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I’ve owned and operated multiple prisons for over two decades. The ownership of this real estate class has turned me into an extremely wealthy man. I know the nits and grits on how to run a prison successfully. Here is a thread on the basic economics of prison management.
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To make money as a prison owner you enter contracts with government agencies. There are three agencies I have historically worked for: The Federal Bureau of Prisons, The U.S. Marshals Services and the Bureau of Immigration and Customs Enforcement.
Each agency is a little different but, in the end, it is all the same (you house prisoners for a set fee at an extremely high incremental margin). This is how a typical contract works.
Contracts are structured with a base period and have renewal options. Typical base periods are 1-5 years and some going into perpetuity. I have typically found that five years is normal with a 2–5-year extension. Each period has an escalator function of 1-5%/annum.
Once a contract is signed the government agency will provide prisoners and pay a monthly rate for each prisoner. I have historically found that each prisoner is worth $2,500 per month or $30,000 per year. With a 1,500 bed prison this is annual revenues of $45 million.
The $45 million is only revenues. There are significant costs to running a prison including staff, food, guards, cleaning, administrative, etc. A subpar prison will do 20% gross margins. A normal prison will do 25% gross margins. An excellent prison will do 30% gross margins.
I’ve been in the game for a long-time and know how to remove costs. My prisons do 30% gross margins or around $1,750/cost per prisoner per month (assuming the prisoner yields $2,500/month in revenue).
Here are a few ways to cut costs:
-Cut food budgets (feed the cheapest food you can find)
-Make prisoners buy their own clothing
-Allow laundry only twice per month
-Slash cleaning budgets to the bone
-Cut food budgets (feed the cheapest food you can find)
-Make prisoners buy their own clothing
-Allow laundry only twice per month
-Slash cleaning budgets to the bone
The problem with prisons is you need to keep them full to make money. At 65% capacity you are breakeven. Anything below 65% and you are burning money. At 95% occupancy you are printing cash. To keep my prisons full I spend a significant amount of my free cash flow on “marketing”.
Marketing consists of lobbying for judges hard on crime who will send convicted individuals to our sites. Building relationships with local police departments who work in inner cities to arrest folks who can’t afford strong a strong legal team.
I also push back extremely hard on the decriminalization of marijuana and spend a lot of money preventing the legalization of marijuana.
The last bit of the marketing dollars go into keeping our public image fresh. We spend a decent amount of money to promote that we are doing a good service for the community with prison education and reformation. In reality these are just marketing pamphlets to make us look good
We are incentivized to keep as many people in the system as long as we can. Recidivism is what we hope for.
Investing in private prisons is a great way to build independent wealth. The ownership of these real estate assets has turned me into an extremely wealthy and well connected individual. Shoot me a follow and follow this newsletter who will be interviewing me next week.
