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Disney vs. DeSantis: Giants Battle to Control the Disney World Area - The Motley Fool

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Walt Disney (DIS 0.85%) always spins captivating tales. Right now, the company is also trying to weave some real-world enchantment behind the scenes in Central Florida.

The House of Mouse's coveted ability to self-govern the lands around Walt Disney World came to an end this week -- but a crafty move by the district's departing board of directors just might save Disney's local power in many ways. Investors should watch this unfolding drama closely, as it could have significant implications for Disney's future growth and operations in the Sunshine State.

The Magic Kingdom's real-world power struggle

Florida Governor Ron DeSantis never liked Disney World's status as a company-managed enclave in the middle of his domain. After several heated disagreements between Disney and the governor over the last two years, the politician signed a 198-page bill that effectively rips up the Reedy Creek Improvement District agreement after nearly 60 years.

The district is under new management, all hand-picked by DeSantis to support his policies, and renamed the Central Florida Tourism Oversight district. That's the end of this media-giant's special treatment from Florida lawmakers. Right?

Plot twist!

Not so fast. As cunning as Scar's wildebeest stampede or Aladdin's unspoken second wish, the outgoing board members of Reedy Creek created a development agreement that grants the entertainment behemoth a vast amount of control over its Central Florida territory for the next 30 years. Their last act before leaving office was to sign, seal, and deliver this revamped agreement, defining the terms of business between Disney and the district for the foreseeable future.

This group was elected by "landowners of the District" -- and that's Disney. The board's tight allegiance with the company should come as no surprise.

The Reedy Creek district's magic wand conjured up a clause that would make even the Fairy Godmother's head spin. Among other limits, they defined how long Disney will control the district's ability to use Disney's company name and characters without approval from the mouse-eared business itself.

These rules will last 21 years after the death of the last surviving descendant of King Charles or until Disney abandons the resort area. The whimsical connection to British royalty seeks to dodge claims that "agreements in perpetuity" are invalid. There is a time limit --- many, many years down the road!

Disney is aiming for a "happily ever after" that stretches far beyond the bounds of its enchanted kingdom. Ron DeSantis has to grapple with legally binding contract terms here. I'm no lawyer, but the 151-page agreement sure doesn't look easy to unwind.

This spellbinding agreement gives Disney power over details such as maximum building heights, density, and even the authority to regulate the aesthetics of properties within the district. On top of that, the district will be barred from selling ad space to any company that competes with those operating within Reedy Creek.

In essence, the outgoing board's actions seem designed to maintain Disney's iron grip on the Magic Kingdom, even as the governor-appointed board members take their seats at the Round Table. For its part, Disney defended its actions with an official company 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's Government in the Sunshine law."

It seems the House of Mouse is standing firm on its position, emphasizing that the agreements were made in a transparent and lawful manner.

That's a long-term struggle

But Governor Ron DeSantis isn't willing to let this sorcery go unchallenged. The new board members, taken aback by the scale of the agreement and claiming it should be null and void, have assembled a formidable legal team to face off against the House of Mouse. However, unraveling this magical web might prove to be an uphill battle for DeSantis and his administration, as an independent attorney reviewing the agreement noted its apparent legality.

Why should investors care about this clash of the titans? The outcome could have far-reaching effects on Disney's operations in Central Florida.

If the agreement holds, Disney could continue to wield its magic wand over development and growth in the area, with the potential for more significant expansions, projects, and ultimately, revenue. If DeSantis and the new board members manage to break the spell, Disney could lose its grip on the kingdom it has carefully built over the years.

The battle is far from over, with the genuine possibility of a grave legal showdown. Central Florida Tourism Oversight chairman Martin Garcia promised Orlando-area news station WFTV9 that he would take the matter all the way to the United States Supreme Court, if necessary.

It could take years to go that far. Meanwhile, I expect DeSantis to get his way with every trick available to the governor of Florida.

What the Disney-DeSantis dust-up means for shareholders

Investors should keep their eyes on this unfolding drama, as the fates of Disney's dreams and DeSantis's ambitions hang in the balance.

This drama isn't all about dollars and cents but about Disney's ability to design, build, and control things around the Magic Kingdom, EPCOT Center, Hollywood Studios, and the Animal Kingdom theme-park cluster. Disney's freedom to do business is at stake, not to mention the brand name and reputation of its Orlando-area resorts.

In the DeSantis corner of the ring, the governor will probably run for the highest office in America next year, and every move contributes to his public image.

Only time will tell if Disney's enchanting power play, orchestrated by the outgoing Reedy Creek Improvement District board, will withstand the forces of DeSantis and his team or if their magical grip on the district will be broken. In any case, investors should be prepared to adjust their expectations as this tale unfolds.

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