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January 24, 2007

I Sound Like a Broken Record

I got to reading some of the stuff I have writen about the sport:

  • Wages for workers suck
  • Housing at resorts for workers is almost nonexistent
  • Middle Class families can barely afford to ski
  • Resorts have to import workers because of wages and housing conditions
  • GLOBAL WARMING, WAR IN IRAQ, GAS PRICES, END OF THE WORLD, OZONE LAYERS, TERRORISM, GAY MARRIAGE, ABORTION, VOLCANOS, GIANT METEORITES HEADED FOR EARTH (ok, that was a movie I think)

I added the last because we need to keep in perspective that skiing is not the only thing going on in the world. It is my escape from these other issues. I have to remember that while I complain about average Americans not being able to ski, my skis alone cost more than about 2/3rds of the people on Earth make in a year.

It ain't all powder days and bluebird conditions. It ain't all high speed quads and gondolas. I absolutely love the sport and hate going off on tangents about how unaffordable it is or rising prices of this or that. I just don't want to see the sport keep going on a trajectory towards a point where my kids can't afford to take my grandkids skiing anymore because prices are so out of reach.

If you love the sport, you will want to ensure that our kids and grandkids can continue to ski for a reasonable price and enjoy the sport we love. So many articles talk about Global Warming destroying skiing as we know it. I say who cares about Global Warming because if prices keep rising, none of us will be able to afford to ski anyway. Vail and Aspen write briefs for lawsuits about Green House gasses, but you don't hear them talking about affordability. That is the single largest threat to the industry in my opinion. And someone (especially guys like Jake Burton and the major athletes in the sport) needs to beat that drum more.

UPDATED:

Let me add this Page 23 of IntraWest's FY2006 Financials:

2006
(in Millions)
2005
(in Millions)
Resort Operations Revenue $936.1 $806.6
Resort Operations Expenses 847.4 707.0
Net EBITAD $88.7 $99.6
2006
(in Millions)
2005
(in Millions)
Real Estate Development Contribution $147.6 $67.6
Interest in Real Estate Expenses 27.6 35.4
Net EBITAD from Real Estate $175.2 $103.0

Like I said, resorts make their money off of real estate but that value only increases because of the presence of the ski area. Not that $100M off of operations isn't significantly profitable, but resorts write off huge chunks of debt servicing and depreciation on ski operations to offset the profits. When a resort makes twice as much off of real estate development as they do off of skiing, it makes it tough for the resorts without real estate to compete. And the reason that real estate is going up is scarcity of resources and exclusivity of the sport. If charging more for a lift ticket keeps lift lines short and only attracts the affluent folks, these folks spend more per skier visit than the riff raff and are the only ones worth selling a condo project or home lot to, and real estate development is where the real money is at. Your average middle class person has nothing to offer the resort since they don't spend money on other services, are often day trippers, and don't buy real estate. Prices differentiate between the right consumers and the wrong ones. Hence $83 lift tickets.

Posted by Justin at January 24, 2007 02:24 PM

Comments

JB,
I certainly understand your points. Global Warming is an incredible issue that needs to addressed in a major way. The Big Oil complex continues to gobble up small efficiency players. Paying the owners off, then shelving the plans for later days.

Regarding Skiing and affluence. My take is a bit different. The US has more families that make 100+ than anytime in history. Approx 14% of families in the US. The disparity of wealth is a huge issue. Health care costs are a joke.

As you know VRI has their sub-$400 season passes. Competition will keep ski vacations within reach for many families. There are many other deeper issues that concern me in regarding the health of our sport as a business.

What an awesome addiction the snow sports hold. With all the issues which face us, as you properly put "It is my escape..."

best regards,
Jon Lawson

Posted by: Jonathan Lawson at January 25, 2007 08:06 AM

Problem is that VRI's season pass only covers Colorado. Utah, California, and back east offer no such comparable pass, which seriously sucks. Plus the pass is only set up for locals. If you don't live in Denver, there is no such $400 pass. Denver may be at best 3M people (more like 2M last I remember) in a country of 300M.

The tough part for me is that while 14% of the US families make $100k plus and that is who the ski industry markets to, the average worker at a ski resort makes less than $20k per year and that is if they are lucky enough to work full time. So we have affluent families that can afford to take vacations who go to resorts that are completely staffed by folks that work for less than $10 per hour. And don't get me started on how expensive it is to live in or near a ski town. That is why resorts are importing so much of their labor on work visas from eastern Europe and Latin America.

Effectively what we have done is limit the sport to those 14%. I don't like the idea that only rich kids can go snowboarding or skiing. Only rich kids go to top notch schools with top notch facilities and computer labs, etc. already. And on top of that college tuition further provides more opportunities for rich folks that the rest of us don't have when tuition at Stanford or Harvard is more per year than over 50% of US families make in a year. So they live one lifestyle while the rest of us live another. I don't even think that skiing is particularly affordable for the folks at the $100k level that have kids. I couldn't afford to ski when I was younger except for school ski trips and even then it took skimping and saving. Otherwise, I would never have participated in the sport at all.

We need a steady diet of newcomers to the sport to keep it viable. Ski related businesses need this diet to transition people into regulars and get them hooked. We need more marketing and more programs to get entry level folks and middle income folks interested in the sport. I think the industry faces real demographic threats if it cannot retain anyone but the wealthy (and $100k a year is not wealthy). Especially when up and comers who become professionals and move into that 14% were never exposed to skiing when they were young.

Posted by: Justin at January 25, 2007 09:41 AM

I see a contradiction in your argument that I just can't reconcile. If the resorts aren't making money off the ski operations, but are making money of the resort, lodgings, food, etc. How are they suppose to lower prices to make skiing afforadable for the masses. How are they then going to pay better wages to their employees?

Posted by: Chad at January 25, 2007 02:24 PM

I will try to keep it short, but want to explain where I am coming from. American Skiing Company is probably the best example of a large skiing company.

Here is a link to their annual report and you can scroll down to page 26 for their actual financials.

For FY2006, the company had revenues of $275M from resort operations and another $30M from real estate. Resort expenses totaled $175M, which means that net income from resort operations was $100M. However--the resort spent $50M on MARKETING AND ADMINISTRATIVE COSTS, another $87M on Interest on Debt, and took a $31M writeoff for depreciation. Because of depreciation and debt servicing, they are writing off $120M per year. Go down a page and look at their debts. They show a total debt of $670M, which includes preferred stock. They only show assets of $386M, yet this included Steamboat that they just sold for almost $300M. They are making money and are generating solid cash flow that is sufficient to continue to retain their massive real estate holdings that are drastically undervalued on their balance sheets. On top of that, because of their financial accounting of assets and income, they don't pay any taxes at all because they can show a net loss.

Here is the deal--financial trickery is why they don't pay more. That and out of control administrative and marketing costs. They are making money on combined resort operations and using it to pay the interest on their real estate holdings. And they are making money off of the real estate portfolio because it is worth far more than the paltry $350M that they list it at. They write off all of their resort operations money in depreciation, interest, and marketing expenses, knowing full well that the total value of their company is worth over $1.5B, maybe more. Instead they book it for $350M worth of assets with $750M of debt or at a negative value of $350M.

This is a profitable major resort company that has massive land holdings that keep increasing in value simply because the resort is there, even though they never pay taxes because they undervalue their holdings, write off interest, and write off depreciation. This is all perfectly legal GAAP accounting, but it fails to take into account the real increase in value of the company due to the presence of the resorts and the value of real estate holdings. Smaller resorts that don't have any land around don't have these revenue streams or the revenue streams from hotels that they own or rentals or restaurants. When resort operations yield a net income from operations of over $100M on $275M of revenue, I think they can afford to pay more than $8.00 an hour for workers. Little guys that have no other revenue streams and don't have massive assets that are appreciating get a little more slack in my book.

Posted by: Justin at January 25, 2007 06:13 PM

Justin,
Lets face facts. The truth of the matter is that the people that all of the price hikes effect are the people who live near the resorts. In Darby, MT you could send your kid to Lost Trail Mountain (a fairly small backwood resort compared to Discovery) for $20 on Sat and Sun. That price included rentals, lunch, and the bus ride up there. The reason? People around there can't afford to go otherwise. By keeping the pricing high for tickets and food, the resorts insure that the middle class can't afford to ski...unless they are locals or live 1-2 hour drive away. Low ticket prices mean overcrowding. Overcrowding = torn up conditions, long lines, and less "regular" customers.
The travesty of all of this is that real estate in or around the resorts is so high from all of these "upper class" yuppie pricks paying $500k for a $100k piece of property simply so they can say "I own a half million dollar condo at bla bla resort," These people have made it impossible for the people who keep these resorts running to live in the town they work in.
If you look at most of the professional skier's and snowboarders, the majority of them grew up IN or very near a resort. They are not the children of super rich parents who visit their gazillion dollar condo for two weeks a year. By keeping the middle class from being able to live in or near the resorts we are insuring that the pool of talent is limited to a certain income class.
Why is 95% of the NBA African-Americans? Why are Cubans and Puerto Ricans great baseball players? Because poor kids do not have Playstation 3. Rich kids have better things to do than devote their time to practicing. They have a whole world of other opportunities. For a young black kid in the ghetto there are only two "realistic" ways to make it (As a now dead rapper said "Either you're slangin' crack rock or you got a wicked jump shot") Would the NBA be a better sport if we started charging $1000 for a basketball and $50 per day to use the court? If we eliminated the pool of "poor" talent from NCAA and the NBA how exciting would it be to see 10 white guys trying to dunk. The next Shaun White or Tanner Hall is sitting somewhere in suburbia and will never have a chance to be something great.
You say over and over that you want to keep the riff raff pothead snowboarders off the mountain. Which is it? More power to the people who endure crap wages and less than great living condiions to support their passion. To hell with the yuppie elitist pricks who do it as a status symbol!!!!!!

Posted by: J Blackburn at January 25, 2007 08:35 PM

I don't want to keep the riff raff off the mountain. But the mountains do. And it ain't specific to snowboarders because they like them just fine when they bring their big money and can afford condos. They could care less if you smoke a bowl in the lodge as long as you spend your $20 on a burger and fries and buy an overpriced condo. Lots of kids of rich parents are exactly the scumbag kids that are tearing up our resorts, but as long as mommy and daddy are rich, these kids have credit cards to pay for things at the resort.

And you are precisely dead on my friend. It is exactly like basketball, except that you add $1000 basketballs to only having courts in the expensive suburbs and you have the sport of skiing. Basketball is going global and the new ball was a huge part of that since no one in Europe uses a leather ball because they are too expensive. The parallels are there.

Posted by: Justin at January 25, 2007 11:15 PM