The 2002-03 winter season was a good one for the ski industry. According to NSAA estimates, the industry set an all-time record with 57.6 million skier days, up 5.8 percent over the previous year—although the average ski area in the NSAA Economic Analysis was only up 3.1 percent. According to the Analysis, revenues were up, expenses held steady, and the added revenue all dropped to the bottom line. Average resort EBITDA improved from 19.7 percent in the 2001-02 season to 23.5 percent in the 2002-03 season.
This adds up to a great year considering what the industry was facing: war in the Middle East, an economic slowdown, a general reduction in tourism, and less than favorable snow conditions in some parts of the country.
How is the industry up an estimated 5.8 percent while the “average” ski area is only up 3.1 percent? The industry grew mostly at the smaller resorts, and the average area in the Economic Analysis is much bigger than true average—nearly 322,000 visits vs. a bit over 100,000 in the Kottke survey.
In the Economic Analysis, the Rocky Mountain resorts, which comprise a large share of the reporting areas, were down 0.7 percent in revenue, with Pacific West resorts down 1.7 percent. In contrast, Northeast resorts were up 10 percent, Southeast up 25 percent and the Midwest up 3 percent. The smallest ski areas grew the most in revenue, increasing 16.7 percent, with mid-size areas increasing 7 percent. Good snow, pent up demand, and small-resort niche marketing drove revenue.
Conglomerates Under-Perform
The performance of the publicly held conglomerates continues to be below average. Vail Resorts lost money. American Skiing Company lost money. Booth Creek lost money. Intrawest was profitable but performed less well than the “average” resort.
The table here shows how the conglomerates compare to the “average” NSAA area in the Economic Analysis.
| 2003 Average | Vail Resorts* | Booth Creek* | American Skiing* | Intrawest* | |
|---|---|---|---|---|---|
| Gross Revenue | $18,969 | $629,997 | $108,827 | $251,638 | $571,527 |
| Operating Expenses | ($14,505) | ($521,403) | ($85,751) | ($221,867) | ($454,861) |
| Operating Income | $4,464 | $108,594 | $23,076 | $29,771 | $116,666 |
| Dep/Amt/Op Leases | ($2,125) | ($82,242) | ($17,094) | ($27,513) | NA |
| Interest | ($632) | ($50,001) | ($13,751) | ($47,364) | NA |
| Other | ($2,453) | ($2,886) | ($37,644) | NA | |
| Profit Before Tax | $1,707 | ($26,102) | ($10,655) | ($82,750) | NA |
| Operating Profit% | 23.5% | 17.2% | 21.2% | 11.8% | 20.4% |
* SAM estimates based on annual reports; figures exclude real estate.
Interestingly, the resorts of these conglomerates account for a large percentage of the data that make up the NSAA “average” ski area. Why, then, is the “average” performance so strong? Either the financial performance of the average non-conglomerate area was significantly better than the NSAA average, or the conglomerates aren’t reporting certain corporate expenses to the Economic Analysis.
It’s possible that both forces are at work. SAM has determined that not all of the conglomerates are reporting all their corporate assets, overhead and interest expense to NSAA (more on that shortly). But we can’t quantify this under-reporting and its effect on the “average” numbers, aside from noting that average assets, liabilities and equity declined by 16 percent, dramatically improving all balance sheet ratios.
What the Numbers Say About the Industry
The NSAA Economic Analysis is extremely valuable and produces a great benchmark for ski areas. It is especially important and valid regarding operating income and expense data. The operating data are extremely valuable and accurate and provide an excellent benchmark for financial performance. We would like to thank RRC Associates, who compile the data, for providing additional information for this article.
However, given that the asset allocations skewed the balance sheet (see below), we will only review the Comparative Income Statement through EBITDA for the past two years.
Note: In the charts, figures for 2001-02 may be different from those reported for 2001-02 in last year’s report. That’s because the two reports include information from different areas—the sample used in the Economic Analysis changes from year to year.
How Reporting Skews the Average
Why did the asset, overhead, and interest allocations change so drastically? The financial results can be skewed in three ways by what the resorts report. These distortions are generally caused by the conglomerates that dominate the report.
1) Corporate overhead expenses are not always fully allocated and reported.
Of the 103 respondents to the survey, 36 percent have corporate expenses included in the income statement, 50 percent do not have corporate expenses to allocate, and 8 percent have corporate expenses but do not report them in the income statement to the NSAA. This 8 percent sounds innocent enough, but if it includes American Skiing Company and/or Vail Resorts, it can be a very significant distortion—of 20 percent or more.
There is a large differential between the actual financial statements as reported to the SEC of the conglomerates (where the conglomerates are losing money) and the reported financial results of the “average” ski area to NSAA (where the average ski area is making money). We conclude that significant conglomerate corporate expenses are not being allocated or included in the NSAA Economic Analysis. This makes the average ski area look better financially than they really are.
2) Corporate Interest Expense is being under-reported.
There is no standard for reporting corporate interest expense to the NSAA Economic Analysis. A company with large amounts of debt does not have to allocate this debt to its resorts for reporting purposes. This can skew the income statement (interest expense) and the balance sheet (liabilities). Again, the differential between actual financial statements as reported to the SEC of the conglomerates and the reported financial results of the “average” ski area in the NSAA Economic Analysis suggests that the conglomerates are under-reporting debt and interest expense.
3) How a corporation allocates assets can create distortions.
A conglomerate may choose not to report actual assets by property to the NSAA Economic Analysis. It may allocate assets of the conglomerate based on skier days, or it may create its own formula for allocation. This can (and did this year) create major distortions in the “average” ski resort balance sheet.
The “average” ski resort’s reported assets decreased from the 2001-02 season to the 2002-03 season from $32.7 million to $27.5 million, a drop of 16 percent. (Remember, the report only compares resorts that reported in both years.) Accompanying this was an equivalent decrease in Liabilities and Equity.
Almost all of this decrease resulted from a large conglomerate changing its asset allocation by resort. It reduced the average assets per resort from $120 million to $85 million. These decreases in assets dramatically change the balance sheet ratio analysis to a more favorable result.
These allocations can significantly distort the averages and present an unrealistic view of the financial performance of the average ski area. We know that the change in corporate asset allocations decreased average assets, liabilities and equity by 16 percent, dramatically improving all balance sheet ratios. We can’t exactly quantify the affect of the corporate interest and overhead allocations, but we know that they exist.
The bottom line: ski conglomerates dramatically under-perform individual ski area performance. In general the conglomerates are not profitable because of high corporate overhead and interest expense.
Summary
No matter how you slice it, it was a good year for ski areas, the best in the last five financially. Many were able to control costs while skier days improved, and it all dropped to the bottom line. However, under-reporting of corporate expenses, under-reporting of corporate debt and interest and changes in corporate allocation of assets is skewing the financial picture of the “true” average ski area. And the conglomerates continue to under-perform compared to the average ski resort.
Chris Brink is former Senior Vice President of marketing and sales at American Skiing Company. Currently he is President of White Fire Resorts, specializing in resort acquisition, and Chief Operating Officer of Sports Vision Technologies, a leader in applying technology to improve sports performance. The company just released the P3pro Home Golfing System, which Golfweek named Best in Show at the PGA Merchandise Show.
Financial Highlights: Industry Average — Skier Days and Revenue
| Skier Days | 2001-02 | 2002-03 | Increase | % Increase | ||||
|---|---|---|---|---|---|---|---|---|
| Total Skier Days | 312,152 | 321,686 | 9,534 | 3.1% | ||||
| Ticket Yield | $ 28.18 | $ 28.66 | $ 0.48 | 1.7% | ||||
| Average Ticket Price | $ 45.25 | $ 46.90 | $ 1.65 | 3.6% | ||||
| Yield % of Price | 62.3% | 61.1% | (1.16%) | (1.9%) | ||||
| Revenue (000’s) | % of Revenue | Per Cap | % of Revenue | Per Cap | ||||
| Mountain Operations | $ 8,796 | 47.6% | $ 28.18 | $ 9,221 | 48.6% | $ 28.66 | $425 | 4.8% |
| Other Operations | ||||||||
| – Lessons | $ 1,806 | 9.8% | $ 5.79 | $ 1,933 | 10.2% | $ 6.01 | $ 127 | 7.0% |
| – Food and Beverage | $ 2,621 | 14.2% | $ 8.40 | $ 2,594 | 13.7% | $ 8.06 | $(27) | (1.0%) |
| – Retail Stores | $ 975 | 5.3% | $ 3.12 | $ 1,024 | 5.4% | $ 3.18 | $ 49 | 5.0% |
| – Rental Shops | $ 968 | 5.2% | $ 3.10 | $ 998 | 5.3% | $ 3.10 | $ 30 | 3.1% |
| – Lodging | $ 1,716 | 9.3% | $ 5.50 | $ 1,694 | 8.9% | $ 5.27 | $ (22) | (1.3%) |
| – Misc: Fin | $ 208 | 1.1% | $ 0.67 | $ 128 | 0.7% | $ 0.40 | $ (80) | (38.5%) |
| – Other Ops | $ 1,138 | 6.2% | $ 3.65 | $ 1040 | 5.5% | $ 3.23 | $ (98) | (8.6%) |
| – Property Operation | $ 237 | $ 337 | 1.8% | $ 1.05 | $ 100 | 42.2% | ||
| Total Other Revenue | $ 9,669 | 52.4% | $ 30.98 | $ 9,748 | 51.4% | $ 30.30 | $ 79 | 0.8% |
| Total Resort Rev. | $ 18,465 | $ 18,969 | $ 504 | 2.7% | ||||
| Other Rev./skier Visit | $ 30.98 | $ 30.30 | $ (0.67) | (2.2%) | ||||
| Ticket Rev/skier Visit | $ 28.18 | $ 28.66 | $ 0.49 | 1.7% | ||||
| Revenue/skier Visit | $ 59.15 | $ 58.97 | $ (0.19) | (0.3%) |
- Ticket Revenue was up 4.8 percent
- – 3.1 percent of the increase was due to an increase in skier days.
- – 1.7 percent of the increases were due to increases in yield.
- Price increases were not completely successful as Ticket Prices jumped 3.6 percent but Ticket Yield increased by only 1.7 percent.
- – Yield as a percent of price actually decreased, reflecting the continued use of discounting and inability to have price increases stick.
- The Profit Centers with the greatest increases in revenue were:
- – Lessons were up 7 percent almost twice the rate of skier days. This is a good sign as it may mean that resorts are bringing more new skiers to the sport.
- – Retail up 5 percent
- Profit Centers that actually decreased in revenue were:
- – Lodging
- – Food and Beverage
- Revenue Per Skier Visit actually declined from $59.15 to $58.97. This was due to significant declines in non-ticket revenues in Lodging and Food and Beverage.
- – Ticket revenue increase from $28.18 to $28.66
- – Non-Ticket revenue decreased from $30.98 to $30.30
- Property Operations saw a large increase in revenue but these operations continue to still lose money.
Financial Highlights: Industry Average — Expenses and Margins
| Expenses (000’s) | 2001-02 | 2002-03 | $ Increase | % Increase | ||
|---|---|---|---|---|---|---|
| Direct Expenses | % of Rev | % of Rev | ||||
| Mountain Operations | $ 3,627 | 19.6% | $ 3,531 | 18.6% | $ (96) | (2.6%) |
| Other Operations | ||||||
| – Lessons | $ 1,086 | 5.9% | $ 1,141 | 6.0% | $ 55 | 5.1% |
| – Food and Beverage | $ 1,921 | 10.4% | $ 1,833 | 9.7% | $ (88) | (4.6%) |
| – Retail Stores | $ 694 | 3.8% | $ 723 | 3.8% | $ 29 | 4.2% |
| – Rental Shops | $ 312 | 1.7% | $ 373 | 2.0% | $ 61 | 19.6% |
| – Lodging | $ 1,033 | 5.6% | $ 922 | 4.9% | $ (111) | (10.7%) |
| – Misc: Fin | $ 105 | 0.6% | $ 86 | 0.5% | $ (19) | (18.1%) |
| – Other Ops | $ 1,066 | 5.8% | $ 956 | 5.0% | $ (110) | (10.3%) |
| – Property Operation | $ 778 | 4.2% | $ 777 | 4.1% | $ (1) | (0.1%) |
| Total Other Expense | $ 6,995 | 37.9% | $ 6,811 | 35.9% | $ (184) | (2.6%) |
| Total Direct Expenses | $ 10,622 | 57.5% | $ 10,342 | 54.5% | $ (280) | (2.6%) |
| Gross Margin (000’s) | GM % | GM % | GM% | |||
| Mountain Operations | $ 5,169 | 58.8% | $ 5,690 | 61.7% | $ 521 | 5.0% |
| Other Operations | ||||||
| – Lessons | $ 720 | 39.9% | $ 792 | 41.0% | $ 72 | 2.8% |
| – Food and Beverage | $ 700 | 26.7% | $ 761 | 29.3% | $ 61 | 9.8% |
| – Retail Stores | $ 281 | 28.8% | $ 301 | 29.4% | $ 20 | 2.0% |
| – Rental Shops | $ 656 | 67.8% | $ 625 | 62.6% | $ (31) | (7.6%) |
| – Lodging | $ 683 | 39.8% | $ 772 | 45.6% | $ 89 | 14.5% |
| – Misc: Fin | $ 103 | 49.5% | $ 42 | 32.8% | $ (61) | (33.7%) |
| – Other Ops | $ 72 | 6.3% | $ 84 | 8.1% | $ 12 | 27.7% |
| – Property Operation | $ (541) | (228.3%) | $ (440) | (130.6%) | $ 101 | 18.7% |
| GM Other operations | $ 2,674 | 27.7% | $ 2,937 | 30.1% | $ 263 | 8.9% |
| % of Rev | % of Rev | |||||
| G&A | $ 2,039 | 11.0% | $ 1,946 | 10.3% | $ (93) | (4.6%) |
| Marketing | $ 978 | 5.3% | $ 946 | 5.0% | $ (32) | (3.3%) |
| Total G&A/Market | $ 3,017 | 16.3% | $ 2,892 | 15.2% | $ (125) | (4.1%) |
| Operating Expenses | $ 13,639 | 73.9% | $ 13,234 | 69.8% | $ (405) | (3.0%) |
| Gross Margin | $ 4,826 | 26.1% | $ 5,735 | 30.2% | $ 909 | 18.8% |
| Unallocated Expense | $ 1,182 | 6.4% | $ 1,271 | 6.7% | $ 89 | 7.5% |
| EBITDA | $ 3,644 | 19.7% | $ 4,464 | 23.5% | $ 820 | 22.5% |
- In general the resorts did a great job in controlling costs. Several large resorts concentrated on improving their margins in under-performing operations such as Lodging and Food and Beverage. They were able to improve their margins significantly even in face of decreased revenue in these profit centers. The decrease in revenue combined with the increase in contribution margin may indicate that the resorts increased prices to the point that they discouraged business. Or they may have found new productivity increases, such as Internet-based reservations, that reduced costs.
- The margins in Property Management, which includes the operating costs of the new villages, improved the most—but this still is a major profit drain for the resorts.
- The only area to have a decrease in margins was rental. As more and more customers rent skis, bringing in customers with higher expectations, resorts have had to improve their service in this area.
- Resorts cost control improved significantly, as Direct Expenses decreased year over year by 2.6 percent.
- – Mountain Operation expenses were down 2.6 percent
- – Lodging expenses were down 10 percent
- – Food and Beverage expenses were down 4.6 percent
- These general decreases in expenses combined with increased revenues to improve Contribution Margins from 27.1 percent to 30.1 percent, a year-over-year increase of 8.9 percent.
- – Mountain operations grew 5.0 percent
- – Lessons grew 2.8 percent
- – Food and Beverage grew 9.8 percent
- – Rental dropped (7.6) percent
- – Lodging grew 14.5 percent
- – Property Management grew 18.7 percent
- G&A decreased! Something new and different. It is still at the astronomical levels of 10.3 percent of revenue vs. historical levels of 7.8 percent only 5 years ago. In addition, corporate G&A is being under-reported by the conglomerates, further indicating that G&A remains out of control.
- Marketing continued to decrease and is now only 5 percent of revenues. Decreases in marketing and advertising efforts have their price in skier days, but proves the theory that even a blind pig finds an acorn every once in while.
- EBITDA –increased from 19.7 percent to 23.5 percent putting the average ski resort in a much healthier range.
Resorts Added This Year
- Ski Sundown
- Hidden Valley
- Schweitzer Mountain
Resorts That Dropped Out of the Survey Last Year
- Powder Ridge
- Butternut Basin
- Bristol
- Stratton
- Bryce
- Massanutten
- Arapahoe Basin
- Berthoud Pass
- Wolf Creek
- Sandia Peak
- Ski Santa Fe
