawmakers last month to disclose details of its financial agreement with Walt Disney – especially the amount of royalties and management fees paid.

The request was made as part of a government bid to obtain approval for a HK$5.8 billion funding application for a six-year expansion project at the park.

"The royalty rate charged by the Walt Disney Company on Disney resorts outside the United States is largely the same at 5 to 10 per cent of revenues," according to a Legislative Council paper submitted by the government.

Tourism Commissioner Cathy Chu Man-ling told members of Legco's economic development panel on Monday that the terms the city got were not "inferior" to those for Disney resorts elsewhere.

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According to a report by Reuters in 2015, about 10 per cent of annual revenue from Paris Disneyland's operator is taken up by such fees, while the figure for Tokyo Disneyland was 7 per cent.

Simon Lee Siu-po, assistant dean of undergraduate studies at Chinese University's business school, said the amount was "reasonable", but the government could have been in a stronger position when negotiating the deal in the first place.

However, some lawmakers were not convinced. They passed a non-binding motion put forward by Michael Tien Puk-sun, a pro-establishment member who threatened to veto the park's funding application if better terms were not guaranteed.

The motion urged the government to renegotiate its financial arrangements with Walt Disney, including the possibility of exempting management fees and royalties for an appropriate period, as well as excluding interest, tax, depreciation and amortisation in calculating the fees.

Tien said the motion was meant to improve the financial position of the park and was in the best interests of taxpayers.

Between 2007 and 2009 when the city was hit hardest by a financial crisis, Walt Disney agreed to waive management fees and defer payment of royalties for two years.

But the treatment for its troubled Paris park – in which the US firm has a share of almost 90 per cent – seems to be better. Walt Disney agreed to waive royalties and management fees for two years starting from last year.

The waived amount in the fourth quarter of last year reached €21 million (HK$172 million), according to the Paris park's financial filings.

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