April’s blockbuster news in the ski industry would be befuddling if viewed solely through the metric of traditional growth. Aspen Skiing Co., KSL Capital Partners will acquire Instrawest Resort Holdings for $1.5 billion. Skier days and the number of participating skiers in the United States, despite significant year-to-year variations reflecting snow and economic conditions, were the same last year as they were in the 1996-97 season.
A more revealing statistic, however, can be found in the stock price of Vail Resorts. Shares in 1997, when the company went public, cost $16. They were $191 the afternoon of April 18. Very publicly, Vail Resorts has learned to make good money in a flat industry. Other ski areas operators have profited greatly too, based on industry averages, even if most of the finances remain private.
So what are Aspen Skiing Co. and KSL Capital Partners thinking? Last week they announced the pending $1.5 billion purchase of Intrawest’s still substantial assets. Then, two days later, they announced plans to acquire Mammoth and three other ski areas in Southern California.
“The best defense is a good offense, and that’s what this is,” says Chris Diamond, the former chief executive for Intrawest at Steamboat. He has now semi-retired into consulting.
“You can view all the non-Vail transactions in ski country as defense up until this point.”
Diamond sees this, as do many others, as being a response to Vail’s powerful Epic Pass. Vail didn’t invent the idea of a discounted ski pass. The idea is credited to Spirit Mountain, at Duluth, Minn., which in 1990 discounted its season pass to $199. Others—Bogus Basin, outside Boise, Idaho, and then Colorado’s Winter Park – followed.
Vail Resorts also dropped its season pass prices. But when Rob Katz took over as chief executive of the company in 2005, he more expertly branded the pass as Epic and then set out supplement the company’s four original areas along Interstate 70 in Colorado.
Less has been much, much more for the ski company. Sales for the next season begin in April, as one season ends, giving the ski company revenue to coast through the revenue-deprived summer. Importantly, it locks in customers early—before ski season, before anybody even knows whether there will be snow. It also defines the alternatives. You don’t just buy a pass to one ski area. You buy options—also owned by the same company. Vail now has 13 options around the world.
Vail’s stable now has geographic diversity. A bad winter in California? Well, Colorado got some snow. Or Whistler. It’s always snowing somewhere.
Even before the Epic and then the Mountain Collective and other friends-with-benefits passes came on in response, ski companies had been changing. In the 1990s, Vail Resorts began buying ski shops, restaurants and all else at Vail and Breckenridge, causing much heartburn among long-term residents. Aspen Skiing was doing the same vertical integration. In the old model, the ski companies sold lift tickets and season passes, or vertical transportation, and instruction. Other than serving soggy fries on the mountain and sloshing beer après ski, there wasn’t much more.
In the last 20 years, perceived quality has been elevated in every department: advanced grooming, faster lifts, and organic and health-conscious menus. Soggy fries have disappeared.
“Looking back, do you remember how awful it used to be?” asked Diamond.
The Epic Pass and the other pass programs have produced “no earthshattering change in terms of market share,” said Diamond.
Intermediate ski areas, like Telluride and Jackson Hole, held on just fine and, in the latter case, actually grew. The big difference was a new dynamic for profitability for Vail Resorts, he explained.
Now, with a week’s worth of announcements—and who knows, maybe there will be more—there are two heavyweights in the ski industry: Vail Resorts and the Company to be Named Inc. It’s kind of like Chevrolet and Ford of the mid-20th century.
A continental perspective is important to understanding these deals. Intrawest’s holdings includes two big resorts in eastern Canada, Tremblant and Blue Mountain, along with Stratton in Vermont and Snowshoe in West Virginia. They draw on major population centers of the eastern North America, including Toronto, New York City, and Washington, D.C. Then there’s Mammoth and the other three resorts that have traditionally played to the 18 million people in Southern California.
If somebody can buy a season pass at their home mountain, be it Bear Mountain outside Los Angeles or Stratton in Vermont, then they will presumably have access to many other resorts, including Aspen and Steamboat, said Rick Kahl, editor of Ski Area Management, an industry publication.
“I think it opens up a lot of options for skiers to a lot of other areas,” he said.
Park City will still look good to skiers from Southern California, but for another 35 minutes in the air they can now look to Colorado resorts, pointed out Diamond. He expects “highly competitive pass products to be forthcoming from the new Aspen/KSL/Intrawest/Mammoth grouping.
There’s also this: the new combined businesses will have broader geographic diversity and hence greater insulation from variable weather, pointed out Jeff Hanle, spokesman for the Aspen Skiing Co.
David Perry, the No. 2 at the Aspen Skiing Co. (and a 20-year former resident of Whistler), is mum about what the passes might look like. He also talked about the variable options in less muscular, business-calloused terms than most of the hallway conversations. Aspen’s customers are among the most loyal in the business, he said, but nods that “People who take vacations are explorers are heart.” In other words, they like to go other places, too.
Aspen seeks to accommodate the wanderlust —and take a cut of the action.
But Perry cautioned that the story is not all about Epic and the New passes. it’s also about scaling of many functions.
The new combination allows the resorts to “compete at scale, to invest in things like technology,” he said. For example, he said, ski companies have lagged in technological sophistication in a world where the average person now able to order goods from Amazon on the iPhone they carry around in their pockets.
What happens next?
“It’s almost like a chess board. One makes a move, and then the other makes another move,” said Diamond.
“Time will tell,” he said.
A timeline: Intrawest began gauging interest in a sale in January, says Davis Perry of the Aspen Skiing Co. Ties between KSL Capital Partners and Aspen Skiing have progressed over the last five years, strengthening with their merging interests last year to buy a giant real estate project at Snowmass called Base Village.
Soon at the same table:
Aspen Skiing Co.
Aspen Mountain CO
Aspen Highlands CO
KSL Capital Partners
Squaw Valley CA
Alpine Meadows CA
Winter Park CO*
Blue Mountain, Ont
Canadian Mountain Holidays, Alta & B.C.
KSL Capital Partners
Squaw Valley CA
Alpine Meadows CA
Mammoth Mountain CA
Snow Summit CA
Bear Mountain CA
June Mountain CA
And on the other side…
Vail Resorts Inc.
Vail Mountain CO
Beaver Creek CO
Park City Mountain Resort UT
Afton Alps, MN
Jackson Lake Lodge WY**
* Intrawest manages Winter Park in a long-term contract with the City of Denver
** Jackson Lake Lodge is operated in a contract with the National Park Service
A bit about KSL Capital Partners:
The key figures are former two Vail executives, Mike Shannon, who ran Vail and Beaver Creek in the late 1980s and early 1990s, and Eric Resnick, who was with Vail in the late 1990s. The first iteration of KSL had properties from Miami to Palm Springs but remained almost entirely outside the ski industry. It was sold in 2004 to CNL Hotels & Resorts for $2.4 billion, according to KSL’s website.
In 2005, Shannon and Resnick formed KSL Capital Partners, and they have now raised $7.5 billion in equity capital commitments, mostly drawing from public state and corporate pension funds, private and university endowments, and high net-worth individuals, according to KSL’s website. The Vail Daily said that Resnick remains a full-time resident of Vail.
A bit about Aspen Skiing:
The Aspen Skiing Co. is owned exclusively by the Crown family of Chicago, with Forbes last year ranked as the 27th most wealthy family in the United States, worth $8.8 billion. The Waltons of Wal-Mart fortune are worth $152 billion.
The family forum has roots in the early 20th century grit of Chicago when family patriarch, Lester Crown, and a brother borrowed $10,000 and, in just its first year, made a profit of $7,000 in sales of gravel, sand, lime and coal to builders in the Chicago area, according to Wikipedia. The company grew and grew more, in 1959 merging with General Dynamics, an aerospace and defense company. It makes tanks, such as have been used in the Middle East conflicts, for example. The Crown family’s 10 percent ownership of General Dynamics was worth $4.8 billion at the time the Forbes story was posted last June.
The Crowns also have stakes in the New York Yankees and the Chicago Bulls, plus a 20 per cent of Rockefeller Center, among many other assets.