Prof. Steph Haggard and I taught a course on government/private sector relationships for many years, called BGGE (business and government in the global economy – pronounced “big-e”). One of the cases was a 2-day slog through the negotiations between Walt Disney Corp.(WDC) and the Hong Kong government, about setting up the first Disney theme park in China.

The punch-line of the case was that WDC would win whether the park was profitable or not, because it received royalties as a fraction of the gross revenue. It also extracted lots of favorable financing from the HK government.

According to this article, one of the feared scenarios in the case has happened. WDC built a second Disney park in China (Shanghai), and within six months of its opening, it is siphoning away visitors. And sure enough, it looks like WDC and the HK government are playing the same game again: pumping subsidies into the park to boost attendance, with the side effect of helping WDC.

Source: Hong Kong Disneyland, Seeking Return to Profit, Plans $1.4 Billion Upgrade – The New York Times

Excerpts:

But the scope of the enhancements also reflects the difficult spot in which Hong Kong Disneyland finds itself. Despite more than $600 million in added attractions in recent years, including three new themed areas and a nighttime parade, the park lost about $20 million last year, according to financial filings.

The renewed focus on Hong Kong Disneyland, with its lush gardens and collection of classic Disney rides, comes just six months after the opening of the Shanghai resort, which generated global headlines for its opulence. Disney has suggested that the Shanghai park will attract 10 million visitors in its first year; four million people visited in the peak summer months alone.

Hong Kong leaders, already feeling insecure about the ascension of Shanghai as a financial capital, do not want their Disneyland to be viewed as a lesser property.