Why does it make sense for one company to own all of the ski resorts?

Vail Resorts bought Whistler last year for about $1 billion. This year they bought Stowe (Denver Post) for $50 million. Why does this make economic sense? Where is the economy of scale in running a ski resort? Especially when they are not geographically proximate. Vail doesn’t manufacture lifts, skis, or boots. They have a pass program that is good for multiple mountains across North America, but that could be arranged by agreement among resorts owned by separate companies.

I don’t think this is how it works in other parts of the hospitality industry. There is an economy of scale in establishing a hotel brand, but individual hotels are usually owned by separate groups of investors (i.e., two “Four Seasons” or “Marriott” hotels are unlikely to share ownership).

What’s different about skiing? Could it be that it is actually not that different? One reason why hotel owners contract to Marriott or Four Seasons is that those companies are good at training people. So maybe it is the same for ski resorts? The big operator can send people from an already-efficient mountain like Vail or Beaver Creek to Stowe and achieve operating efficiencies via better-trained employees? But if so, why does the company that trains and markets also have to physically own the mountain, the lifts, etc.?

24 Comments »

  1. Joe Harris

    March 14, 2017 @ 12:39 pm

    1

    I don’t think it’s about efficiency, I think it’s about monopoly. Lift ticket prices are through the roof ($179 per day at Beaver Creek) and a soggy hamburger is $16 on the mountain there.

  2. philg

    March 14, 2017 @ 12:52 pm

    2

    Joe: Your idea seems promising. A friend who runs a jet charter business refers to the common destinations as “ghettos for rich people.” There are a lot of ski resorts but perhaps not that many fashionable ski resorts where people with money congregate. So if one company can buy up most of the places that attract the rich they can make supranormal profits.

    (see also https://blogs.harvard.edu/philg/2015/07/26/global-douchebag-circuit-aspen-institute-ellen-pao-and-buddy-fletcher/ )

  3. superMike

    March 14, 2017 @ 12:58 pm

    3

    Is this one of those Marxist capital accumulates capital things? Also, it’s a bit like drug companies in that it seems like the first thing the new owners seem to do is jack up lift ticket prices; maybe someone has figured out that demand for skiing is more inelastic than generally thought. After all, people invested heavily in skiing aren’t going to go do something else having sunk thousands in gear and hundreds of thousands into vehicles and mountain real estate

  4. superMike

    March 14, 2017 @ 1:01 pm

    4

    Also, pricing for lift tickets is crazy, much more like Disneyland now. (The best good skiing near me charges an astonishing $150/day for high season lift tickets, but a pass is only about $750, so if you go for more than a week or a few long weekends, your per-day cost can be managed down quickly)

  5. Joe Harris

    March 14, 2017 @ 1:04 pm

    5

    Or maybe they just have developed an expertise at profitably operating such properties.

  6. Jernej

    March 14, 2017 @ 2:17 pm

    6

    Simple… day ticket costs $150+, and a season pass to a large number of resorts under Epic pass (also in Europe, Australia, NZ and Japan soon) is $850. Guess where you’re going to ski at home (presuming you’re in Vermont or something) and where you’re going on vacation? Why would you go to Snowbird/Alta if you can ski at Park City next door for free? Similarly if you want a ski vacation in Europe and elsewhere.

    And they get all this money in advance regardless of a good/bad snow season.
    Would it all work if the ownership was diversified? Yes, if you could get all to agree to a shared pass. But that’s been historically impossible on much smaller scales, let alone around the world. You’re lucky if you can get one valley under the same pass, let alone a region/country.

  7. Martin

    March 14, 2017 @ 2:50 pm

    7

    I think the economy of scale is largely in the expertise and knowledge of running a successful resort. Not everything can be replicated in a different geographic location, but much of it can. Also, supply contracts can be negotiated more effectively — eg. buying 200 snowmobiles vs 30, or 5,000 ski jackets instead of 500. Additionally, dealings with hotels, vendors, and industry insiders could benefit from stronger relationships that may already exist at one location.

  8. Andrea Matranga

    March 14, 2017 @ 3:29 pm

    8

    Could it be a bit like LVMH (fashion and champagne?) that some companies are just good at marketing to rich folks?

  9. Andrea Matranga

    March 14, 2017 @ 3:32 pm

    9

    I mean, once you have that mailing list…

  10. Someone Else

    March 14, 2017 @ 3:51 pm

    10

    Like Joe Harris I think the whole point is to dodge antitrust enforcement. One owner of multiple resorts can set prices for all of them and for bundles (multi-resort passes) without negotiating with any other resort owners, which is important because price-fixing negotiations are per-se unlawful.

  11. Jack

    March 14, 2017 @ 4:58 pm

    11

    It may not be a good strategy — time will tell. If you think vail is coining money just buy shares in the company.

  12. Shiyu Zhao

    March 14, 2017 @ 5:53 pm

    12

    It’s worth noting that efficiency is not limited to operating efficiency, but also capital efficiency. Vail’s cost of capital is much lower than smaller competitors, and ski resorts are somewhat capital intensive. So IMO it might just be a good idea to apply more capital at deals that have mediocre yields.

    This is similar to howany public companies buy up small companies even though the deal isn’t great. It still makes sense to buy an investment yielding 5% when your cost of capital is only 2%

  13. Anonymous

    March 14, 2017 @ 6:03 pm

  14. Colin

    March 14, 2017 @ 8:00 pm

    14

    Reducing risk. The odds of ALL locations have a bad winter (no snow) will be low.

  15. grvaughan

    March 14, 2017 @ 10:21 pm

    15

    Often businesses are bought for their operations, but sometimes for their real estate. I’m guessing it might be the latter.

    There may be relatively few entities capable of running a ski resort, so that may limit the pool of buyers and depress prices. But if there is suficient conjoined land that can be developed, it could be quite profitable.

  16. toucan sam

    March 14, 2017 @ 11:09 pm

    16

    I have had an epic pass for 15 years or so. I think it’s a great value. I usually ski around 30 days a year and take one trip usually to Switzerland where my pass works. The daily rate is expensive but the Epic pass is a great deal. I hope it does not get too expensive in the future.

  17. billg

    March 15, 2017 @ 12:15 am

    17

    Acquisitions are less about business, and more about financial “engineering”. Investors love big companies so they value them at a higher earnings multiple than small companies. Doubling your size through acquisitions might triple your market cap (slight exaggeration), and as long as cash-flow covers debt servicing to finance an acquisition nobody really cares about operating efficiency. Plus everyone involved in an industry roll-up benefits from the fees in acquisitions: bankers, lawyers, accountants, advisors, etc.

  18. Bill

    March 15, 2017 @ 1:08 pm

    18

    Many ski areas were (still are) like the Mom and Pop grocery stores of 1950. They have family members and friends running stuff with small restaurants. They open early on powder days to make the customers happy. Locals love the friendly feel. Vail brings Big Corp methods and strong business plans and management. They change the culture to their Big Corp make money first style. They McDonald the services and facilities and the experience. This means Vail season passes and revised restaurants (Vail makes big profit from food) and wide open groomed slopes (by cutting down trees) and strict operation methods and tough new corporate bosses. This saves employee costs through better training and discipline and good IT. Costs are better controlled via national food and beverage and equipment contracts. Good employees are moved. Poor employees are fired. Loyalty and being local are not important. Joe the funny lifty guy is fired. He was scruffy. Powder day early openings go away. Late spring ski parties go away. Special powder stashes get signs so everyone finds them. Big snow board parks are put in and block off favorite ski runs. Strict time clock management means no overtime so no one digs out for days after storms. All those low cost season passes now bring tons of customers and makes the crowds crazy. It is really dangerous to ski now due to crowds. Locals are not happy. The fun local ski area is now a business run by managers who do not ski much and insist on making money always.

    So yes the ski business is becoming integrated like fast food. The mountains all look the same and are totally soul less. The rich customers love them. They buy a ski pass to use a few days a year. They love the groomed flat runs. They like the clean young kid who runs the lift but they don’t care to know his name. They stay home on powder days and don’t care if half the lifts are closed. They don’t care if the beer is $12 for a pint or the burgers are $25 with fries and a drink. They fly in and ski 3-5 days. The locals are going to other ski areas a lot to avoid the Vail crowds and issues.

  19. dean

    March 15, 2017 @ 2:57 pm

    19

    Bill #18:
    Rich are coming! Rich are coming!

  20. Matt

    March 16, 2017 @ 12:50 am

    20

    A few years ago at Kirkwood I was talking to a long-time ski patroller about the recent purchase by Vail. He was excited. Vail had brought capital and motivation to upgrade accommodations, lifts, ticketing systems and other amenities. He wanted more people to share and enjoy the mountain he loved. We had lots of time to talk. We were on a long slow lift that needed a refresh.

    I gather that a lot of independent ski resorts are derelicts. They need capital, but also people who will decide to do things…and do them.

  21. Bill

    March 16, 2017 @ 12:17 pm

    21

    Talk to your ski patroller friend now. Kirkwood and Heavenly are exactly the kind of old school ski resorts that Vail has McDonaled. See if he likes all the wrecks he has to deal with now from two people colliding due to over crowding they have created? Collisions are now regular events at Heavenly. I have several friends who have been run over and nearly killed due to high speed collisions. I am talking major head trauma and major broken bones and so forth from wrecks. The cheap season passes and high speed lifts and super groomed slopes have made it crazy on weekends and many weekdays. Think skiing in 405 like traffic conditions!!!! There are no air bags or crush zones to protect you but you are going 30 and so is the other guy/gal. So your face and legs get smashed when you collide.

  22. StuartM

    March 16, 2017 @ 12:37 pm

    22

    I suspect that there are returns to scale based upon getting seasons pass holders to recruit others to visit. Look at the economics of the seasons pass. I just bought a “local” pass that gives me practically unlimited ski days for $650 a year (absolutely unlimited for $850). Breakeven is about 4 days at Beaver Creek or Vale. Once I have my pass, I drag my friends to (for example) Park City instead of Deer Valley. Vale sells them one-day passes and we all buy expensive food. We together spend more than we would at Brighton or Solitude but I save $140 lift ticket. I benefit. My friends are not significantly harmed, and an Epic resort gets our business instead of an independent resort.

  23. Francisco

    March 17, 2017 @ 3:54 am

    23

    People have already described the season pass: in New England, sunday river, loon, Sugarloaf, for example, are all part of the same company. The season pass is a plus in that case.

    Three more aspects: one, the economy of scale does work with the marketing infrastructure, online presence, ticketing systems.

    Second, in the line of what has been said, after you saturate the number of users in a resort, how do you continue? You copy-paste open another one, optimize based on your experience, knowledge and resources, and add an additional cash flow generator to your portfolio.

    Third, many resorts are real-estate businesses too, so if to have investment capability, you can explore that side building more condos (don’t know about this case in particular).

  24. Bill

    March 17, 2017 @ 11:13 am

    24

    Actually Vail Resorts the company owns very little of the resort property and associated stuff where they run ski resorts. They own and run the ski business only. They lease most of the land the resort sets on from third parties like the forest service (Heavenly and Park City) or CNL properties in the case of Northstar. See below discussion and link. This set up is how many hotels chains are run. A operations company like Hyatt runs the hotel business and a separate real estate business own the property and buildings and leases it to the operations company. So basically Vail is not in the real estate sales business.

    http://www.tahoedailytribune.com/news/northstar-california-among-16-american-resorts-that-may-be-sold/

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