Does billionaire Paul Allen’s deep-sea discovery of one of Japan’s largest World War II battleships earlier this year signal that it’s time for wealthy clients to consider investing in shipwreck search and recovery?
That depends. Shipwreck treasure hunting may be exciting, but it can be a particularly treacherous investment, say experts.
The world’s ocean floors may be littered with shipwrecks, but many of those in shallow waters have already been found. “Operations are now moving to deep water, which is more expensive to explore,” says Jim Goold, an underwater archaeologist and attorney with Washington, D.C., law firm Covington & Burling.
Some operations, such as Allen’s expedition to find and explore the wreckage of the battleship Musashi, sunk in 1944 by a U.S. submarine during the Battle of Leyte Gulf, are undertaken to locate and document historical wrecks.
“I don’t know of any treasure-hunting outfit that has returned a profit to investors since the 1980s,” he says.
Although a number of public and private companies claim they actively engage in shipwreck treasure recovery, “The Mel Fisher days are over,” says Goold, referring to the legendary treasure hunter. In 1985, Fisher gave prominence to the trade by salvaging about $450 million in gold, silver, jewels and other artifacts from the wreck of the Spanish galleon Nuestra Señora de Atocha, which sank in 1622 off the Florida Keys.
But such bountiful wrecks are quite rare, meaning treasure hunting is more of a deep-sea lottery than a formula for investment growth, observers say.
“I have represented a number of investors who were unhappy about being taken,” Goold says.
Voyage To The Bottom Of The Sea
If you just look at the numbers, trolling the world’s oceans for sunken treasure would seem to be a potentially lucrative undertaking.
Over 3 million undiscovered shipwrecks are scattered across the world’s seabeds, with a combined value of hundreds of billions of dollars, according to UNESCO. But experts say only a hundred or so might have carried cargoes worth $50 million or more.
Hedge funds, private equity firms and affluent individuals have long provided funds to back recovery expeditions. Private companies in this space include U.K.-based Blue Water Recoveries; West Palm Beach, Fla.-based Treasure Expeditions; and Santa Monica, Calif.-based Galleon Ventures. There are also a few private firms in Asia searching for sunken ships thought to contain valuable porcelain and other fine ceramics.
Of the half-dozen or so public companies in the treasure-hunting industry, most trade over the counter. These include Blue Water Ventures International, Seafarer Exploration Corporation, Oceanic Research & Recovery Inc. and Deep Blue Marine.
Tampa, Fla.-based Odyssey Marine Exploration, which trades on the Nasdaq, may be the most prominent of the public companies in this space. In 2011, Odyssey found the British merchant ship S.S. Gairsoppa, which was sunk by a German U-boat 300 miles off Ireland’s coast in 1941. Odyssey recovered more than 110 tons of silver ingots from the vessel. Under its agreement with the British government, Odyssey receives 80% of the net value of the silver it has recovered—which totaled about $210 million as of July 2013, according to news reports.
But the treasures seem to have dried up even for Odyssey, which recently announced it was putting more emphasis on seabed mineral mining. Odyssey’s CEO Mark Gordon said in March that his company’s future shipwreck projects would need to show risk and reward characteristics as favorable as the mineral ventures’.
Batten Down The Hatches
Expeditions the size and scale of the one Allen undertook can cost $30 million or more, with no guarantee of success. To mount deep-sea search and recovery operations, it takes large vessels loaded with expensive technology, including millions of dollars’ worth of underwater robots, cameras and sonar equipment. Remotely operated vehicles (ROVs), small submarines with arms that can grasp and hold objects, are needed where it’s too deep to dive.
These ventures also depend on weather conditions and the ability of explorers to raise enough money to finance their often-lengthy excursions. It took Fisher 16 years of searching to find his prize galleon.
Local and international laws vary in the degree to which treasure hunters must share recovered items with governments. In 2007, Odyssey recovered an estimated $600 million in gold and silver coins from the Spanish galleon Nuestra Señora de las Mercedes, which sank in 1804 in international waters about 100 miles west of Gibraltar. But the victory was short-lived. Goold successfully represented the government of Spain in U.S. litigation and U.K. proceedings to reclaim the items.
“Everything was returned to Spain, including 17 tons of coins,” he says. “These artifacts should go to museums.” Goold has also represented Italy and France in litigation against treasure hunters.
Last year, Odyssey recovered more than 15,500 silver and gold coins, 45 gold ingots, jewelry and other artifacts from the S.S. Central America. Known as the “Ship of Gold” because it carried an estimated 20-plus tons of the shiny metal, the vessel sank in 1857 off the coast of South Carolina during a hurricane. It was located in 1988, and Odyssey was given a contract to excavate. So far, Odyssey has been unable to monetize the cargo because a U.S. District Court ruling in August denied Odyssey’s claim to ownership. Any potential profits from the ship’s contents are likely to remain tied up in litigation, which has been more or less continuous since the ship was discovered in the late 1980s. Odyssey’s total revenue for 2014 was $1.3 million, down more than 90% from 2013’s $23.9 million.
Goold says investors also face the possibility of being scammed. Treasure hunter Tommy Thompson, a former engineer, discovered the S.S. Central America in 1988 and recovered part of its booty after raising almost $22 million from investors.
He sold the three tons of gold and other treasure he recovered from the ship for more than $50 million. His investors received nothing and several sued. Thompson spent more than two years on the run, living a lavish cash-only existence, after a warrant was issued for his arrest when he failed to appear in federal court to provide an accounting of the gold’s sale. He was apprehended in January at a Hilton hotel in Boca Raton, Fla.
Some argue that profit-seeking treasure hunters can’t or won’t comply with the highest ethical and archaeological standards. Treasure seekers have plundered sunken ships, damaging their cultural and academic value. Opponents of for-profit recovery operations say that careful excavations cost more, which lowers returns for investors. The UNESCO Convention on the Protection of the Underwater Cultural Heritage, which has been signed by almost 50 governments, promotes high standards for underwater treasure recovery.
Given the myriad risks and fleeting rewards of investing in this business, it may be safer for clients who want to experience the thrill of shipwreck hunting to support organizations like RPM Nautical Foundation, a nonprofit based in Key West, Fla., that performs marine archaeological research in the Mediterranean.
Clients can make tax-deductible contributions and join the search. Opportunities abound for sightseeing, diving and photographing historic wrecks. This year the group traveled to Sicily, Albania and Montenegro.
Former Wall Street trader George Robb Jr., who founded RPM Nautical, says he looks for artifacts because it’s fun. “Treasure hunting investors don’t get to be there when the stuff is found. They’re missing out on the adventure.” Robb says he’s pleased that the Roman vases and helmets his team has recovered are now on display for the public to enjoy.
Goold says clients can share the thrill of searching for relics without the stress of wondering when, or if, their “investment” will pay off. Of Allen’s recent voyage, Goold says, “He put his yacht to use, not to grab souvenirs, but to document and illuminate history.”
