On Friday March 24, it was announced that Blackstone will sell its 21% ownership of SeaWorld Entertainment to China’s Zhonghong Group for $23.00 per share, a markup of more than 30% over market value on the day of the announcement.  Zhonghong can purchase additional shares, buying up to 24.9%, and even own 30% or higher with board approval.

So who is Zhonghong?

Zhonghong is a real estate investment firm based in Beijing and founded in 1995.  In 2010, the company hired American themed entertainment design firm Thinkwell Group to develop a large-scale Monkey Kingdom theme park, based on the famed Journey to the West folklore story. Monkey Kingdom was scheduled to open in 2014 in Huairou, Beijing, but was put on hold due to a number of factors, among them a temporary ban enacted in late 2011 on the construction of new theme parks throughout China and a later re-zoning of Beijing that allows only one amusement park per district.  According to Chinese media, Monkey Kingdom is back on track to open, but in a new location – Jinan, Shangdong, about five hours to the south from its original location.  It is slated to open in 2020.

Zhonghong’s largest shareholder is Qilu Securities Shanghai Assets Management (QSSAM), which owns 20.5%. Other Zhonghong owners include a number of international hedge funds and institutional investors, many connected with or owned by the Chinese government. QSSAM is an affiliate company of Zhongtai (China and Thailand) Securities, which is controlled by Laiwu Iron & Steel Group, a government-owned steel manufacturing and distribution company. This should not be surprising, as every business in China, by law, is partially owned by a government-related entity.

Without discussing the complexities of international business law, the Chinese government will soon be a part-owner of SeaWorld Entertainment.

Now, this certainly isn’t the first time the Chinese have purchased an American entertainment company.  Dalian-Wanda Group, which just backed out of a deal to purchase Dick Clark Productions, owns AMC Entertainment, North America’s largest cinema chain. Wanda, which is one of China’s leading leisure companies, has also committed billions of dollars to new theme park projects in India and France.

But what does this mean for SeaWorld?  Well, one thing’s for certain – a lot of work is coming for the company’s Deep Blue Creative design studio and its partners, at least overseas.  But other than that, it’s time to put on the speculation hat:

CHINA WANTS PUBLICITY

Chinese multinationals often invest heavily in foreign companies or provide infrastructure services (such as rail, dams, sewage) to other countries as an example of the country’s economic might. A Chinese-owned SeaWorld Entertainment could see huge economic investment in the US parks, allowing the theme park company to finally be on a competitive level with Disney and Universal. Duplication of attractions in the US and China could provide similar attractions for different audiences on different continents, reducing design and production costs. How much investment are we looking at here? In 2011, it was announced that Monkey Kingdom would cost around US$1.5 billion.  That’s US$150 million more than SeaWorld’s entire revenue for its 11 parks and other corporate ventures during all of 2016. And I’m not adjusting for inflation.

CHINA WANTS REAL ESTATE

SeaWorld could sell of its US properties and exit its San Diego lease, segueing into a company that develops and operates parks in Asia and the Middle East, where the political climate is friendlier to animal-based entertainment companies. Under this scenario, those animals not restricted to export by the Endangered Species Act, along with the company’s coasters, would be shipped overseas.

The Orlando park is still beset by reduced attendance from Brazil.  Although a number of park critics have questioned this factor as just being an excuse to hide from the reality of fewer people wanting to attend the parks, state tourism figures issued by the State of Florida do show reduced visitation across the state from Latin America, along with lower hotel occupancy for 2016.

Over the weekend, I had a conversation with a number of San Diego hoteliers. One was willing to speak on the record, but requested anonymity. As I have not confirmed her statement through other channels, please consider it as opinion and with some skepticism:

There’s been a bit of confusion in the market since SeaWorld announced that One Ocean closed.  Most of our guests think the park doesn’t have orcas any more. Some ask our staff if they were shipped to Orlando. It doesn’t help that SeaWorld until just recently stopped calling them killer whales. So now, when one of our guests comes up to the desk and asks if they still have killer whales, we tell them they still have the orcas, and they say ‘No, I didn’t ask about orcas. I asked about killer whales.’ What I do know for certain is that more and more of our guests are avoiding SeaWorld because they think the orcas are gone.

San Antonio appears to be the one SeaWorld-branded park where attendance is stabilizing.  It, along with Orlando, are two properties the company owns outright, which either could be sold for a huge profit or developed. Don’t forget – Zhonghong also develops housing.

CHINA WANTS ORCAS

Two companies in China currently have orcas. There are nine at Chimelong Ocean Kingdom in Zhuhai and six at Haichang Ocean Park’s Linyi (Tiger Beach) Polar Ocean Park. Some of the Haichang orcas are scheduled to relocate to the Goddard Group-designed Shanghai Polar Ocean World when it is complete.  Other companies have announced plans to exhibit orcas in new or existing parks. None of the fifteen orcas have been on public display.

Chinese companies obtained their orcas through Russia’s TINRO Center, a quasi-government fisheries institute headquartered in Vladivostok.  Earlier this month, the head of TINRO was arrested and charged with the illegal capture and export of belugas and orcas to China. Although the arrest is tied in with a major initiative to increase offshore drilling in the Sea of Okhotsk, where the orcas are captured, it also creates a hardship for Chinese parks, as it dries up their only source.

Currently, the only state SeaWorld operates in with a prohibition on the export of orcas is California. The prohibition was signed into law on September 13, 2013 as part of the state budget. Violating the prohibition on breeding or export in California is a misdemeanor offense and carries a maximum fine of US$100,000, not a big fee for a company spending US$429 million on SeaWorld stock.

Representative Adam Schiff, who you can see nightly on the news dealing with one sort of catastrophe or another, introduced HR 1584 last week, which would amend the Marine Mammal Protection Act (MMPA) to prohibit on a national level the import or export of orcas for public display, along with breeding. Violations under the MMPA are treated much stronger than those under the California law and could lead to felony convictions and jail time. The Schiff bill presents a time constraint issue for exporting orcas.

So, under this third scenario, the parks remain in the US, along with heavy investment in the American parks, and only the orcas are removed.

Yet questions remain – what about SeaWorld’s commitment not to breed orcas at any of its parks, including international locations?

Company policy changes – often in only a few months. In December, SeaWorld was preparing to take the California Coastal Commission to court over a permit ruling that would have banned orca breeding at the park. Three months later, the company’s new CEO Joel Manby announced a voluntary end to the practice, one that to some may have appeared to be animal welfare driven, but by all accounts, was fiscally based.

Yet, the company’s stock value (under US$20 for quite some time), attendance, and profits continue to drop. If they continue to fail to increase, especially with new ownership on board, we likely could see yet another management change at SeaWorld. And often, with new management, policies change.

As Zhonghong acquires 1/5 of SeaWorld Entertainment, along with its two seats on the Board of Directors, we’ll get an indication of how much control the company wants to exert on its American acquisition. What will happen with the relationship Manby established with the Humane Society of the United States, an organization often critical of Chinese policies?  What will happen to the American parks, including the two Busch Gardens parks?  What future lies in store for the animals?

If SeaWorld’s animals are relocated to China, there’s one single line in Chinese law to keep in mind. In the United States, animals within theme parks are private property.  Even that large talking mouse.

Allow me to introduce you to Article 3 of the Wildlife Protection Law of the People’s Republic of China, as revised in 2016:

Wildlife resources shall be owned by the state.

Yes, you read that correctly. If SeaWorld sends its animals to China, they will be owned by the Chinese government.

And it all kind of makes sense, because when Blackstone’s sale goes through, the Chinese government will be an owner of SeaWorld as well.