Pico Will Not Operate 7 Days A Week

[Tin Woodsman]

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.

Yes, lousy analogy. What is the rate of return or payback period on a new set of rims or a paint job? I guess one would derive more personal pleasure from their vehicle, but it's not going to start producing cash. Dumping lots of money into a used car is just stupidity for any number of reasons, not least of which being that you can't do serious due diligence on the asset before you buy it.

That's not the case with purchases of businesses like K-Mart. If you know what you're doing there should be relatively few unknowns and little need to "see how it runs". K-Mart was on the market for months. Powdr should have had plenty of time to assess the capital needs of the business and come up with an operating plan. Let me put it another way. Why would you jeopardize your $80MM investment by being unwilling to invest in said investment to make it more attractive? If you "want to see how it runs" or are otherwise hesitant to invest in your business in the first year you own it, then clearly it was a lousy decision for you to buy it in the first place.

If Powdr is going to stick by its "eat what you kill" philosophy, K-Mart is on the cusp of many lousy years.

 

[MadPadraic]

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.

We really don't know how much of the purchase was financed or the needed terms. It is probably safe to say that a portion of that amount was borrowed. Its also safe to say that a number of firms believe that Eastern ski resort ownership can be profitable because four new ownership groups have entered the market this year. My point here is that unless you are looking at data that we aren't, there really is no way of knowing what sort of return privately held ski areas are making.

Back on topic: limiting Pico's days seems like incredibly bad PR. If it happened in isolation, it wouldn't be such a big deal. However, it comes on the heals of various other blunders and contributes to an overall anti-consumer trend.

 

[threecy]

Yes, lousy analogy. What is the rate of return or payback period on a new set of rims or a paint job? I guess one would derive more personal pleasure from their vehicle, but it's not going to start producing cash. Dumping lots of money into a used car is just stupidity for any number of reasons, not least of which being that you can't do serious due diligence on the asset before you buy it.

That's not the case with purchases of businesses like K-Mart. If you know what you're doing there should be relatively few unknowns and little need to "see how it runs". K-Mart was on the market for months. Powdr should have had plenty of time to assess the capital needs of the business and come up with an operating plan. Let me put it another way. Why would you jeopardize your $80MM investment by being unwilling to invest in said investment to make it more attractive? If you "want to see how it runs" or are otherwise hesitant to invest in your business in the first year you own it, then clearly it was a lousy decision for you to buy it in the first place.

If Powdr is going to stick by its "eat what you kill" philosophy, K-Mart is on the cusp of many lousy years.

I'm not talking about cash production...but if you really must, let's say you need the car to get you to work so you can make money, I don't know. The point is you shouldn't throw millions away before you know the real problems. It's pretty obvious that ASC has swept a lot of issues under rugs at all of their ski areas - it makes no sense to dump $10M (I mean, they're already investing $3M and that's considered too little here, so is $10M enough in your opnion? Do you know how much stuff in the ski industry costs?) into a new purchase unless it's absolutely necessary - if one of the gondolas were broken, for instance, I bet they would certainly repair it with additional funds.

Killington is still operational - and as a result, they can get away with a minimal investment while they figure out what REALLY needs improvement. My guess is they'll be around for longer than 7 months - which means they have many years to invest the tens of millions people on this board are demanding.

I'd argue that even if they did have the cash to invest right now, it wouldn't make a big difference since they're getting into this relatively late in the season.

 

[threecy]

My point here is that unless you are looking at data that we aren't, there really is no way of knowing what sort of return privately held ski areas are making.

There's data/information/people in the know out there. I can't say much more publically.

Back on topic: limiting Pico's days seems like incredibly bad PR. If it happened in isolation, it wouldn't be such a big deal. However, it comes on the heals of various other blunders and contributes to an overall anti-consumer trend.

The PR mess (while certainly not good) is not having as big an effect as we may think outside of AZ right now.

 

[Vortex]

I have been 1/2 way following this.... All I hear is how well Peaks has done,how bad Killington has done, and how excited everyone is about Boyne coming to Maine.

That is not just on boards, but people at the resorts/ bars eateries. Lost of articles in print also. The Rutland Herald has had a bunch of negitive articles. Tv stations have been bringing the negitivitity up.

Sk(Boyne) on the river board yester mentioned how they are going to handle the transition in a positive means. Jist of the post was very aware of the views of how the K situation was proceeding.

 

[threecy]

While they will probably have an issue matching skier visits without the cheap passes, I have a feeling Killington will see more revenue than last year.

 

[Vortex]

While they will probably have an issue matching skier visits without the cheap passes, I have a feeling Killington will see more revenue than last year.

I agree.

I also think they have lost some people at least in the short term. Will the negitivity effect future developement to me is the question at hand.

 

[threecy]

I also think they have lost some people at least in the short term. Will the negitivity effect future developement to me is the question at hand.

If they choose to pour money into the area in the next few years, it won't matter - there are plenty of skier visits to regain...if they're able to make the skiing and service as good as Okemo, they should be able to pull some skiers out of there, for instance.

 

[Vortex]

I don't think the partnership can work unless the real estate developement is a success. Just my opinion. The quality of product on the hill can change alot of negitive feelings. How many none of us know. I really hope it works. Again I'm glad I'm not there.

 

[ski_resort_observer]

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

Don't forget forget about Utah-based RMR-Pacific which recently purchased Ragged.

 

[Tin Woodsman]

I'm not talking about cash production...but if you really must, let's say you need the car to get you to work so you can make money, I don't know. The point is you shouldn't throw millions away before you know the real problems.

Your company isn't going to pay you more b/c your car has nice rims and a new paint job. The only way the analogy works in your example is if you knowingly buy a clunker and invest money to make it more reliable so you can make it to work more often. In that case, you would presumably not pay top dollar for said clunker, and would instead discount the value of the vehicle to account for the money you're going to have to invest soon after you buy it. In a similar manner, it seems inconceivable to me that Powdr would spend $80MM and then declare that there is no major capital available to finance upgrades that even casual observers know are absolutely necessary at K.

It's pretty obvious that ASC has swept a lot of issues under rugs at all of their ski areas - it makes no sense to dump $10M (I mean, they're already investing $3M and that's considered too little here, so is $10M enough in your opnion? Do you know how much stuff in the ski industry costs?) into a new purchase unless it's absolutely necessary - if one of the gondolas were broken, for instance, I bet they would certainly repair it with additional funds.

I'm sorry, but $3MM for a place the size of Killington is really just what you would call "stay in business" capital. That's money to ensure the place is meeting code and not looking completely run down (as opposed to just mostly run down). It's a drop in the bucket. At a place that size, the average skier won't notice anything short of $6-7MM - that amount can actually buy you something. As you said yourself - this stuff is expensive. What exactly does $3MM get you?

Killington is still operational - and as a result, they can get away with a minimal investment while they figure out what REALLY needs improvement. My guess is they'll be around for longer than 7 months - which means they have many years to invest the tens of millions people on this board are demanding.

They should have figured this out during due diligence. They had plenty of time to inspect the snowmaking system, lifts, and lodges. Plenty of time to analyze data from the seller and the VT/New England ski industry in general. Why would anyone spend $80MM if they didn't know what really needed improvement? That makes no sense.

I'd argue that even if they did have the cash to invest right now, it wouldn't make a big difference since they're getting into this relatively late in the season.

There are shades of grey here. I don't think anyone should realistically expect some sort of master capital plan being implemented mostly this season. But some of these things don't require the long lead times you seem to believe. They bought K just a short time after Peaks bought Mt. Snow and yet aren't doing nearly as much relative to the size of the resort as Peaks is. Would it be realistic to expect a new gondola or doubled in size KBL? Absolutely not. But a replacement for the Skye Peak Quad or Snowdon Triple is an obvious need. I'm sure you can easily buy a new fleet of groomers on the quick. There are all sorts of improvements you could make to your snowmaking system without much lead time. They've chosen D) None of the above.

 

[threecy]

There are shades of grey here. I don't think anyone should realistically expect some sort of master capital plan being implemented mostly this season. But some of these things don't require the long lead times you seem to believe. They bought K just a short time after Peaks bought Mt. Snow and yet aren't doing nearly as much relative to the size of the resort as Peaks is. Would it be realistic to expect a new gondola or doubled in size KBL? Absolutely not. But a replacement for the Skye Peak Quad or Snowdon Triple is an obvious need. I'm sure you can easily buy a new fleet of groomers on the quick. There are all sorts of improvements you could make to your snowmaking system without much lead time. They've chosen D) None of the above.

I'm not sure what your experience in the industry is, but you could not have ordered a new chairlift when the transaction closed for this season.

You clearly seem to favor ASC spending - look where that got them. You'll find that many successful businessmen run a business as is for a spell before any signifcant funds are invested. Killington was not as transparent as one may think - look at the 'lifetime' pass fiasco - SP/Powdr had no knowledge of those passes until the 11th hour. With a company in such bad shape as ASC, there are likely PLENTY of surprises hidden. I highly doubt they spent $85M only to let the place rot. What if they spend $3M a year? That's $30M in a decade - not a small sum. Look around at other areas - they tend spend in big bursts vs. gradually. This is what tends to hurt/kill ski areas. Some of the most successful areas, at least in terms of profitability, have done so by slow, steady investments.

Not spending $10M this year will not kill or seriously harm Killington (unless there is a building or lift in danger of collapsing that we do not know about, but I find that somewhat unlikely).

The 1980s and 1990s version of the ski industry made the mistake of dumping large sums of money into ski areas and passing on the concept that that itself makes a ski area good. Just like in the MLB, that is not always the case.

 

[millerm277]

@Tin, I agree with you on all counts...

The only investment I know of is 300k to fix one of the main snowmaking pipes at Pico.
That leaves 2.7m to:

Repaint almost all the lifts.
Put the side back on the Summit Lodge
Fix the snowmaking system....I've heard that they were having pressure issues last year, which is why they could barely use the tower guns on SS and other places.

Those are just some of the urgent needs, to fix the place up, and there's no way they're going to be able to do even all of that.

 

[threecy]

@Tin, I agree with you on all counts...

The only investment I know of is 300k to fix one of the main snowmaking pipes at Pico.
That leaves 2.7m to:

Repaint almost all the lifts.
Put the side back on the Summit Lodge
Fix the snowmaking system....I've heard that they were having pressure issues last year, which is why they could barely use the tower guns on SS and other places.

Those are just some of the urgent needs, to fix the place up, and there's no way they're going to be able to do even all of that.

The 300k is more than just a fix for a snowmaking pipe - it has to involve a signifcant amount of new pipe.

Depending upon how they're coming to this $3m number, its plenty to do those jobs. If they're figuring in labor, though, then it's a bit more of a stretch. Hopefully, it's excluding labor (since those positions are likely already forecasted in the books - there's no reason maint. can't paint/weld/do basic carpentry).

 

[Tin Woodsman]

I'm not sure what your experience in the industry is, but you could not have ordered a new chairlift when the transaction closed for this season.

I don't think that's categorically correct, but that wouldn't be the only way to illustrate increased value to their potential customers. Hell, even if they had announced their intentions to replace one of those lifts next summer, that would have sufficed. Alas, no.

You clearly seem to favor ASC spending - look where that got them. You'll find that many successful businessmen run a business as is for a spell before any signifcant funds are invested.

This is the classic example of a strawman. You are arguing against a position I haven't taken. I don't favor "ASC spending". ASC got into trouble with over-aggresive expansion of its empire followed by over-aggressive capital plans piled on top of lousy operational execution and controls. No one, least of all me, thinks these guys should come in and drop $28MM like ASC did at Sugarbush or the untold millions they've spent at The Canyons. As I said in the post you quoted, there are many shades of grey here. Powdr could make real, material, noticeable improvements for $6-10MM. Lord knows the place needs it. Skiing is a capital/asset intensive business these days. there are few successful businessmen who buy such businesses and starve them of capital as a means of turning them around. Truth be told, I agree that the top line revenue figures will probably be a bit higher given the new pass prices, but their day business is going to suffer and the final nail will be in the coffin for the hard won branding that Pres Smith worked to build.

Killington was not as transparent as one may think - look at the 'lifetime' pass fiasco - SP/Powdr had no knowledge of those passes until the 11th hour. With a company in such bad shape as ASC, there are likely PLENTY of surprises hidden.

You haven't done much M&A work. That's just poor due diligence by Powdr. Everyone and their brother knew they existed. A 10 minute perusal on K-Zone of this place would have revealed that. If you know what you're doing, there shouldn't be any material hidden surprises and, if there are, you should have a contract crafted so that the Seller indemnifies you for any costs incurred to fix the problem. If there were so many egregious hidden surprises, Powdr would be slapping ASC with a lawsuit so fastit would make your head spin.

I highly doubt they spent $85M only to let the place rot. What if they spend $3M a year? That's $30M in a decade - not a small sum. Look around at other areas - they tend spend in big bursts vs. gradually. This is what tends to hurt/kill ski areas. Some of the most successful areas, at least in terms of profitability, have done so by slow, steady investments.

As I said before, $3MM is chump change on an annual basis for a resort the size of Killington. That's enough to do some repainting and basic "stay in business" type work to ensure you meet code and don't kill people in the winter. Which successful areas are you talking about? Okemo? The Muellers invested heavily in new lifts and terrain at both Okemo and Sunapee as a prelude to significant investments (or in Sunapee's case, attempted investments) in real estate. Okemo was a half-assed mountain with mediocre snowmaking and mostly t-bars when they bought it. Improve the product first to a level that your target demographic expects, then work on the real estate side. the work at those places didn't happen all in one season, but there were notable and material improvements each season. Please help me understand what other major resorts have been able to achieve profitability by simply investing to fix what's broken?

 

[JimG.]

I don't think the partnership can work unless the real estate developement is a success. Just my opinion. The quality of product on the hill can change alot of negitive feelings. How many none of us know. I really hope it works. Again I'm glad I'm not there.

Ah! Exactly...this is a company with most of its' experience in real estate. This purchase was made with an eye on the real estate, not skiing.

They're going to go after that real estate and develop that first. That's where money is going to be invested. That's what they do.

It doesn't appeal to anyone who is a regular here as is obvious. It won't appeal to locals or the hardcore skier element either. The Rutland paper printed a very negative article about it; man, it's got to take alot of awful negative feelings to print bad PR about the ski area right up the road!

Diminishing the skiing aspect of the area makes all of us here pissed off. But, other than an obvious desire by alot of folks here to see them fail and accompanying reasons why we THINK they may, we really can't tell today. At least I'm not that good.

 

[SpinmasterK]

Here is a quick look at some of the snowmaking upgrades going on at Killington and Pico this summer:

• Pico Snowmaking pipe replacement on Upper Pike will begin in late August. We're spending more than $300,000 on this project that will greatly increase our snowmaking capacity and efficiency on the upper portion of the mountain. In addition, you’ll see new hydrants as well
• New Low E snow guns, both heads for existing guns and portable sled units are on order and will be here in time for us to start making snow in early November
• New computer hardware for Snowmaking Central to be installed

While these are not real sexy (i.e. new trails, lifts, lodges, etc.) projects, there are things that really, really needed to get done. But, what does that mean for skiers and riders? These upgrades will allow us to increased our snowmaking firepower from an air and water pressure standpoint. The new computer hardware will greatly increase our monitoring of on-hill operations, which will translate into increased efficiency.

The pipe is on order and will be here in late August. We'll have install photos on the k.com site once the project gets going.

 

[threecy]

Here is a quick look at some of the snowmaking upgrades going on at Killington and Pico this summer:

• Pico Snowmaking pipe replacement on Upper Pike will begin in late August. We're spending more than $300,000 on this project that will greatly increase our snowmaking capacity and efficiency on the upper portion of the mountain. In addition, you’ll see new hydrants as well
• New Low E snow guns, both heads for existing guns and portable sled units are on order and will be here in time for us to start making snow in early November
• New computer hardware for Snowmaking Central to be installed

While these are not real sexy (i.e. new trails, lifts, lodges, etc.) projects, there are things that really, really needed to get done. But, what does that mean for skiers and riders? These upgrades will allow us to increased our snowmaking firepower from an air and water pressure standpoint. The new computer hardware will greatly increase our monitoring of on-hill operations, which will translate into increased efficiency.

The pipe is on order and will be here in late August. We'll have install photos on the k.com site once the project gets going.

Thank you, I was just about ready to bow out of this debate because there's not much more I can say in a public forum! Since you seem to be in the know, will the paint/summit lodge repair projects be done also?

 

[SpinmasterK]

We will be painting a number of lifts, and the bathrooms at Snowshed and Ramshead will be upgraded. In addition, we have already installed new carpet in Snowshed. Other than that, pretty much all other projects are behind the scenes, such as computers, software and operational systems.

 

[Greg]

Since you seem to be in the know

Just an FYI - SpinmasterK is Tom Horrocks, Communications Manager for Killington. Thanks for the update Tom!