Sales mark a new era for ski industry

The sale of Squaw Valley USA and the purchase of the management contract for Northstar-at-Tahoe represent a continued shift in the ownership and operating structure of major destination ski resorts.

The Lake Tahoe region has been the focus of much investor attention during the past few months, with larger corporations taking a hard look at potential returns from regional ski resorts, many of which have enjoyed a marked increase in annual skier visits.

In late November, KSL Capital Partners of Denver purchased Squaw Valley for an undisclosed amount. The resort was founded in 1949 by the late Alex Cushing and owned by his wife, Nancy, and a handful of investors.

And the management contract for Northstar, owned by CNL Lifestyle Properties and run by Booth Creek Ski Holdings, was purchased a month earlier by Vail Resorts of Broomfield, Colo. Vail Resorts also owns and operates Heavenly Mountain Resort at Stateline.

Both transactions represent a movement at big ski resorts away from smaller corporate ownership to larger, well-funded companies, says Michael Berry, president of the National Ski Areas Association.

Berry says the age of small families and corporations owning premier destination ski resorts - particularly in California - has all but ended as large and better-funded corporate entities capitalize on the earnings potential of resort ownership. Corporations own virtually all of the premier resorts in California, Utah and Colorado, he says, primarily because increased lift ticket sales have led to higher revenues.

"It is a business with significant cash flows," Berry says. "By and large the industry does very well from a financial standpoint, and that is why we are seeing interest from groups like Vail and KSL, who have looked around and chosen to be involved in major destination resorts."

Publicly traded Vail Resorts reported 888,000 skier visits at Heavenly for the fiscal year ended July 31, a 10.7 increase over the previous year. Nationally, lift ticket sales rose from 52 million in 1999-2000 to a record 60.5 million for the 2007-'08 season, making ownership more attractive to big business over the past decade, Berry says. Although skier visits declined in 2008-09, they bounced back for the '09-2010 season with about 59.7 million lift tickets sold, the second best year on record.

Eric Resnick, managing director for KSL Capital Partners, says Squaw's storied history - it hosted the first televised Winter Olympics in 1960 - and its location were two of the main factors behind the purchase.

"Squaw is a true crown jewel and a truly unique place," Resnick says. "Its mountain is so unique and can offer a truly exceptional experience for serious skiers, extreme skiers or families. We looked at the broad appeal of it - it is in a terrific location, and there is a lot of opportunity to build on what Squaw does well by investing capital in the mountain and in the village.

KSL Capital Partners, which owns golf and health resorts throughout the country, plans to invest $50 million at Squaw Valley over the next three to five years.

Andy Wirth, president and CEO of Squaw Valley USA since August and a longtime ski industry veteran, says the ski industry is like any other: Large corporations often have the upper hand over small- and mid-sized businesses when it comes to obtaining financing for capital improvements and can negotiate better rates on liability and employee health insurance.

"Access to capital is obviously a bit more challenging for smaller companies in today's environment," Wirth says. "There is no question that the market is set up for benefit buying power."

Larger corporations also can bring to bear much stronger marketing vehicles to promote their destinations, Wirth adds.

"Vail Resorts has an outstanding centralized marketing machine. They will be taking Northstar, which already was well-run and well-marketed, and taking its marketing and business practices and advancing them through its centralized system."

The last major resort transaction was the sale of Copper Mountain in Colorado by Intrawest to Powdr Corp. in 2009. Wirth says the recent transactions point to the strength of the Lake Tahoe market.

"We are kind of the hot space right now in the ski industry. I'm pleased that Northstar and Squaw are getting this much attention - it speaks to the quality of the market, its brand, and the opportunities afforded to investors of all types."

Despite the recent acquisitions, KSL's Resnick says there will always be a place for smaller, family-owned entrepreneurial businesses, whether they operate in the ski, hotel or health club industries - but operating challenges do get more difficult with size, Resnick notes.

"If you have a loyal following and put out a good product you will be successful," he says. "It's simply a matter of scale. If being owned by a corporation brings more capital to the table, then that may be important for the growth and sustainability of the asset. The dynamic changes when you get into larger resorts - they are more capital-intensive and it can be challenging for a resort that is family owned. But there are some very well-positioned large-scale resorts in the industry that have been successful for decades."