It’s hard to question Rusty Gregory’s ski cred: he arrived at Mammoth in 1978 to spend a season as a lift operator and wound up spending a couple decades as the resort’s boss. His time as chief was hardly all powder days. He captained Mammoth through a global financial meltdown, a painful recession, and four years of ravaging drought that left one of his communities bankrupt and one of his ski hills shuttered. All the while, Mammoth grew into one of the most visited mountain resorts in North America.

Gregory has weathered the peaks and valleys of the mountain resort industry, and now he’s taking that perspective to his new role as the chief executive of Alterra Mountain Co., with 12 destination ski resorts and about 24,000 employees, that promises to disrupt the ski resort industry for years to come.

SAM caught up with Gregory in Telluride, where he spoke at the second annual Mountain Ventures Summit, a rally of 32 mountain towns from across the West.

SAM: As you've traveled across the country in the last couple months for Alterra, what are some of the similarities and differences you are seeing in these unique mountain communities?

Rusty Gregory: These resorts are like people. They have different personalities and different sensitivities and touch points. They don’t lend themselves to this overall standardized, efficient operational approach, at least in that emotional intersection between people and place.

It’s not like we are running a widget factory. The bias that I have about approaching this business is that it’s very local. Even people that go and travel beyond their local resort, they first and foremost have this close connection to their place. It might be Stratton, it might be Wilmot, or it might be Mammoth or Snow Summit. They are informed by the relationship they have with their home resort. A lot of people drive to their home resorts, and that’s one experience, and they're loyal to that and it’s part of their community and they feel connected there—it’s part of their identity. Then they have different experiences when they travel to different places. But the best way we can reach them is through their locale and their home resort.

Vail does a good job at career building for their people. They move them up and they have a very disciplined approach on how to do that. You will see us really trying to take people who are from an area to stay in the area to run the area.

It’s not as simple as just saying we leave people where they are. But we start with that bias, and then we can invest in those people and their education and their skill set and prepare people to take those local jobs, but do so by having them in the local areas and learning the idiosyncrasies there.

SAM: What can Alterra learn from the success of Vail Resorts?

RG: Vail very successfully created a high quality, dependable brand where guests know they are going to get a certain level of service. Vail has a real strong approach to who they sell tickets to, how they do their CRM and database management, and how they treat you, and how they connect with you. They have created a real capital-investment-worthy business on the debt and the equity side. That’s a huge benefit for all the rest of us, because the money that resorts need to borrow and the equity that is available to those resorts is all about Vail’s success. How they do is very important for the rest of us.

SAM: What does Alterra not want to borrow from the Vail Resorts’ strategy?

RG: It’s less about borrowing than it is about the opportunity to not do the same thing in business with a business approach they are experts at.

We believe that a decentralized approach to managing the organization—and making capital decisions and operational decisions—is the right way to stay connected to the local personalities of the resort and the local opportunities. We want to enhance our local communities. We want to create a one-and-only approach to each of the mountains. That’s challenging, because it’s hard to create a systematic approach across a large platform when you are trying to create a bespoke outcome. But I think that fits the marketplace today and the space available to us, and we are very committed to that.

SAM: But Vail’s success is built, in part, on efficiencies of scale on that large platform. Where can Alterra find financial success without those larger synergies?

RG: From a general standpoint, you can’t cut your expenses on the way to success. It’s important to be efficient, but the real opportunity is that by understanding the guest from a local perspective, we are going to be able to connect to what they really want and what delights them. We will be able to sell that to them in a better fashion than taking a one-size-fits-all approach to the resorts.

In general, we are trying to develop the company in a way that the decision-making authority for guest-facing issues will be with the resorts. The things that are back of the house and not consumer facing, we want to centralize—accounts payable, accounts receivable, things of that nature.

The actual market connection, though, instead of doing it on a mass basis through big data— and we certainly will be doing that to support the local resorts—we want to understand our guests, who they are, what they want, and how we can give it to them, through the local perspective.

SAM: Looking at Intrawest and American Skiing Company, those companies sometimes struggled to win local support for big real estate projects. You could say the same for your team at Squaw Alpine. Alterra got about 1,100 acres of base-area land when it bought Intrawest. What are some plans for that acreage and what can you guys do differently when it comes to securing local support for potential development? Does Alterra want to be a developer like Intrawest? Or is it better to let a third-party handle real estate development? Or maybe the answer is something in between, like what’s happening at Snowmass Village with the partnership between Aspen Skiing Co. and East West Partners and KSL Capital Partners?

RG: I’ve been in this job for about seven weeks. I haven’t looked at the real estate, but I’m generally aware of it.

Intrawest was part of Mammoth for a long time, so I’m very familiar with the real estate at Mammoth. But I look at real estate as an operating asset as opposed to an asset you package up and sell off. It’s a very important component to the communities: the development patterns, what is built, what is not built, and how it’s done is critically important. So it doesn't make sense to just say “hands off” and we are not going to look at it at all. Mammoth is a good example of that. Dave McCoy never let go completely of his land, but he never wanted to do real estate development himself, because he saw that everyone who did it eventually lost their area.

The real estate is very important. It’s important that it eventually gets done and that you do it in a way that doesn't risk the ski resort—not just in terms of how you finance it, but also in terms of what you build and the impacts over time from what you build. That means you have to stay connected to it. You can’t just pawn it off to a third party. You've got to work with a third party on it and do the right sort of risk sharing and mitigation so you are not endangering the mothership. That is the worst thing you can do to the company, for the guests, the employees, and the community. There are a lot of bad examples of these quick-hit, top-of-the-market real estate programs and the legacies they have created at a lot of resorts, without naming any of them.

SAM: I believe you own a place like that in West Virginia.

RG: (laughing) There are a lot of condos on top of that hill.

SAM: What did you learn from the prolonged drought that plagued the California resort industry?

RG: The biggest thing we learned is how to run a highly variablized expense structure. That’s different than just cutting expenses. It’s about dialing expenses correctly.

How do you apply basic business practices to the ski industry? That’s a challenge. You do a set of budgets thinking a certain amount of people are going to come, and they are going to spend a certain amount of money. You are going to provide an experience and a set of products and services, and you are going to spend a lot of money to do that. You are going to be left with a profit, and you pay some taxes, and then you reinvest the money back into the business. Then—at some level—provide a return to the investors behind the company, either by increasing the value of the company over time or by paying them a cash dividend, or a combination of both, which is what Vail does.

The problem with that is that we just rent the place. Mother Nature owns it. Mother Nature has her way with you, and it looks like nothing that’s on the budgets. So then the people who make the decisions on where to spend money and what to charge can’t use that plan.

It’s not like there’s some trick. It’s about persistence and local knowledge on how to run a resort where you can dial down expenses in a way that’s commensurate with the number of people and the money they are spending at the resort. You can’t just flip the switch on and the lifts are running. If no one is there to keep doing that, that’s a recipe for putting your most important financial stakeholders at risk—your employees and the community. When those people go down, they take the brand and the personality of a place with them.

Dialing back expenses is about moderating costs in a rational way. We took that to Big Bear and it worked unbelievably well there, and we are taking that to the rest of the resorts. It’s not a one size fits all by any means. To moderate costs and drive the right relationship between operating expense and operating revenue, that manifests itself differently in each resort, but the concepts are the same.

SAM: What do you see as the role for smaller independent ski areas who aren’t playing the big pass game?

RG: I use this term a lot about the radically idiosyncratic nature of these mountain resorts in general: At the core of that core are the independent resorts that are choosing not to be part of a larger platform.

On the whole, I think what Vail has done is very impressive and has been great for the segment of guests it serves. And where we are headed as Alterra—moving differently, but with a large aggregation of resorts—the bigger that Vail or Alterra get, the bigger the gaps of opportunity get for the independents. I think that’s a great thing. That’s all part of the experience of making the industry stay healthy. Those guys are wily guys and they’ve got their way of doing it.

I think it creates a lot of opportunities, particularly with Millennials today and this younger generation that is looking for unique, one-of-a-kind experiences. You go to some of these resorts with one lift, no grooming, great snow, and the best hamburger at the bottom of the hill and all your friends are there. That’s a cool experience. It’s pretty hard to do that when you have a multi-billion-dollar operation with a big overhead. It’s hard to fit in those customized experiential niches.

SAM: Still, it can be a challenge for small resort operators who once thought their value was based on their power to generate revenue, and now, in the new Alterra-vs-Vail order, resorts are valued on how they fit into an overarching pass strategy. Right?

RG: The gaps of opportunity I’m talking about also exist on the financing side. I know there are huge numbers getting paid for resorts, which reflects the large capital base they have, and their somewhat mitigated volatility because of the parent company’s wide geographic footprint. But they have become truly viable investment opportunities for capital markets, and that creates more money flowing in on the equity side and the debt side. So while the multiples are different—those differences really reflect the capital base, the size of the capital base, big or small, and the higher level of risk an independent area has.

But adjusting for all these factors, the success of the big companies makes more money available for equity and debt investments for smaller resorts as well. If they are operating in the gap of opportunity that’s left by these larger companies that can’t maneuver in a small harbor, they are going to find these gaps of opportunities. And if they are doing a great job of connecting with the their guests, it’s going to drive loyalty and some pricing leverage. They will get more return visits and they can have an EBIDTA where they can go to capital sources—debt and equity—and attract that.

So, I think that while consolidation provides competition, it’s competition where there’s enough room for the well-operated idiosyncratic independent resorts and—if they are good at their game—they can access resources they wouldn't have had without the bigger players there.

SAM: Nevertheless, they are not putting $555 million into their resorts. (As Alterra has announced for its 12 destinations over the next five years.) That’s a big number. How did you guys allocate that?

RG: It is a big number. A big-ass number. First and foremost, we went to each resort and said, ‘Tell us, as resort operators, what will make the biggest positive impact on the guest experience.’ They had long lists. They had some big ideas. Then we prioritized that. What makes the biggest impact on guests also provides the biggest ROI, at least over time. That’s always the case, because that’s what the guest pays for.

And then it was a matter of making sure everything made enough sense, and making sure we had enough money. That’s how we came up with that $555 million figure.

SAM: Let’s see if you have paid attention to Rob Katz’s earnings calls. He gets this asked this question every quarter by analysts. Is Alterra looking to acquire more resorts?

RG: (Laughing) I don’t think it’s a matter of reaching a certain size and saying that size is correct. We are interested in more resorts, but that could be better done on a partnership basis than on a purchase basis. Again, it all goes back to our guests. And on that basis it goes back to the larger market of skiing in general, not just in Colorado and California and Utah and the areas back East that are at the center of skiing for us. But to look around the world and see where demand is going to come from, what the weather patterns are, and how best to continue the theme. That makes it rational to at least consider being active in the partnership and acquisition space.

That said, are we actually doing something? Frankly, we are taking a breath and trying to organize what we have. I’m still working on reciting all the resorts we already own. (Ed. note: Alterra has since agreed to purchase Solitude Resort in Utah.)

SAM: Speaking of Rob and analysts, do you envision Alterra at some point becoming a publicly held company?

RG: I don’t envision being one, but it certainly could be that way. To me that’s just capital, and capital is very agnostic. It’s a matter of how you spend it and what you spend it on. If you spend it on the right things, you connect with your guest and they want to come more often, your employees are motivated and they can make a living, and your financial stakeholders are taken care of and they get a return.

But the formation of that capital is decided by market factors. When there’s an opportunity to take care of your guests by spending money, you look to where the money is and sometimes that comes in the form of public capital, other times it makes sense to have it private capital. That changes with markets.

Our plans and trajectories for the company are less about size and more about quality. Capital needs to flow in and out without disrupting the human connection. My job is to be able to do that.

Right now, it’s too early to think about our form of ownership. We are totally in start-up mode. I think some of our great characteristics will come from our inefficiencies as we move forward, and hopefully people will love that about us.

SAM: How are people responding to the Ikon Pass? Sales strong?

RG: It’s going Incredibly, incredibly well. I’d love to give you numbers, but it’s too soon to tell where it’s all going to end up. As prices drop, volume goes up. We really won’t know until next season. We are pretty significantly exceeding our forecasts. But the forecasts were a guess.

There’s a lot of disruption going on right now. Individual resorts are part of a big platform and there’s a big pass product over the top of that platform, and that’s disrupted people. We went into the partnership business, and all of a sudden Vail is in the partnership business. So we are all forced to think differently. At the end of the day that will be good for the consumer because we are clawing and scratching for ways to connect with them better.

If we keep doing this, the whole industry, including the independents, will see growth. Not just the regurgitation of market share. If you look at the opportunities globally, it’s massive.

SAM: Did you see that Karl Kapuscinski bought back his Mountain High ski area and Stephen Kircher just bought back his family’s hills from the Och-Ziff real estate investment trust that bought the package from CNL? What do you think of that?

RG: That’s yet another example of these opportunities now with the bond market and the way it’s trading. It goes back to that old structure with capital coming in and out in many different forms. It’s a good sign for the business and it’s another indication that the critical mass has been created with all the activity with Vail and with Alterra and with the other resorts around the business in general. It’s a good, healthy, active, vibrant space, and its access to capital is a good indication of that.

Want more? Check out the Rusty Gregory interview on Bloomberb: https://www.bloomberg.com/news/videos/2019-11-04/interview-erik-schatzker-interviews-rusty-gregory-digital-full-video.