Universal Studios Next Theme Park to Go Bust?
Posted by Ashley McChesney on Mon, Oct 26, 2009 @ 10:48 AM
Universal Studios has until an April 1 deadline to refinance $950 million worth of debt, and they are scrambling to make things work and maybe even using some avoidance tactics.
How Stephen Spielberg is saving them
Stephen Spielberg has decided to extend a contractual agreement until 2017, according to legal papers filed on October 20th 2009, though he didn't extend for free as Spielberg will now receive 5.25% instead of the previous 5% annually until Universal decides to buy him out or 2017 (whichever comes first).
Universal signed a deal with the director in 1987 where he would help design elements of the company's theme parks and rides in their two parks in Orlando and one in Japan. In exchange, Spielberg would get 5% of the gross profit from the parks every year, somewhere around $50 million. Although added up to date he is entitled to about $250 million from Orlando alone!
It also appears that he will be guaranteed a percentage of gross revenue from Universal theme parks currently in the works in Singapore, Dubai and two undisclosed locations.
This came just in time as starting in June 2010 Spielberg had the option to forgo his quarterly payments in exchange for a lump sum based on the future value of his deal. That would amount to hundreds of millions of dollars.
The delay in payout will make it easier for Universal to work out reconstructing their current debts. Although they may have been spared a terrible financial mess this year, if things aren't better by 2017 - it is only going to get worse.
The deal amendment also spells out that Spielberg's obligations will transfer to any new owners, which gives the rumor that Comcast is looking to buy up the controlling shares of Universal stock a lot of validation.
Camcast may be taking a piece of the pie
Comcast, the largest cable system operator in the country, is likely to buy a majority stake from General Electric in NBC Universal. CNBC's David Faber reports that GE and Comcast are in talks
"about a deal in which GE would spin off its NBC Universal unit into a new company that would be merged with the content assets of Comcast."
Faber sources his report to "people familiar with the negotiations" and adds that the deal would give Comcast a 51% stake in NBC Universal.
Universal was a second choice though, Comcast had offered $54 billion for Disney in 2004, but were declined because it just wasn't enough money.
NY Times has predicted that the deal will work out like this:
Comcast would make an offer of about $27 billion, creating a new separate enterprise that takes on $9 billion in debt while Comcast would contribute its cable channels, including E Entertainment, the Style Network and the Golf Channel, along with other channels and its local sports networks worth about $6 billion. Comcast would give, by some estimates, $6 billion to Vivendi for its 20 percent share of NBC Universal, and then own 51 percent of the enterprise and use cash flow to gradually buy out G.E.
What it all means
This is all good news for Universal on the money side. Not to mention the fact that investors are feeling better about their Universal stakes after Blackstone group bought out SeaWorld
(Blackstone also has a piece of Universal). Bonds for Universal started trading at 98 cents on the dollar after the deal compared to 30 cents on the dollar last spring.
But the fact remains that the economy is in a slump and they owe billions of dollars in debt. Fine, they delayed it but a payout will be demanded eventually. Disney has taken Marvel, who Universal designed a good half of Islands of Adventure around. It is only a matter of time before Universal will have to come up with a solution to keep those characters or buy them from Disney. Now Spielberg gets an even bigger cut of park revenue. Not to mention the last time a cable company tried to diversify its assets it didn't end well (merger of Time Warner and AOL) Since that merger Time Waner has gone into debt trying to undo the damage the deal brought on.
What do you think the future will hold for Universal Studios?
In good news, the Wizzarding World of Harry Potter will be here at Universal Studios Orlando this summer! That should help earn them some money!
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