There’s No Business Like Snow Business
01.28.22
In 2002, after a successful career at Drexel Burnham Lambert and Apollo Capital Management, Rob Katz washed his hands of finance and New York, moving his family cross-country to Boulder, CO. Intent on becoming a “real husband and real dad,” Katz decided that his midlife calling was therapy.
“I started to do meditation retreats, never shaved, and wore cargo shorts every single day… People in Boulder were absolutely convinced that I was a bum,” recalled Katz. He had just been accepted to the Contemplative Psychotherapy and Buddhist Psychology program at Naropa University when Vail Resorts came knocking. Their CEO, Adam Aron, unexpectedly resigned, leaving behind a leadership void. Katz, a member of the Board of Directors since 1991, easily slid into the role, a serendipitous twist of fate that would forever shape the face of modern skiing.
Before Katz’s tenure as Vail Resorts’ Chairman and CEO — which spanned from 2006 to 2021 — skiing had fallen upon hard times. Overbuilt and overpriced, classic resort towns no longer possessed the scrappy, inclusive spirit that once drew hordes of long-haired baby boomers alongside adventuring Kennedys to their slopes. Mass-participation levels peaked at the end of the 1970s and flatlined or shrunk for decades thereafter.
By the 1990s, famed Park City planner Myles Rademan characterized most resort communities as a place “where people spend a year’s salary to dress like a forest ranger, and where there are more real estate agents than dogs.” “Furries,” aka frozen urban refugees swimming in furs, ruled the roost.
It would take a wannabe-therapist, a revolutionary new pricing model, and mass consolidation by the Vale and Alterra empires to spare the industry from a small, inbred future. This week, we look at the revolutionary changes that once more injected affordability, growth, and excitement into the future of the sport, ushering in a new renaissance for skiing.
Age of The Value Pass
Katz’s biggest innovation to the industry was popularizing the deeply discounted Epic value pass — offering passholders unlimited access to all of Vale’s resorts in exchange for their early financial commitment. Previously, resort owners had guarded their territories like feudal warlords: on the rare occasion that someone offered a pass, it was typically fenced in by day count or physical location (Intrawest, for example, once sold a multiresort pass only sold from the windows of the Christy Sports location in the Front Range).
As a result, owners faced the usual pains of a highly seasonal business dependent on weather patterns. “The ski business is like being a one-crop farmer,” said one early owner. “If it doesn’t snow, you’re ruined.”
Katz upended this model by marketing the Epic pass to everyone, everywhere. For the 2018–2019 season, Vail Resorts sold nearly 1 million passes, accounting for 47% of annual lift revenues. That percentage continues to climb, providing Vale with a significant financial cushion. “The result is a much more stable business platform, with fewer peaks and valleys, which is especially important in the modern context of climate change,” writes former Steamboat executive Chris Diamond. “The ability to secure $413 million in pass sales (estimated for 2018), most of this in the bank prior to the beginning of the ski season, dramatically stabilizes annual revenues and EBITDA.”
For years, Vale had no clear competitor until Alterra Mountain Company — a conglomeration cobbled together by Crown Family Holdings and KSL Capital — rose to prominence in 2017 (at the time, it had no umbrella name). In a whirlwind series of acquisitions, the partnership purchased Intrawest, Mammoth Mountain, and Bear Mountain Resorts, before launching its own multiresort pass, Ikon. This buying spree prompted Vale to respond with its own acquisitions, and today Alterra owns 15 resort destinations while Vale operates 37 worldwide.
Together, Vale Resorts and Alterra control 55% of the lift pass business (this includes access to several non-owned, partner resorts). The duopoly’s rapid ascension leaves some consumers torn: which one to choose? “What if he’s the man of my dreams, but he went Epic and I went Ikon?” writes one skier. “We’ll never have the chance to ski together!” Wary of getting lumped in as the same product, last year Vale introduced Epic Mountain Rewards, a program that provides pass holders with a 20% discount on food and beverage, lodging, group ski school lessons, and equipment rentals, etc.
But even the remaining independent resorts have capitalized on the pass model, forming the “Indy Pass” — two days each at over 70 resorts for $329. “Our resorts represent the scrappy soul of skiing, and the Indy Pass is the antithesis of Epic and Ikon,” claims Doug Fish of Fish Bend Marketing in Bend, Oregon, who first launched the effort. “Most of the resorts in the country were being excluded from these two big groups, and despite all the hype and the great marketing the big resorts do, the smaller places are a lot more enjoyable if you’re looking for a pure skiing experience.” (He added: “If you’re looking for a sushi bar and a disco, then the big resorts are going to be your cup of tea.”)
From Rope Tows to Palatial Escapes
Early ski resorts thought of themselves as “ski-lift companies:” their only job was to get skiers up and down the mountain. Aspiring athletes were subjected to the rope tow, “man’s most economical way to get more people up more hills,” before the arrival of lifts. “By nightfall I looked like a prisoner of Genghis Khan after fourteen hours on the rack,” wrote Warren Miller in his memoir, Wine, Women, Warren, & Skis, a personal account about living in the parking lot at Sun Valley, Idaho for eighteen cents a day during the winter of 1946/1947.
But the hard-knock life wasn’t for everyone. Skiing’s growing popularity depended as much on its auxiliary amenities as it did on the sport itself. Ever since sports fashion pioneer Bogner unveiled its stretch trousers in 1948, there’s been a growing market for skiers who don’t like to ski. “The clothes looked so good that it was sufficient just to stand around in them, behavior not unknown in Europe where half of resort visitors don’t ski,” writes ski historian John Fry in his account of the sport, The Story of Modern Skiing.
Sugarbush, one of the earliest ski resorts to appeal to the non-skiing crowd, pleasantly surprised its customers by offering a $25 round-trip bus service that included cocktails, wine, and dinner. When asked what kind of skiers used his service, the organizer replied, “We don’t want rude people, drunks, slow payers, or terribly unattractive people.” Today, ancillary activities such as hotel life, restaurants, lessons, and rentals have become increasingly significant to resorts’ bottom line.
“The mountain is more like a cruise or amusement park, where vertical integration means vertical integration,” reported The Atlantic on Vale’s early antics. “From village to peak, Vail and Whistler own all the key businesses — equipment rentals, food and beverage, and snow school.”
The extension of resort responsibilities now extends to seasons as well as amenities. According to trade publication Ski Area Management, summer operations now contribute an average of 15% to a ski resort’s total revenue. Ever since the Great Recession, resorts have invested heavily in summer activities in an effort to drive year-round revenues. Vail now provides an impressive menu of options, including gondola rides, 4x4 jeep tours, horseback riding, guided hiking, and its Epic Discovery Program, a children’s educational course geared towards outdoor excursions. As climate change intensifies, many expect the total vacation experience to become even more of a priority.
Risks to The Industry
The two biggest risks to the modern ski industry are climate change and shrinking demographics. Following the drought of 1980–1981, ski resorts made early investments in securing water rights and expanding snowmaking infrastructure. Fortunately, snowmaking has become cheaper and more efficient with some estimating a 50–70% reduction in annual energy consumption compared to historic norms. “Snowmaking put us on the map,” recalls Alan Henceroth, CEO of A-Basin, a resort with a base elevation of 10,780 feet.
Snowmaking only covers about 12 percent of all Colorado terrain statewide, but over half a dozen resorts plan to expand their snowmaking capabilities. And some environmental leaders, like Aspen Skiing Company, have become vocal political activists, launching green initiatives such as its #GiveAFlake campaign and converting its local utility to renewables. More than a dozen large ski resorts have committed to going 100% renewable and over 200 U.S. ski areas joined the NSAA’s sustainable slopes program.
Still, renewable snowmaking is not a panacea. As one snowmaker says, “You can’t make snow without cold temperatures and water.” We have yet to fully imagine what the triple threat of rising temperatures, increasing droughts, and a scramble over water rights may entail. Few resorts seem to have a long-term answer to the New York Times’ looming question: “Why can’t rich people save winter?”
As for demographics, the ski industry has an enduring diversity problem. While it scooped up higher numbers thanks to the value pass system (2020–2021 was its 5th best season on record, despite COVID restrictions), the vast majority of its 59 million skier visits were made by white participants. The industry has a long history of failing to diversify (see The Unbearable Whiteness of Skiing), and today an estimated 87% of skiers are white. This does not promise high growth trajectory for an increasingly diverse country, but many resorts have undertaken aggressive youth initiatives — free lodging for kids or heavily discounted lessons — in an effort to attract more demographics.
Another concern is that daily lift prices have skyrocketed, often hitting over $200 for peak demand periods. The emergence of dynamic pricing for those unsavvy consumers who failed to secure a value pass has left many with sticker shock. A first-time introduction at a major resort can easily cost $250 — not exactly accessible. But some insiders are unconcerned: “You don’t go to Aspen for a week of skiing if you don’t know how to ski,” says Diamond. “It normally happens at the ‘local’ ski area where prices tend to be very attractive.”
A New Renaissance?
Regardless of skiing’s challenges, many believe that the 60 million visitor mark — once an anomaly — will become industry norm. Some, if anything, are more concerned about crowding than they are about attracting new loyalists.
“The mountain communities are expanding,” says John Cumming, who founded POWDR Corp. “The drive from Copper to the Front Range [on I-70] can be four hours or more. How long are people willing to do that?” He fears that Yogi Berra’s prediction — “It’s so crowded nobody goes there” — may actually come true.
Diamond, ever the industry optimist, believes that skiing’s greatest days still lie ahead of us. “Anyone who looks back 40 or 50 years into the early days of skiing and talks about the ‘good old days’ doesn’t have a very good memory,” says Diamond. “The social side and the physical exhilaration were wonderful, but remember cold, wet socks? Permanent blue stains on your lower body from those wet jeans? Limited and erratic grooming (no power tillers)? Slow lifts? Day tickets stapled to your Army surplus jacket? Those plank-like 210-centimeter straight skis that were nearly impossible to press into an arc?”
There may be tradeoffs today, but he’ll happily take them. “Nope,” he says. “Don’t want to go back.”
About Colbeck: Colbeck is a strategic lender that partners with companies during periods of transition, providing creative capital solutions to meet their evolving needs. You can reach the team at inquiries@colbeck.com.
