When Tilikum the killer whale attacked his trainer Dawn Brancheau a decade ago, experts from everywhere came forth with explanations of why he committed the act – former trainers fond of SeaWorld, former trainers against SeaWorld, SeaWorld itself, animal rights activists, book authors, theme parks fans, filmmakers – everyone had an explanation and those explanations were as different as pie and cake.
The only one who knew with any certainty why Tilikum did what he did was the whale himself. Anybody else offering an explanation with claimed certainty was simply offering conjecture.
In much the same way, I don’t know Scott Ross, Chairman of SeaWorld Entertainment. I’ve never met him nor spoken to him. So what I write of him is solely conjecture based on documented evidence.
I do this because ThemedReality is a blog. It lacks the editorial oversight of my professional writing. As such, I do a lot of conjecturing here, so what appears on the blog really should be considered solely as opinion. There’s also a difference between aggregation and research. Aggregation, which many bloggers and web writers for the mainstream media now do, involves culling data from other individuals’ articles or social media posts. I do a bit of that when necessary, but I really don’t care for it. I find that aggregation often leads to errors in accuracy. Rather, I like to dig deep into publicly available documentation. It’s a long and arduous process, but I find the work rewarding. For instance, much of my last post on this blog, titled “Journey to ClaimWorld,” came from an extensive examination of county clerk and court records, along with SEC filings. I then took that information and formulated my opinion.
Sometimes I get information from third parties, and sometimes third parties from a variety of companies agree with me. Often, those sources ask to remain anonymous because of the positions they hold. This was the case with past blog posts on a now discontinued proposed business arrangement between SeaWorld and Spanish chain Parques Reunidos. Unless I’m able to confirm the information given to me by anonymous sources by having someone else go on the record or finding it through publicly available documentation, I take what I’m told with a grain of salt. And I encourage my readers to do the same. Have for many years. In fact, it’s in the disclaimer accessible through the tab at the top of this page.
The truth about Scott Ian Ross is that unless you’re in his inner circle or working closely with him on something, you really have no idea what he’s thinking or planning. You have conjecture. And that’s the truth.
Yesterday (today being June 25, 2020), a number of people contacted me asking for me to elaborate on my article in the Orlando Weekly.
The thing is – I don’t write for the Orlando Weekly and don’t have a relationship with the paper or its owners. Never have.
The confusion stems from an article written by Ken Storey, the third of his articles published in less than a month about SeaWorld’s Scott Ross. In his article, Storey links to a couple of my blog posts (and my LinkedIn profile, which I’m not sure why. A much more comprehensive listing of my work experience can be found by clicking the “About” tab above) and he quoted the “ClaimWorld” piece a number of times.
I’m completely fine with being cited. I understand as well as anyone that we reporters need source material. The problem I’ve had arises from industry professionals and colleagues seeing my name and my being quoted and thinking that I either wrote the piece or was interviewed for it. Complicating things – those trying to accomplish a quick read often don’t click on links. So, here we are. I neither wrote the Orlando Weekly piece nor was I interviewed for it.
Storey’s article takes a much different approach and a much different claim than mine. I’m going to address two of the main differences here so that I have it on record what my opinion is for those confusing Storey’s writing for my own.
Storey’s article is titled “SeaWorld’s largest shareholder may be pushing the company into bankruptcy.”
I don’t think that’s the case at all.
Here’s what I wrote:
“I have a strong feeling the company is contemplating filing for bankruptcy.”
A strong feeling – an opinion
Contemplating – considering
And the clues certainly are there as laid out in the “ClaimWorld” article.
Storey interprets this sentence a completely different way:
“The claim is especially surprising coming from a reporter who is known for his connections to SeaWorld, which date back to his own time at the company decades ago, along with personal connections to SeaWorld San Diego.
“Kleiman’s conclusion is built around what Scott Ross, chairman of the board and founder partner at Hill Path Capital – SeaWorld’s largest shareholder – is willing to do to finally move beyond SeaWorld.”
But it’s really not that surprising for me to come to MY conclusion (as stated here on the blog, not as it’s stated in the Orlando Weekly article). My opinion is not based upon either my personal or professional relationships with SeaWorld (which aren’t as impressive as Storey makes them out to be) – it’s based on research. My conclusion is also not “built upon what Scott Ross….is willing to do to finally move beyond SeaWorld.” Remember that I have no idea what Scott Ross is thinking. That’s the truth.
I’ll lay out what my “ClaimWorld” blog post is about in a single sentence, all in bold letters:
A LARGE NUMBER OF COMPANIES HAVE CONTEMPLATED BANKRUPTCY DUE TO THE COVID-19 SHUTDOWN AND HAVE TAKEN THE APPROPRIATE PRECAUTIONARY MEASURES AND THAT MAY INCLUDE SEAWORLD.
Towards the end of “ClaimWorld,” I wrote: “…there are whispers within the zoo and aquarium community that SeaWorld is sending out feelers for potential buyers of its collections. Animal sales equals instant cash.”
This was likely my fault by not pointing out that the whispers are about a small number of animals, not the full or even substantial parts of the collections. For instance, SeaWorld has a huge collection of dolphins. A well trained dolphin can net a quarter million dollars in some markets.
Apparently misunderstanding me, Storey writes: “…Kleiman is reporting that SeaWorld may be looking to offload some or all of its animals. This would result in a dramatic decrease in recurring set costs while also making the park’s even more appealing to potential buyers. NBCUniversal was previously rumored to be interested in the Orlando and California parks, but unwilling to involve itself in the hot button orca captivity controversy.
“If Kleiman is correct and if SeaWorld can find a new home for its animal collection, we may see the board move the company into bankruptcy where it could more easily break up the parks to multiple buyers while also helping Hill Path finally see a return on its investment.”
That’s all Storey, because the ClaimWorld post did not mention at all about the parks being sold. But, the confusion being what it is, I received quite a few of calls from various company executives and investment bankers thinking that Storey’s argument was mine (I should also point out here that according to the 2009 loan agreement, if any of the parks are sold, the company has 365 days to repay its outstanding financial obligations in full, which is why I highly doubt the company will “break up the parks to multiple buyers”).
Selling a few animals to bring in some quick cash or offloading “some or all” of its animals – these are two different interpretations and two different opinions.
Ultimately, these two pieces – my blog post and Storey’s Orlando Weekly article – approach the issue from two different directions and come to two very different conclusions. I wrote one thing, Storey interpreted it another way, a third person will do the same, and so on. To quote the author Diana Gabaldon:
If you’re going to have more than one person read your book, they’re going to have totally different opinions and responses. No person – no two people – read the same book.
If you see my name attached to an Orlando Weekly article – it’s my name, reputation, and content being appropriated by someone there, but it’s not directly from me nor is it with my consent. And I know nothing about Scott Ross other than what any other writer can find in the public record on his or her own. And that’s the truth.
On Sunday, December 22, 2019, Scott Ian Ross was appointed as an independent director of Diamond Eagle Acquisition Corporation. That same day, the company entered into an agreement to acquire and merge with Draft Kings, an online sports betting venture, in a deal valued at $3.3 billion. Upon joining the Diamond Eagle board, Ross was awarded 20,000 shares of the Company’s Class B common stock at $0.002 per share. The next day, when the market opened, the stock was valued at $11.75. By February 14, it had peaked at $21.97.
To put this in “whoa” figures: The 20,000 shares of stock would have cost Ross $40. If he sold all his shares on February 14, he would have made a profit of $439,360.
Such profitably is a far cry from the condition the company he chairs, SeaWorld Entertainment, finds itself in as it comes out from an economic shutdown.
Over the past four months, I’ve been exchanging research with a number of journalists, bloggers, and financial analysts trying to decipher the company’s current situation as it dealt with the shutdown of its theme parks, furlough of its staff, animals that can’t be neglected, and the sudden departure of a newly hired CEO.
I’ll start with liens.
While the index of liens I have is extensive, it is not thorough, and is still being compiled. This is primarily due to discrepancies between state and county databases on how information is searched and what information is available. Because of this, I’ll keep the information more generalized, rather than addressing specific liens. If you’re interested in something more specific, I’ve come across three rather good articles that go into more detail, and I highly recommend all three:
While it’s common for contractors and vendors to place liens on a property for nonpayment, we usually see no more than a dozen at a time. With SeaWorld, I’ve confirmed more than 150 liens across all of the company’s parks filed in the four months between March and June 2020, and the number keeps climbing as additional data becomes available.
There are currently 56 confirmed liens on the Orlando property. This compares to only 9 for the entire year of 2019.
Between March and June, there were 36 confirmed liens on the San Diego parks, 26 on the San Antonio parks, and 30 on the Tampa parks. I was unable to locate any 2019 liens on these properties. There are also liens on the Williamsburg and Lancaster properties. The liens are on either individual rides or attractions or the entire park and the amount owed varies from the millions of dollars to under $500. Every one of the company’s 2020 projects – including water slides and roller coasters, is impacted by a lien. This includes the already opened Texas Stingray in San Antonio.
What do I make of all this?
I have a strong feeling the company is contemplating filing for bankruptcy. Here’s why (and I’ll try to keep it simple since finance is a complicated thing):
On April 21, Moody’s reported “SeaWorld is projected to have over $400 million of cash on the balance sheet, although the $332.5 million revolver is expected to have $313 million drawn with limited availability after outstanding letters of credit.”
Usually, the company pulls from the credit line at the beginning of the year, then repays during the second half. However, with the unexpected prolonged park closures, SeaWorld needed to supplement its credit line. So it sold $227.5 million of secured notes in a private sale.
And this is where things get interesting.
The revolving credit line, which is administered by Bank of America, is contractually listed as the first guaranteed lien holder. With the company’s properties having been placed as collateral for the credit line, should SeaWorld fail to make payments in a timely manner or file for bankruptcy, BofA and its partners have the right to obtain the company’s assets before anyone else.
So let’s say SeaWorld does file for bankruptcy and the credit line bankers get first dibs, pulling just enough to pay off the balance with interest, fees, and fines. Do the rest of the lienholders come next?
Not exactly. There’s that secured note sale. My curiosity was piqued when I noticed that it wasn’t arranged through SeaWorld’s normal avenues. Instead, it was arranged by Paul, Weiss, Rifkind, Wharton & Garrison, which happens to be Hill Path Capital’s law firm.
If you’re not familiar with Hill Path, remember that fellow, Scott Ian Ross – the one who profited from joining the Diamond Eagle board and who’s the chairman of SeaWorld’s board? Hill Path is Ross’s investment firm. He’s the founder. And Hill Path owns more than 34% of SeaWorld stock. So whenever you hear someone complaining that the SeaWorld shareholders should vote him off the board, keep in mind that it takes 66% of the shareholder vote to do so. Ross controls just enough shares to block any such vote. Besides, if they could vote him out, how would that work? David D’Alessandro was voted out as SeaWorld chairman in 2017, and the board overturned shareholder wishes and asked him to stay. This, today, is very much Ross’s board.
I digress. $227.5 million in secured notes was sold to a private party, with the sale finalized April 30. There’s no public record who the note buyer is, but it is likely an individual or company closely associated with Ross and Hill Path. Here’s why I believe this:
As with the credit line, in addition to the company’s parks and other tangible assets, additional agreements were written up guaranteeing the notes with the company’s copyrights, patents, and trademarks (highly valuable, especially overseas). To use the vernacular of the 1800s, SeaWorld offered up the whole kit and caboodle.
Here’s what I think. Keep in mind that I’m not an expert on everything, like an attorney or a whale trainer named John. I’m just a journalist who covers the attractions industry during the day for a trade publication and blogs about it at night. This is strictly my opinion and it’s nothing more nor less. You’ve been warned, in case you want to quote it as indisputable fact.
The credit line and the notes are contractually considered “first obligations.” Once the obligations to the first lien holder have been met, the secondary lien holder then has priority access to the company’s assets. As this secondary lien holder is the note owner, and as I suspect it’s an entity close to Ross and Hill Path, they will likely take all the remaining company assets, preserving them for Hill Path’s future use, and leaving nothing for the company’s contractors and vendors in the process.
Again, I could be wrong on this, but I’m comfortable enough with this concept to share my thoughts and I’ll issue a correction if I’m wrong.
There are some other clues about a potential bankruptcy that I won’t cover here, such as:
- The fact that after the prolonged closure, a park needs to reach 80% capacity to start turning a profit and that in this extended COVID-19 environment, that’s not likely to happen. (Unlike China and Japan, where parks were closed down again after reopening, the most we’ll likely see during a COVID resurgence in the US is a renewed diminished capacity at the parks).
- The fact that just days after furloughing 90% of the staff and reducing executive salaries by 20%, the company awarded $6.8 million in stock bonuses to its executive tier. This early issuance corresponds with the behavior of a number of companies contemplating bankruptcy (most recently CEC, or Chuck E Cheese), as bonuses are not allowed under bankruptcy law.
- The fact that there are whispers within the zoo and aquarium community that SeaWorld is sending out feelers for potential buyers of its collections. Animal sales equals instant cash.
No. I won’t discuss any of these today. Maybe another time.