There’s a story about P. A. “Tony” Novelly, the former chairman of Apex Oil, who, while driving in Colorado, happened to spy Copper Mountain sparkling in the distance. Novelly admired the mountain enough to buy it.
“It’s something you want if you’re a successful businessman,” he explained later, “to say you own your own mountain.”
Seven years later, Apex went bankrupt and Copper Mountain was turned to other hands. The moral, one might say, is that businessmen with big ideas should stay away from mountains. Better yet, public corporations should stay out of the ski business. But like anything to do with the ski industry, there are always exceptions. And with skiing, sometimes the exception proves the rule.
Dave McCoy, a true mountain man, had big ideas when he took over a piece of the Sierra Nevadas and eventually turned it into Mammoth Mountain, arguably one of the most successful ski resorts in America. Preston Leete Smith turned a degree in agriculture from Indiana’s Earlham College into $76 million SKI Ltd. And Ralston Purina, a company better known for dog chow than schuss-booming, has had remarkable success with Keystone in Colorado.
What then makes the ski industry different from the world of high finance and what does it take to be successful? Perhaps Fortune magazine summed it up years ago: “The ski business is an odd little segment of industry that is better left to people who understand it, deeply care about it and are willing to have a less predictable bottom line than most big corporations will tolerate.”
That clipping adorns the walls of more than a few ski industry executives because it highlights the risks as well as the entrepreneurial aspect of the business. Although the ski industry deals in white stuff, it’s far from a white shoe trade. Rather, it is a roller-coaster business, dependent on the warped ways of the weather, with as many peaks and valleys as the Rockies and Green Mountains combined.
From Wall Street’s perspective, the ski industry is indeed a small industry. Statistics provided by the National Ski Areas Association indicate in excess of $3 billion in annual revenues, split between sales of lift tickets and ski shops. That’s less than 142 corporations on the Fortune 500, and a little more than the combined revenues of the three largest public toy companies. And although the number of skier visits was a record 53.9 million in 1987-88, that represents only a 7.4 percent increase from 1978-79.
That’s a far cry from the boom-boom 1960’s and 70’s, when industry growth attracted conglomerates and other companies were reaching for a bit of the action. Twentieth Century Fox picked up Aspen and Breckenridge, Chrysler invested in Montana’s Big Sky and Scott Paper took an interest in Squaw Mountain in Maine.
Their recent divestitures, coupled with NSAA’s statistics, indicate a maturing industry, one where opportunities are ripe for risk-minded venture capitalists. An industry in consolidation usually reveals a standout or two. Why, then, aren’t they flocking to the resorts?
An obvious turn-off: weather. Investors blanch at the prospect of a business dependent on Mother Nature. Four weeks of rain or balmy temperatures won’t depress sales at Ford or General Motors, nor would DuPont or Dow Chemical employ Indians to perform a snow dance to boost profits. Although most resorts have managed to minimize the damage of dry winters with snowmaking facilities, an extended dose of sunshine still melts the bottom line.
Another problem: skiing is perceived as a strictly seasonal business. Most ski resorts depend on winter activities to make or break their year. Few other American or Canadian industries exist solely from late fall until late spring, unless you’re talking hockey or basketball.
That is changing, albeit slowly. Mont Saint-Sauveur in Quebec, which spent $7 million on summer facilities, now earns 40 percent of its $35 million in revenues from those operations. President Jacques Hebert predicts that will be up to 50 percent within three years. “If you called and asked if I wanted just a ski area, I’d turn you down,” he says. “I’d like a mountain right next to a lake.”
As if sniffing profits, Sugarloaf, Me., and other areas are trying to rent their underutilized base lodges to corporate groups as off-season retreats and conference centers. Other large resorts have tennis camps and golf courses designed to attract summer tourists. “But a golf course can only handle 200 to 300 people a day,” explains Bob Turner, chief financial officer at Sugarloaf. “A small to medium-sized ski area can handle 5,000 to 7,000, while Killington can handle 20,000.”
A third problem: marketing. Most industries fit into select categories that target specific groups. Tobacco has smokers, for instance, while toy companies have kids. But few analysts know what niche skiing represents. The vacation industry? Sporting goods? Transportation? Snow-grooming?
Dr. Charles Goeldner, associate dean for graduate programs and research at the University of Colorado at Boulder, who crunches NSAA’s numbers, insists the ski industry is really in the vacation destination/resort business with an untapped summer potential. He further contends the ski industry is missing a big bet by not pointing out how easy and safe the sport has become since the advent of shorter skis, quick release bindings, English-speaking instructors and quad chairs. “You can go out and have fun time with one week’s lesson,” Dr. Goeldner claims. “I defy anyone to go out in one week and be that proficient at tennis or golf.”
So, with weather partially balanced by snowmaking and more resorts trying to enhance summer activities, why hasn’t Wall Street taken more of an interest?
That brings up a fourth problem: where to invest? While most major U.S. industries have about 25 publicly-held companies to choose from, the ski industry has barely a handful. The big names, Vail and Aspen, were taken private years ago. The other pure plays, including SKI Ltd., Alpine Meadows and Mont Saint-Sauveur, are not exactly household names and have only about $130 million in total sales. The toy group mentioned above includes Hasbro, Mattel, and Coleco, with $2.85 billion in combined revenues.
Without numerous public players, it’s difficult for investors to gauge price/earnings, multiples, cash flow, return on equity and other fundamentals to determine a company’s financial health — and whether to invest. “Without publicly traded ski resorts as a point of comparison,” one analyst’s report states, “we must look to the hotel/gaming and recreation/entertainment stocks for some help.”
Skiing’s private side is understandable. The industry is relatively young, with most companies 25 years old or less. Many are generating enough cash to expand from within. In addition, a privately-held company doesn’t have to report to stockholders or be bothered by the paperwork necessary to fulfill the disclosure requirements set up by the Securities & Exchange Commission. If they need capital, most resorts turn to wealthy private shareholders. “Skiers tend to be loyal to their favorite ski areas,” says Sugarloaf’s Turner. In Sugarloaf’s case, that loyalty helped bail the company out of bankruptcy three years ago. In a private placement, 20 investors put in $8 million, or $400,000 apiece. Three quarters of them were from Maine.
Competition could change that. As the industry consolidates, there will be fewer resorts coupled with a fairly steady demand. Although everyone is aging, there’s another baby boom in the works, which means that 10 years from now, there could be an increasing number of kids taking up the sport. At the same time, the number of customers 50 and over sticking to the sport is increasing at a fairly steady rate, which bodes well for future growth.
To stay ahead, the remaining resorts will have to expand and upgrade existing facilities. Those that will succeed, experts agree, will have to make substantial improvements, such as increased snowmaking and grooming as well as build more trails, lifts and condominiums to accommodate more skiers. The need for increased cash flow to cover more debt will become acute.
Still, analysts think the desire to stay private will remain strong. Chuck Lewis, a former NSAA chairman who consults in mergers and acquisitions, says emotionalism, size and trading volatility hamper most public offerings. Many underwriters are turned off by what they perceive as owners who have big ideas but little to back them up. Second, many resorts couldn’t float enough stock to create a trading environment. And third, the issues that did trade publicly were highly volatile.
“There were tremendous swings in the summer and winter,” Lewis explains. “As the snow fell, the price went up. As people played tennis, the price fell flat on the floor.”
One exception is SKI Ltd., which owns Killington, Mount Snow and more recently, Goldmine in southern California — renamed Bear Mountain. The company has been public for 30 years, first trading as a pink sheet stock before being listed on the over-the-counter market in 1985 through First Albany. Backed by 30 straight years of profitability, the $76 million company has attracted considerable attention in the financial press.
But probably the real reason most resorts will stay private is because of the entrepreneurs who manage them. The stereotypical ski resort manager, an aging instructor with no managerial experience outside of negotiating a field of moguls, is passé. Many of today’s managers often have a business background. Yet they’re still a fiercely individualistic group who would throw an investment banker off a chairlift, if given the chance.
Nick Badami, former chairman of the BVD Corp., producer of underwear, bought Alpine Meadows in Lake Tahoe as a “hobby” in 1971. The first couple of years were financial losers. But Alpine has since caught its stride and Badami has gone on to purchase Park City in Utah and the new Galena ski area-in-the-making near Mount Rose, Nev.
“Most businesses I’ve been involved with before the ski business, people were in them to make a living, customers bought the product, because they needed it, and we were always competing for market share,” says Badami, who keeps Fortune’s pithy analysis tacked on his wall. “In this business, everyone’s in it because they love it, and customers come because they love it — not because they need it.”
Indeed, an odd little segment of industry that is better left to people who understand it.
Bruce Hager is a staff reporter for Money magazine. SAM asked him to take a look at the ski industry as a venture capitalist or an investor would and give us his opinion of the likelihood of attracting money.
