A decade ago, SeaWorld asked for something most renters can only dream of: A roughly 70 percent reduction in its annual payout to the city.

The marine park, which paid the city about $7.4 million to lease 190 acres in Mission Bay in 2003, argued the following year that it should fork over just $2.1 million despite growing profits.

City leaders weren’t having it.

They assembled a cadre of attorneys and consultants to argue the city deserved far more, an effort that experts on both sides agreed cost taxpayers more than $100,000.

A panel of three independent arbitrators largely ruled on the city’s side, deciding that SeaWorld should pay at least $7.6 million annually. The park’s rent payments have ended up exceeding that figure every year since, because the city gets a cut of various SeaWorld revenue streams.

SeaWorld’s most recent lease negotiations with the city, which went into effect in January, were far less contentious. Park and city officials inked an agreement that matches much of what arbitrators mandated in 2004, avoiding the unpredictable third-party process both sides found essential a decade ago.

We Stand Up for You. Will You Stand Up for Us?

A former city official and a consultant who represented the city argue SeaWorld learned from being on the losing side of that battle and has since taken a different approach. SeaWorld and an expert who represented the company in 2004 stand by their past arguments.

“The arbitration to which you refer occurred a decade ago and the positions of the parties then were supported by independent, third-party real estate appraisers,” SeaWorld said in a statement to Voice of San Diego. “We were pleased that the arbitration process was not necessary when the parties entered into the current renewal.”

But the past disagreements over rent payments offer a window into a particular moment in SeaWorld’s history here. It was then owned by brewing giant Anheuser-Busch. The company was later sold to equity firm Blackstone Group, which made SeaWorld a publicly traded company last year.

In the five years before the 2004 arbitration, SeaWorld reported increased revenues and profits, the latter of which increased about 8.5 percent annually, according to the arbitrators’ report.

And six years earlier, San Diego voters narrowly approved an exemption to the city’s 30-foot coastal height limit – a change that gave SeaWorld the freedom to build a new roller coaster and other amenities, and likely added to the value of the Mission Bay property.

SeaWorld agreed to sink more than $10 million into traffic upgrades near the park over roughly the same time span.

Gene Krekorian, a consultant who was SeaWorld’s top expert in the 2004 arbitration, told VOSD the park thought the city wasn’t taking necessary upgrades into account when it considered rent.

Theme parks are unusual properties and remaining competitive with others means near-constant upgrades and new rides. Partly for that reason, Krekorian said, new U.S. theme parks are a rarity.

“These are static attractions, so to keep peoples’ interest and get them to come back you need to have new offerings,” he said.

Krekorian estimated SeaWorld set aside about 10 percent of its revenues each year for construction at the time of the arbitration.

Krekorian and others arguing on SeaWorld’s behalf said those investments should factor into the lease payments. Essentially, they wanted to subtract those expenses from the value of SeaWorld’s Mission Bay property – which a 1998 appraisal placed at about $56.6 million – and then base rent payments off the remaining figure. They assumed about 8 percent of the latter figure would be a fair rent payment, which is how they got to the $2.1 million proposal.

City officials were shocked by the number.

“I recall all of us thinking they were trying to pull one,” former City Councilman Michael Zucchet said.

The City Council directed city leaders to take the fight to arbitration despite hefty costs and risks. Arbitration is a form of conflict resolution that occurs outside of court, where a private arbitrator (or panel of arbitrators) acts as judge and jury — usually at a cost of hundreds of dollars an hour.

The city’s experts said SeaWorld should be paying more rent than it already was but contended the hike should come from increasing the city’s take from many of the 15 revenues that SeaWorld shared with the city – everything from alcohol sales to general admission charges – rather than the overall rent figure.

At least one of the city’s consultants called SeaWorld’s proposal disingenuous.

“By subtracting the improvements first, you’re taking out 100 percent of your costs,” consultant Maurice Robinson told VOSD.

He acknowledged SeaWorld spends significant cash on new rides and upgrades but said the city’s argument was about a fair rent.

A panel of three arbitrators heard the case over three days in January 2004 and then began their own investigation, documents show.

They mostly came down on the city’s side.

The arbitrators decided to go with 12 of the 15 figures the city suggested for its cut of various revenue streams and only significantly diverged from the city’s preferred numbers in one area: ticket sales. (The city wanted a 5.5 percent cut of revenues from general admissions, a figure that exceeded the percentage allowed in its lease with SeaWorld.)

The arbitrators estimated these changes would translate into more than $10 million for the city each calendar year – about 375 percent more than SeaWorld argued was fair.

This is part of our Quest: SeaWorld series digging into the park’s impact on our region. Check out the previous story – Three Big Moral Questions ‘Blackfish’ Raises – and the next in our series  What We Learned at SeaWorld’s Big Bash.

    This article relates to: Government, News, Quest, Quest: SeaWorld, SeaWorld

    Written by Lisa Halverstadt

    Lisa writes about San Diego city and county governments. She welcomes story tips and questions. Contact her directly at lisa@vosd.org or 619.325.0528.

    Rick Dower
    Rick Dower subscriber

    Obviously, there's no point delving into particulars of Sea World's lease unless and until widespread public sentiment as to the killer whales issue can be gauged. Even on moral issues -- and I would suggest that  whether to maintain a population of trained orcas, or the notion of animal 'rights,' in general qualifies as growing moral questions for many -- elected politicians are loathe to take a stand without due polling.  At any rate, I think one might argue, again, that concerning moral issues, for lack of a better description, a majority doesn't necessarily rule. Slavery was for many decades widely countenanced as acceptable, even desirable, in the U.S.; the opposition was until the mid-1800s badly outnumbered. Heck, lots of folks thought there was nothing wrong with child labor for some centuries. And no, I am NOT comparing the plight of performing orcas to the horror and obvious (to modern generations)  immorality of slavery. Just an example of a debate where even the putative will of the majority turned out to have been on the complete wrong side of history. In 50 or 100 years will our descendents be amazed at our treatment of animals?

    Personally, I will add I have not decided how I feel about captive orcas at our local theme park. I don't much care for Sea World anymore; I feel they clearly sold the the community a bill of goods a few years ago during the fight over Prop. D, which exempted the park from cherished coastal height restrictions. After all the lies about their true intentions, what did we get? A noisy, obnoxious carnival ride that can doesn't really fit into Mission Bay. And don't even get me started about the damn nightly fireworks displays that scare the shxx out of every dog within a 4 mile radius. But, I digress. . .

    Rick Dower
    Rick Dower subscriber

    Per this discussion of Sea World's old lease/new lease with the city in connection with the debate over performing orcas, I have been wondering whether the divisive issue might be addressed through a possible lease amendment? Nothwithstanding what may happen with the Bloom legislation, since the city is Sea World's landlord, would it not be possible  for the City Council to prohibit killer whale shows, or ban their captivity outright, if there was sufficient community sentiment to do that? Elected officials serve at the pleasure of the people, at least in theory, so if voters no longer wish to subsidize captive orcas on dedicated public parkland, well, what then?

    At the least, could the city hold a referendum on the issue? Whether results would be binding on Sea World, or it could merely be in the form of a resolution ("Should a corporation be entitled to hold captive killer whales while operating on dedicated public parkland?" or something), would obviously need to be determined by the legal crowd. At the least, an actual vote would offer a sense-of-the-community perspective to use in moving forward beyond mere debate..


    Chris Brewster
    Chris Brewster subscribermember

    Mr. Dower: Mission Bay leases have various codicils that permit or prohibit aspects of activities of the lessees. For example, as a city official I arranged to have leases modified to promote boating safety measures. You need to realize that the leases are fixed for a specific number of years and can only be reopened in the meantime at mutual agreement. I do not know when the Sea World lease is next up for renegotiation or if this particular issue could be part of the negotiation. A citizen referendum could not, I would think, overturn a lease (contract) validly negotiated by the city's representatives. A referendum could direct the city's representatives at the earliest lawful opportunity to renegotiate the lease to ban orca captivity or whatever.That said, I have a very hard time imagining that this community would vote accordingly.

    Chris Brewster
    Chris Brewster subscribermember

    Small clarification on who owns SeaWorld: It is true that the Blackstone Group bought SeaWorld and then took it public in an apparently successful effort to profit by the process. However, the linked article above is a bit dated in that it says, “Blackstone … will retain control of the company.” That concept of retaining control meant owning a majority of shares. Recently they reduced their holdings to 40% and have a a bit under a year to hold open elections of their Board of Directors. http://on.wsj.com/1eCSzJf At that point, unless things change, it will no longer be controlled by Blackstone appointed directors. 

    From a business perspective, it’s interesting to see the Motley Fool’s take on some of this: http://bit.ly/1jbVGKk

    In any case, the share price of SeaWorld does not appear to be terribly affected by the Blackfish generated controversy: http://on.mktw.net/1fMqPvY 

    That could obviously change if gate revenues decline.

    Martha Sullivan
    Martha Sullivan subscribermember

    Join us TODAY as we present A New Vision for SeaWorld at 50 -- or just drive by and Honk in support!

    Martha Sullivan, 858-945-6273, marthasullivan@mac.com

    Concerned San Diegans Will Display a Message on SeaWorld's 50th Anniversary

    San Diego — Concerned San Diegans will display a message for A New Vision for SeaWorld on its 50th Anniversary, outside the location where it was founded.

    WHEN: Noon to 3 pm on Friday, March 21, 2014

    WHERE: Sea World Drive at Sea World Way, San Diego

    March 21, 2014, is the 50th Anniversary of SeaWorld, which started right here in San Diego. San Diegans concerned for the safety and welfare of the captive orcas and their human trainers will once more demonstrate outside the entrance to SeaWorld San Diego.

    This Demonstration will be different in showcasing a new vision for Sea World in the 21st Century, based upon Dr. Naomi Rose's proposal for seaside sanctuaries to which captive marine animal performers can retire and as recently proposed in AB 2140, the Orca Welfare and Safety Act.

    Jane Cartmill, President of San Diego Animal Advocates, will be available to interview onsite as well as a Spanish-speaking spokesperson.

    “We envision SeaWorld as it should always have been - providing real education in an eco-conscious environment." – Jane Cartmill, President of San Diego Animal Advocates.

    VISUALS: Demonstrators will hold a series of signs and a banner on the public sidewalk along Sea World Drive near Sea World Way, laying out the New Vision for SeaWorld at 50.

    With the recent introduction of AB 2140 by Assemblymember Richard Bloom, people who have been concerned for the safety and welfare of captive orcas and their human trainers have a concrete legislative proposal to advocate.

    “There is no justification for the continued captive display of orcas for entertainment purposes,” Assemblyman Richard Bloom, D-Santa Monica, said when he introduced the bill. “These beautiful creatures are much too large and far too intelligent to be confined in small, concrete tanks for their entire lives.”

    AB 2140 is designed to: end the use of performing orcas in theme shows, ban captive breeding and prohibit the import and export of the so-called “killer” whales in California. Currently, SeaWorld San Diego is the only place in California where orcas are kept captive, with 10 currently held: Corky (wild caught in Canada,1970), Kasatka (wild caught in Iceland, 1979), Ulises (wild caught in Iceland, 1980), and captive-born Orkid, Keet, Shouka, Nakai, Ikaika, Kalia and Makani.

    San Diego's Mayor and City Council should be concerned about a continuing decline in visitors to SeaWorld here in San Diego if SeaWorld continues to ignore the growing movement for humane animal treatment worldwide. San Diego IS a world class tourist destination, and we need to embrace this movement to maintain this stature.

    Financial success need not be predicated on the captivity of highly intelligent, socially sophisticated marine mammals in wholly unnatural conditions.

    The last captive cetacean park in the United Kingdom closed in 1993. Catalonia banned the centuries-old tradition of bullfighting in Spain over two years ago. Last year, India banned captive cetaceans, joining Chile, Costa Rica and Hungary. India banned "any person/persons, organizations, government agencies, private or public enterprises that involves import [or] capture of cetacean species to establish for commercial entertainment, private or public exhibition and interaction purposes whatsoever."

    As recently reported by the Voice of San Diego, Disney's two theme parks in Anaheim and Universal Studios' park in Hollywood each draw more visitors and revenue than any of SeaWorld Entertainment's parks. Captive orcas are forced to live in 1/1000th of the space in their natural habitat, forced to perform tricks on command for food with loud music blaring, exposed nightly to loud fireworks, placed in tanks with other orcas not from their natural pod creating conflict and physical harm and also isolated because of these unnatural social groupings, and bred artificially. SeaWorld Entertainment's need for genetic diversity in its stock leads it to seek out wild-caught orcas, such as Morgan, a young, weakened female orca rescued offshore the Netherlands which SeaWorld Entertainment petitioned to have transferred to its partner park, Loro Parque in the Canary Islands (Spain), where six of SeaWorld's orcas are on paid loan. The original permit to capture Morgan was predicated on her rehabilitation and return to the wild.

    SeaWorld Entertainment could use the incredible digital technology available today to simulate the REAL Sea World, just as more and more worldwide corporations are using digital and other advanced technology to eliminate the need to use live animals for testing drugs and consumer products.

    On the occasion of SeaWorld's 50th Anniversary founding here in San Diego, concerned San Diegans are calling upon SeaWorld Entertainment to embrace the 21st Century. It is more apparent than ever that successful businesses adapt to changes in their market, or they fail.