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Treasure, Interrupted for Odyssey Marine

In October 1804, four Spanish frigates approached the port of Cadiz in southwestern Spain, laden with South American treasure. The loot was meant to bankroll Spain, nominally neutral but tacitly allied with Napoleon against Britain. Four British frigates met the treasure fleet.

In the ensuing Battle of Cape St. Mary, the British captured three of the Spanish ships. The fourth, the Mercedes, exploded. Historical novelist Patrick O’Brian integrated the conflict into one of his novels, with fictional hero Capt. John “Lucky Jack” Aubrey awed as the Mercedes’ powder magazine destroyed the ship in “a blast so huge it wiped out thought and almost consciousness: the Mercedes blew up in a fountain of brilliant orange light that pierced the sky.”

Odyssey Crab
Odyssey Marine's treasure recovery operation is temporarily interrupted by a visitor. [Photos: Odyssey Marine]

The outcome of the battle created a potential windfall for the British seamen. Under a law designed to encourage naval zeal, the officers and men could share the spoils of the three captured ships. The event also marked a historical turning point: Spain entered the long war against England.


Underwater Treasure
Journey far below the Atlantic to visit the SS Republic, shipwrecked in 1865 during a hurricane, and see how Odyssey salvaged its treasures.
Some 204 years later, investors in Odyssey Marine Exploration (Nasdaq-OMEX) are hoping for both a windfall and a turning point — in large part from treasure that may have gone to the bottom with the Mercedes. The Tampa-based shipwreck search and treasure recovery company has found what may be the treasure from that ship, along with three other wrecks near England.

Odyssey Marine derives its revenues from selling treasure like these gold coins it recovered from the SS Republic in 2003. Odyssey recovered 4,000 gold coins and 47,000 silver coins along with thousands of artifacts, including a crucifix candlestick.

But the company has reason aplenty to heed Lucky Jack’s recurring admonition to his crew that there’s not a moment to be lost. The company has turned a profit only twice, totaling $5.8 million, since it went public in 1997. The last black ink came four years ago. It has racked up $57.8 million in losses since then, with another $12 million lost through the first half of this year.

Odyssey founders John Morris and Greg Stemm had wanted to navigate a smoother course than the previous flotilla of money-losing, Florida-based treasure hunters — a fleet that has produced only one steady performer, the family of Key West’s late and legendary Mel Fisher. Morris and Stemm promised to marry archaeology and profits as they focused on high-value wrecks at depths that only expensive remotely operated vehicles like Odyssey’s seven-ton “Zeus” can reach. It’s a barrier to entry that eliminates the Sunday divers who scour Florida’s coastal waters.

Their first real payoff came in 2003, when Odyssey found the SS Republic, a steamer that went down in a hurricane in 1865 off the Florida-Georgia line. Odyssey recovered 4,000 gold coins and 47,000 silver coins along with thousands of artifacts. But they’ve sold off all but a handful of the gold coins, and there’s less demand for the remaining 33,000 silver coins.

“We believe that there are billions of dollars worth of fascinating and valuable historical assets lying on the ocean floor and that the technology exists to find and recover them.” — Odyssey co-founder Greg Stemm

Odyssey is trying to mine other veins. It operates a traveling museum attraction and has done marketing partnerships with feature filmmakers. To broaden the market beyond buyers of $2,000 coins and $1,200 bottles from shipwrecks, it offers crew caps ($18) and jewelry made from SS Republic glass debris. Odyssey is being paid a “couple million” for participating in an 11-part series to be televised next year on the Discovery Channel, says Odyssey’s president, Mark Gordon. The first $300,000 payment was welcomed. Without it, Odyssey’s revenue would have been down 53% in the second quarter, rather than the 35% drop it reported.

But that ancillary revenue isn’t enough to offset the $2.4 million the company goes through each month. Alone, one ship costs $250,000 to fill up with fuel. Profits hinge on finding gold and silver, which is why the stock market took notice in the past 18 months as Odyssey found the two promising wrecks in the English Channel and the Spanish wreck — code-named “Black Swan,” which Odyssey hypothesizes is the remains of the Mercedes. Shares more than doubled to $9.45 last year on the news that the company had flown “hundreds of gold coins” and half a million silver coins weighing 17 tons to Florida from the putative Mercedes site. Investor enthusiasm has since waned, with the stock now trading for less than $5.

But just as the three recent wrecks promise to restock its coin inventory, Odyssey has sailed into a legal storm. University archaeologists take a hostile view of treasure hunters and are pressuring governments to prohibit for-profit search and recovery. “This industry could be regulated out of business,” Gordon says.

Odyssey Marine
Odyssey co-founder Greg Stemm and a coin expert are surrounded by buckets of coins salvaged from the company’s latest discovery, the “Black Swan,” off the coast of Spain. The company theorizes the “Black Swan” is the Mercedes, a Spanish frigate. Both Spain and Peru have filed claims on the treasure, but Odyssey says that the Mercedes was carrying mostly commercial cargo, eliminating Spain’s sovereign immunity claim. [Photos: Odyssey Marine]

The company’s largest excavation vessel costs $250,000 to fill up

The climate behooves Odyssey to eliminate risk by cutting deals. The company has executed a revenue-sharing deal with England for the recovery of the HMS Sussex, a ship-of-the-line lost in 1694 in the Mediterranean. “Cultural heritage” items go to England, and the two parties split the value of the cargo. But Odyssey had no such deal with Spain on what may be the Mercedes, and Spain is asking a federal judge in Tampa to make Odyssey return what the country sees as its property. Last year, Spanish authorities even seized Odyssey vessels off Gibraltar and detained them temporarily.

Odyssey has no plans to return to the site of the SS Republic, even though it uncovered less than it expected to. The steamer sank off the Florida-Georgia coast in 1865.
Spain’s attorney, James Goold, of counsel to the Washington, D.C., firm of Covington and Burling, says the Mercedes wreck is the gravesite of Spanish sailors, analogous to the USS Arizona at Pearl Harbor. It “may not be interfered with or looted anymore than you could do a United States Navy ship. These ships are irreplaceable time capsules and national patrimony and cultural heritage.”

Goold successfully represented Spain in a 2000 case against treasure hunters who found two sunken Spanish frigates in Virginia waters. The case set a “terrible precedent,” says David Paul Horan, the Key West lawyer who successfully represented Mel Fisher in his 1982 U.S. Supreme Court case involving the treasure Fisher found from the Atocha galleon. Horan says it will be “very hard for Odyssey to prevail in the district court” and predicts Odyssey will be forced to go the U.S. Supreme Court to win.

Odyssey says it found the treasure in international waters, obeyed applicable laws, found no human remains and no ship — just a coin dump on the bottom. Some evidence even conflicts with the idea that the wreck is the Mercedes, it says. But even if Spain gets ownership of the wreck, Odyssey says it expects a salvage award from the court, typically up to 90% of the recovery.

A porthole window (above) and a collection of bottles (below) recovered from the SS Republicporthole
Odyssey says the Virginia case isn’t a good parallel to the “Black Swan.” The Mercedes, the company says, was carrying mostly commercial cargo, eliminating Spain’s sovereign immunity claim. In any case, that claim applies to its vessel, which wasn’t found, not to cargo Spain didn’t own, Odyssey contends. Also, since the treasure was found in international waters, international law prevails rather than the particular United States law applied in the Virginia case.

Goold counters that the treasure hunters in the Virginia case got nothing. “Such is the risk of treasure salvage,” Goold says. Risk, indeed. The British sailors who hoped for all of the spoils from the Battle of Cape St. Mary 204 years ago ended up disappointed — they lost out on a technicality of admiralty law.

Odyssey MarineMark Gordon
Three finds in 18 months isn’t just luck, says Odyssey President Mark Gordon. Rather, Odyssey is benefiting from new technology and better utilization of its ships. It has eliminated, albeit through expensive searching, thousands of miles of seabed, narrowing the field of where valuable wrecks can be. “We’re able to search more ocean more quickly and more efficiently.” Above is Odyssey’s seven-ton “Zeus.”

Odyssey Discoveries

» “Black Swan” — Odyssey’s code name for the wreck from which it recovered gold and 17 tons of silver off the seafloor in 2007 in international waters near Cadiz, Spain. Odyssey says the find might be the Mercedes, a Spanish ship destroyed in battle in 1804. The company says some information conflicts with its Mercedes hypothesis. Spain has filed a claim on the treasure, as has Peru, from which the goods may have originated. Peru’s entry may help Odyssey.

HMS Sussex » HMS Sussex — An 80-gun English warship that sank in a storm off Gibraltar in 1694 that Odyssey believes it has found. While Odyssey reached a deal in 2002 with the British that gives it permission to excavate the site, the company agreed to have Spanish archaeological supervision. The project is on hold given the “Black Swan” fight.

SS Republic » SS Republic — A steamer that sank in a hurricane in 1865 near the Florida-Georgia line. Odyssey still has the legal right to the site but retrieved all the gold, silver, cargo and artifacts it desired in 2003. Odyssey didn’t find all the riches it anticipated, perhaps because it settled elsewhere or was never on board. Odyssey President Mark Gordon says the company has no immediate plans to return.

» Merchant Royal — Odyssey hypothesizes a wreck with cannons it found near the English Channel is the Merchant Royal that sank in 1641 while carrying an eye-popping amount of gold and silver. The company has filed an admiralty action for the wreck but hasn’t said anything about finding gold and silver. Spain says the cargo belongs to it.

» Ancona — An Italian passenger liner carrying gold sank after an attack by a German U-boat in 1915 off Italy. Odyssey filed its admiralty action last year on the wreck site.

» “Firefly” — Odyssey’s code name for a wreck 12 miles off North Carolina that has produced some gold and silver.

Blue China » “Blue China”— Project name for an unidentified sailing ship carrying primarily china that Odyssey found in 2003 while hunting for the Republic. Odyssey has recovered some of the plates. (Some of the china is in photo at right.)

» “Melkarth”— Project name for a third to fifth century B.C. trading ship carrying amphorae jars found in 1998 while Odyssey was looking for the Sussex. With no gold or silver, Odyssey has no plans to excavate the site unless a sponsor steps forward to fund it.

» “Atlas Project” — A 5,000-square-mile area in and around the English Channel that Odyssey has searched for three years for five “high-value” wrecks. The area produced what may be the Merchant Royal and two other wrecks from the Colonial era. Odyssey is developing plans to excavate them.