GEO: How Do Prisons Make Money


Hedge funds released their latest 13F filings two weeks ago, and one of the most headlined transactions was that of Michael Burry doubling down on his GEO Group (NYSE: GEO) position. He also added five other stocks to Scion Asset Management’s portfolio, but GEO is by far the largest holding, occupying just under 38% of the fund’s public-equity holdings. Considering how selective Mr. Burry is with his stock picking, this has made investors wonder if the upside Mr. Burry sees is indeed as big as his conviction of the stock appears to be.


Incorporated in 1988, The GEO Group, Inc. (GEO) is a listed company that invests in private prisons and mental health facilities in North America, Australia, South Africa, and the United Kingdom. They own, lease and operate a broad range of secure facilities including maximum, medium and minimum-security facilities, processing centers, and community-based reentry facilities. They offer counseling, education and/or treatment for alcohol and drug abuse problems at most of the domestic facilities they manage.

Business Model

The Company conducts its business through four reportable business segments:

  • The U.S. Secure Services segment
  • The Electronic Monitoring and Supervision Services segment
  • The Reentry Services segment
  • The International Services segment

U.S. Secure Services

The U.S. Secure Services segment encompasses the provision of security, administrative, rehabilitation, education, and food services at secure services facilities. GEO provides for the safe and secure housing and care of incarcerated individuals, this includes providing 24-hour care and supervision, including medical, transportation, food service, laundry services and various programming activities.

GEO provides rehabilitation and educational programs to rehabilitate offenders while in detention, they offer a wide array of educational programming, including Adult Basic Education, English as a Second Language courses, Post-Secondary Programs, and Library Services. In addition, GEO’s correctional and detention facilities offer programs focusing on vocational training, substance abuse treatment, self-help, and religious and faith-based programs.

GEO’s Vocational Programs Include:

  • Mock Interviews
  • Job Fairs
  • On the Job Training
  • Vocational Licensing

GEO’s Vocational Licenses Include:

  • Custodial Maintenance
  • Barbering
  • Electrical
  • Heating, Ventilation, and Air Conditioning (HVAC)
  • Small Engine Repair
  • Masonry
  • Plumbing
  • Culinary Arts
  • Carpentry
  • Welding

The average occupancy in their U.S. Secure Services facilities was 90.5% and 88.4% of capacity in the Third Quarter 2022 and Third Quarter 2021, respectively, excluding idle facilities. The number of compensated mandays in U.S. Secure Services facilities was approximately 4.6 million in Third Quarter 2022, and GEO had a revenue around 1.5 billion USD providing these services, contributing to 66% of the company’s total revenue.

Reentry Services

The Reentry Services segment, which conducts its services in the United States represents services provided to adults for residential and non-residential treatment, educational and community-based programs, pre-release and half-way house programs.

Their reentry services involve supervision of individuals in community-based programs and re-entry centers and the provision of temporary housing, programming, employment assistance and other services with the intention of the successful reintegration of residents into the community;
GEO provides individuals nearing the end of their judicially imposed sentence with the resources necessary to productively transition back into society.

Through its residential reentry centers, GEO provides federal and state parolees and probationers with temporary housing, rehabilitation, substance abuse counseling and vocational and educational programs.

By providing reentry services, the company has made around 280 million USD of Revenue in 2021, accounting to 12% of their total revenue.

Electronic Monitoring and Supervision Services

The Electronic Monitoring and Supervision Services segment, which conducts its services in the United States, represents services provided to adults for monitoring services and evidence-based supervision and treatment programs for community-based parolees, probationers, and pretrial defendants.

Services provided consist of community-based supervision (home visits), in-person reporting, telephonic reporting and GPS and other electronic monitoring.

GEO offers government agencies more than a dozen compliance technologies, including:

  • Global Positioning Satellite (GPS) technology to enhance compliance
  • Court admissible, transdermal and breath alcohol monitoring devices to accurately test and drive sobriety
  • Accurate radio frequency solutions, ideal for monitoring compliance with curfews and other defined locations
  • Electronic monitoring software solutions that provide agencies with effective tools to enhance supervision

Similar to Reentry Services, GEO has made around 280 million USD of Revenue in 2021, around 12% of their total revenue.

International Services

The International Services segment primarily consists of secure services operations in the United Kingdom, South Africa and Australia. Revenues for International Services in 2021 were around 210 million USD, making it around 10% of the company’s total revenue.

Recent Development

As of December 31, 2021, their worldwide operations included the management and/or ownership of approximately 86,000 beds at 106 correctional, detention and reentry facilities, including idle facilities, and also included the provision of servicing more than 210,000 individuals in a community-based environment on behalf of federal, state and local correctional agencies located in all 50 states.

For the years ended December 31, 2021, they had consolidated revenues of $2.3 billion, and they maintained an average company-wide facility occupancy rate of 85.4% including 74,834 active beds and excluding 11,200 idle beds.


Challenge 1: Lack of Bank Financing

With public backlash growing in recent years, all major banks had decided to cut ties with private prison companies by the end of 2019. As 60% of GEO’s revenue is related to owning and leasing secure facilities, access to bank financing makes for a critical component of GEO’s growth prospects. In response, GEO, which at the time was known among investors for its massive dividend yield, decided to suspend its dividend. No dividends have been paid since Q1 2021, and while the suspension caused a massive sell-off at the time, it has been proven to be the right decision. This is because, besides allowing the company to deleverage faster.

Challenge 2: Biden’s Order to Stop Private Prison Contract Renewals

On January 26, 2021, President Biden signed an executive order directing the United States Attorney General not to renew Department of Justice (“DOJ”) contracts with privately operated criminal detention facilities, as consistent with applicable law. Two agencies of the DOJ, the Federal Bureau of Prisons (“BOP”) and the U.S. Marshals Service (“USMS”), utilize GEO’s support services. The BOP houses inmates who have been convicted of federal crimes, and the USMS is generally responsible for detainees who are awaiting trial or sentencing in U.S. federal courts.

As of December 31, 2021, GEO has one company-owned facility under direct contract with the BOP, which has a current contract option period that expires on September 30, 2022, and three company-owned/company leased facilities under direct contracts with USMS, which have current contract option periods that expire between March 31, 2022 and September 30, 2023

These facilities combined represented approximately 6% of their revenues for the year ended December 31, 2021

Ethical Issue

GEO’s revenue is in directly correlation to the number of inmates, meaning the more prisoners they receive, the more money they make by providing their services. In their annual report, they’ve stated as due to COVID-19 there has been declines in crossings and apprehensions along the US’s Southwest border, thereby reducing the number of inmates referrals by federal, state and local agencies, which has dampened GEO’s revenue in 2021.