SeaWorld selling stock: don't mind the debt, trainer deaths, dolphin trade

SeaWorld and its sister parks are going public.

Nevermind the horrific death of a trainer in 2010 by killer whale Tilikum. Or the various other attacks and deaths. Forget about concerns about how many animals SeaWorld takes from the wild and the growing consensus

killer whale performing

Orca at SeaWorld, courtesy of Roger Wollstadt

that marine mammals shouldn’t be captive entertainers. Don’t think about how SeaWorld uses Tilikum as the star of its breeding program. Pay no attention to the massive amount of debt the company is in, thanks to the Blackstone Group, the huge private equity firm that bought the chain of 11 amusement parks for $2.7 billion from Anheuser-Busch in 2009, in a classic leveraged buyout that has left the company drowning in debt.

Blackstone now wants the investing public to take over some of the responsibility of SeaWorld, even as it maintains control.

Blackstone just filed the documentation necessary to sell shares in SeaWorld Entertainment during the holiday week between Christmas and New Year’s, so the amount it hopes to raise is unclear so far, though Bloomberg reports it plans to raise at least $500 million. It’ll be a few months before we know exactly, but the financial details contained in its registration form with the Securities and Exchange Commission reveal a number of fascinating details about Sea World and how it operates that any animal lover should know.

SeaWorld is deep in debt, but its current owners are paying themselves amazingly well

The SeaWorld – Blackstone story is a classic leveraged buy-out tale of sophisticated investors buying a company, loading it up with debt and using it as a cash machine. Blackstone put up about $1 million of its own money to buy SeaWorld, then put the company $1.3 billion in debt, the Orlando-Sentinel reported at the time of the deal. Now the company is $1.8 billion in debt, thanks to the lavish $610.1 million dividends paid in the last two years.

Blackstone did make the company profitable, but nowhere near that much. In 2011, SeaWorld earned $19.1 million but paid Blackstone a $110.1 million dividend. For the first nine months of 2012, SeaWorld paid Blackstone a $500 million dividend–pretty amazing considering the net income was only $86 million. (Coincidentally the same amount it paid in interest on its loans.) “Blackstone extracts another dividend from SeaWorld” is how  The Deal explained it. Writer David Holley noted that S&P downgraded the company’s debt and Moody’s raised its probability that it would default on its loans.

The question this raises for animal lovers is how it will impact the treatment of SeaWorld’s 67,000 animals. That’s always an issue when you put animals to work for a for-profit enterprise. It’s hard to imagine how being over-leveraged will improve the lives of the animals there.

What you’re buying if you buy Sea World shares

Blackstone lists Sea World Entertainment’s total capitalization at $2.3 billion. That’s not what is being sold to the public; Blackstone wants to keep control of the company, but use the public sale of shares to get cash from the public, in part, to pay off a loan that carries 11% interest. So if you’re buying Sea World shares, you won’t really have much say in how the company is run, but you will help its principal owner, Blackstone, pay down high-interest debt.

Other fun facts from the filing:

Nearly 1 in 5 of their marine mammals was taken from the wild

The S-1 filing, as it’s known, reports that “More than 80% of our marine mammals were born in human care.” That means that almost 20% were pulled from the wild, in places like Taiji, Japan, where the movie The Cove documented dolphin slaughter. The film argues that the fishermen don’t make that much money off dolphin meat, but persist because they can occasionally sell a dolphin to an aquarium for about $28,000. A trained dolphin can be sold for $300,000.

Sea World has 67,000 animals

The company boasts that it has 60,000 fish and 7,000 “marine and terrestrial animals.” Remember, Sea World Entertainment includes the animal parks Busch Gardens, which have about 2,700 animals, ranging from lemurs to flamingoes and elephants. Sea World reports that it possesses 29 killer whales, 151 dolphins, and 115 sea lions.

Sea World considers its breeding program an asset

The financial document calls it “successful and innovative,” and notes their genetic diversity. This is odd because Sea World has been criticized for overusing their most dangerous killer whale, Tilikum, to father too many offspring. Drummer and PETA rep Tommy Lee complained publicly that even though they claim Tilikum won’t have any contact with trainers, somebody is still going to have to touch him intimately to extract more sperm.

Sea World is not too worried about fines from regulators

SeaWorld has to list potential risks to investors. It names animal welfare regulations, but doesn’t seem overly nervous. SeaWorld says say it follows the rules of animal care and even in “unusual instances when we are cited for an alleged deficiency, we are most often given the opportunity to correct any purported deficiencies without penalty.” And even if Sea World does have to pay a fine, it’s usually no big deal. “In the past, when we have been subjected to governmental claims for fines, the amounts involved were not material [emphasis mine] to our business, financial condition or results of operations.”

Case in point: In June 2012, a judge ruled that SeaWorld has to make the workplace safer for trainers, but as lawyer Edward Tan explained, the judge also reduced the fine from $75,000 to $12,000.

Sea World has insurance for when whales attack people 

While Sea World reassures investors that it runs a totally safe place, it has to acknowledge in the risks that could harm its business that “injuries or death, while rare, have occurred in the past and may occur in the future.”

To protect the bottom line, Sea World has a policy for “animal enterprise related businesses in the theme park industry.” That said, Sea World admits that it is worried about premiums going up. “We cannot predict the level of the premiums that we may be required to pay for subsequent insurance coverage, the level of any self-insurance retention applicable thereto, the level of aggregate coverage available, or the availability of coverage for specific risks.” In other words, whale attacks are part of the cost of doing business.

They help rescue more than 500 wild animals a year 

SeaWorld and the other parks do generously help some wildlife. They take in orphaned, injured, sick or abandoned wild animals. They don’t get anything in return; if the animals survive, SeaWorld returns them to the wild. In 40-plus years, they’ve treated more than 22,000 wild patients.

Of your $79 ticket, less than a dime goes to the conservation fund

The parks boast that they fund their own SeaWorld and Busch Gardens Conservation Fund.  Though, truth be told, not all that generously. The fund’s website says, “The parks have contributed more than $50 million to wildlife conservation since 1970.” If it were equally divided annually, that would amount to about $1.2 million a year. The company had sales of $1.2 billion for the first nine months of this year. So if you shell out the $79 for an adult ticket, you can feel good knowing roughly 6 – 8 cents of that is going to conservation.

Where to See Whales in the Wild

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