Among the many tragedies that have occurred over the past several days, one in particular horrified millions of parents. Early last week, a two-year old boy who was vacationing with his family in a Disney World resort was attacked and killed by an alligator. According to Time, there were previous incidents of close encounters with alligators that were ignored by Walt Disney Co. (NYSE:DIS) staff. In addition, there were no posted signs of potential alligators in the area where the boy was attacked, only “no swimming” signs. That has many legal experts suggesting that Disney will face a massive lawsuit. Should Disney shareholders be concerned?
On the legal front, this situation has the potential of producing a slippery slope precedent. The core issue is, how much disclosure is enough? And do individuals or guardians of minors bear any responsibility towards their own safety should events go awry? While Disney did neglect to adequately warn their guests about the presence of alligators, they did post no swimming warnings. Being that that is the case, it begs to question the responsibility of parenting. After all, teaching your children to ignore safety rules raises some eyebrows.
Legal experts shouldn’t rush to judgment against Disney. To my knowledge, there are no warning signs posted on freeways saying, “don’t play here.” Freeways are inherently dangerous. Even if a warning sign was posted, could it account for everything that could go wrong? It’s not just fast cars that can cause fatal damage on the road. Flying debris and other random events could just as likely cause a serious incident. In other words, does a warning need to include all dangerous variables?
Technically, Disney shares haven’t reacted that much to the tragedy. In the trading week beginning June 13, the stock has actually gone up by nearly 2%. Year-to-date, Disney is down 6%, but that has more to do with high-scale problems, such as declining revenue in acquired cable TV assets, and broad economic (consumer sentiment) concerns. If the alligator attack was perceived to be a huge problem, surely, Wall Street would dump the company en masse.
That’s not to say that a drop will never happen. But if it does, it’s more likely to fall due to economic pressures. The key for Disney and any other entertainment-related company is to attract consumer dollars. That will be an increasingly tough proposition as the competition heats up. Six Flags Entertainment Corp. (NYSE:SIX), for example, has expansion plans for the lucrative Asian markets.
At the same time, Disney is Disney. They have a lot of exciting projects down the pipeline, and they own some of the most popular film brands in cinematic history. The risk to short traders in particular is that the whale could go down, but it may not go out. This is a stock that investors should avoid reading too much into bad news.