Business: Steeper, Deeper, Higher Profit Margins

May 2, 2004
Outside Magazine
Dispatches: News from the Field, November 1996

Business: Steeper, Deeper, Higher Profit Margins

Merger mania sweeps the ski industry, raising the stakes, the expectations, and the specter of monopoly
By Andrew Tilin

One of the worst purchases Les Otten ever made was a Porsche 930. "I thought I was making a fun investment," he says. "But that car is a magnet for assholes. Nobody cuts me a break." The coupe sits idle in his garage, but the 47-year-old Otten is now snapping up a commodity he bets will offer superior returns: ski resorts. Otten, the longtime owner of Maine's Sunday River, started by purchasing three other New England ski areas over the past two years. Then, earlier this year, came his coup de gr‰ce: a $104 million deal for five more resorts, including Vermont's gigantic, ever-mobbed Killington.

But Otten wasn't the only one shopping this off-season. In fact, blockbuster acquisitions have become the rage, threatening to turn the ski-resort business into the private domain of deep-pocketed corporations. For while Otten's American Skiing Company was cornering the New England market, two other outfits were positioning themselves for the future. First, a Canadian company called Intrawest, owners of Quebec's Mont Tremblant, Vermont's Stratton Mountain, and British Columbia behemoth Blackcomb, made an inroad into the California market last December by purchasing a 33 percent interest in Mammoth Mountain. Then, in July, the owners of Colorado's Vail and Beaver Creek announced the largest deal in industry history, a $310 million merger with the Summit County resorts of Breckenridge, Arapahoe Basin, and Keystone. Which leaves many wondering: Will this trend, as the buyers claim, lead to more bang for the lift-ticket buck? Or will it leave a few players with near-monopolistic control, giving them carte blanche to jack up prices and promote unfettered development?

For the most part, industry leaders have closed ranks around Otten and his ilk, arguing that the moves come from financial necessity. "You'll get a better experience for the same $40," says Greg Berry, former editor-in-chief of Ski Industry Letter. "The mergers simply help the owners stay profitable through economies of scale."

Indeed, Otten maintains that his costs have decreased as he's expanded his empire, the result of standardizing operations, consolidating jobs, and leveraging increased purchasing power. And that, he says, is money better spent on improving resort infrastructure. As evidence, Otten points to the success of Vermont's Sugarbush, which he purchased in May 1995. Before opening day last year, Otten had invested $28 million on eight new lifts and a 300 percent increase in snowmaking capacity. As a result, Sugarbush saw a 28 percent jump in skier visits. "A lot of owners haven't been prepared to grow with the sport," Otten says. "I wasn't going to be happy just having a lift and a hill."

Still, not everyone agrees with this bigger-is-better approach. Though they were able to work out a tenuous compromise over the Sugarbush revamp, local environmentalists remain wary. "There are a lot of rumors floating around about further expansion, " says Stephen Holmes of the Vermont Natural Resources Council. There are also those who worry that the corporate path may lead the sport too far from its roots, bringing an endless stream of construction projects that threaten to homogenize the experience. "It's too soon to tell," says Brian Fairbank, president of Massachusetts's Jiminy Peak ski area, "but the trend might lead to cookie-cutter resorts." Others question whose interests the companies really have in mind. "Why do we always need bigger this and more expensive that?" asks one Summit County local, an employee of one of Vail's recent acquisitions. "That's not what most of us came here for."

Not that such dissent seems likely to deter the developers. Intrawest, which has built Blackcomb into a one-million-skier-a-year juggernaut, is best known for creating upscale amenities for the sport's affluent baby-boomer core. In its deal with Mammoth, Intrawest acquired not just an interest in the ski hill, but also all of the developable land at the base of the mountain. As Gary Raymond, Intrawest's president of resort development, puts it, "The folks at Mammoth know where to put a $5 million lift. We know how to execute a $30 million condo project." That sentiment has some Mammoth residents on edge. "Water is a major problem on the eastern Sierra," says Bette Goodrich, the chairperson of the local Sierra Club chapter. "And the word on Intrawest is that it's very pro-golf-course."

Yet Intrawest's recent maneuverings seem small-time compared to the deal in Colorado, which makes Vail Resorts a five-area monolith hosting 4.65 million skiers a year, nearly 10 percent of the national total. The company says it will vigorously reinvest its profits, with plans already laid to spend $55 million on resort infrastructure. Still, when the deal was announced, local reaction was less than ebullient, as many speculated that neighboring Copper Mountain and Winter Park could be squeezed out. "We're definitely looking at a less competitive environment," says Copper vice-president Bill DeForrest. "At some point, you have to wonder whether you can find a place in the market against that large a competitor."

Of course, Uncle Sam does have the power to even things out. Last June, the Justice Department ruled that American Skiing Company must divest two of its New Hampshire resorts to avoid potential price-fixing. At press time the Vail transaction was undergoing similar scrutiny--though DeForrest says he's not holding his breath. "How we feel isn't of interest to the Justice Department," he says. "They have to be convinced that it's bad for the consumer." And despite the unfavorable ruling in his case, Otten maintains that it isn't. "It's not like we'd be able to charge whatever we want," he explains. "The free-market system says that when something gets too expensive, people simply won't pay for it."

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