A Disaster of Biblical Proportion

FloodKen Ham and his organization, Answers in Genesis, want to proselytize America via Ark Encounter, a proposed theme park centered around a life-size reconstruction of Noah’s Ark. They want the massive (at least as proposed) park to mix hands-on fun with visions of apocalyptic judgment for which they can offer “fire insurance.” According to Ham’s fundraising newsletters (as reported in Slate), the ark will contain three levels of “edu-tainment” about Noah’s animals which, he claims, included every species of dinosaur (according to Ham, the Earth was divinely created about 6,000 years ago and dinosaurs were hunted to extinction relatively recently by humans). Ark Encounter is also supposed to feature “historically authentic” attractions, including a tower of Babel with a 5D (really) theater, a ride through the plagues of Egypt,a petting zoo, a walk-through aviary, and live animal programs.

But Ham and AiG haven’t broken ground on the project yet, even though it was announced three years ago. The project’s first phase is said to require $73 million, with $24 million required to commence construction (due to the planning fallacy, these figures are quite probably low). The next phases will require at least $52.6 million more. The State of Kentucky has offered to throw in $37.5 million worth of tax breaks, but those will expire next year. Since AiG has only raised $13.6 million to this point (donations are still being solicited), lots more money is needed to get the project off the ground.

But fear not, Ham and AiG have an investment idea for you.According to an AiG representative, the park was originally going to be funded by a private placement equity offering in an LLC set up to run the park. Now, however, the plan is to turn the park into a 501(c)(3) charity which offers bonds to fund construction. In an executive summary sent to its supporters, AiG says bonds will be offered in 7-, 11-, and 15-year maturities, at yields between 5 and 6 percent. Those are astonishingly low rates for the risk (as of today, publicly traded CCC-rated junk has an average yield of about 8.75 percent, in itself a remarkably low rate historically), no doubt because of the affinity between the issuer and the proposed purchasers (a reliable source of investment fraud). These bonds will not be rated, will suffer negative convexity due to their call features, will be highly illiquid, and will not be obligations of either Ham or AiG. In other words, any and all bond payments will be secured only by the income and assets of the park. If the project falls through or fails, investors could readily lose their entire investment.

Purchasing these proposed bonds would be a classically bad investment decision. The risks are enormous under the most optimistic of scenarios with prospective returns, using the most optimistic possible forecasts, not nearly commensurate with those risks. Quite literally, everything about the project needs to be assumed on faith. Since it never makes financial sense to invest based upon ideological commitments of any sort, religious, political or otherwise (it can end very badly indeed), those who believe in the mission of the Ark Encounter should only consider buying the bonds with their “eyes wide open.” For financial planning (but not tax) purposes, they should assume that the purchase is really a gift. They should have no expectation whatever that they will ever be repaid.


2 thoughts on “A Disaster of Biblical Proportion

  1. Pingback: Traditional Diversification With Timing | Prudent Trader

  2. Pingback: Too Sure By Half | Above the Market

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