Pico Will Not Operate 7 Days A Week

[madskier6]

I won't go into details, but just do some simple math based upon the purchase prices/investments made into some of those areas...they aren't cracking a net profit yet.

I think this is the wrong way to approach the analysis. You can't factor in the purchase price of the resort to determine profitability. That's a capital asset that can later be sold (hopefully at a higher price than what you paid for it) to recoup your investment. If the operator runs an efficient ski area business and generates operating profits, that should be the goal. Then you have funds to invest in improving the mountain/long-term maintenance/capital improvements.

No ski area operator can expect to recoup the purchase price of the resort via operating profits unless the timeframe is 20-30 years. The correct concept should be return on investment (ROI). For an investment of $80 million to acquire the property plus capital improvements, how much income does the resort generate on an annual basis? That's your ROI.

I agree with you that if you include purchase price, then no one is making a "net profit" unless they acquired the resort 40 years ago for $100,000. But that can't be a realistic goal of operators who acquired their resorts in the last 10 years or so. I have to believe that the successful operators (Okemo, Sugarbush, etc) are generating annual operating profits. Otherwise, they will be on NELSAP real soon.

 

[Tin Woodsman]

Unless they excell on the operations end when the snow flies. If that is the case, then it won't look so stoooopid.

They can excell all they want - if a significant portion of their existing and potential customer base stays away due to very public and somewhat egregious marketing errors, there will be no one there to see how wonderful they are. What draws people to ski at a particular area, other than the natural assets of a place (snowfall, terrain, location, etc..) is the experience they expect to pay for. Customer service (including guest services, food, ski school, etc..), which is something Peaks can address immediately, is just one component of that equation. People care about the quality of the snow surface (how much snow making and grooming), the quality of the lifts (better to be fast and efficient where needed), and ideally some opportunities for new terrain. There is zero prospect of anything new on the last three fronts. Peaks can improve on the customer service end, but it's even difficult to do that w/o a major commitment of capital and/or expense dollars.

I'm not saying they are on the road to ruin or anything, but if you're defending their performance in the first few months of owning K, you don't have much fo a leg to stand on. I think they are going to have a historically bad season this winter. It's going to take a while to build back up the somewhat tattered brand they acquired (and subsequently devalued even more).

 

[thebigo]

They can excell all they want - if a significant portion of their existing and potential customer base stays away due to very public and somewhat egregious marketing errors, there will be no one there to see how wonderful they are. What draws people to ski at a particular area, other than the natural assets of a place (snowfall, terrain, location, etc..) is the experience they expect to pay for. Customer service (including guest services, food, ski school, etc..), which is something Peaks can address immediately, is just one component of that equation. People care about the quality of the snow surface (how much snow making and grooming), the quality of the lifts (better to be fast and efficient where needed), and ideally some opportunities for new terrain. There is zero prospect of anything new on the last three fronts. Peaks can improve on the customer service end, but it's even difficult to do that w/o a major commitment of capital and/or expense dollars.

I'm not saying they are on the road to ruin or anything, but if you're defending their performance in the first few months of owning K, you don't have much fo a leg to stand on. I think they are going to have a historically bad season this winter. It's going to take a while to build back up the somewhat tattered brand they acquired (and subsequently devalued even more).

Just to clarify I think you are refering to POWRD rather than Peaks. .

 

[thetrailboss]

Peak?

Peaks Resort is not a "western" company by any means. Midwestern, yes, but they don't own anything in the west per se.

 

[JimG.]

They can excell all they want - if a significant portion of their existing and potential customer base stays away due to very public and somewhat egregious marketing errors, there will be no one there to see how wonderful they are. What draws people to ski at a particular area, other than the natural assets of a place (snowfall, terrain, location, etc..) is the experience they expect to pay for. Customer service (including guest services, food, ski school, etc..), which is something Peaks can address immediately, is just one component of that equation. People care about the quality of the snow surface (how much snow making and grooming), the quality of the lifts (better to be fast and efficient where needed), and ideally some opportunities for new terrain. There is zero prospect of anything new on the last three fronts. Peaks can improve on the customer service end, but it's even difficult to do that w/o a major commitment of capital and/or expense dollars.

I'm not saying they are on the road to ruin or anything, but if you're defending their performance in the first few months of owning K, you don't have much fo a leg to stand on. I think they are going to have a historically bad season this winter. It's going to take a while to build back up the somewhat tattered brand they acquired (and subsequently devalued even more).

I understand what you're saying; I'm not defending anything, I'm only trying to figure out what their plan is. I agree their initial set of decisions have not been current K customer friendly. I say current because I can't believe that current K customers are their target market. Not with the way things have developed so far.

But I won't make any judgements on what will ultimately happen until I personally experience the place during this coming winter. You've predicted an historically bad season for them and I just don't see what you base that on, other than unpopular decisions made in the past 2 months. Are you telling me that if K has a blowout natural snow year of over 300 inches that the place will be empty? I think not.

All I'm saying is I'll wait until the snow flies to make that determination.

 

[threecy]

I think this is the wrong way to approach the analysis. You can't factor in the purchase price of the resort to determine profitability.

This is what, in part, killed ASC. It's not like Peak, for instance, just had $75M in bundled cash sitting around. It is borrowed - whether it be from a bank or another person/company. Not only do you need an operational profit, but you also need to be making money above and beyond the amount of money you've borrowed. Sure, property appreciates - that's icing on the cake...but of that $75m, there's a lot tied in that depreciates. The lenders will likely want to see a shorter term return on investment and not wait 20 years to cash out and see a potential (if a ski area goes to NELSAP, odds are its property value plummets) profit alone.

 

[Tin Woodsman]

I understand what you're saying; I'm not defending anything, I'm only trying to figure out what their plan is. I agree their initial set of decisions have not been current K customer friendly. I say current because I can't believe that current K customers are their target market. Not with the way things have developed so far.

But I won't make any judgements on what will ultimately happen until I personally experience the place during this coming winter. You've predicted an historically bad season for them and I just don't see what you base that on, other than unpopular decisions made in the past 2 months. Are you telling me that if K has a blowout natural snow year of over 300 inches that the place will be empty? I think not.

All I'm saying is I'll wait until the snow flies to make that determination.

I stand by my statement that K will have an historically bad season this year in terms of skier visits. Now if the state of VT gets a bumper snow year (jah make it so!), there may not be much if a decrease, if any, but they will certainly lose market share either way. That would still be "historically bad" if skier visists statewide go up 10% and they are flat.

But if you're in this game b/c you are betting on the weather, you're in the wrong game. I don't need to tell anyone on this board that New England weather can be unpredictable in the next 15 minutes, let alone a year out. The only thing you can count on to interest people year after year is if you have something new to show them and a consistently superior product. You can deliver neither if you refuse to invest capital.

They are driving away many of their core skiers - that much is clear. They want to replace them with the types of skiers who may be interested in buying a condo in the future base village. OK - but what have they done to entice those people? Is there a renewed commitment to superior snow surfaces stemming from a large investment in snowmaking and grooming? Nope. Is there some sort of material upgrade to or expension of the main base lodges to wow these people? Nope. Are there any new lifts to ease the congestion spots and enable newcomers to more easily get around this large mountain complex? Nope. Is there any new terrain on the horizon? Not in the next ten years.

There IS a shortened season and fewer days you can ski at Pico, so that's change worth noting.

Where's the beef?

 

[JimG.]

They are driving away many of their core skiers - that much is clear. They want to replace them with the types of skiers who may be interested in buying a condo in the future base village. OK - but what have they done to entice those people? Is there a renewed commitment to superior snow surfaces stemming from a large investment in snowmaking and grooming? Nope. Is there some sort of material upgrade to or expension of the main base lodges to wow these people? Nope. Are there any new lifts to ease the congestion spots and enable newcomers to more easily get around this large mountain complex? Nope. Is there any new terrain on the horizon? Not in the next ten years.

Those are the types of things that entice you and me, skiers who care about the skiing.

Are you sure the demographic they seem to be chasing cares about those specific things as much as we do? Or do they care more about property and amenities and stay perfectly happy with any old ski area in the winter?


Wanna bet that the first ski area related upgrades will be to the lodges/parking and not the terrain or snowmaking?

 

[kcyanks1]

Those are the types of things that entice you and me, skiers who care about the skiing.

Are you sure the demographic they seem to be chasing cares about those specific things as much as we do? Or do they care more about property and amenities and stay perfectly happy with any old ski area in the winter?

I'd think that that demographic does care about many of the things Tin mentioned--snowmaking, grooming, lodges, and high speed lifts. Perhaps more than the skiers on this board, who in large part favor natural snow, ungroomed trails, and don't care that much how nice the base lodge is.

 

[thetrailboss]

I think that Powdr and SP Lands were betting on the "reputation" of Killington to be the selling point...aka resting on the laurels.



Unfortunately ASC killed that one.


But to be brutally honest, I think that SP Lands is interested in sprucing up the place, adding a few amentities, and finding some fool to buy the place and cash out...because in essence SP Lands got burned by ASC and they just want their $$$ back. This is AZ's theory...their recent actions certainly support this theory.

 

[JimG.]

I'd think that that demographic does care about many of the things Tin mentioned--snowmaking, grooming, lodges, and high speed lifts. Perhaps more than the skiers on this board, who in large part favor natural snow, ungroomed trails, and don't care that much how nice the base lodge is.

Now that they've announced a shorter season, and if their demographic just wants decent trails and snow to get around on, Killington could easily offer 100 trails with awesome snowmaking and grooming and not invest a dime in capital improvements. That demographic wouldn't know what to do with that many trials, but we would view it as a loss of 50% of the terrain. And there are plenty of high speed lifts and what not to service that reduced terrain.

So, they upgrade the lodges like I said, they've spent minimal dollars, and yet they can still give that less hardcore demographic exactly what they want. I mean, wouldn't this idea fit right into the business look POWDR has projected. Spend no money?

 

[JimG.]

I think that Powdr and SP Lands were betting on the "reputation" of Killington to be the selling point...aka resting on the laurels.



Unfortunately ASC killed that one.


But to be brutally honest, I think that SP Lands is interested in sprucing up the place, adding a few amentities, and finding some fool to buy the place and cash out...because in essence SP Lands got burned by ASC and they just want their $$$ back. This is AZ's theory...their recent actions certainly support this theory.

If this is true, they were resting on laurels, then nothing I'm saying matters.

Like Tin already said, stoooopid.

 

[madskier6]

This is what, in part, killed ASC. It's not like Peak, for instance, just had $75M in bundled cash sitting around. It is borrowed - whether it be from a bank or another person/company. Not only do you need an operational profit, but you also need to be making money above and beyond the amount of money you've borrowed. Sure, property appreciates - that's icing on the cake...but of that $75m, there's a lot tied in that depreciates. The lenders will likely want to see a shorter term return on investment and not wait 20 years to cash out and see a potential (if a ski area goes to NELSAP, odds are its property value plummets) profit alone.

I agree to a point. You can't have overwhelming amounts of debt with high interest costs & expect to survive for long. That's what killed ASC: the high debt service requirements. But that was caused by owning too many resorts, making too many expensive improvements too fast & the banks buying into the "aura" or "charisma" of Les Otten & the job he did early on at Sunday River.

Your earlier point, however, was that very few (if any) operators of Eastern resorts are making a profit. To support this point, you said that one has to take into consideration the purchase price of the resort.

My only point was that in order to be profitable (at least from an operational standpoint) you do not factor in the cost of the resort since that is a capital asset which has independent value on its own. But I do agree that too much debt to acquire the resort will seal your fate & you will fail. Presumably, any banks that loaned money to a new operator in 2007 will not allow them to borrow 100% of the purchase price & will have debt service payments that amortize the principal over 10 or 20 years so they don't wait until the resort is sold to be paid back their principal.

 

[threecy]

My only point was that in order to be profitable (at least from an operational standpoint) you do not factor in the cost of the resort since that is a capital asset which has independent value on its own. But I do agree that too much debt to acquire the resort will seal your fate & you will fail. Presumably, any banks that loaned money to a new operator in 2007 will not allow them to borrow 100% of the purchase price & will have debt service payments that amortize the principal over 10 or 20 years so they don't wait until the resort is sold to be paid back their principal.

Again, that $75m is not just cash sitting in some back room - it's a very large sum borrow from either a bank, company, person, or combination of the three. While yes, the lifts/land/facilities are assets, a certain return needs to be seen consistantly just to make that initial investment worthwhile - and $75m is a very large sum of money.

 

[Tin Woodsman]

Those are the types of things that entice you and me, skiers who care about the skiing.

Are you sure the demographic they seem to be chasing cares about those specific things as much as we do? Or do they care more about property and amenities and stay perfectly happy with any old ski area in the winter?


Wanna bet that the first ski area related upgrades will be to the lodges/parking and not the terrain or snowmaking?

What property and amenities? There are no new or improved lodges. There is no village in the the near term. Moreover, let's assume for a minute that the demographic that Powdr is chasing is no longer a reader of Skiing (or more likely Time) but is rather the reader of Ski magazine. You know, the kind that consistently rate Holiday Valley as a top 5 resort in the East. As evidenced by the survey results, those people care about nice lodges/food, snow surface quality, fast lifts, and non-skiing amenities/activities.

Powdr isn't investing in any of those things. One could argue that much of the amenities piece would be funded by investments by local entrepreneurs, but Powdr has done a pretty thorough job pissing those people off.

Also, you commented in another response that K could simply downsize their operation to 100 trails, make a ton of snow, and keep people happy. Assuming you are continuing to use the same naming conventions as at present (i.e. upper/lower/middle/headwall etc..), that means no Pico for starters. Can't shut down Rams head as that's the family area with a HSQ. Snowdon has some of the best cruising and is right out the front door. The Canyon and Skye Peak? Also out the front door and the signature terrain at the resort. Maybe close down South Ridge and Bear Mtn, so you can get all old school and work it 1982 stylee. I guess it's possible, but it would be a long, painful trough before the trend line started moving in an upward direction. Also, you are forgetting that K, more than most places, has a huge, old snowmaking infrastructure that is mostly underground. They were an early and aggressive adopter of the technology, and as a result are left with an older physical plant. You can scale back to 50 trails and the place will still need a lot of capital in the near future.

I'm sure these guys will make a go of it somehow. Lord knows they needed to go upmarket if they had any hope of selling those condos in the future village. But their PR has been a complete disaster and when that's complemented by nothing material from an improvements perspective, that's a recipe for big trouble in the short term.

 

[threecy]

Give 'em a chance...it's like when a friend buys a used car then spends thousands pimping it out before they even have it for a week - doesn't usually end well! They're probably curious to see how the area can operate ASC-free before they start pouring tens of millions of dollars into it.

 

[Tin Woodsman]

Give 'em a chance...it's like when a friend buys a used car then spends thousands pimping it out before they even have it for a week - doesn't usually end well! They're probably curious to see how the area can operate ASC-free before they start pouring tens of millions of dollars into it.

Lousy analogy. A used car isn't supposed to provide cash flows in exchange for what you paid. If the business plan was 1) buy it 2) don't invest a dime 3) hope it snows 4) raise prices 5) get some new marketing guys, I'm glad I'm not an equity holder in Powdr. Just changing the name on the stationary doesn't do you much good. I certainly dont' give a hoot who owns the ski area, and I'm certain that the desired demographic neither knows nor cares.

What exactly is Powdr doing to entice either loyal skiers or newcomers to spend their skiing dollar there this winter? Does anyone have an answer for this question?

 

[millerm277]

What exactly is Powdr doing to entice either loyal skiers or newcomers to spend their skiing dollar there this winter? Does anyone have an answer for this question?

They plan to do close to nothing, Powdr doesn't like marketing.....no I'm not kidding.



Also, there is very little on the mountain they can close (that would be an idiotic move in my opinion anyway), because I believe they have some agreement with the Sunrise owners to operate that lift, and there is probably something like that for the buildings off of GE on SkyeShip Stage 1.

They want to lure in the rich people, yet are unwilling to spend the required money to do so, and in their attempts to take it upscale without spending money, they will alienate their former customers, and be left with no one.......I see a major failure for 08-09 without a change sometime this season (07-08 ).

 

[threecy]

Lousy analogy. A used car isn't supposed to provide cash flows in exchange for what you paid. If the business plan was 1) buy it 2) don't invest a dime 3) hope it snows 4) raise prices 5) get some new marketing guys, I'm glad I'm not an equity holder in Powdr. Just changing the name on the stationary doesn't do you much good. I certainly dont' give a hoot who owns the ski area, and I'm certain that the desired demographic neither knows nor cares.

What exactly is Powdr doing to entice either loyal skiers or newcomers to spend their skiing dollar there this winter? Does anyone have an answer for this question?

Lousy analogy? One of the biggest problems with the ski industry is a lack of spending control. It's not like the lifts are broken and the lodges are burned down. It's quite likely that they're proceeding with caution - fix some of the up front problems (again, $3m), and see how it goes with different management before splurging. Just like buying a used car (heck call it a new car if you want, but I think it's hard to call much of anything at Killington/Pico new) - don't dump big bucks into new rims, new paintjob, new engine, etc. until you see how it runs.

 

[millerm277]

Lousy analogy? One of the biggest problems with the ski industry is a lack of spending control. It's not like the lifts are broken and the lodges are burned down. It's quite likely that they're proceeding with caution - fix some of the up front problems (again, $3m), and see how it goes with different management before splurging. Just like buying a used car (heck call it a new car if you want, but I think it's hard to call much of anything at Killington/Pico new) - don't dump big bucks into new rims, new paintjob, new engine, etc. until you see how it runs.

Well, the some of the lifts, due to lack of paint/care, do look horrible, and if you can't keep the lift painted, I have my doubts that they've been kept up that well mechanically either.

Oh, and while the lodges may not be burned down....the summit lodge is missing a whole side after a storm last season.

The mountain needs more work now, than $3m is going to buy.