Investors: SeaWorld lied about business after orca outcry

By Kyle Swenson / The Washington Post

When it debuted at the Sundance Film Festival in 2013, filmmaker Gabriela Cowperthwaite’s “Blackfish” landed like a one-two punch — both a wake-up call and an indictment.

Depicting the dangers of orca captivity to both killer whales and their trainers, the documentary followed the story of Tilikum, a 12,000-pound whale linked to the deaths of three people. The film sharpened the social stigma aimed at SeaWorld, the iconic theme park brand where the orca claimed his last victim, trainer Dawn Brancheau, in 2010.

SeaWorld has never really recovered. While trying to reinvent its brand, the company is still tangled in a complex web of litigation stemming from a public stock offering that ran parallel to the critical and commercial success of “Blackfish.”

And now the company is facing a criminal investigation.

In court documents filed last Friday, the U.S. Department of Justice asked a California judge to temporarily pause depositions in an ongoing shareholders lawsuit against the theme park chain. Sandra Moser, the acting chief of the DOJ’s fraud section, petitioned the court for a temporary stay while the government conducts an “ongoing federal criminal investigation,” the filing stated.

The documents indicate the investigation concerns “disclosures and public statements made by” the company and executives “regarding the impact of the ‘Blackfish’ documentary.”

Those concerns echo the allegations shareholders leveraged in the 2014 lawsuit, which accuses the company of purposely deceiving investors about the business hit triggered by the exposé. SeaWorld has previously denied any wrongdoing and is fighting the lawsuit.

The movie could not have come at a more sensitive time for the company. Until 2013 the chain — SeaWorld San Diego, SeaWorld Orlando and SeaWorld San Antonio — was wholly privately owned, most recently by the Blackstone Group, a “multinational private equity, investment banking, alternative asset management and financial services corporation based in New York,” according to the lawsuit. But the business was scheduled to go public on April 18, 2013.

In the months leading up to the initial public offering (IPO), however, “Blackfish” not only debuted at Sundance, but was acquired by CNN Films and Magnolia Pictures and scheduled for wide theatrical release. According to the shareholders suit, the company failed to mention the film by name in the legal documents and prospectus it filed before the IPO.

“Instead, SeaWorld offered only a generalized reference to the fact that accidents or adverse publicity ‘may’ potentially harm SeaWorld’s reputation, attendance and business as some point in the future,” the lawsuit claimed.

In reality, the company was waging a serious campaign — and leveraging considerable money — against the “‘Blackfish’ effect.”

The complaint accused the company of feeding employees lines to use regarding the film and instructing them to “dissuade family and friends” from watching. SeaWorld executives also hired a public relations firm to handle the criticism, and one executive reached out to ultimately 50 major film reviewers to discredit “Blackfish.”

In 2014, the company provided the funding for a website that also aimed to discredit the movie, and SeaWorld would also eventually task employees with infiltrating PETA and other animal rights groups.

But following the IPO, the company maintained the film was no cause for alarm and had not sparked backlash against the brand. On Aug. 29, 2013, a company executive told the Los Angeles Times “‘Blackfish’ has had no attendance impact.” The same executive told Bloomberg SeaWorld “can attribute no attendance impact at all to the movie.”

On Nov. 14, 2013, SeaWorld chief executive Jim Atchison told the Wall Street Journal, “I scratch my head if there’s any notable impact from this film at all, and I can’t attribute one to it.” The executive also told the paper “[i]ronically, our attendance has improved since the movie came out.”

In December 2013, Atchison told the Orlando Sentinel “as much data as we have and as much as we look, I can’t connect anything really between the attention that the film has gotten and any effect on our business.”

During a fourth quarter earnings call in March 2014, SeaWorld’s Atchison was again asked to comment on the film’s effect on the brand. “I get asked that a lot,” the executive replied, according to the lawsuit. “As much as we’re asked it, we can see no noticeable impact on our business.”

The company’s first public revelation that something was amiss came on May 14, 2014, when SeaWorld announced its largest attendance decline — 13 percent. Yet again, the company refused to acknowledge the film was responsible.

“SeaWorld would blame the entirety of these declines on everything but Blackfish — namely, adverse weather conditions, holiday and school schedules, and SeaWorld’s pricing strategies,” the lawsuit stated.

Company executives waited until August 2014 to tell investors attendance was off because of public sentiment, although SeaWorld executives maintained the dip was tied to “media attention surrounding” a proposed bill in California that would ban orca shows — the “‘Blackfish’ Bill.”

“In direct response to this disclosure, SeaWorld shares lost almost 33 percent of their value, falling from $28.15 per share at closing on August 12, 2014 to $18.90 per share on August 13, 2014,” the lawsuit stated. That decline “eliminated more than $830 million from” SeaWorld’s “market capitalization in just one day.”

In January 2015, Atchison was out as CEO, replaced by Joel Manby. The latter was behind the March 2016 decision to end SeaWorld’s orca breeding program and shows.

The whales at the park will be the last generation featured at SeaWorld. That population, however, is dwindling: Three killer whales have died at SeaWorld parks this year, The Washington Post reported earlier this month. Twenty-one orcas remain at the three parks. The orca shows have stopped in California. The routines are scheduled to stop in Texas and Florida by 2019.

Despite the proactive response to reworking the parks’ approach to the whales, investors feel “the company took far too long to respond effectively to the challenge of ‘Blackfish,’” the lawsuit alleged.

The refusal to address the problem, coupled with the alleged pattern of deceiving comments about the company’s health in the wake of the film, cost investors money, the shareholders say. And now the federal government is looking to see whether SeaWorld’s evasions broke the law.

A SeaWorld spokesman told The Post investors were alerted to subpoenas from the government earlier this year. The company is cooperating with the investigation.