Let's Talk About Killington

[Tin Woodsman]

Threads about other mountains shouldn't morph into the never-ending drama that is the discussion of K-Mart. Let's put it here. I'll start things off by responding to the latest brilliant missive from snowman in the Mt. Snow thread:

So, why would a company from Texas (which knows nothing about skiing) buy into a failing skiing company? Because they weren't in it to run it, they were in it to make a quick buck in an Enron like fashion. It's not even 5 seasons since they first started the buyout and already they're out, free and clear. There are a million and a half ways to cook a companies books. The thing is, only 500,000 of them are illegal. Enron got caught when they got so greedy they ran thru all the legal ways and strayed into the illegal ones. However, all that aside, it doesn't even take a corner store operator to figure out the best way to cook ASC's books. It's staring you right in the face. Your beloved all 4 one pass. That gives them the ability to assign ALL of ASC's revenues for the entire year to just one of their resorts if they so desire. Where that's a bit radical, the books are probably cooked whereby pass visits at areas are assigned values POST ski season (like one visit at K is worth $70 while one visit at Attitash is worth $7) to twist and bend the numbers to suit needs. Better yet, when you're selling a resort, you don't have to give the buyer full disclosure on what's going on at your other resorts, you just have to give them disclosure on what's going on at the one they're buying, so it's that much more difficult to try and figure out what the real picture is. The all 4 one also gave them a vehicle to move profits/losses to states with a better taxation scenario during the holding period. Where it would surprise no one if Attitash lost a million dollars in one season, it also wouldn't surprise anyone if they lost 3. You take a skim from those resorts which everyone knows are slumping and use them to pump the profits at K to command a premium price. Resorts like Attitash don't sell on earnings because they've been left to bend and twist in the wind for so long that people buy them as "fixer uppers". A fixer upper sells on what it's assets are worth. It wouldn't matter if Attitash made 500k or lost 3 million last year, it would still sell for the same price. K however, was sold as a going concern and the new owners understood who they were buying it from and are conducting themselves accordingly in a due dilligence fashion for the 2007-2008 ski season.

1) Yes, those guys in Oak Hill were so smart that they invested a boat load of money into a fialing company and saw the equity value of their investment plunge to zero. I can assure you that the investment in ASC will not be in the Oak Hill Hall of Fame. And, for the record, the guys that actually made the investment were from NYC, not Texas.

2) So let me get this straight, ASC "cooked the books" by arbitrarily assigning some outsized portion of the A41 revenue to Killington. This is what you're hanging your "cooked the books" scenario on? Really? You may want to reconsider and answer the following questions. Why would ASC want to assign an undue % of revenue to Killington when the state of VT is one of the highest cost, highest tax states to operate in? Would it not make more sense to try and "hide" these profits in a more business-friendly state such as NH or, for that matter, Utah? Second, if ASC was assigning all of that income to Killington to goose up the P&L in anticipation of a sale, wouldn't that tend to run counter to their desire to sell Mt. Snow, Attitash, Sunday River, and Sugarloaf? Were they ONLY trying to goose up the profitability at Killington? Are all of the buyers for these resorts asleep at the wheel as ASC played a game of "three card Monty" with the A41 pass revenue, magically making it appear on the P&L of EACH of their company resorts? Third, if there were any questions as to the veracity of the K-Mart financials, why wouldn't a buyer insist on a carve out audit so as to gain a level of comfort with the underlying financials they are relying upon? In any transaction where a significant component of value is related to values determined on an intercompany basis (be it shared services or shared revenues), you better believe that the Buyer has access to the whole picture.

3) What evidence do you have to support the assertion that "resorts like Attitash don't sell on earnings"?

4) I never had an A41 pass, so it could hardly be "beloved" in my mind. It was a stupid marketing gimmick that only served to scare away the very kind of visitors that are the most valuable.

In sum you're spouting off about a lot of things you know nothing about. You need to stop engaging in the arm-chair M&A discussion b/c it's embarrasingly obvious that you don't have any experience in this realm. Sure, the pass pricing was a no-brainer, but the real mistakes bave come subsequent to that decision. I can't understand the changes in the childrens programs, as that is precisely the market they are allegedly targeting. The elimination of the CT Ski Council vouchers is also incomprehensible given that K-Mart's closest top tier competitors all welcome this program. Finally, while the Skeship Stage 1 might be expensive to operate, the marketing value of its easy access from Rt. 4 and, more importantly, the extra 1000' of vertical it provides, is immeasurable. Just a stupid, short-sighted decision.

Your turn.

 

[OldsnowboarderME]

Stick a fork in it .. I think it's done ..:wink:

 

[threecy]

Finally, while the Skeship Stage 1 might be expensive to operate, the marketing value of its easy access from Rt. 4 and, more importantly, the extra 1000' of vertical it provides, is immeasurable. Just a stupid, short-sighted decision.

A lot is said about how Killington is hurting local businesses. If anything, routing the *hoards* of midweek traffic up the main road might help the local stores and eateries on the strip.

Here's an SAT prep question:

Magic Mountain is to Snow Journal as:
a) Ronald Reagan is to Rob Schneider
b) Derek Jeter is to a fork
c) Killington is to AlpineZone

 

[MrMagic]

4) I never had an A41 pass, so it could hardly be "beloved" in my mind. It was a stupid marketing gimmick that only served to scare away the very kind of visitors that are the most valuable.



Your turn.[/QUOTE]

really? i dont it scared off anyone, now the aging lifts, the steep ticket price, was more likly to scare off valuable vistors , but not the A41 pass

oh and threecy i belive the answer would be "c"

 

[eastcoastpowderhound]

snowman's starthinking is getting the better of him. Check your facts before you spout off...Oak Hill came on the ASC scene in August of 1999... [URL="http://peaks.shareholder.com/releases.cfm?Year=1999"/URL] 8 years ago, not five...so if you got that key piece wrong, why should anyone bother to read the rest or your rant. Also, thanks to Enron there's this little thing called Sarbanes Oxley that public companies have to deal with. Look at the sale prices compared to earnings or skier visits...the KL sale is in line with MS/AT and SR/SL.

 

[pepperdawg]

I'm here to post in this important thread...

 

[snowman]

1) Yes, those guys in Oak Hill were so smart that they invested a boat load of money into a fialing company and saw the equity value of their investment plunge to zero. I can assure you that the investment in ASC will not be in the Oak Hill Hall of Fame. And, for the record, the guys that actually made the investment were from NYC, not Texas.

They didn't. They bought in at pennies on the dollar, and no it won't go down in there hall of fame for money making but I can assure you they made some unlike the original ASC.

2) So let me get this straight, ASC "cooked the books" by arbitrarily assigning some outsized portion of the A41 revenue to Killington. This is what you're hanging your "cooked the books" scenario on? Really? You may want to reconsider and answer the following questions. Why would ASC want to assign an undue % of revenue to Killington when the state of VT is one of the highest cost, highest tax states to operate in?

I stated right in my post that I think the A41 was originally desinged as a vehicle to move profits for tax purposes. It could then have been used in the last couple of years to move profits for SALE purposes. Taxing a small tax hit to net a larger capital gain is a strategic play.

Would it not make more sense to try and "hide" these profits in a more business-friendly state such as NH or, for that matter, Utah?

I also stated I have no idea about the corporate tax breeakdown state by state as I'm Canadian. I just know that once you have a vehicle to move profits you can do with it as you please to best suit you. I don't think they could move the money to Utah with the A41 vehicle because I don't think the A41 encompassed Utah did it? ASC did however dump all of there money into Utah for years which I'm sure was partly due to tax laws.

Second, if ASC was assigning all of that income to Killington to goose up the P&L in anticipation of a sale, wouldn't that tend to run counter to their desire to sell Mt. Snow, Attitash, Sunday River, and Sugarloaf?

Attitash, Sugarloaf and Mt. Snow were dogs to varying degrees. If you look at the long term financials and see a downward trend an experienced operator sees what the place CAN do business wise and bids according to that and the fixed assets... knowing (or more importantly thinking) he can FIX IT. Showing a profit at a place everyone knows is in a slump is pointless. However, If you see a downward trend at a place you're marketing as the capital of skiing in the east, a bidder might choke up a bit. I imagine Sunday River was shown some favoritism in the profit skew as well.

Were they ONLY trying to goose up the profitability at Killington? Are all of the buyers for these resorts asleep at the wheel as ASC played a game of "three card Monty" with the A41 pass revenue, magically making it appear on the P&L of EACH of their company resorts? Third, if there were any questions as to the veracity of the K-Mart financials, why wouldn't a buyer insist on a carve out audit so as to gain a level of comfort with the underlying financials they are relying upon? In any transaction where a significant component of value is related to values determined on an intercompany basis (be it shared services or shared revenues), you better believe that the Buyer has access to the whole picture.

I was merely pointing out the most obvious and legal way to move money around that even a little kid could underderstand. I can't believe no one else in here has every come with the thread "So how do resorts gain by having multi-state pass scenarios?" Quite clearly it's done to move money for tax purposes, however it was likely used for "financials creating" for sale purposes too. When you've got a big company like ASC funneling money this way and that you can't simply go in and bid on a place in a normal earnings fashion. That's my point.

3) What evidence do you have to support the assertion that "resorts like Attitash don't sell on earnings"?

I'm good friends with the owner of a few smaller ski areas in Canada. He's always bought them on the value of the fixed assets and land, knowing he can just gut the place and get some of his money back if he can't effect change on the earnings.

4) I never had an A41 pass, so it could hardly be "beloved" in my mind. It was a stupid marketing gimmick that only served to scare away the very kind of visitors that are the most valuable.

Alot of the K crying started due to raised prices, one of which was the pass price, so that's why I'm refering to it as beloved.

In sum you're spouting off about a lot of things you know nothing about. You need to stop engaging in the arm-chair M&A discussion b/c it's embarrasingly obvious that you don't have any experience in this realm. Sure, the pass pricing was a no-brainer, but the real mistakes bave come subsequent to that decision. I can't understand the changes in the childrens programs, as that is precisely the market they are allegedly targeting. The elimination of the CT Ski Council vouchers is also incomprehensible given that K-Mart's closest top tier competitors all welcome this program. Finally, while the Skeship Stage 1 might be expensive to operate, the marketing value of its easy access from Rt. 4 and, more importantly, the extra 1000' of vertical it provides, is immeasurable. Just a stupid, short-sighted decision.

I worked in the ski industry, I also own a three corporations (when I should only need one) which pay next to no tax legally. How about you?

Your turn.

I'm done with this. This is why I've never set foot in K zone. I'm not in a freakin arm chair, I've been waist deep in the principles and schemes I'm refering to for the past 15 years. If you don't understand these simple principles, I don't care to explain them to you anymore. It's a waste of my time.

 

[highpeaksdrifter]

I worked in the ski industry, I also own a three corporations (when I should only need one) which pay next to no tax legally. How about you?

I hate corporate welfare.:angry:

 

[Tin Woodsman]

;
really? i dont it scared off anyone, now the aging lifts, the steep ticket price, was more likly to scare off valuable vistors , but not the A41 pass

oh and threecy i belive the answer would be "c"

I think it almost certainly scared away the high end visitors. Those folks tend to exhibit the the most price inelasticity. They've got money to spend and they are looking for the best possible product. Droppping the price to bargain basement levels won't encourage them to spend more time or money at Killington if the only result they see is more crowded trails on weekends, an ever-shortening season, and the same lousy food and customers service that has characterized K-Mart under ASC stewardship for years.

K-Mart became the Beast of the East not by engaging in death spiral pricing wars but rather by offering the biggest, best, most consistent product. POWDR has reverted to the old pricing, but is offering FAR less in return - 2/3 of the season and 2/3 of the terrain mid-week. Some bargain.

 

[threecy]

I hate corporate welfare.:angry:

He didn't say he doesn't pay taxes...whether he receives his profits via dividends (or other capital gains) or via payroll, he's paying it on a personal level.

Not taxing OUR (not overseas) corporations' income would be a tremendous step in helping our economy long term. The amount of money spent on trying to avoid taxes is rediculous - and there isn't much reason for it either, because the tax is just passed on to the customer. Making our tax code more business friendly would bring forth TREMENDOUS change in the ski industry.

 

[ctenidae]

If POWDR et al bought Killington relying solely on what you think are shady numbers from ASC, then it's obvious that none of their business decisions are based on any strategy, and come from pure, unadulterated stupidity instead. If ASC was cooking the books, then KPMG falls into the "blatently stupid" category, too, since as their accountants they would be liable, too. I don't think KPMG is that stupid, either.

I seriously doubt POWDR is that stupid. While many (if not most) of their decisions have been unpopular, we don't know their long-term plan, and so can't readily pass judgement.

Conspiracy theories are fun becasue they require no grounding in rationality or actual fact.

 

[snowman]

I think it almost certainly scared away the high end visitors. Those folks tend to exhibit the the most price inelasticity. They've got money to spend and they are looking for the best possible product. Droppping the price to bargain basement levels won't encourage them to spend more time or money at Killington if the only result they see is more crowded trails on weekends, an ever-shortening season, and the same lousy food and customers service that has characterized K-Mart under ASC stewardship for years.

K-Mart became the Beast of the East not by engaging in death spiral pricing wars but rather by offering the biggest, best, most consistent product. POWDR has reverted to the old pricing, but is offering FAR less in return - 2/3 of the season and 2/3 of the terrain mid-week. Some bargain.

You were talking sensibly until your last comment. You keep harping about Skyship stage 1. Have you ever skied down to it??? It's essentially the juggarnaught and a couple variations of it. It's CROSS COUNTRY skiing. The jug is god knows how many miles long and it takes a beginner ALL DAY to ski it. I skiied it in it's entirety once, about 20 years ago and still to this day remember what a painfully boring experience it was. What's more, I skiied it on a weekend and saw almost NO ONE on the lower half and this was when K was in it's hayday. Stage 1 uses a collasal amount of power to serve NO ONE midweek. What's more, the trails are likely still open anyway and you can catch a shuttle back if you really desire going X/C skiing. We had this same argument months ago over the fact NO ONE skis Pico midweek and the fact they're doing their bottom line and the environment a great service by shutting that down too.

 

[snowman]

He didn't say he doesn't pay taxes...whether he receives his profits via dividends (or other capital gains) or via payroll, he's paying it on a personal level.

Not taxing OUR (not overseas) corporations' income would be a tremendous step in helping our economy long term. The amount of money spent on trying to avoid taxes is rediculous - and there isn't much reason for it either, because the tax is just passed on to the customer. Making our tax code more business friendly would bring forth TREMENDOUS change in the ski industry.

Also correct. I spend a lot of money on avoiding paying high taxes and get to write that money off. If they just got real with the tax code, I'd gladly give them the money instead, as that would benefit me thru gov't spending, vs. buying my accountant and lawyer new cars.

 

[threecy]

What's more, I skiied it on a weekend and saw almost NO ONE on the lower half and this was when K was in it's hayday. Stage 1 uses a collasal amount of power to serve NO ONE midweek. What's more, the trails are likely still open anyway and you can catch a shuttle back if you really desire going X/C skiing. We had this same argument months ago over the fact NO ONE skis Pico midweek and the fact they're doing their bottom line and the environment a great service by shutting that down too.

We should join together and start a marketing firm and make a pitch for Killington...we could call ourselves Canuck & Anti-Canuck, LLC - "The spin starts here"

 

[snowman]

If POWDR et al bought Killington relying solely on what you think are shady numbers from ASC, then it's obvious that none of their business decisions are based on any strategy, and come from pure, unadulterated stupidity instead. If ASC was cooking the books, then KPMG falls into the "blatently stupid" category, too, since as their accountants they would be liable, too. I don't think KPMG is that stupid, either.

I seriously doubt POWDR is that stupid. While many (if not most) of their decisions have been unpopular, we don't know their long-term plan, and so can't readily pass judgement.

Conspiracy theories are fun becasue they require no grounding in rationality or actual fact.

The books weren't total crap. I'm just saying when you're dealing with hundreds of millions of dollars, to be off 10 million dollars (on purpose) is nothing. However, when that's you entire profit magin it IS something. Powdr is moving forward with abundant caution, which is hard to fault them for. Considering the current recession potential on top of that, it's just about the ONLY thing one should do.

 

[ctenidae]

The books weren't total crap. I'm just saying when you're dealing with hundreds of millions of dollars, to be off 10 million dollars (on purpose) is nothing. However, when that's you entire profit magin it IS something. Powdr is moving forward with abundant caution, which is hard to fault them for. Considering the current recession potential on top of that, it's just about the ONLY thing one should do.

Finding a shuffled $10 million is something that any competent due diligence should be able to uncover, unless it was very cleverly hidden. If that's the case, maybe Powdr is just planning on suing the beejebus out of KPMG and calling it a day.

 

[Tin Woodsman]

They didn't. They bought in at pennies on the dollar, and no it won't go down in there hall of fame for money making but I can assure you they made some unlike the original ASC.

Maybe so, but it was a LOT of pennies, and they are mostly gone.

I stated right in my post that I think the A41 was originally desinged as a vehicle to move profits for tax purposes. It could then have been used in the last couple of years to move profits for SALE purposes. Taxing a small tax hit to net a larger capital gain is a strategic play.

I also stated I have no idea about the corporate tax breeakdown state by state as I'm Canadian. I just know that once you have a vehicle to move profits you can do with it as you please to best suit you. I don't think they could move the money to Utah with the A41 vehicle because I don't think the A41 encompassed Utah did it? ASC did however dump all of there money into Utah for years which I'm sure was partly due to tax laws.

Attitash, Sugarloaf and Mt. Snow were dogs to varying degrees. If you look at the long term financials and see a downward trend an experienced operator sees what the place CAN do business wise and bids according to that and the fixed assets... knowing (or more importantly thinking) he can FIX IT. Showing a profit at a place everyone knows is in a slump is pointless. However, If you see a downward trend at a place you're marketing as the capital of skiing in the east, a bidder might choke up a bit. I imagine Sunday River was shown some favoritism in the profit skew as well.

I was merely pointing out the most obvious and legal way to move money around that even a little kid could underderstand. I can't believe no one else in here has every come with the thread "So how do resorts gain by having multi-state pass scenarios?" Quite clearly it's done to move money for tax purposes, however it was likely used for "financials creating" for sale purposes too. When you've got a big company like ASC funneling money this way and that you can't simply go in and bid on a place in a normal earnings fashion. That's my point.

I'd disagree with all of that. Mt. Snow and Attitash are two of the larger areas in the Northeast by skier visits. I'm pretty sure Mt. Snow is in the top 5 and Attitash in the top 10. Both have loyal and consistent customer bases that are attracted by their ease of access and solid intermediate terrain. Sugarloaf is a bit of a dog b/c you'll never really be able to grow skier visits there, though you'll never fall below a certain level either b/c of the fanatical loyalty of its clientelle. Regardless, if Snow and Attitash are such dogs that ASC used as pawns to divert revenue away from and towards K-Mart, why did they sell for just as much as K-Mart? Those two mountains have about as many skier visits combined at K-Mart does, and yet you're alleging that only through sophisticated financial wizardry, ASC shifted revenues around to K-Mart so that it could, in the end, sell for exactly as much as they did. That's......not the strongest of logic chains.

Also, you are saying that the primary reason ASC put the A41 pass out there was to shift the tax burden to a lower tax state, but then contradict yourself by saying that they did this to goose up the K-Mart earnings in high-tax Vermont. Which is it? If they shifted their strategy mid-stream (I guess I'll humor this ridiculous conspiracy theory - you're really stretching), the SEC would be on them like white on rice. I don't know how you do things in Canada, but major changes in your revenue recognition policies (either from a timing or a location perspective) are heavily scrutinized south of the border b/c that is one of the easiest things to game. That's just amateur hour if you think that was their ploy and that it wouldn't be detected by neither the SEC nor their buyers.

In addition, while POWDR may be incompetent operators, surely they and all the other buyers of ASC properties int he East weren't so stupid as to take ASC's word for it with respect to the financials. If they did just take ASC's financials at face value, then you're in a bit of a logical box b/c then they really ARE that stupid when it comes to running their business.

I'm good friends with the owner of a few smaller ski areas in Canada. He's always bought them on the value of the fixed assets and land, knowing he can just gut the place and get some of his money back if he can't effect change on the earnings.

Attitash and Mt. Snow would be in the top 10-15 resorts for skier visits in Canada, with about 350,000 and 550,000 respectively. Call me when your friend buys one that size.

Alot of the K crying started due to raised prices, one of which was the pass price, so that's why I'm refering to it as beloved.

No. You're reading/hearing what you want to and not listening to the facts. Everyone expected pass prices to go up. Anyone who didn't should have had their head examined. But they went up at Mt Snow and Attitash too - who's griping there? It's the futher shortening of the season, dramatic and unaffordable increase in childrens program pricing, massive reduction in available midweek lifts, terrain and vertical, curtailment of operations at KBL midweek, elimination of CT Ski Council programs, and a littany of other stupid decisions that have people up in arms. Wake up.

I worked in the ski industry, I also own a three corporations (when I should only need one) which pay next to no tax legally. How about you?

Working as a lift op and then playing a tax shell game in a high tax country doesn't necessarily qualify you as an expert on ski area M&A transactions.

 

[snowman]

We should join together and start a marketing firm and make a pitch for Killington...we could call ourselves Canuck & Anti-Canuck, LLC - "The spin starts here"

I believe you were on my side when I was pissed off at people talking foolishness about Pico being shut down for 2 days a week. The only difference there was I think we might have convinced some people that it WAS a good idea. We tend to agree on a lot of this.

 

[snowman]

Finding a shuffled $10 million is something that any competent due diligence should be able to uncover, unless it was very cleverly hidden. If that's the case, maybe Powdr is just planning on suing the beejebus out of KPMG and calling it a day.

Well, how they are acting just proves my point. They surely did due dilligence, perhaps they found out the place was INDEED NOT MAKING MONEY and that is why they are investing zero and making cuts till they get things straightened out. No one has confirmed or denied ASC's numbers publicly. There are only really 2 ways to run a business. Make cuts to get to profitability or spend money to drive sales. In a potential recessionary environment for this type of business the first is the ONLY choice.

 

[threecy]

Well, how they are acting just proves my point. They surely did due dilligence, perhaps they found out the place was INDEED NOT MAKING MONEY and that is why they are investing zero and making cuts till they get things straightened out. No one has confirmed or denied ASC's numbers publicly. There are only really 2 ways to run a business. Make cuts to get to profitability or spend money to drive sales. In a potential recessionary environment for this type of business the first is the ONLY choice.

Or like dealing with an old house - some might buy it and instantly start dumping money on a hot tub, an addition, etc. and ignore a slight leak in the roof - which ends up leaking into the new addition and rotting it out (I saw this literally happen with someone who bought a house, decked it out with a new foyer/living room/entertainment center/etc., but apparently failed to live there a whole year before realizing there were serious leaks due to snow/ice etc., and by then apparently didn't have any money left to correct the problem). SP/Powdr seems to be choosing to rip up the roof and fix that first and not even begin to forecast what they'll do later on the house until they see the extent of the damage hidden under the shingles. Wow that was a long paragraph, that's what you get for working too many hours early in the week.