‘Blackfish’ Continues to Make Waves

October 1, 2018

In 1964, SeaWorld opened its first park in San Diego and has since expanded to include 11 U.S. theme parks.  It was known for offering guests up-close encounters with marine animals, such as swimming with dolphins and a variety of live shows.  In the latter half of 2013, however, SeaWorld became known for more nefarious acts after the release of Blackfish.  The documentary tells the tale of Tilikum, a killer whale who had been a featured act at SeaWorld until a performance went awry and resulted in the deaths of three people.  The film shines a light on the harmful living conditions and cruel treatment that animals at SeaWorld were subjected to and how these factors led to that fateful performance.

Blackfish swept the nation and caused a backlash against SeaWorld, which has seemingly culminated in a suit filed September 18, 2018 by the Securities and Exchange Commission (S.E.C.) against SeaWorld Entertainment Inc. and its former CEO James Atchison.  For almost a full year after Blackfish was released, SeaWorld and Atchison issued a number of false and misleading statements to the press, investors, and the S.E.C. about the impact the film was having upon SeaWorld.

When Blackfish hit theatres, SeaWorld began to see an immediate impact.  Attendance began to drop at its parks, and the film continued to hit SeaWorld harder as it transitioned from theatres into homes in 2014.  High-profile musical acts began cancelling their performances at SeaWorld, citing the film as their reason.  As SeaWorld was gearing up for its 50th anniversary marketing tour, promotional partners began to sever ties with the company.

Internally, a number of concerns were expressed by these trends and that it was likely only going to grow as Blackfish seemed destined to garner an Oscar nomination.  The company conducted reputation studies and began running consumer surveys, which showed that the public perception of the company had decreased and that those aware of Blackfish were twice as likely to not visit SeaWorld parks.  Marketing staff reported to Atchison that the worst things the company was experiencing were all related to Blackfish.  Publicly, however, Atchison and others were continuously quoted as saying that there were no connections between the film and its business and that SeaWorld’s reputation had not been harmed in any way by the film.

In March 2014, a bill was introduced in California to ban orca performances – the legislation was referred to as the “Blackfish bill”.  Despite all evidence to the contrary, when making Q1 reports on attendance, SeaWorld omitted the Blackfish effect and attributed all decreases in attendance to other factors.  On earnings calls with investors and within board meetings, Atchison and others continued to deny that the film had caused any noticeable impact on SeaWorld’s business or reputation.

Since SeaWorld began filing with the S.E.C., it regularly described its reputation as one of its “most important assets”.   In a March 24, 2014 filing with the S.E.C., a Form S-1 registration statement bearing the signature of Atchison stated:

Our brands and our reputation are among out most important assets.  Our ability to attract and retain customers depends, in part, upon the external perceptions of the Company, the quality of our theme parks and services and our corporate and management integrity … An accident or an injury at any of our theme parks … that receives media attention, is the topic of a book, film, documentary or is otherwise the subject of public discussions, may harm our brands or reputation, cause a loss of consumer confidence in the Company, reduce attendance at our theme parks and negatively impact our results of operations.

Securities Act Regulation S-K, Item 303(a)(3)(ii) requires issuers such as SeaWorld to disclose “any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues from continuing operations.”

It was not until August 13, 2014 that SeaWorld publicly acknowledged in a Form 8-K the negative publicity it was experiencing, and when it did so it did not refer to Blackfish by name.  Following this filing, SeaWorld’s stock price fell approximately 33% and analysts began to recommend selling all shares.  This resulted in a loss of approximately $830 million in shareholder value.  During the early part of 2014, Atchison had sold his stock, which saved him close to $740,000.

The S.E.C. charged SeaWorld and Atchison with violating anti-fraud provisions of federal securities laws and with reporting violations.  The complaint charges that they knew or should have known the effect Blackfish was having on the park was material to investors.  Several days after filing its complaint, the S.E.C. accepted a settlement with SeaWorld and Atchison, with the former paying a $4 million penalty and Atchison paying over $1 million in penalty and disgorgement.  Regarding this case, Steven Peikin, the co-director of the S.E.C. Enforcement Division, said that it “underscores the need for a company to provide investors with timely and accurate information that has an adverse impact on its business.”

Image Source: Reuters

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