Lessons from the House of Mouse

By Brad Thomason, CPA

 

I’m in Orlando this week, visiting Disney World with my family.  This is the third year in a row that I’ve been to the Magic Kingdom; the kids are that age.  If it’s been awhile since you’ve been, rest assured that some things have not changed.  There are still family reunion groups in matching T shirts with slogans like “not leaving until someone is crying,” and despite the fact that they’ve made leaps and bounds in the culinary department at the resorts, the poor devils inside the park still can’t cook a hamburger that’s worth eating.  On the newer side, Space Mountain has gotten a recent re-fit, and overall I’d say it’s an improvement (it was closed for construction when we were here last summer), and bless their hearts, the faux pho at the noodle station isn’t great, but it’s a nice break from chicken fingers and French fries.

In the spirit of full disclosure, I’m forced to confess that despite grumbling to everyone I come into contact with in the week or two leading up to the trip, I always end up having a good time.  It is Disney World, after all.  I still enjoy riding roller-coasters quite a lot, and I am pleased to report that yesterday I got my highest score ever on the Buzz Lightyear ride (you get points for shooting aliens with the laser cannon mounted to the front of the moving car.  Even beat my 11 year-old son, which is no mean feat where video games are involved).  The kids of course, are having a blast.

The business analyst in me is also sort of in awe of the place, during those occasional moments when I think about what’s going on around me.  It’s difficult to wrap your head around the degree of planning and coordination that it takes to run an operation like this one.  There are few other companies that have something this complicated and this concentrated, with large portions of it going on out in the open for the entire world to see.  And they do it day in and day out, like clockwork.  I’m prepared to argue that most companies out there would be completely incapable of pulling off a logistical exercise of this scale and complexity, so my hat is off and I offer the Disney team  the credit they are due.

But beyond the operational and other magic going on, there’s something else down here which should get the attention of anyone that’s interested in knowing how the machinery of commerce and economics works.  Alive and well is an honest-to-goodness free market in operation, on display for all to see and study.  Not the hybrid kind of free market where governments intervene to one degree or another to protect interests or guide policy.  But the pure kind, where everyone has a chance to act in an unrestrained manner, completely in their own self-interest, should they so chose.  But this free market doesn’t operate on dollars.  It operates on Fastpasses.

A Fastpass is a simple piece of engineering elegance, the answer to the number one gripe that people have when they go to an amusement park: standing in line.  A Fastpass is a special ticket, issued at the most popular rides, that essentially let’s you make a reservation to ride the ride sometime later in the day without having to wait in line to do it.  There are only a certain number issued each day, so you have to get them before they are gone; and generally the later you wait to get one, the longer the interval until your reservation comes up.  There are also some limitations on how often you can get Fastpasses.  But if you get one, it can have a big impact on how you spend your time that day.

Amusement park rides have always had a free market aspect: you could enter the line or avoid the ride based on whether or not you thought the probable wait seemed worth it.  But at a modern Disney park you don’t have to guess how long the wait will be, because they have a meter at each ride that tells you what the wait time is (there’s also an iPhone app that will tell you the wait time for all of the other rides, so you don’t have to walk to the other side of the park to take a look).  The existence of this readily available data, coupled with the planning options made possible by the Fastpasses, makes this into an informed, efficient marketplace.

Which makes it a great place to test our theories of how free, efficient markets are supposed to work.  I’ll save you the trouble of going to Orlando yourself:  We do NOT see the emergence of a single, optimal strategy that everyone adopts (so much for a major tenet of nearly every formal theory on economics…).  Instead we see multiple strategies at work.  We also see the manifestation of what I call the work/return paradigm (as opposed to the risk/return paradigm so often talked about in the pricing of financial assets).  I’ve written about this idea in detail as part of a discussion on investing in Distressed Assets.  You can click here to link to that whitepaper.  But the simple version is this: those who are willing and able to put in a little bit of work often get higher returns than other folks (without taking on any additional risk).

Here’s a quick episode from our trip to illustrate the point.  When we entered the park one morning I took everyone’s tickets (swipe cards, like a hotel room key or credit card; there were 9 of us in our group) and took off for Space Mountain.  I fed the tickets into the machine and got 9 Fastpasses for later in the day, then returned to where my crew was eating breakfast.  Took me about 10 minutes to walk over and back.  After breakfast we went to less popular rides and attractions, rarely standing in line longer than 15 minutes.  Later in the day, after our Fastpasses became active (once your time comes up, you can use them any time from that point until the park closes that day), we went over to Space Mountain.  The wait time posted at the front of the ride was 120 minutes (yep, 2 hours).  But instead of joining the back of the line, we walked into a special entrance, walked right past everyone else, and went straight to the boarding area.  Took us maybe 5 minutes from the time we entered the building to the time we were getting into the seats.  On a different day, the wait for another ride was 150 minutes; but we had Fastpasses for that one too.

So let’s look at this economically.  The cost for 9 people standing in line for 2 hours each would be 18 man-hours.  That would be the normal cost to ride the ride.  And there were plenty of people paying that cost, else the line wouldn’t have been that long.  Also, they knew they were paying it, and it seems almost certain that they knew about Fastpasses too; they certainly aren’t a secret.  But we got a better deal: my 10 minute walk, plus 9 people waiting for 5 minutes to walk through the various twists and turns necessary to get to the beginning of the ride.  In other words, we could have paid 18 hours, or with a little planning and extra effort we could reduce that to 1 hour.  Which is what we did.  Reduced cost works the same as extra returns by the time it works its way through an income statement.  Not to mention the extra things we got to do, which we would have missed out on had we spent that 2 hours standing in line for one ride.

The lesson here is that we all have opportunities from time to time to increase our returns, perhaps dramatically, by injecting a little bit of work into the equation.  It’s an opportunity we should be on the lookout for, and consider taking advantage of when we can.  Sometimes what we stand to gain actually won’t be worth the effort, and we’ll take a pass.  Sometimes we’ll do nothing more than save ourselves the torture of long lines at the amusement park (did I mention it’s hitting 100 degrees every afternoon?).    But sometimes we’ll pick up things of true, significant value; things which exceed the results which are on tap for those not willing to exert a little effort.

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