Corrections Corporation of America
Corrections Corporation of America
Sales: $462.2 million (1997)
Stock Exchanges: New York
SICs: 8744 Facilities Support Services
Celebrating its 15th anniversary in 1998, Corrections Corporation of America (CCA) is the leader of the private prison management industry with more than 50 percent of the market. CCA designs, constructs, owns, and manages prisons for governments at the local, state, and federal level. In February 1998, it operated 67 facilities in Nevada, Arizona, New Mexico, Colorado, Texas, Oklahoma, Kansas, Minnesota, Louisiana, Mississippi, Tennessee, Indiana, Georgia, Florida, South Carolina, Virginia, Maryland, New York, and Ohio as well as Australia, Puerto Rico, and the United Kingdom. With a capacity to hold nearly 53,000 prisoners, its facilities range from minimum to maximum security and include men’s, women’s, and juvenile institutions.
CCA was founded in 1983, but its roots can be traced to the late 1970s. Tom Beasley, chairman of the Tennessee Republican Party, was at that time serving on a committee charged with choosing a new state corrections officer. Beasley’s research revealed a system plagued by high turnover, tight budgets, and overcrowding. The experience made him begin to wonder if there might not be a private sector solution to this growing public sector problem.
By 1983, Beasley was convinced that the application of a few simple business practices could transform the corrections system from an inefficient bureaucracy into a profitable enterprise. He recruited his former West Point roommate, Doctor (“Doc”) Grants, as well as Terrell Don Hutto to help bring the concept into being. The troika’s talents and experience melded excellently. Beasley had vital political connections. Grants brought an M.B.A. and a law degree, both earned at Harvard, to the table. Hutto possessed sterling corrections credentials, having not only directed two state prison systems, but also served as president of the American Correctional Association.
The threesome presented their prison privatization concept to Massey Burch Investment Group, a venture capital firm, on February 14, 1983. The investment company (which had also backed Kentucky Fried Chicken and Hospital Corp. of America) floated the partners $500,000 after a mere 15-minute presentation. The founders and their financial sponsors envisioned a “market” ripe for growth: though the crime rate had actually been declining, the U.S. inmate population doubled from 1975 to 1984 and tough new sentencing laws promised ever-greater volume. “We’re on the ground floor of a multibillion-dollar industry,” Beasley gushed to Financial World in 1985.
Faced with overcrowding, skyrocketing costs, crumbling infrastructure, and lawsuits and court injunctions to bring facilities up to code, bureaucrats soon began to warm to the idea of privatization. At the same time, government officials found themselves under increasing pressure to economize and shrink their budgets. CCA promised to design and build or refurbish state-of-the-art facilities, to manage the institutions and their inmates, and to do it all for a low inmate-per-day charge.
Within six months the startup had its first client, a 350-bed Immigration & Naturalization Service facility in Houston. CCA hoped to glean profits through efficiency, starting with construction and maintenance expenses. According to Beasley, CCA’s construction costs were about 25 percent less than comparable public institutions. Eliminating bureaucratic red tape helped speed up the decision-making and supply procurement processes, thereby gaining lost time and money. CCA also reduced staffing through the use of high-tech surveillance and security devices. It gave employees a vested interest in the success of the venture through an employee stock ownership plan. Although it avoided highly unionized regions, its employees earned somewhat higher wages than their counterparts in organized labor. In 1988, Doc Grants said that the company’s profit-making formula was “so simple, it’s shocking.”
CCA also established numerous inmate activities in an effort to maintain order among its prison populations. Prisoners participated in a rigorous schedule of drug rehabilitation, recreational, vocational, and educational courses. Programs such as these gave inmates the chance to leave prison with skills that would help them avoid a return trip. But rehabilitation was not CCA’s primary goal. Grants talked about the motivation behind his company’s inmate programs in a 1997 News week article, saying, “We don’t do it because we’re good guys. We do it because an inmate who is busy and filled with hope is easier to manage than an inmate who is filled with rage.”
Florida’s Bay County Jail has been held up as an example of CCA’s success at privatization. Before the Tennessee company took charge of this facility, it was described as a violation-prone “shambles,” rated one of the state’s worst institutions by the Department of Corrections. CCA won a contract to manage the prison in 1985, and not only earned accreditation from the American Correctional Association in 1988, but also saved the county half a million dollars by 1990.
Not everyone was keen on prison privatization, however. Critics and opponents included civil rights advocates like the American Civil Liberties Union, organized labor and civil service groups. In 1986, the American Bar Association passed a resolution calling for a moratorium on privatization until the satisfactory resolution of “complex constitutional, statutory, and contractual issues.” In 1987, the National Sheriffs’ Association announced its opposition to privatization. Some opposed the concept on philosophical grounds, decrying the very idea of profiting from criminals. One privatization advocate countered that argument by noting that “You could say that hospitals profit at the expense of sick people, or that private schools profit from ignorant school children.” Others argued that the company’s prisons—which often featured color televisions, educational programs, and hot food—were “too nice.”
There were obvious hazards inherent to running prisons, including the potential liabilities arising from escapees who committed crimes outside the facilities as well as liabilities for inmate welfare within the prison walls. As Inc. magazine’s Erik Larson noted in a 1988 profile of CCA, “Clearly, every new venture risks failure. But CCA risks riot, murder, mayhem. At any one moment, its inmate population includes kids who stole cars, adults who took lives. If its product fails, dangerous people escape.” Indeed, CCA was not immune to these hazards. Over the course of its first decade-and-a-half in business, the company encountered escapes, quelled riots, and defended itself and its employees against prisoner litigation.
IPO in 1986
By August 1986, CCA was managing eight detention centers in Tennessee, Texas, New Mexico, and Florida with an average capacity of about 275 inmates. These included facilities for men, women, and juveniles at the municipal, county, and federal levels. Although CCA appeared to be doing a good job of saving tax dollars, it was not making money for its investors. While revenues grew from less than $10 million in 1984 to $24.8 million in 1988, the company ran annual deficits throughout these years. CCA finally logged its first $1.6 million profit on sales of $36.8 million in 1989. Grants called the milestone “a watershed year for CCA,” adding, “Frankly, I believe our industry has come of age.”
Notwithstanding its struggle for profitability, CCA went public on the NASDAQ exchange in 1986 at $9 per share, raising $18 million to fund continued growth. The stock declined from its 1986 issue price of $9 to $3 the following year. The company experienced its first major management transition one year later, when Doc Grants succeeded Tom Beasley as chief executive officer. Beasley continued as chairman. Under Grants’s leadership, CCA began to target larger facilities that held out the possibility for increased economization. CCA won its first state-level contract in October 1987. The agreement called for the construction of two Texas prisons with a combined capacity of 1,000 inmates. The average size of its institutions increased from about 275 beds in the mid-1980s to 460 beds by the end of 1990. At that time, CCA had 16 institutions in five states and a joint-venture institution in Australia for a total capacity of over 7,800 inmates. Chairman Beasley boasted to the Memphis Business Journal that his company was “bigger than 24 state Departments of Corrections.”
The 1990s Bring Financial Success, Rapid Growth
In mid-1992, CCA opened the industry’s first privately managed maximum-security facility, a 256-bed federal detention center, in Leavenworth, Kansas. That December, CCA took the privatization concept to the United Kingdom through a joint venture known as U.K. Detention Services, Ltd. The 649-bed HM Blakenhurst Prison became Great Britain’s first privately managed prison. In an effort to accelerate international expansion, CCA contracted with Paris-based Sodexho Group in 1994. The company opened two prisons in Puerto Rico in 1995.
CCA also grew through acquisitions during this period, purchasing TransCor America, Inc., a company that provided interstate prisoner transport, in January 1995. Later that same year, CCA added more than 7,250 beds to its capacity through the acquisitions of Concept, Inc. and Corrections Partners, Inc.
CCA is quality, meeting the highest standards of performance as established by the American Correctional Association. CCA is value, providing more programs and services for its price. CCA is innovation, looking at every project on its own merits to determine the solution that is best for government and the company. CCA is strength, handling the toughest assignments with dignity and professionalism. CCA is commitment, protecting its partnerships with government despite political pressure and controversy.
The focus on larger, more efficient facilities drove CCA’s revenues and net income to new heights in the early 1990s. Sales multiplied eightfold from $55.5 million in 1990 to $462.2 million in 1997 while profits soared from a meager $198,000 to a whopping $54 million. Wall Streeters sat up and took notice, and after wallowing at the single-digit level for nearly a decade, CCA’s stock took off in the mid-1990s. Taking into account two-for-one splits in 1995 and 1996, the shares shot from about $8 at the beginning of 1995 to nearly $30 in March 1997.
Opportunities for Growth Proliferate in Late 1990s and Beyond
In 1997, three jurisdictions—Tennessee, Florida, and the District of Columbia—announced that they were investigating the possibility of privatizing all or a significant portion of their entire corrections systems. That January, CCA paid the city of Washington, D.C., $52 million for an 866-bed, medium-security jail, marking the first-ever sale of a prison. CCA leased the facility back to the city for $2.8 million per year and retained management. CEO Grants’ 1997 letter to shareholders asserted that “the possibility of assuming management of an entire state system” was “the next milestone for our industry, and one that we intend for CCA to be the first to reach.” CCA had in fact floated a $250 million proposal to take over the entire Tennessee state corrections system in 1985, but was turned down. Whether the plan would yet come to fruition remained to be seen.
That same year saw the creation of the first prison real estate investment trust, CCA Prison Realty Trust. Over the course of 1997, CCA sold a dozen of its facilities to the new venture, which was owned and operated by Doc Grants and his son, 28-year-old D. Robert Grants III.
As the company entered its 15th year in the private prison business, its future still held out the promise of growth. In 1998, only about five percent of America’s prison beds were privately operated. That figure was expected to double by 2001, fueled in part by “three strikes and you’re out” provisions, lengthy sentences, and ongoing attempts to reduce government bureaucracies and budgets at all levels. In a 1997 article for The Commercial Appeal, CEO Grants asserted that “The fundamental driving principles for CCA are even more true today than they were in 1983: government needs to figure out ways to become more cost-effective in areas like corrections, so it can refocus its resources on things more important, like education and job training.”
CCA targeted California with the creation of a West Coast territory in early 1998. By that time, the company had garnered contracts to build and manage three projects with a total of 4,500 beds in the state. In addition to these facilities, CCA had forged agreements to open six prisons in five states with total capacity of more than 5,600 inmates. Clearly, CCA planned to retain its position of leadership in the private prison industry.
Bartlett State Jail; Bay Correctional Facility; Bay County Jail; Bay County Jail Annex; Bent County Correctional Facility; HM Prison Blakenhurst (United Kingdom); Borallon Correctional Centre (Australia); Bridgeport Pre-Parole Transfer Facility; Brownfield Intermediate Sanction Facility; Central Arizona Detention Center; Cimarron Correctional Facility; Citrus County Detention Facility; Cleveland Pre-Release Center; Columbia Training Center; Correctional Treatment Facility; Davidson County Juvenile Detention Center; Davis Correctional Facility; Jesse R. Dawson State Jail; Delta Correctional Facility; Eden Detention Center; Elizabeth Detention Center; Florida Maximum Risk Juvenile Facility; Great Plains Correctional Facility; Centro Correccional de Guayama (Puerto Rico); Hardeman County Correctional Center; Hernando County Jail; Houston Processing Center; T. Don Hutton Correctional Center; Huerfano County Correctional Facility; Lake City Correctional Facility; Laredo Processing Center; Lawrenceville Correctional Center; Leavenworth Detention Center; Liberty County Jail and Juvenile Center; Marion County Jail Annex; Metro-Davidson County Detention Facility; Metropolitan Women’s Correctional Centre (Australia); Mineral Wells Pre-Parole Transfer Facility; B.M. Moore Pre-Release Center; Nevada Women’s Prison; New Mexico Women’s Correctional Facility; North Fork Correctional Center; Northeast Ohio Correctional Center; Polk County jail Annex; Centro Correccional de Ponce (Puerto Rico); Prairie Correctional Facility; Sante Fe Detention Center; Shelby Training Center; Silverdale Facilities; South Central Correctional Facility; Southwest Indiana regional Youth Village; Tall Trees; Torrance County Detention Facility; Venus Pre-Release Center; West Tennessee Detention Facility; Wilkinson County Correctional Facility; Winn Correctional Center.
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—April D. Gasbarre