I am confident that this article will upset some individuals in the cross-country industry, because it is a very candid look at the economics of a small industry that has seen more bad times than good. It might also be considered an attack on operators who are unprofessional in their approach to managing ski touring centers. I will offer no apologies nor consider any retractions because I feel that I am well qualified to present a realistic economic picture of an industry that has suffered incredibly over the last seven years. As owner/operator of one of the country’s first and most popular cross-country ski areas since its inception 15 years ago, president of the National Ski Touring Operators’ Association for four very difficult years and board member of various state and regional cross-country ski organizations, I have about as much experience in cross-country skiing as anyone could have. If the tone of my writing seems cynical at times, it is because I have suffered more losses over the course of 15 years than gains.
To get a realistic look at cross-country ski area economics I think we must accept some basic facts. First, and most important, is that a ski touring center is totally dependent on natural snow for good skiing.
Secondly, a touring center must offer more than just skiing. To successfully draw the number of customers that result in profits, there are certain amenities that must be available at the ski area.
Third, is the fact that an area operator needs another business, either during the ski season or off season to help contribute income to his or her total financial picture. There are some exceptions to this, but not enough to mention.
It is around these basic principles that this article revolves. If you are not involved as a touring center owner now, you probably won’t want to be after reading this. I will deal more with economic generalities than specific dollar figures. This is because touring centers in existence today are quite different from one another.
The touring center we are looking at lies at least an hour’s drive from most of its customers and has a trail system of 30 kilometers or more. When dealing with purchase costs, I will assume that less than 50 percent of the land on which the trail system sits is owned. To purchase enough land to spread a large trail system would, more than likely, be cost prohibitive.
The touring center’s most important asset is its trail system. Construction costs can run as much as $500 per kilometer or more. Such costs include clearing trees, bulldozing, water diversion and bridge construction.
Maintenance of the trail system is an annual, if not an on-going, expense that must be considered in the overall trail system financial picture. Brushing, clearing blow downs, building and repairing bridges and sign maintenance are all fixed expenses incurred whether there is snow or not.
In establishing a new touring center there are physical plant requirements that must be met. Parking lots must be constructed. A building or buildings, for ticket sales, food service, toilets and retail and rental services will be necessary. How involved the building situation is will depend on how much you want to offer.
My experience has been that retail sales are more of a liability than an asset. High inventory levels at the end of the year can put an area into, or close to, bankruptcy. Except for necessities such as waxes, gloves, hats and anything with your logo on it, my suggestion is to forget the retail business. Let the down-country ski shops take the risk.
Lodging facilities have to exist either on premises or nearby. I think touring centers that are close to large alpine ski areas are the most successful. There are normally plenty of bedrooms in the area for their customers, thus making it unnecessary for lodging on premises. However, some touring centers have come into existence as a result of the pre-existence of a large inn on premise. The addition of cross-country skiing is an added attraction for guests.
Before we give any thought at all to operating expenses, what do you think it would cost to develop a new 30 kilometer ski touring center? Well, it might cost $300,000 or so if you could lease land and have a ready-made system of logging roads to utilize as a trail system. A more realistic figure might be $500,000 or more.
The costs of operation fall into two categories, fixed and variable. Of the fixed costs there are insurance, trail maintenance (pre-season), inventory (if there is a retail operation), certain aspects of marketing and advertising, mortgage or rent and taxes.
Insurance costs are less of a burden than you might imagine, although after a bad winter it is an expense you will wish you didn’t have. You can count on a minimum of $3,000 for liability, fire and workman’s compensation. (Some operators have lowered their workman’s compensation expenses by paying help under the table. Don’t laugh, there are worse financial practices in existence. A lot of bad snow years have been known to bring the devious aspects out of an operator’s behavior.)
Advertising, to a degree, must be done pre-season. Brochures need to be printed and distributed, display ads placed and a newsletter printed and mailed (if you are so inclined).
Variable operating expenses include payroll, heat and electricity, telephone, marketing (press releases for special events, for example), additional in-season advertising, repairs and maintenance of grooming equipment and miscellaneous supplies. There is one item of major expense a touring center must face in order to offer the skiing public a good experience, and that is grooming equipment. Snowmobiles or larger double tracked vehicles (priced $6,000 and up), track setters, snow rollers and some kind of renovator or tiller are a must. Any touring center that exists without them is doing a disservice to the industry.
With the acquisition of equipment comes the expense of maintaining it and operating it. The more it is used, the higher the costs. Any touring center that is functioning with less than two reliable grooming machines is asking for trouble.
I’m sure there are more expenses in establishing a center and operating it than I have mentioned. However, what is presented here gives a pretty good picture of the substantial investment requirements.
So what does it all mean? Well, to answer that we must relate it all to income sources. Ski touring centers derive income only during the winter — period! Any operations associated with the touring center that derive income during non-skiing months of the year should be placed under a separate financial umbrella.
Income at the touring center comes from trail ticket sales, rental of equipment, instruction, retail sales, food and beverage and lodging.
The key source of income is ticket sales and this is where the opportunity for profit is highest. If my touring center experienced a good snow year from beginning to end (which it hasn’t in over seven years), it could conceivably gross well over $100,000 from ticket sales alone. This is, in part, due to the fact that I included into the price of my trail fee the inevitability that we will have bad snow years. Those touring center operators who are still charging trail fees as low as $3 are either fools or individuals in need of a tax write-off. I can’t figure out how a center can show a profit with a trail fee under $6, unless, of course, it is offering the skier a miserable experience.
The economic feasibility of offering food and beverage service at the center is questionable. In some cases it works out well and in others, not so well. I added food and beverage service three years ago, and must admit that I am disappointed with the dollar figure per skier visit the operation brings in. It is nearly half of what I had expected.
On-premise lodging has been a life saver for many areas. Guests may not be very happy when they arrive and find marginal ski conditions, but they have committed themselves with time and a deposit, so there they are. You can always find ways, other than skiing, to entertain them.
Next to trail fees, the rental equipment operation shows the highest profit margins. Overhead is low and once the equipment pays for itself, the rest is gravy.
The combination of all these income areas in a good snow year can bring in a lot of money — enough to make you think you have really done well. However (and this is a big however), one must not be blinded to the fact that if you own all the physical plant, at least 30 percent of the land that the trail system lies on, all the grooming equipment and whatever inventory you have left over, your expenses continue year-round — mortgage, taxes, upkeep, etc. And those expenses will eat up a good year’s profit in short order. That is why a lot of touring centers have failed or are close to it. That is also why a lot of touring center owners are actively involved in another business. How many new touring centers have you seen open up in the last five years? Not many.
The bottom line is that it’s a tough business. The return on investment is so low that a serious investor wouldn’t even consider trying it. The bottom line is also this: When I am asked what I do for a living, I respond, “I’m a builder. I build big homes, little homes, do renovations and additions and I make a good living at it. And, oh yeah, in the winter I operate a cross-country ski area — when there’s snow.” *Stanton Allaben is owner/operator of Viking Ski Touring Center, Vermont.*
