The Mouse Roars Back

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The Reedy Creek Improvement District is no more, but it’s legacy will live on. For approximately “21 years after the death of the last survivor of the descendants of King Charles III. King of England.”

It seems that on February 8th, while the Florida Legislature was voting to establish the Central Florida Tourism Oversight Board to replace Reedy Creek, the improvement district board was finalizing a covenant with the Walt Disney Company that gave Disney self-management rights over the Walt Disney World Resort in perpetuity, from the ability to add attractions, build resorts, build new power plants, build entire new theme parks.

All the CFTOS board can do, reportedly, is fill potholes. They are not even sure if they have the authority to hire a lawyer to challenge the covenant in court.

For the better part of a year, Disney has been quiet in response to Florida’s stated intention to wrest the governing authority it had granted to Disney after Walt’s death in 1966, which led to the development of four theme parks, numerous golf courses and water parks, and dozens of resorts. During all this discussion, it was claimed that Disney had abused its self-governing authority but it was never explained how. In the meantime, Florida went from a coastal economy to a robust tourist destination, and Orlando grew from a small town to a major city.

Some took Disney’s silence as cowering, especially as former CEO Bob Chapek was fired last year and Bob Iger restored to head the company. And he is following through on a promise to slash billions from the budget, including shuttering the company’s metaverse entertainment plans (not to be confused with the multiverse, which will continue to impact Marvel movies for years to come) and severing seven thousand cast members, mostly from corporate, R&D and operations consolidations with 20th Century Studios.

But apparently, the legal minds were hard at work. Perhaps this was a plan on the shelf all along, a What-If legal exercise the Boards of Disney and RDIC had hoped to never have to put in play. Or perhaps it all fell together over the last few months. But just before the Florida Legislature passed a bill to replace the RDIC with a state-appointed governing board, RDIC and Disney agreed to a covenant that stripped RDIC of almost all of its authority, granting Disney exclusive self-management rights that covered land management, development approval, utilities and security services and more.

The CFTOD board members held their first meeting only to find that the RDIC had left them with nothing to govern but the roads. Their first action was to move the RDIC appointed civilian administrators. The CFTOD Board Chair promised to fight Disney all the way to the Supreme Court.

For its part, Disney released a simple statement:

All agreements signed between Disney and the District were appropriate, and were discussed and approved in open, noticed public forums in compliance with Florida Government in the Sunshine law.

Fuskie
Who expects this move on Disney’s part will not be taken graciously by the state government, but Disney would not likely have made this move without having prepared for the legal challenge, the political fallout and the Board’s approval…

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We need to be mindful of which state this is. As suggested on another board, I would indeed expect a challenge to Reedy Creek’s move, by a hand picked prosecutor, taking a case to a hand picked court, which will issue a preordained ruling.

Steve

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This likely won’t be contested by a prosecutor unless the AG can come up with some obscure law broken by the company or the RDIC Board. Instead, this will be battled in civil court by deep-resourced lawyers hired by the CFTOD.

Fuskie
Who expects this case could take years to be resolved, during which time, Disney will continue to be able to operate Disney World as it has for the last 52 years…

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The Gov could insist, for instance, that Reedy Creek’s authority was revoked by the legislation he signed on April 22, 22, hence Reedy Creek’s action since that date are invalid.

Steve

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He could, but he’s unlikely to prevail on that argument. The operative provisions of the 2022 legislation won’t take effect until June 2023 - precisely so that the details of the transition could be worked out in the then-anticipated special session and this year’s regular legislative session.

This is kind of in my bailiwick (I’m a Florida land use and zoning attorney), and I can see some more fertile grounds for challenges. Most promising would be the well-developed body of case law that says that governmental bodies cannot assign or restrain their police power (their right to make governmental decisions or adopt legislation) by contract. To use a trivial example, government can’t enter into a contract where they agree they won’t adopt a law changing your hours of operation in exchange for a million dollars. They can’t “sell” their legislative authority.

Perhaps the most defensible of the agreements is the Chapter 163 Development Agreement - the one that governs zoning and protects Disney’s ability to build some more theme parks and hotels. Because common law says governments can’t enter into contracts on the use of their police power, that’s actually a problem for local governments. Imagine if you couldn’t enter into a contract - without the ability to bind yourself in the long term, no one would issue you a credit card or a home loan or what not. A few decades ago, local governments were having trouble dealing with big phased developments that required the private developer to put in a lot of infrastructure (like, say, a huge spine road) well in advance of the actual development. It was hard to finance the infrastructure, because there was a risk that the government would take away your zoning approvals between the time the roads were built and the project was built. So the Legislature adopted the Local Government Development Agreement Act, which creates a statutory process whereby a local government could lock in development rights and protect them from any future downzoning.

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You clearly have knowledge and experience that I lack. Without knowing the actual text of the legislation, but going by what you said, I could contend, if I was prosecuting the case, that the legislation only provided for that transition to state control, and nothing else. The agreement between Reedy Creek and Disney, that involves a third party, the spawn of Charles, is outside of that sphere, thus invalid.

Remember, we are talking about a Gov that fired and replaced the board of a small college, so that the college’s DEI program could be terminated. He suspended a locally elected prosecutor, because the prosecutor said he would not prosecute anyone under the state’s new abortion law, but he had not actually refused to prosecute a case that had been brought to him.

Laws are always subject to interpretation. This Gov seems determined to get what he wants, so the law is twisted to fit the agenda.

Steve

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Well, technically the dissolution of the district would have transferred their functions to the County, not the state. But yes - the legislation didn’t provide for anything else.

But that’s not really relevant. The agreements that the RCID entered into with Disney were done under the exercise of the District’s baseline powers. They didn’t need the 2022 legislation in order to enter into those agreements. Any governmental body with authority over land development is allowed to enter into a statutory development agreement. There are general statutes that grant independent special districts (like Reedy Creek) a whole host of governmental powers. Presumably they were entering into these agreements exercising that ordinary governmental authority, which hadn’t been stripped from them under the 2022 legislation.

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To clarify, the law passed last summer calling for Reedy Creek dissolved by June 2023 did not specify how or what should replace it. After it was passed with virtually no debate or questioning, and after the Orange and Osceola counties protested that they would be stuck with the debt burden and operational costs without sufficient planning and preparation, the legislature came up with the idea of replacing Reedy Creek with their own improvement district board.

There have been a lot of misstatements and confusion put out by the media. I saw a CNN reporter describing Reedy Creek as providing oversight to the operation of Disney World, which is not the case. Reedy Creek was a governing entity tasked with development planning, permitting, land management, utilities and security services. It does not, nor has it ever, had any control over the operations of Disney World’s theme parks or resorts. The public roads and land at Disney World were simply land that Disney bought and ceded to the RDIC. But the land on which the resorts and theme parks are built are Disney’s.

For example, the RCID could issue permits for the operations of resorts, hotels or the construction of Galaxy’s Edge, but Disney the company had to approve and execute the project. In that context, Disney was the developer and RCID was the governmental planning and permitting entity. Disney paid fees and taxes to the RCID that covered the costs of the RCID’s operations. Of course, since RCID board was appointed by Disney, the outcome of any requests was a foregone conclusion.

With the creation of the Central Florida Tourism Oversight board to replace Reedy Creek, Florida sought to remove the rubber stamp and put a crimp in Disney World’s growth and development plans. The CFTO could potentially force the company to make business concessions, not only at Disney World but to the company worldwide, as a condition to receiving project approval. If the CFTO was an independent development authority, Disney might have been able to work with them, but it became clear that it was being stacked with persons betrothed to the dominant political party and would not be run independently.

This led Disney and Reedy Creek to take this action to cede virtually all its authority to Disney through the granting of long term covenant agreements. The CFTO board can bang its fist and state lawmakers can pontificate and claim the covenants are null and void, and maybe there are loopholes that can be exploited or judges that will overturn them, but the result is not known with any certainty and it will likely take time and a lot of legal fees on both sides.

I do not want to call this the existential fight of Disney’s life. Walt likely felt that way about the animator’s strike in 1941. But this legal battle will huge and will be critical for shareholders. And if you have the stomach for it, it may even be entertaining to watch.

Fuskie
Who notes Disney World could probably not have been built as it had with the uniform signage, monorail, boat and sky bucket transportation networks and centralized utilities and management services if not for the cooperative authority RCID…

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Disclaimer: This post is non-professional and should not be construed as direct, individual or accurate advice
Disassociation: The views and statements of this post are Fuskie’s and are not intended to represent those of The Motley Fool or any other sane body
Disclosure: May own shares of some, many or all of the companies mentioned in this post.
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This has been the hot take in some of the media coverage. But I’ve read the documents (hey, I’m a Florida land use lawyer - this stuff is professionally interesting to me), and they in no way cede virtually all of RCID’s authority to Disney. Actually, they don’t do very much at all prospectively. The Development Agreement will make it very, very hard for the RCID to take away any of what Disney currently has through downzoning or similar actions (at least for thirty years). And it does lock in a basic entitlement for a fifth theme park and some other development. But it also confirms that all such development still has to go through the RCID “zoning code” approval process…which means that they won’t be able to build any new things that RCID doesn’t approve.

The Licensing Agreement is similar. It’s mostly defensive - it basically stops the RCID from taking any of the now-public property being used for governmental purposes (like the fire station or drainage areas) and using it for residential or entertainment uses. It gives Disney the right to approve the design of new improvements to make sure they’re of comparable quality and theming, but not the substance of those things - and the approval can’t be unreasonably withheld.

Here’s a link to the documents:

https://www.rcid.org/document/4783/

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