The 1893 World’s Columbian Exposition in Chicago needed a centerpiece attraction. It had to be novel, different. Daniel Burnham wanted something to rival Gustave Eiffel’s tower built for the 1889 Exposition in Paris.
Proposals came in from everywhere. Everyone had the same mindset — a bigger tower. A log tower 500 feet taller than Eiffel’s, a telescoping tower, and an 8,947-foot tower with an elevator to the top and toboggans to get down were proposed. Even Eiffel submitted a larger version of his tower for the fair. It was denied.
Burnham wanted something unique. So he challenged American engineers to come up with something spectacular.
George Washington Gale Ferris Jr. accepted the challenge. The idea came to him in a momentary flash. He envisioned a giant steel “bicycle” wheel, 250 feet in diameter carrying 36 cars that could hold 60 people each. A complete revolution of his wheel would propel 2,160 people around in 20 minutes.
The wheel Ferris envisioned actually consisted of two wheels spaced thirty feet apart on the axle. What had frightened Burnham, at first, was the apparent insubstantiality of the design. Each wheel was essentially a gigantic bicycle wheel. Slender iron rods just two and a half inches thick and eighty feet long linked the rim, or felloe, of each wheel to a “spider” affixed to the axle. Struts and diagonal rods ran between the two wheels to stiffen the assembly and give it the strength of a railroad bridge. A chain weighing twenty thousand pounds connected a sprocket on the axle to sprockets driven by twin thousand-horsepower steam engines… Together with its fittings, the axle weighed 142,031 pounds. Nothing that heavy had ever been lifted before, let alone to such a height.
It was exactly what Burnham wanted. Except he didn’t believe it was safe. “Too fragile” was the excuse. Ferris’s first proposal was denied. As was his second.
Undeterred, Ferris tried again. This time, he brought drawings, second opinions from prominent engineers, and local financial backers. He had investors, a board, and most importantly, the $400,000 to build his wheel. It was approved. The Ferris Company and the Ferris Wheel was born.
At its completion, the wheel stood 264 feet, as tall as Chicago’s tallest skyscraper at the time. The bolts holding the wheel together were 28,000 pounds alone. The 36 cars weighed in at one million pounds. At full capacity, the Ferris Wheel came in at roughly 2.4 million pounds.
The Ferris Wheel opened to passengers in June 1893. 61,395 tickets were sold at 50 cents each in the first week of operation. Half went to the Exposition, leaving Ferris and his company with $30,697.50 in net receipts. By October, the Ferris Wheel averaged 20,000 passengers a day. In total, the Wheel cleared $200,000 in profits during the fair.
It then sat empty, unused at the site until 1894. Ferris and the company moved it north to Clark St. and Wrightwood Ave. in Lincoln Park at a cost of $150,000. It was a terrible idea. The country was in the depths of a depression that began in 1893 and the novelty was gone. Ticket sales never recovered, debt piled up, and the company failed. George Ferris sold his share of the company in 1896 and the Wheel was auctioned off a few years later. Everyone assumed it was scrap.
The beauty of investing is that every now and then assets sell at silly prices. Deep value plays, like those Ben Graham found compelling, are essentially companies selling below liquidation value. Sell the building, equipment, desks, chairs, filing cabinets…everything the company owns, pay off the debt, and what’s left — if anything is left — is the liquidation value.
When you find a company at a deep discount to its liquidation value, you’ve found a great deal. At worst, it’s liquidated it for a profit. At best, you buy the assets at a deep discount and get a profitable business for free. Most deep value plays fall somewhere in the middle. The market prices the company as dead, but it has a little life left in it. Often the earnings are highly unstable. So you buy at a discount to liquidation value, sell after the market reprices on earnings, and profit.
The Ferris Company was drowning in debt. Liquidation wasn’t ending in a profit. In this case, the deep value was in the Ferris Wheel itself.
The Ferris Wheel went up for auction in 1903. One person, at least, saw it as more than 2 million pounds of steel scrap. The Chicago House Wrecking Company bought the Wheel for $8,150. One of its two engines was worth more than that.
However, the Wheel wasn’t off to the scrap yard just yet. The Wrecking Company planned to offer one last ride. The Ferris Wheel was taken down and rebuilt in St. Louis for the 1904 Louisana Purchase Exposition.
The Wrecking Company made $215,000 in profits on the deal, then dynamited the Wheel for scrap.
Source:
Devil in the White City
