Pico Will Not Operate 7 Days A Week

[Tin Woodsman]

Guys -

While their lousy PR is absolutely a factor dirving the anger people have, let's realize that this isn't just about PR. As someone who hasn't skied at K/Pico for a few years (but grew up skiing there) and has no interest in SP/POWDR, I think I'm a pretty neutral observer. It's been stated that $3MM is a lot of money and is some sort of big improvement over what ASC was doing the last few years. Well, I went and looked, and the numbers simply don't bear that out. Here are the Killington press releases describing their improvements for the last three seasons of ASC ownership.

KILLINGTON RESORT – Tom Horrocks, thorrocks@killington.com, www.killington.com
• For the 2006-07 season Killington Resort – the largest ski and snowboard resort in the eastern United States, featuring the most diverse terrain, an expansive lift network, the largest snowmaking system in the world and numerous off-mountain activities, including après, dining, shopping and lodging options – will debut a number of vacation experience enhancements.
In addition, more than $1.5 million in resort improvements have taken place throughout the summer, including the opening of the Killington Grand Resort Hotel Spa and continued snowmaking upgrades.
The new Spa leads the list of vacation experience enhancements, featuring a Vichy Shower wet room and a complete menu of massage, facials and pedicure treatments. Guests will see an increase in snowmaking efficiency for the world’s largest snowmaking system, an upgraded grooming fleet of 21 snowcats and new gondola ski racks to accommodate twin-tip and fat skis and snowboards.
Other new enhancements guests will notice for the upcoming season includes:
o Designated family ski/snowboard zones
o Family Adventure Center at the Snowshed Lodge, including night tubing
o New look Pico Mountain base area, including restroom remodeling
o Fresh look for all lifts and lift terminals throughout the resort
o Low energy snowmaking guns


KILLINGTON RESORT ? Tom Horrocks, thorrocks@killington.com, www.killington.com
? Resort Improvements Set Stage for Village Groundbreaking: With the groundbreaking anticipated on the new Killington Resort Village this summer, resort infrastructure upgrades continued this past year as the new Killington continued to evolve.

The 2005-06 season at Killington Resort will feature:
o More than $1 million in snowmaking upgrades, including the replacement of more than 15,000 feet of snowmaking infrastructure at both Killington and Pico Mountain
o New carpet at the K-1 and Ramshead lodges
o Painting of the Bear Mountain and Ramshead lodges
o Replacement of the lift drive of Pico Mountain Summit High-Speed Quad
o New tower-mounted Low Energy snowguns
o Six new Bombardier grooming machines
The latest upgrades complement improvements made for the 2004-05 season, including more than $2 million in snowmaking upgrades, renovation of the award-winning Snowshed Lodge food court, a new customer service training program for its seasonal staff of more than 1,800 employees, plus new resort branding and logos for the largest resort in the East.

So last season, ASC knew they were going to sell the place and was really scraping the bottom of the barrell with just $1.5MM in improvements, most of which was off-mountain but a piece of which was investment in Low E guns - clearly those aren't a big ticket item.

The season before, they invested $1MM in snowmaking improvements alone. In addition to that, there is a laundry list of other items that likely added up to another $1.0-$1.5MM (though how one would classify carpeting and paint as a capitalizable item is beyond me).

The season before, they delivered a further $2MM in snowmaking upgrades and various other bits and pieces that likely added up to a further $0.5MM-$1.0MM.

In sum, as I've stated in previous posts, ASC's avg capital in the last few years of its stewardship was in the $2.0 to $2.5MM range. This included millions for "upgrades" to the snowmaking system. Despite this investment, even the most casual observer will agree that the resort as a whole has continued to deteriorate at a faster and faster rate in the last few years. In other words, ASC was spending far too little capital to sustain the upkeep of the fixed assets of K/Pico. Are we seriously expected to believe that an "extra" half million to a million dollars this season will even stop the rot, let alone begin to turn the place around? Seriously? It just doesn't hold up. No one expects an orgy of irresponsible capital. A reasonable first step would be to invest at the level of depreciation. I highly doubt they are close to that number with the $3MM figure.

 

[JimG.]

Wow that might explain a lot - Yankee fans! Used to seeing the Boss throw around tens of millions of dollars like it's nothing...and with little consequences if it doesn't pay off.

Whether you're joking or not, that's exactly correct.

 

[JimG.]

Guys -

While their lousy PR is absolutely a factor dirving the anger people have, let's realize that this isn't just about PR. As someone who hasn't skied at K/Pico for a few years (but grew up skiing there) and has no interest in SP/POWDR, I think I'm a pretty neutral observer. It's been stated that $3MM is a lot of money and is some sort of big improvement over what ASC was doing the last few years. Well, I went and looked, and the numbers simply don't bear that out. Here are the Killington press releases describing their improvements for the last three seasons of ASC ownership.



So last season, ASC knew they were going to sell the place and was really scraping the bottom of the barrell with just $1.5MM in improvements, most of which was off-mountain but a piece of which was investment in Low E guns - clearly those aren't a big ticket item.

The season before, they invested $1MM in snowmaking improvements alone. In addition to that, there is a laundry list of other items that likely added up to another $1.0-$1.5MM (though how one would classify carpeting and paint as a capitalizable item is beyond me).

The season before, they delivered a further $2MM in snowmaking upgrades and various other bits and pieces that likely added up to a further $0.5MM-$1.0MM.

In sum, as I've stated in previous posts, ASC's avg capital in the last few years of its stewardship was in the $2.0 to $2.5MM range. This included millions for "upgrades" to the snowmaking system. Despite this investment, even the most casual observer will agree that the resort as a whole has continued to deteriorate at a faster and faster rate in the last few years. In other words, ASC was spending far too little capital to sustain the upkeep of the fixed assets of K/Pico. Are we seriously expected to believe that an "extra" half million to a million dollars this season will even stop the rot, let alone begin to turn the place around? Seriously? It just doesn't hold up. No one expects an orgy of irresponsible capital. A reasonable first step would be to invest at the level of depreciation. I highly doubt they are close to that number with the $3MM figure.

But I assure you Tin Woodsman is not a Yankee fan.

I can't comment on specific expenses at Killington or any other ski area because I've never managed a ski area.

But it's obvious the place needs work.

 

[millerm277]

I believe someone had estimated K's level of depreciation at 6-8 million a year.

The point is, while they may be fixing much of what's broken, and even improving a few things, that extra money is still not enough to even keep K on the same level as some of it's weaker competitors, much less lead the pack. All they are doing, is slightly reducing the rate at which K is falling behind it's competitors.

 

[threecy]

The point is, while they may be fixing much of what's broken, and even improving a few things, that extra money is still not enough to even keep K on the same level as some of it's weaker competitors, much less lead the pack. All they are doing, is slightly reducing the rate at which K is falling behind it's competitors.

Here's the thing though...Killington has been falling apart basically since the K1 was installed. Even if SP/Powdr maintained the status quo (instead of investing an additional 20-50% over the RR) for *1 season*, it's not going to make a huge difference. The tone around here makes it seem as if the sky is falling because SP/Powdr didn't wallpaper the lodges with cash in their first off-season (heck, it isn't really their first official off-season, since they haven't had a season yet).

 

[Tin Woodsman]

I believe someone had estimated K's level of depreciation at 6-8 million a year.

The point is, while they may be fixing much of what's broken, and even improving a few things, that extra money is still not enough to even keep K on the same level as some of it's weaker competitors, much less lead the pack. All they are doing, is slightly reducing the rate at which K is falling behind it's competitors.

I'd be interested to know how that figure was arrived at, but it doesn't sound unreasonable to me. Your characterization of the capital plan for this off-season is spot on.

 

[Tin Woodsman]

Here's the thing though...Killington has been falling apart basically since the K1 was installed. Even if SP/Powdr maintained the status quo (instead of investing an additional 20-50% over the RR) for *1 season*, it's not going to make a huge difference. The tone around here makes it seem as if the sky is falling because SP/Powdr didn't wallpaper the lodges with cash in their first off-season (heck, it isn't really their first official off-season, since they haven't had a season yet).

But how do you turn the thing around when you piss everyone off before you open your doors and insist on an "eat what you kill" capital program?

 

[JimG.]

I'd be interested to know how that figure was arrived at, but it doesn't sound unreasonable to me. Your characterization of the capital plan for this off-season is spot on.

Does anyone care to try to summarize the general condition of the major competitors when they were purchased from ASC compared to Killington? Better? Worse?

I know that even if K is much worse it's only a good reason to say they should spend more now anyway. That's not where I'm going.

 

[threecy]

But how do you turn the thing around when you piss everyone off before you open your doors and insist on an "eat what you kill" capital program?

Figure things out by running it quasi-status-quo your first season, see how things go, all while building a more precise business plan. As much as they know from the sales proceedings, they don't know it all yet. Just like buying a used car (again, not talking about making cash back from it, but I like to use the analogy because it went off like passing gas in church), there's often rust that's been covered up by a quick coat of touchup paint that doesn't come through during the Lemon period. Don't empty your bank account on a spoiler and fancy rims, only to find out you need to replace a rusting fender. If you have another year or two on the brake pads, there isn't an immediate need to replace them all - you may discover there's a larger problem with the braking system. Etc.

 

[Tin Woodsman]

Figure things out by running it quasi-status-quo your first season, see how things go, all while building a more precise business plan. As much as they know from the sales proceedings, they don't know it all yet. Just like buying a used car (again, not talking about making cash back from it, but I like to use the analogy because it went off like passing gas in church), there's often rust that's been covered up by a quick coat of touchup paint that doesn't come through during the Lemon period. Don't empty your bank account on a spoiler and fancy rims, only to find out you need to replace a rusting fender. If you have another year or two on the brake pads, there isn't an immediate need to replace them all - you may discover there's a larger problem with the braking system. Etc.

So, if after a year or two of operation, Powdr finally comes around to realize that K/Pico is going to cost more to operate and grow than they thought, are you advocating that they sell the place to the next sucker in line? That seems like a pretty risky way to spend $85MM to me.

You don't plunk down that kind of cake without a detailed due diligence, capital plan, and operating plan. Given the "surprise" of the lifetime passes, and their insistence on maintaining the "eat what you kill" capital policy, I'm not sure these guys did a very good job peaking under the hood. Perhaps they weren't used to the impacts that the generally wet New England climate can have on the infrastructure of a ski area. More corosion. More mold and rot. Wilder and wider temperature swings, leading to cracks in all manner of surfaces. I don't think these guys realized exactly what they were getting into.

 

[threecy]

So, if after a year or two of operation, Powdr finally comes around to realize that K/Pico is going to cost more to operate and grow than they thought, are you advocating that they sell the place to the next sucker in line? That seems like a pretty risky way to spend $85MM to me.

I don't think that's what would happen. My guess is they have an investment plan in place but aren't going ot act upon it significantly until they have a season under their belt. Once they have a more precise idea of what needs to be done (as well as additional capital from potential real estate development), they'd be foolish not to sink in some significant money to get Killington back up to speed.

If they can't do that, then yes, it could end up going 'to the next sucker line.' This is how a lot of ski areas operate - owners don't know the mess they're getting into until its too late - then spend the rest of their ownership trying to dump the place.

 

[Tin Woodsman]

I don't think that's what would happen. My guess is they have an investment plan in place but aren't going ot act upon it significantly until they have a season under their belt. Once they have a more precise idea of what needs to be done (as well as additional capital from potential real estate development), they'd be foolish not to sink in some significant money to get Killington back up to speed.

If they can't do that, then yes, it could end up going 'to the next sucker line.' This is how a lot of ski areas operate - owners don't know the mess they're getting into until its too late - then spend the rest of their ownership trying to dump the place.

Well id Powdr was a public company, based on this strategy, I'd be shorting them all day long.

 

[threecy]

Well id Powdr was a public company, based on this strategy, I'd be shorting them all day long.

I don't think I'd ever invest in a publically owned ski company (I like my money, and NG gives me even more)...but I think I'd be careful shorting this one on medium term.

 

[Greg]

Interesting letter:

http://www.rutlandherald.com/apps/pbcs.dll/article?AID=/20070723/OPINION02/707230323/1037/OPINION02

 

[thetrailboss]

Interesting letter:

http://www.rutlandherald.com/apps/pbcs.dll/article?AID=/20070723/OPINION02/707230323/1037/OPINION02

Interesting indeed. As you all recall, I skied a lot at Pico this season and was concerned about the midweek closing and the Pico Ski Club. Kudos for giving them the heads up...shows me that they are serious about Pico skiers.

If anyone is interested, the author was replying to this piece which was critical of POWDR. My view is that things really could not get much worse for Pico, and seeing snowmaking pipe in the lot is progress...considering that ASC ran it into the ground...even worse than Killington. So yeah, a $399 pass may be more than last season, but if they deliver a better product and "run" the resort, then it is worth it.

Besides, there are not many 2,000 vert ski areas with a no-blackout $399 pass. Period. FWIW Pat's Peak is at $299 or so...with 700 vert.

 

[JimG.]

Interesting indeed. As you all recall, I skied a lot at Pico this season and was concerned about the midweek closing and the Pico Ski Club. Kudos for giving them the heads up...shows me that they are serious about Pico skiers.

If anyone is interested, the author was replying to this piece which was critical of POWDR. My view is that things really could not get much worse for Pico, and seeing snowmaking pipe in the lot is progress...considering that ASC ran it into the ground...even worse than Killington. So yeah, a $399 pass may be more than last season, but if they deliver a better product and "run" the resort, then it is worth it.

Besides, there are not many 2,000 vert ski areas with a no-blackout $399 pass. Period. FWIW Pat's Peak is at $299 or so...with 700 vert.

That's a good find by Greg...interesting that a group that is so totally dependent on what POWDR does is impressed by what they're doing. And they feel taken care of. That's alot different from the vibe you get here at AZ for the most part.

POWDR is taking the road less travelled...not promising anything but working behind the scenes to take care of a core customer base. And I'll bet you they have other such positive works in progress we haven't heard about yet.

 

[ALLSKIING]

I will say it again....Give them five years and then look back on this thread.

 

[Greg]

I will say it again....Give them five years and then look back on this thread.

I think we'll have a more accurate view even just after this season. That's part of the issue here. Folks are hesitant to put money down on the unknown, which is understandable.

 

[JimG.]

I think we'll have a more accurate view even just after this season. That's part of the issue here. Folks are hesitant to put money down on the unknown, which is understandable.

The greater the risk the greater the potential reward.

I'm looking out my window and it's pouring rain. Some new owners have made some grand promises, others have not. I'm sure most of the promises will be met, or at least the effort will be made.

If you're hesitant to put down money on the unknown, you shouldn't buy a season pass anywhere. Because it isn't a guarantee. Ever. The weather could be a disaster.

Or it could be an epic winter. Tons of natural snow. Will the millions these resorts (I include POWDR here) spend on snowmaking upgrades going to matter then? It'll suck if you don't have a season pass in that case.

I don't care which resort we're discussing, in the end THE SKIER has to make a decision on what to do. And it will involve risk no matter where you choose to ski.

 

[Highway Star]

Here's the thing though...Killington has been falling apart basically since the K1 was installed. Even if SP/Powdr maintained the status quo (instead of investing an additional 20-50% over the RR) for *1 season*, it's not going to make a huge difference. The tone around here makes it seem as if the sky is falling because SP/Powdr didn't wallpaper the lodges with cash in their first off-season (heck, it isn't really their first official off-season, since they haven't had a season yet).

threecry....you seem like a decent guy, so I'm going to take it easy on you.

That said, you very ill informed about this situation and the facts on the ground, to the point of blatantly spreading false information. Don't even attempt to argue with me, I have the backing of some very smart people who are very well informed about this and we are not diluding ourselves about this situation.

- As Tin Woodsman has so adroitly pointed out, Powdr is not investing signifigantly more in the resort compared to years past. ASC had around $13+ million per year it could spend on capital projects at all 8 resorts, due to their debt agreements. Read the ASC annual reports. Killington got a decent bit every year, after the Canyons, Steamboat, and SR. But nowhere near enough. They tried, even though they had crushing debt. Perhaps they spent too much capital at the Canyons for questionable reasons, who knows.

- What is enough? As TW says, investing at the book depreciation figure for Killington. That just so happens to be around $8 million per year in '06, per the sales agreement with POWDR/SP. Instaid, they are going for $3 mil this year, with $3-5mil in coming years. With that kind of investment, Killington will never recover it's market postion.

- If you start doing the math, you'll see that Killington is in a pretty big hole with it's upkeep. About $5-6 million short per year for the last 6-8 years. Or around $30 million dollars, give or take. They have tons of capacity on the hill, but since the resort is in marginal shape, and not offering the product it used to, they can't get the skier visits to fully utilize it. They only hit peak capacity on major holiday weekends in February.

- There is no mystery of what needs to be done at Killington. All the top level ops people were retained during the sale, and they certainly knew what the important things were that needed to be done. They could have easily poured $5-10 million into the place right off the bat to make it work better. The list is a mile long. Maybe $2-3 million into things that people would immediately notice as in improvement to the skiing experience - that helps drive skier visits and make people feel better about paying more for a pass. Instaid, they simply fired all the top ops people, and are now running around trying to figure out how they are going to actually run the mountain next year. It's amature hour in the admin building....and it's not even ski season yet.

- Overall, by cutting the top operations people, cutting the ski season and everything that goes with that (ie. SNOWMAKING), marginal investment, cutting lift and lodge services.....there is no way they can drive skier visits while justifying their higher prices. That means less people will come. Way less. Even though they may think they can improve their revenue yields per visit to compensate, it will not be enough to offset the loss in visits. Overall, if Killington is not providing the product, they simply cannot put 1,000,000+ skier visits on the hill every season - no eastern resort can unless they have a spec-tack-culaar product, at a reasonable price, within reach of NYC. We've seen this with OKEMO's growth over the pas few years. Killington/Pico is fundimentally set up to put 1,000,000 to 1,400,000 visits on the mountain each year - if you're not getting that, major cutbacks need to be made to the skiing product (lifts operating, snowmaking/season length), which massively decreases the attractiveness of the product overall....because the mountain just doesn't ski right, especially to the average person.

- Want to talk about the ALL4ONE pass? Fine. Go read the ASC annual reports FIRST. It was a brilliant yield management tool. All it did was cut into their discount ticket sales, but helped draw traffic to the ski area, and get people to spend money on other things, while getting people to accept a lower quality product. Many all4one passes were underutilized. They ran an operating profit of $8-12+ million at Killington each of the last 4 years, this is reflected in the selling price of the resort, and is more than enough to be sustainable if ASC wasn't taking away all the profits to pay down debt.

- Think of it like Walmart. It's a huge store with all sorts of products, that appeals to all segments of the market at reasonable value. Now, what would happen if you were to cut the size of the store in half, offer half the variety of products...but cut prices by 30%? What if they let the store get run down and it smelled funny? People would accept the lack of variety or quailty or environment, and still shop there because of the extreme value. There might also be other stores in the area, selling better products with better variety, but at the old higher prices still, or even higher.....they would do well because many people would need or want those better products. Now, what if someone came along and bought Walmart........and suddenly thought that they should be charging more for their products and variety, amounts equal to the nicest stores in the area? What if they cut their variety back even further, and were only open for few a few hours on the weekend?

What would happen to the mighty Walmart? Would people continue to shop there?

Fact is, people are pissed to be paying more at Killington, when it's looking like POWDR is going to do very little to do better than ASC, and very well could do much worse.