The Fall Line Meets the Bottom Line (Cont.)

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Outside Magazine November 2002

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The Fall Line Meets the Bottom Line (Cont.)

LARGE-SCALE DEVELOPMENT might make sense if the industry were making a killing, but the capital-intensive village model is a shaky long-term bet. Despite the billions of dollars invested in the nineties, skier days did not grow significantly. About 33 million Americans consider themselves skiers or snowboarders, but only a third of them actually go out in any given year, and annual skier days fluctuate between 46 and 57 million.

For now, the Big Three don't really have to care about skiing's next generation. Making a profit doesn't necessarily coincide with recruiting new skiers, and they're covering their bets by investing in non-skiing developments. Intrawest is pushing village-style projects in Nevada and Florida, and golf resorts and time-shares in Arizona. Vail Resorts branched into a golf and tennis club in Rancho Mirage, California, and a hotel company with properties in Santa Fe, New Mexico; Islamadora, Florida; and Washington's San Juan Islands.

But the projections still don't look good, and already one of the Big Three has hit the rocks. Heavily leveraged, the American Skiing Company was forced to sell its Sugarbush ski area to a quartet of Vermont businessmen in 2001, and California's Heavenly to Vail Resorts in 2002. It had been stymied by Vermont opponents in its efforts to develop a village at Sugarbush; for this and other failures, including an enormous hangover of unsold real estate, both its stock price and bond ratings went down the tubes. When Les Otten found himself out of a job in the spring of 2001, the company was taken over by its creditors, and by mid-2001 it was deeply in debt, its stock trading at around $1 a share—down from $18 when it went public. That price has since slipped to 14 cents.

Vail Resorts and Intrawest have fared better, yet neither could be called a rousing success. Since their 1997 IPOs, both firms have substantially underperformed in the stock market. An Intrawest share today sells for about the same $16 that it did five years ago; Vail stock goes for around $15, about 30 percent less than its IPO price. Even before the market rout that began in March 2000, both were seen as mediocre performers during a decade-long market run-up, and the post-9/11 economic downturn hasn't helped matters.

It's not just the Big Three, either. Hotels in Telluride's Mountain Village now teeter on receivership; Booth Creek resorted to issuing junk bonds in the late 1990s. Certainly, some individuals have done very well thanks to Big Three-style strategies: executives enriched through high-six-figure salaries; real estate brokers who handle the huge transactions brought onto the market by new development; builders who hammer the nails. But when all the villages are built—or more likely, overbuilt—what then? The Big Three will be off chasing baby boomers across beaches and fairways.

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