Since mid-July, the news media has fixated on Disney moving 2,000 jobs from California to Florida. But every story left out some important context: Disney has moved jobs out of California time and time again.
One thought I have is, “So, what’s new?” But another thought wants to say to California politicians who are antagonistic to businesses, “You’re letting your people down and you’re getting what you deserve.”
California’s business losses are routinely understated because calculations often focus on companies that relocate entirely. That is the case with high-profile moves such as Charles Schwab, Oracle and Hewlett Packard Enterprise, all of which are moving their California headquarters to Texas.
Underreported is how a company moves California small business units to different places at different times, thereby masking the extent of the state’s exodus. That brings us to a present-day example. The Walt Disney Company will relocate 2,000 professional employees (“Imagineers”) from Burbank and Glendale to Orlando, Florida. The Disney organization is experienced in such partial moves because it has done so in the past.
UPDATE Aug. 4, 2021: After the above was announced, Walt Disney Animation Studios has announced it will open a new studio in Vancouver, British Columbia, Canada, in January next year, which will focus on long-form series as well as special projects created for its streaming platform. It will be a new studio and will involve moving some operations from the existing Burbank, California headquarters, although Burbank will lead all feature film projects.
The Orlando relocation plan was addressed by Josh D’Amaro, chairman of Disney Parks, Experiences and Products, in a letter to employees, saying the job transfer is partially due to Florida’s “business-friendly” climate.
That was also likely true back in 2015 when Walt Disney Parks and Resorts transferred 85 California jobs in costume manufacturing from Fullerton to Orlando.
Before that, Disney began setting up a $200 million data center in 2011 in North Carolina where electrical rates are much lower than in California. That factor undoubtedly led Silicon Valley companies, notably Google, Apple and Facebook, to collectively invest $5.9 billion in new data centers in the Tar Heel state over the last decade.
Disney would never move American jobs offshore. Right? Well, they did. Disney Interactive Studios moved video game production to India, according to the U.S. Dept. of Labor, which indicated furloughs probably began in 2010. Disney acknowledged that 54 employees in Glendale lost their jobs. Surely Disney’s labor costs plummeted by transferring the jobs to India with its abundance of qualified and low-cost workers.
Another example occurred in 2008 when Disney created an R&D center at Pittsburgh’s Carnegie Mellon University. Disney sought access to CMU’s laboratory facilities in robotics and motion capture to improve the interactive characters and robots at its theme parks. This represented an opportunity cost to California as jobs were created elsewhere.
History says that back in 1923 Walt Disney and his brother Roy created the company in Los Angeles. For many years companies like Disney with a rich California heritage have transferred units piece-by-piece to out-of-state locations. That occurred when aerospace companies like Lockheed moved facilities in different years to Florida, Georgia and Colorado. And except for Tesla, automobile manufacturing in California left bit by bit and is a shadow of its former self.
Reportedly, the latest possible example is that Wells Fargo is looking to purchase land in Irving, Texas to build a massive office that may accommodate jobs being moved from San Francisco.
Disney’s letter to employees said the move to Orlando would allow teams in digital technology, finance and product development to be better integrated. I believe it, but cost savings can’t be ignored. Every site selection consultant I know will attest that operating costs are a major factor in any location decision. Also, I would be surprised if Disney failed to consider the benefits of reducing its exposure to California’s logic-defying labor laws.
I expect to hear California politicians complain that it’s “unfair” when other states offer incentives to lure companies, which Florida has done by offering Disney $570 million in tax incentives over 20 years (roughly $28.5 Million annually) in recognition of Disney’s capital investment that could exceed $864 million.
But California, too, is generous when it incentivizes companies to stay or to lure new ones. Since Gov. Gavin Newsom took office in January 2019, he has awarded 147 businesses a total of $593,844,974 in incentives. As if that isn’t enough, incentives are being increased including a new grants program that was created this year that will remain in effect until 2030. Its initial funding is $150 million, which is likely to grow based on precedent.
In what appears to be an attempt to give Disney employees confidence in the future location, the company pointed out that “Florida is known for its rich culture of hospitality and active lifestyle as well as a lower cost of living with no state income tax.”
Perhaps the reassurance was unnecessary considering that Disney will build its new campus in Lake Nona – a family-friendly community that doesn’t have the deteriorating social conditions found in the Los Angeles area. It is located about 20 miles east of Walt Disney World and near Orlando International Airport.
The average wage for the relocated positions will be $120,000 annually, according to the Orlando Economic Partnership. Workers will have 18 months to decide whether to move, leaving time to calculate how much further their income will go in the Sunshine State with its lower cost of living.
What rational person would blame Disney for the decision? California is a difficult place to do business with high taxes and an extremely costly regulatory and legal environment. Indeed, California ranked dead last in this year’s Chief Executive magazine’s survey of CEOs about states’ business climates. Florida came in at second place after Texas, which routinely wins the highly coveted top spot.
The timing of the relocation announcement couldn’t be worse for Disney. With the upcoming Sept. 14 election to recall Gov. Newsom, Disney will be lucky to escape a beating from zealots who look for any event to disparage California companies while defending their beloved anti-business elected officials.
As someone who dives deep into data when evaluating locations for company facilities, I believe Disney made a wise business decision. It’s a win-win when part of the company settles into a state that is less inclined to penalize businesses – and when employees discover a better quality of life as Floridians.
There is something about California that reminds me of a water leak. Drip, drip, drip – making it difficult to keep water in the container. That’s the way I visualize California’s accelerating business departures for other states.
Spectrum Location Solutions conducts data-driven evaluations to identify optimum locations for company relocations, expansions or consolidations. To explore whether a location-related project makes sense for your company, contact Joe Vranich at 800-508-5138. The get-acquainted, no-obligation consultation will be completely confidential.