Sea change at SeaWorld
A new management team is trying to rebuild SeaWorld. Can the iconic attraction succeed without killer whale shows?
Just before 9:30 on the morning of April 19, 2013, Jim Atchison, president and CEO of SeaWorld Entertainment, strode out onto a podium overlooking the floor of the New York Stock Exchange. Flanked by a group of fellow SeaWorld executives — and a penguin named Penny — Atchison smiled over the applauding crowd as he rang the bell to mark SeaWorld’s debut as a publicly traded company.
SeaWorld’s IPO raised more than $700 million as the company’s stock debuted at the top of its expected range. Atchison and the others then watched the stock surge higher, rising 24% in its first day of trading.
“We’ve had a great run,” the CEO told a Fox Business anchor, as Penny fidgeted in the arms of a handler.
That run, it turned out, was just about to end. Within a year of its IPO, SeaWorld began a decline that has seen attendance across its amusement parks fall 7.9% since 2012. Income is down more than a third over that period, and the stock price, which rose above $37 in mid-2013, dipped as low as $12 this year.
SeaWorld has cut spending on attractions and advertising. It has about one-third the cash on hand as it had in 2012. And in September, the company suspended its quarterly dividend payment.
Today, Atchison is gone, part of a purge that also included the company’s CFO, COO and chief creative officer. The company’s new managers have adopted a strategy that envisions a much different company — most notably, one without killer whales as the featured attraction — and a new, more modest goal for its flagship park in Orlando.
“We’ve just got to make sure we’re a strong No. 3 choice,” CEO Joel Manby told analysts late last year at an investor conference in Orlando.”
In trying to turn around Sea- World, Manby and his team are rebuilding on ground that has shifted dramatically beneath SeaWorld over the past decade.
Founded in 1964 as a single aquarium in San Diego, SeaWorld quickly grew into a small chain of marine parks that was acquired in the mid-1970s by book publisher Harcourt Brace Jovanovich. The modern-day company came together in 1989, when Harcourt Brace sold SeaWorld to brewer Anheuser-Busch, which had developed its own stable of successful theme parks, led by Busch Gardens parks in Tampa and Williams burg, Va.
Anheuser-Busch, which used its theme park business as a way to soften its brand with American families, poured tens of millions of dollars a year into the business, building rides and shows on par with anything at a Walt Disney or Universal Studios park. By the late 2000s, SeaWorld Orlando was the busiest non-Disney theme park in the United States.
But in 2008, InBev, the Belgian and Brazilian beer giant, bought Anheuser-Busch in a $52-billion takeover. InBev’s managers lived up to their reputation as cost-cutters, imposing deep cuts across the organization, including at the theme parks. InBev put on hold any new attraction that wasn’t already out of the ground.
A rough rule of thumb in the theme park business is that operators should reinvest at least 10% of revenue to maintain existing attractions and build new ones; InBev cut SeaWorld’s capital spending to a little more than 5% of revenue.
InBev, which had made clear that it had no interest in owning theme parks, sold the business a little over a year later. The buyer: The Blackstone Group, which paid $2.7 billion for it in December 2009.
Blackstone immediately accelerated capital spending, laying the groundwork for the IPO. But then SeaWorld was rocked by a series of events that began in February 2010, when a killer whale at SeaWorld Orlando killed a trainer.
The event set off a global media frenzy and provided a megaphone for animal-rights activists who had for years condemned SeaWorld for keeping killer whales in captivity. The federal government launched an investigation that found that SeaWorld trainers should no longer be able to perform in the water with killer whales.
Things got worse in June 2010, when Universal Orlando opened its “Wizarding World of Harry Potter.” Universal’s attendance soared while the number of visitors to SeaWorld Orlando dropped.
And the success of the Potter attraction prompted Universal’s new owner, cable titan Comcast, to begin plowing money into its theme parks in a way not seen since Michael Eisner ran Disney. Universal Orlando added a second Harry Potter land, along with attractions based on Despicable Me, Transformers, King Kong and the Simpsons, and two new hotels. A new water park opens next year.
Disney also began building new attractions at Disney World based on Avatar and Star Wars [“Theme Park Wizards,” February 2015, FloridaTrend.com].
Then, just a few months before SeaWorld’s IPO, the documentary Blackfish premiered at the Sundance film festival in early 2013. Among other points, the film argued that life in captivity put extra stress on the whale that killed its trainer in 2010. The film was picked up by CNN, which broadcast it through the fall. Activists began to pressure SeaWorld partners, prompting some, such as Southwest Airlines, to end longstanding sponsorship agreements with the company. Performers such as Willie Nelson canceled concerts in company parks. And politicians began responding, too: Lawmakers in California, where SeaWorld was founded, introduced legislation to make breeding killer whales illegal.
The combination of a damaged brand and tougher competition in its most important market proved devastating for SeaWorld. Analysts aren’t sure if the company will ever fully recover.
“It’s not going to be easy, but I think the brand is fixable,” says Bob Boyd, an analyst with Pacific Asset Management. “But as far as the Orlando market goes, I don’t view that as fixable. I don’t think they have the ability to compete with what Disney and Universal can do, especially when you have Disney and Universal effectively competing with each other. I think their structural position is gone for good.”
Indeed, events have exposed one of SeaWorld’s chief vulnerabilities: Its heavy reliance on the three parks it owns in Orlando — Sea- World Orlando, the Aquatica water park and limited-admission luxury park Discovery Cove. Although the company has 12 parks in five states, those three Orlando parks together account for more than a third of its business. In some years, the Orlando properties have generated more than 40% of earnings.
Manby, who arrived in April 2015, and his team are trying to reposition SeaWorld Orlando away from competiting directly with Universal and Disney and instead appeal primarily to repeat visitors to Orlando from nearby markets who may find the other parks less affordable.
“There’s a lot to do here, and as long as we keep a very strong No. 3, I think there’s plenty of opportunity,” Manby said.
SeaWorld has shifted advertising dollars more heavily toward drive and overnight markets within a 250- to 300-mile radius around central Florida. It has stopped matching the prices Disney and Universal charge for single- day passes. And it has accelerated the pace of new attractions in Orlando — but with a focus on less expensive rides and shows than those being developed at Disney and Universal.
“SeaWorld looks increasingly more like a regional park than they do a destination theme park,” Boyd says.
A prime example of the new SeaWorld Orlando is its new roller coaster Mako, which plays off its physical characteristics rather than the lavishly executed themes that characterize the Disney and Universal rides. SeaWorld has marketed the ride as the longest and fastest roller coaster in central Florida, following a script used by regional amusement park chains such as Six Flags.
The new approach in Orlando reflects the experience of the new management team. Manby, for instance, came to SeaWorld after 13 years as CEO of Herschend Family Entertainment, the operator of Dollywood in Pigeon Forge, Tenn., Silver Dollar City in Branson, Mo., and Wild Adventures in Valdosta, Ga. Manby and the board have brought in CFO Peter Crage, a former CFO of Cedar Fair Entertainment, and Chief Creative Officer Anthony Esparza, who previously worked under Manby at Herschend. SeaWorld declined to make executives available for interviews.
Even more significant than Sea- World’s attempts to reposition itself in Orlando is the effort to rebuild its brand.
The company says it intends to make its parks more educationand conservation-focused. It is also devoting more resources, both in terms of in-park space and advertising dollars, to promoting its animalrescue work. The goal, Manby says, is to remake SeaWorld into a socially conscious brand — the amusement park equivalent of Whole Foods.
The strategy is reflected in small ways — employee name tags identify the animal that the employee “protects” rather than the employee’s hometown — and large: A new roller coaster being built in SeaWorld San Antonio is themed around “Sea Rescue,” a television show SeaWorld launched in 2012 to promote its conservation work [“Bright Spots,” page 75].
But by far the biggest move Sea- World has made so far has been its decision to stop breeding killer whales, SeaWorld’s signature attraction since the original Shamu was captured off the coast of Washington state and sold to SeaWorld in 1965. In a decision that will define his legacy, Manby in March announced the end of both the breeding program and all theatrical orca shows. The orca shows will end in San Diego in 2017 and in Orlando and San Antonio in 2019.
The killer whales in its current collection — there are 29 — will be the last SeaWorld ever owns. Beginning next year, the orcas will instead be used solely in educational “presentations” and will be slowly phased out of the company’s animal collection through attrition.
SeaWorld spent months quietly evaluating the decision, with the key players including Manby and a small circle of company directors: Chairman David D’Alessandro, a financial executive brought into SeaWorld by Blackstone, which remains the company’s largest shareholder; Ellen Tauscher, a former Democratic member of Congress from California; Judith McHale, the former Undersecretary of State for Public Diplomacy and Public Affairs under President Obama; and William Gray, a marketing executive and Blackstone adviser.
SeaWorld calculated the potential financial impact from the decision — estimating, for instance, it could save $15 million on marketing costs because it wouldn’t have to spend as much defending its reputation. The company predicts the announcement will produce an attendance gain of anywhere from 380,000 to 940,000 visitors per year and as much as $65 million in earnings before interest, taxes, depreciation and amortization over the next three to five years.
“There was quite a bit of research and modeling that we believe supports this decision,” Crage, the company’s CFO, told analysts.
The move, however, enraged some longtime SeaWorld employees and others in the zoological industry, who have privately condemned it as a capitulation to the animal-rights movement. And it hasn’t quelled criticism from the activists, who continue to attack Sea- World for refusing to move its killer whales into coastal sea pens and continuing to breed and display other large animals such as dolphins.
SeaWorld says the vast majority of the reaction has been favorable, however. In August, the company says its polling showed its favorability rating improved by an eightto- one ratio after the announcement. The same surveys, it said, showed consumers were more likely to consider visiting SeaWorld by a five-to-one ratio.
Beyond the immediate lift, Manby says the move will help Sea- World’s reputation among both millennial consumers and government regulators. “I can’t tell you how much this orca issue has clouded us from being able to focus on the dayto- day issues,” Manby said when he announced the decision. “We had to get on the right side of this.”
The early returns have not been promising, however. Attendance, sales and income continued to slide during the first half of 2016, pulled down, SeaWorld says, by a slump in visitors from Brazil and an overall weakening of the Orlando theme-park market. Manby, who has described SeaWorld as still in the “first inning” of its turnaround, is urging investors to give him time.
“We do feel like our strategy is working,” he told analysts during the company’s second-quarter earnings call in August, after acknowledging the company’s results were once again “disappointing.”
The results forced SeaWorld, for the third year in a row, to revise its earnings guidance downward in the middle of the year. “We appreciate your patience as we work through these macro issues,” Manby added, “which we will.”
It’s been a difficult few years for Orlando-based SeaWorld Entertainment, whose business has shrunk dramatically amid killer whale controversies and theme park competition. But there have been a few bright spots across the $1.4-billion business. Among them:
» THE SILVER SCREEN: One of SeaWorld’s strategic goals after it became a stand-alone company in 2009 was to grow by expanding into new lines of business. While plans for things like consumer products and hotels have been slow to develop, SeaWorld has done well on television. The company’s first TV effort, a Saturday morning children’s show called “Sea Rescue,” debuted in 2012. It showcased SeaWorld’s marine rescue and rehabilitation work with animals such as manatees and sea turtles. That was followed a year later by “The Wildlife Docs,” which chronicles the day-to-day activities at the Animal Care Center in Busch Gardens Tampa. The company says Sea Rescue has attracted more than 281 million viewers since its debut, while “The Wildlife Docs” has drawn more than 168 million viewers.
» BUSINESS TRAVEL: Like Disney and Universal, SeaWorld has built facilities around its parks to accommodate group meetings and conventions — the biggest of which is its 70,000-sq.-ft. “Ports of Call” special events and banquet facility at SeaWorld Orlando. That business segment is growing: SeaWorld says it hosted more than 1,600 group events at its parks in 2015, up 45% from the 1,100 group events it hosted in 2012.
» VISITOR SPENDING: While its parks are drawing fewer people than they did a few years ago, SeaWorld is getting more money out of those who visit. Per-guest spending has climbed from $58.37 in 2012 to $61.01 last year. Some of the growth has come from eliminating certain discounts and promotions. SeaWorld, for instance, distributed about 538,000 free passes to U.S. military personnel and their family members last year, down from 740,000 in 2012.
What SeaWorld Entertainment Owns
» SeaWorld parks in Orlando, San Antonio and San Diego
» Busch Gardens in Tampa and Williams burg, Va.
» Adventure Island in Tampa
» Aquatica parks in Orlando, San Antonio and San Diego
» Water Country USA in Williams burg, Va.
» Sesame Place in Langhorne, Pa.
» Discovery Cove in Orlando