By Nicholas Haberling
*Note: Following along with the accompanying Excel Spreadsheet will be helpful when looking at each individual year when calculating operating cash flows. When clicking the download a prompt may appear stating whether or not to trust this site for downloads. Squarespace is a reputable and safe website host and I have downloaded and re-downloaded my Excel spreadsheets numerous times without any adverse effects. Also any word or sentence followed by (insert number) means a work cited at the end of the post*
In Part I of our Jurassic World series I tried to find the initial cost of building a theme park full of dinosaurs on Isla Nublar. In Part II I am trying to find the operating cash flows for the world’s most lethal zoo. Operating cash flows is defined as, “a measure of the amount of cash generated by a company's normal business operations(1)” Essentially we are trying to find out if Jurassic World would be profitable on a year to year basis. Then in Part III we will finish our net present value analysis to see if a dinosaur theme park is a worthy investment. While trying to figure out Jurassic World’s operating cash flows was an interesting investigation, ultimately I wasn’t able to go into the amount of detail I would have liked. Sadly, on their annual reports, organizations such as Disney and the San Diego Zoo don’t go into extensive detail on their day to day park operations. Therefore, a lot of the numbers I used are simple ratios based off Disney theme park annual revenues rather than the day to day sales of multiple food stands. Interestingly enough by taking a more macro view the numbers I got from this journey may be more accurate than the ones in Part I. But the fun is in trying to decipher the details. Even if you are way off the mark.
Jurassic World Attendance
According to information about Jurassic World in the Jurassic film universe, the theme park had 98,120(2) visitors in its first month. Also, by 2015 it was averaging 20,000(3) visitors per day. I decided that after its first year of operating we can assume that Jurassic World would reach the 20,000 visitors per day mark. However, before then the park had to have an increase in visitors of approximately 18% every month after the initial opening. Important attendance numbers to remember are Jurassic World’s first year of operation: 3.405 million guests. Starting in 2006 and going up until 2014, Jurassic World had 7.2 million guests per year. And 2015: 3 million guests. 2015 has such a low number because I decided to include the closure of the park after the Indominus Rex incident in May 2015.
Here Comes Disney
Since Jurassic World is a glorified theme park and zoo hybrid, I figured its closest relative in trying to find revenues and operating expenses would be Disney World. However, absent a financial statement only for Disney World, I had to use some wizardry (elementary school level math combined with imagination) to come up with the final product. As in Jurassic World Part I, I will present a few select examples of the basic equations used with the complete set included in the accompanying Excel document. Moving forward an important number to remember is that Disney’s domestic theme parks’ combined attendance is a little over 68 million per year(4). These parks are Magic Kingdom, Epcot, Animal Kingdom, Hollywood Studios, Disneyland, and CA Adventure.
Revenues and Operating Expenses
Disney’s Annual Financial Report for fiscal year 2016(5) showed domestic theme park revenues at a little over 14.2 billion dollars while domestic and international park revenues were just shy of 17 billion dollars. Sadly, Disney chose not to differentiate between domestic and international theme park operating expenses which totaled to approximately 10 billion dollars. Disney appears to include labor costs such as medical, pension, and FICA expenses within the category of operating expenses. In order to get an idea of what Disney’s domestic theme park operating expenses might be I took into account the percentage of revenues generated solely be domestic parks and then applied it to the total of domestic and international theme park operating expenses. Assuming there is a correlation between revenues and expenses.
$14,242,000,000 / $16,974,000,000 = 84%
$10,309,000,000 X .84 = $8,649,745,375 in Domestic Theme Park Operating Expenses
So what do Disney’s domestic theme park revenues and operating expenses have to do with Jurassic World? Well this is where Disney’s attendance numbers come into play. By comparing Jurassic World’s attendance numbers to Disney’s domestic parks, we can then apply that percentage to Disney’s revenues and operating expenses.
Jurassic World 2006 Attendance = 7,200,000
Disney Domestic Theme Park Attendance per Year = 68,288,200
7,200,000 / 68,288,200 = 11% (rounding up)
Assuming there is a correlation between attendance numbers, revenues, and operating expenses we can begin calculating Jurassic World’s revenues and operating expenses for 2006.
Jurassic World Revenues 2006 = $14,242,000,000 X .11 = $1,566,620,000
Jurassic World Operating Expenses 2006 = $8,649,745,375 X .11 = $951,471,991
Other Expenses and Dinosaur Care
In addition to the operating expenses associated with the theme park, Jurassic World still has selling, general, and administrative expenses. To find that cost we employ the same principles used when trying to find the park’s revenue and operating expenses.
Disney Domestic Theme Park SGA Expenses = $1,913,000,000 X .84 = $1,605,098,739
Jurassic World 2006 SGA Expenses = $1,605,098,739 X .11 = $176,560,861
Next we have expenses associated with dinosaur care! In order to get a better estimate of what it would cost to take care of and maintain Jurassic World’s dinosaurs I looked at the San Diego Zoo’s financial statement for the year 2015(6). It revealed that the zoo spent 195 million dollars on exhibition and animal care facility operations. This is more than what I accounted for in Jurassic World Part I but I deemed it a far more accurate representation of what dinosaur care costs might look like.
Depreciation and Taxes
The 195 million dollar revelation had some far reaching consequences especially in terms of redefining Jurassic World’s initial cost. After taking into account these new dinosaur care expenses, initial costs for Jurassic World went from a little under 2.6 billion dollars as shown in Part I to over 3.1 billion dollars. This initial cost will be allocated across a span of nine years. This is important to remember as the depreciation expense can be deducted for tax purposes more commonly known as a depreciation tax shield. This lowers the tax burden Jurassic World otherwise would have accrued. To find Jurassic World’s depreciation expenses I used a simple straight line depreciation method which takes place over nine years since ideally Jurassic World would have paid off its initial costs by the time Indominus Rex is introduced to the park. This nine year lifespan is entirely subjective and in a more realistic scenario Jurassic World's costs would be allocated over a longer period of time. Additionally it is very likely that individual projects may have different depreciation timelines. We will explore this further in Part III when looking at the ramifications of this time table when dealing with net present value. Jurassic World’s tax rate is simply Disney’s effective tax rate of 34.2% for 2016(7).
Depreciation Expenses = $3,129,928,341 / 9 = $347,769,815.67 per Year.
Operating Cash Flows
The goal of studying operating cash flows is to determine whether or not a company is generating positive cash flows in a given year. Or simply whether it is profitable or losing money. Jurassic World’s Operating Cash Flows for 2006 were derived in the following fashion:
(Revenues – Expenses)(1 – Tax Rate) + (Depreciation X Tax Rate) = Operating Cash Flows 2006
($1,566,620,000 - $1,323,032,852.60)(1-.342) + ($347,769,816.67 X .342) = OCF 2006
($243,587,147.40)(.658) + $118,937,276.96 = OCF 2006
$160,280,342.99 + $118,937,276.96 = $279,217,619.95 OCF 2006
This process is continued for each year starting in 2005 and ending in 2015.
Looking solely at operating cash flows it appears that Jurassic World is a profitable venture. However, in Part III we will put all these pieces together to determine the net present value of our favorite dinosaur theme park. While there were some disappointments in the sense that I wasn’t able to go into details of day to day operations in depth, ultimately I think the numbers presented here would be a more accurate representation of Jurassic World assuming revenue and expenses are correlated with Disney’s in respect to attendance numbers. Of course Jurassic World could have a set of factors that increase revenues such as more expensive park tickets. Or increases in operating expenses due to the unique nature of the theme park. In short, this has been an enjoyable thought experiment that I am excited to conclude in Part III.
Jurassic World Part I can be found here in case you'd like to review. Keep in mind that the final total has been revised.