Industry Overview Report

Industry
Overview
Report

04/20/2017 Private (For-Profit) Correctional Institutions:

Interoffice Memorandum

To: Cheryl Brodersen

From: Leslie Owen

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 Industry Overview Report

Industry Overview Report

Private Correctional Institutions
Per your request, this document is an informative report overviewing the for-profit correctional
institutions industry. This report will help you understand more about the for-profit correctional
institutions industry. It will include a summary of products & services, market competitors, and
market trends in the industry.

Products & Services

Products Segmentation
The Correctional Facilities industry is broken up into four main segments: community
correctional facilities, minimum security prisons, medium security prisons and maximum
security prisons (OHollaren, 2016). The differences between the segments are evident in the
nature of perimeter security, type of housing, staff to inmate ratio, and rehabilitation programs.

Community Correctional Facilities

According to OHollaren (2016), 27.7% of industry revenue comes from contracts for
community correctional facilities. These facilities are the lowest security level. There are far
fewer restrictions and inmates have much more freedom compared to the higher level security
prisons. These facilities are designed for those who do not pose a risk of violence or escape
(Ellis, 2016, The Federal Prison System). Inmates stay in dormitory-like housing with limited or
no perimeter fencing (Ellis, 2016). These facilities are generally program-oriented and provide
job placement and other services to inmates (OHollaren, 2016). According to OHollaren
(2016), community correctional facilities are expected to increase revenue in the future as a
result of a decreases in government contracts for privatizing inmates (OHollaren, 2016).
Community correctional facilities have limited security perimeters, dorm-like housing, and offer
many rehabilitation programs.

Minimum Security Prison

Minimum security prisons make up a smaller fraction of industry revenue compared to
community correctional facilities. These facilities account for only 6.1% of industry revenue
(OHollaren, 2016). In some ways these facilities are similar to community correctional
facilities. For example, minimum security prisons also have dormitory style housing and limited
perimeter fencing (OHollaren, 2016). Another similarity is the low staff-to-inmate ratio.
According to OHollaren (2016), this segment has been stable over the years. Minimum security
prisons have limited security perimeters, dorm-like housing, a low staff-to-inmate ratio, and offer
some rehabilitation programs.

Medium Security Prison

Medium security prisons generate the largest amount of industry revenue at an estimated amount
of 63.6% (OHollaren, 2016). Most of these facilities have cell-type housing, however,
overcrowding in recent years has caused medium security prisons to have more dormitory
housing (OHollaren, 2016). These facilities have strong perimeters that are made up of two
fences and electronic sensors (Ellis, 2016). These facilities have a high staff-to-inmate ratio due

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to the higher risk inmates (Gale Group, 2016). Medium security prisons have strong security
perimeters, cell-type housing, a high staff-to-inmate ratio and limited rehabilitation programs.

Maximum Security Prison

Maximum security prisons produce the smallest amount of industry revenue with an approximate
amount of 2.6% (OHollaren, 2016). Inmates generally live in single cells with locked doors
(OHollaren, 2016). Unlike all other levels of prisons, these facilities provide little to no job
placement assistance and other similar services. Inmates have little freedom and are rarely ever
let out of their cells (OHollaren, 2016). These facilities also have the highest staff-to-inmate
ratio (OHollaren, 2016). Maximum security prisons have strong security perimeters, locked cell-
type housing, a high staff-to-inmate ratio, and no rehabilitation programs.

The infographic below shows a visual breakdown of the four segments of correctional facilities.

(OHollaren, 2016)

Market Competitors
Overview
The industry for private correctional facilities is controlled by two large operators. These
operators hold the majority of federal and state contracts. The two largest companies in the
industry are The GEO Group Inc. and Corrections Corporation of America.1 As you can see in
the graphic below, The Geo Group Inc. and Corrections Corporation of America together control
a majority of the market share.

1
The sources cited in this document all referred to this company as Corrections Corporation of
America. It has recently changed its name to CoreCivic.
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(OHollaren, 2016) The infographic illustrates that two main companies control 62% of the
market share in the industry while only 38% of market share comes from all other companies in
the industry, combined.

The GEO Group Inc.

The GEO Group operates in four segments: the US corrections and detention; GEO community
services; international services; and facility construction and design (The GEO Group, Inc.,
2016). According to Business Source Complete, the US corrections and detention segment of
The GEO Group owns approximately 87,000 beds at 104 correctional, detention and residential
treatment facilities (The GEO Group, Inc., 2016). The GEO Group is the largest provider of
private prison beds.

Corrections Corporation of America

Corrections Corporation of America has fewer facilities than the The GEO Group Inc. however,
their facilities are larger so they are not far behind in available capacity. According to Business
Source Complete, the company operates approximately 55 correctional and detention facilities
with about 72,000 beds (Corrections Corporation of America, 2016). Corrections Corporation of
America is the second largest provider of private prison beds.

Barriers to Entry
The private correctional facilities industry has high barriers to entry that deter new entrants. One
of the biggest barriers to entry are regulations with which industry facilities must comply.
Federal, state, and local legislations each administer substantial regulations that facilities must
adhere to in order to be approved by the American Correctional Association (ACA) (OHollaren,
2016). Without approval from the ACA, facilities will not receive government contracts. A
second barrier to entry is the typical size of government contracts. The majority of contracts
include overseeing several hundred (sometimes several thousand) prisoners (OHollaren, 2016).
To be able to accept these contracts, facilities must be large enough to fit all those inmates. It is
difficult for a new entrant to enter the market facing such large facilities requirements.

Market Trends
Overview
Within the next five years industry revenue is projected to grow at an annualized rate of 1.5% to
reach $5.3 billion, including a projected 0.2% increase in 2016 alone (OHollaren, 2016,
Industry Performance). Although industry revenue is expected to grow in the future, one
relatively recent event was expected impact industry revenue negatively. In August, the U.S
Department of Justice (DOJ) announced that it would decrease its contracts with private facilities
(OHollaren, 2016). However, shortly after the November 8 presidential election, stocks shares

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of private prison companies saw significant gains. The Trump Administrations tough on crime
stance is expected to result in higher demand for private prison space (Associated Press, 2016).

In addition, there are other trends that may affect industry revenue. Crime and the incarceration
rate is an industry driver. The crime rate is on a downward trend that is projected to continue to
decrease over the next five years at an annual rate of 0.3% (OHollaren, 2016). As the
incarceration rate falls, so do the contracts to outsource prisoners and inmates. The falling
incarceration rate may have a negative impact on the industry, however, the current state of
overcrowded federal and state correctional facilities will continue in the future (OHollaren,
2016). As long as federal and state correctional facilities are overcrowded, there will be contracts
continued to be outsourced to private institutions.

Conclusion
This report summarized products and services, market competitors, and market trends in the for-
profit correctional institutions industry. Please let me know if you have any questions or would
like to discuss further. You can reach me best at leslieowen@email.arizona.edu.

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References

Associated Press. (2016, November 23). What is the future of U.S. prisons under Trump
administration? CBSnews. Retrieved from http://www.cbsnews.com/news/what-is-the-
future-of-u-s-prisons-under-trump-administration/

Corrections Corporation of America. (2016, October). Company Profile. Retrieved April 24,
2017, from Business Source Complete database.

Ellis, A. (2016, July 25). Securing a favorable federal prison placement. Retrieved April 25,
2017, from http://alanellis.com/securing-favorable-federal-prison-placement/

Gale Group. (2016). Correction Institutions. Encyclopedia of American Industries. Retrieved

April 17, 2017, from Business Insights: Essentials database.

Lindsey, A. (2016, July). The Privatization Debate. Journal of Contemporary Criminal Justice,
308(27). Retrieved April 17, 2017, from Business Source Complete database.

OHollaren, K. (2016, November). IBISWorld Industry Report 56121. Major Companies in

Correctional Facilities in the US. Retrieved April 24, 2017, from IBISWorld database.

OHollaren, K. (2016, November). IBISWorld Industry Report 56121. Industry Performance in

Correctional Facilities in the US. Retrieved April 24, 2017, from IBISWorld database.

OHollaren, K. (2016, November). IBISWorld Industry Report 56121. Products & Markets in
Correctional Facilities in the US. Retrieved April 24, 2017, from IBISWorld database.

The GEO Group, Inc. (2016, December). Company Profile. Retrieved April 24, 2017, from
Business Source Complete database.