To some, Chuck Lewis might seem a risk-taker. He was associated with the early days at Vail; he was responsible for the birthing of Copper Mountain; he jumped into the insurance business, later to fashion the now highly successful Arlberg Group; most recently he headed an investment group that bought the stricken Eldora Mountain operation, outside Boulder, Colo.
In point of fact, though he will accept risk, Lewis is an extremely cautious man who gauges risk with the wariest of eyes, and who relies heavily on the fundamentals to mitigate the risks. In every business enterprise. For the ski resort business, the fundamentals are the ski operations.
In 1985, SAM interviewed Lewis on “Real Estate and Skiing—When the Mix Makes Sense.” The message was that the ski industry represented a fine opportunity for those who understood it as something more than an opportunity to develop real estate. Nine years later, we sat down with Lewis again to get his overview on where we are and where we’re going.
Lewis acknowledges the skier market is a mature one—that we will not again see the growth dynamics of the 60s and 70s.
“But,” we asked, “don’t they always cite that old capitalist article of faith, that if you’re not growing, you’re dying?”
“Hey, look around you,” says Lewis; “I would say that if you’re not declining, you’re prospering! Look at golf, look at tennis. Both these sports have had tremendous growth, followed by declines—a tremendous one in the case of tennis. True, skier visits are flat, and comparatively speaking, that’s not where you’d like to be because you’d always like to be in a growth mode. But if your second choice is ‘mature and flat, that’s not all bad. It’s certainly better than the third choice of ‘decline and a real head scratch!’ If we went into a declining mode like that I’d be nervous.”
“Again, though, if you project ten years out, would it bother you if skier visits were still under 60 million?”
“Probably not. That’s not to say it’s a fun place to be! But let’s look at this in perspective. Look at all the other opportunities people have today for their free time. When people say, ‘Sure I ski; I love to ski,’ they’re probably not the 10-15 day skiers we used to have; more likely they’re 4-5 day skiers. Maybe three. And look at lessons: they’re not down. Beginner lessons aren’t down. This has to tell you something. What we have, I think, is a situation where we are holding our own in the face of factors that have caused declines in other activities. So I find having a mature market may not be all bad.”
“Okay, so it’s all right, but what do you have to watch out for in this market? What about expansion?”
“Well, some areas have been enjoying real growth, and expansion to match this growth is obviously appropriate. There are others that have been growing very slowly, and probably at very high cost. And then you look back and say, ‘Is management talking to marketing?’ because they’re always looking for something exciting to announce in the brochure. Are they talking to the public, because if you talk to them they’ll always agree that, sure, expansion into those new bowls would be g-r-r-r-e-a-t!
“I think there are mountains that have finite capacity. At some point you’ve got to look at say, ‘It’s a mature product, and while you can force a little bit of growth, you should really ask ‘Why am I forcing that growth?’ I think for a business person that’s difficult to do—to admit that, Gee, I’m in a market I really can’t affect any more, can’t increase my share, can’t do anything else. But I think in the last 10 to 15 years there’s been some marginal terrain that’s been developed. It may warehouse some people, but if you ask if it was really worth developing, I would have to say there are a number where I would question whether it was.
“It’s not just lifts and trails: it’s other facilities that are being built. A skier may look at a big, new restaurant, for instance, and say, ‘That’s really nice!’ But was it necessary? There are different questions here. There are economic questions. As it came out in a panel at the Marco Island convention on relationships between net revenue and expenditures on facilities, at an area with over a million skier visits you can pretty much do what you want. But, for an area with 200,000 or 300,000 you have to be very, very careful about how you spend your dollars. If you spend twice as much on a restaurant as the economics justify you can burden your whole operation for a long time to come.
“What the customer may like very much may not make economic sense. In the case of Eldora, skiers would love to have a detachable quad, but that doesn’t even fit our vocabulary. There’s no way it could make economic sense. It would decrease or eliminate profitability and we can use that money to market in other ways—with competitive ticket pricing, for instance, or learn-to-ski packages. When the industry was growing at 20 percent a year—and I’m lucky that I was in it then—we could cover up a mistake. It didn’t seem to make a difference. It did, of course, but not like it does today.”
“Will investment capital come into a mature market?”
“Sure! Rates of return are still more than adequate to attract the investor. If I can say, ‘I’ve got an industry that will crank X percent year in and year out, and that number is above the market rate, then that’s attractive to capital. Of course, you need a higher rate of return than, say, you might get from an apartment building because of our weather dependency and seasonality.
“On the other hand, look at some of the ski operations, many mature and finite, that are really cranking. Where can I get cash flows like this year after year after year? Holy Toledo! Just let it keep sending dollars. Sustainable, high quality cash flow.”
“What about all the resort acquisitions? Is there a pattern?”
“It looks to me as though they’re mostly the result of opportunities created financially, many of them not unexpected. It’s not unique to our industry. There are good companies that for one reason or another need financial planning—estate planning, liquidity, capital infusion, etc.— and that opens up opportunities for buyers looking for economy of scale.
“One thing that surprises me is that we have been seeing a lot of similar areas put together. I guess I haven’t seen the food chain theory developed, where the buys are strategic—areas that can feed upon each other, so you don’t end up with all destination resorts or all day resorts. I would develop a combination; then move them around in the system. We haven’t seen that yet, and I’ve got to believe that’s going to be an opportunity.
“Take Shawnee in Pennsylvania—a successful area. Makes money. It’s been on the market now for over two years. My only conclusion is that the bank decided they didn’t have to sell because it was making money, but it should certainly be a feeder to a destination resort. There’s the same potential in other parts of the country. Where are the feeder areas for Whistler? Where are the feeder areas for Sun Valley? Or Vail or Aspen.
“Some of this can be done short of acquisition by alliances. There are a few of these around now, loose ones, like discounts to season pass holders. But I think there’s an opportunity for some real chains. Have a cadre of small feeder areas and keep pumping the skiers up the line to the destination.
“Of course, the alliance has to flow backwards, too, perhaps with some sort of tracking system, that every time a vacation is booked out of the feeder area into the destination resort in the Northwest or Northeast a commission could be earned. You can also have assistance flowing back in the form of ski school support or marketing expertise. You can let your imagination run.”
“To wrap up, how would you think of us as an industry?”
“Ask me if I would be willing to invest in the industry and I’d answer, ‘Sure. Carefully.’ Am I willing to go and start a new area? No way! I don’t have the guts, time or patience for it. I should add, it’s still a fun business. And you only have to go walk among your customers any given day and you know it’s a fun business. And it’s an exciting one. It’s probably not one for the bean counters, though I am one, but it continues to be a good business for those who know what they’re doing, especially for those with a love for the sport, and who want to deliver a quality product for their customers and make a profit while doing it.”
