As an FYI, a top exec at Wackenhut says things are in total confusion there. The story is that Wackenhut went out of their way to under-bid CCA on some potential inmates, and are losing a few dollars to quite a few dollars a day per as a result. Wackenhut has given walking papers to everybody they could possibly cut and stay in business. Wackenhut's REIT bought the CCA North Carolina properties with their guaranteed return on investment giving CCA immediate cash while making its future much more difficult.
Very interesting Post. When I owned the original CCA stock, I did a lot of reading about CCA and its ambitions. What struck me most was the way they planned to develop their employees. They instituted profit sharing, which I believe is a great barrier to unions. And they had lots of internal training programs that qualified employees for advancement. What has happened to all this? Is it still in effect?
Also, may I note in response to the discussion on technology. We discussed security dogs some Posts back and someone said they were too expensive. I disagree. It costs less to train and feed a dog than it does a person. If you have a high tech prison and a low number of personnel and you are worried that a guard may become too complacent about alarms...., a trained dog is never complacent and can tell the difference between false alarms and the real thing. The dog will hear other noises that will confirm something more than a false alarm needs to be investigated.
of tongue or pen...
You have remarkable insight into this business. Castigated though he may be, Doc Crants saw this three years ago. CCA had followed a bricks and mortar strategy. WHC had not. CCA's margins were twice those of WHC. Doc knew that managing prisons was a shrinking margin game, but financing (building) them was potentially huge: voila! the REIT. WHC played catch up all the way. The real pot of gold at the end of Doc's rainbow was not privatization, but replacing the aging public infrastructure. We used to joke here about "today prisons, tomorrow roads and bridges." I believe it is still true that private companies can build prisons in one-half to one-fourth the time it takes the public sector (with union contractors) and at about half the cost.
Charlie Thomas, another discredited figure from the past, still compiles privatization statistics. They can be found at http://web.crim.ufl.edu/pcp/index.html
His site gives numbers to what you stated.
Another fun site to visit is http://www.afscme.org/
There you can follow what our municipal unions are up to.
Just wanted to add a couple of points to the discussion:
1) the two facilities that CPV acquired from CCA were financed by non-recourse debt. therefore, WCC didn't lose much by letting its affiliated REIT do the deal. CPV was able to have it non-recourse because the leases were directly with the states.
2) I actually view WCC's decision to walk away from the contract with Delaware County as a positive sign. this could mean that in bids for future contracts WCC would focus more on profits than on market share. it could mean higher margins for everybody.
I am enjoying this discussion.
I also see a sea change in the nature of the competition among the privates - you're right, it used to be competition for a slice of a pie that was growing. Now the pie has stopped growing and I don't think it has anything to do with CCA's past problems (or if so, only a small bit); rather, it has to do with three things: a) decline of violent crime, no perceived need to build new prisons; b) less overcrowding in public prisons AND in county jails - and don't discount the financial windfall county sheriffs enjoyed for years when state prisons were full and there was a backlog of prisoners waiting to get in. In particular, Texas and Virginia have capacity, and these are Republican states. As we have all learned too well, California's state system will never seriously privatize, even though no state needs it more, which brings me to my third point which is c) growth in power of public sector employee unions, which as you probably know is the ONLY area where union membership is growing. My understanding is that the public employees' union in Tennessee helped kill CCA's efforts to expand privatization there, they've certainly killed it in California, and they are the barrier between privatization and new "pie-grower" markets in the Midwest and Northeast.
So what's left? I think we will see privates going after each other's contracts when it's time to renew. Protecting what you have will become even more important, and this is where performance will really matter. In this kind of environment, CCA ought to be the best positioned. The feds are the only area that is growing, but again that business is capital-intensive, and I do believe that changes in immigration policy will begin to affect that market in a few years, if not sooner.
Meanwhile WCC backs out of a contract in Pennsylvania that was an important one for the industry and CCA gets ready to close NE Ohio. It makes me sad.
Wackenhut Corrections Is Added to the Russell(R) Indexes
(Copyright (c) 2001, PR Newswire)
PALM BEACH GARDENS, Fla., July 10 /PRNewswire/ -- Wackenhut Corrections Corporation
(NYSE: WHC) ("WCC"), a world leader in the privatized corrections industry, today announced
that its common stock has been added to the Russell 3000(R), 2500(R), 2000(R) Indexes and
included in the Russell(TM) Growth series of both indexes.
(Photo: http://www.newscom.com/cgi-bin/prnh/20010614/WCCLOGO )
George C. Zoley, vice chairman and chief executive officer of WCC, said, "WCC's inclusion in the
Russell 3000(R) and Russell 2000(R) Indexes, along with the Russell(TM) Growth style indexes,
exemplifies the Company's financial strength and industry leadership. The addition of WCC to the
Indexes well positions the Company to be included in the thousands of institutional and individual
investors which rely on the Russell Indexes as part of their investment strategy."
The Indexes, constructed by the Frank Russell Company, were reconstructed on July 1, 2001.
Russell is a provider of global investment performance measurement products and portfolio analysis
tools. The Indexes are weighted according to total market capitalization and provide benchmark for
the U.S. stock market activity and performance. The Russell 3000(R) Index is a broad market index
of the 3,000 largest U.S. stocks and the Russell 2000(R) is a leading benchmark for the small cap
market while the Russell 2000(TM) and 2500(TM) Growth Indexes measures the performance of
those Russell small cap companies with higher price-to-book ratios and higher forecasted growth
WCC is a world leader in the privatized correctional management, medical and mental health
rehabilitation services industry. The Company offers government agencies a turnkey approach to the
development of new correctional and mental health institutions that includes design, construction,
financing and operations. WCC has contracts/awards to manage 56 correctional, detention and
mental health facilities representing nearly 39,000 beds in North America, Europe, Australia, South
Africa and New Zealand. The WCC also provides prisoner transportation services, electronic
monitoring for home detainees and correctional health care services. The company is a subsidiary of
The Wackenhut Corporation (NYSE: WAK WAKB).
This press release contains forward-looking statements regarding future events and future
performance of the Company that involve risks and uncertainties that could materially affect actual
results, including statements regarding estimated earnings, revenues and costs and estimated openings
of new facilities and new global business development opportunities. Investors should refer to
documents that the Company files from time to time with the Securities and Exchange Commission
for a description of certain factors that could cause actual results to vary from current expectations
and forward-looking statements contained in this press release. Such factors include, but are not
limited to, the Company's ability to maintain a listing on a major index and other factors contained in
the Company's Securities and Exchange Commission filings, including the Forms 10-K, 10-Q and
Can you be more specific? And I don't understand your comments on Correctional Prop. Trust, who's future are you talking about? CPT is collecting 11% financed with 7% FIXED money on both prisons in N.C. that were purchased from CCA. Not a bad deal I thought for CPT and it certainly breathed life in to CCA.
Some of the reaction has added more specifics to my deliberately generalized comment. If I were to be any more specific, it wouldn't be much of a guess who my sources are.
Regardless of how you attempt to spin the story, selling a facility with a guaranteed triple-net income is only done as a last resort. CCA has now sold two NC sites that were significant continuing revenue producers.
Discussion of CCA's problems are the focus of this group. My point is: Wackenhut isn't in much better condition, although that isn't yet reflected in its stock price. In attempting to deal a fatal blow to CCA by underbidding, $10 a head less per day is one figure that comes to mind from a recent bid, Wackenhut has shot itself in the proverbial foot. Wackenhut's foreign operations are a disaster that has gotten little attention.
Flipper 58 is correct in that both sales breathed life into CCA. A few desperate gulps from selling a solid present and future income stream. CCA will shortly announce that it is abandoning contracts that have historically been profitable, but which are now viewed as under-performing. What will be left is a much smaller CCA with significantly lower income and fewer opportunities for economies of scale, with fixed G&A expense borne by fewer revenue producers.
Wackenhut appears to be headed for the exact opposite: more inmates, and each costing several dollars a day from the bottom line.
But that's just the point, Flipper. It was a good deal for CPV, and it was a good deal for CCA - the small decrease in revenue caused by the loss of rental income is far outweighed by the debt paydown. But it WAS NOT a good deal for Wackenhut. THEY need CPV's money to develop prisons for the feds, which offer the best business deals for the privates around - guaranteed occupancy per diems and high wages for the staff (due to Service Contract Act wage determinations). That's where the action is both now and in the immediate future, and to play, you need capital. CCA has no money but can play because they have empty prisons. The rest need money, and Wackenhut's REIT just gave over $40 million to its biggest competitor.