Yes, the Government Can Turn Even the Grand Canyon Into a Money Pit


Grand Canyon

Grand Canyon National Park has unrivaled views, and a steady flood of tourists eager for a look, and for a place to get a bite and sleep while they're visiting. So why can't the National Park Service (NPS) get companies to bid on taking over the hotels and restaurants at the rim—facilities that you think would be gold mines for anybody with a bit of business sense?

Could it be because the NPS wants the new concessioner to assume tens of millions of dollars of debt to the last vendor, while keeping less of the proceeds than its predecessor? You bet.

"We were ignoring a debt that was accruing in the park," Grand Canyon Superintendant Dave Uberuaga told Fronteras. The NPS currently owes Xanterra, a longtime concessioner descended from the old Fred Harvey company, $157 million. That's actually an improvement. When the park started unsuccessfully soliciting bids, the amount of the Leashold Surrender Interest—the sum owed to Xanterra for capital improvements it made to aging facilities—was actually $198 million. DNC Parks & Resorts picked up $41 million of that as part of a smaller contract at the park, leaving the NPS to figure out what to do with the rest of the debt it had allowed to accumulate.

Under a 1998 law, contracts must now (with some exceptions) be put out to bid every ten years. But if a concessioner loses a contract, it's owed the value of capital improvements to be paid by the United States government or the successor company.

Grand Canyon
National Lampoon

Xanterra has managed facilities at the park for decades, paying the government 3.8 percent of gross revenues for the privilege. But it also shouldered the cost for improving the facilities in anticipation of being compensated…eventually. The contract is now up for rebidding, and the company doesn't seem very interested in continuing its relationship with the NPS (neither Xanterra nor the National Park Service responded to questions by press time). In fact, nobody seems interested in the current terms—none of the bids received adhered to the NPS's specified conditions.

So Grand Canyon National Park sweetened the deal by paying $100 million of the money owed, with much borrowed from other parks so that the new concessioner would "only" have to pay $57 million. But the new solicitation also specifies that the lucky "winner" will have to pay a minimum franchise fee of 14 percent for the 15 year life of the contract, making the arrangement rather less lucrative than the one Xanterra had for so long, unpaid debt aside.

And there just might be some concern that the NPS won't be any better in the future about paying debts owed to concessioners—especially since it just ran up a hefty tab to other parks that want their money back. The park estimates annual gross revenue for the contract at $66.1 million, which you'd think would mean a chance at healthy profits. But if 14 percent of that goes to the government, the properties have to be maintained and improved, and you're starting off with a big bucket of red ink…

The Grand Canyon may be the biggest damn hole in the world, and a popular one at that. But the federal government has managed to make a huge tourist draw into a money-loser.