While writing for SnowBrains, I have touched on the topic of risk and what makes people assume high degrees of risk in extreme sports. To me, risk is fascinating because of its various components and how it is embedded in our everyday lives. We make choices every minute that have potential tradeoffs, positive or negative. While thinking about risk the other day, I thought about my local ski mountain and what risks it faces and how my passion for skiing is perceived mainly from a corporate risk perspective. The resort is primarily the main driver of the economics in my town and it made me think of what it would be like if it disappeared. Full disclosure, I live in Vail, and Vail Resorts is one of (if not the) largest ski company in the world.
What are some of the risks involved in owning a ski resort? When examining corporate risk in the context of operating a ski resort, I used Vail Resort’s 10K (a comprehensive overview of the companies financials filed once a year with the U.S. Securities and Exchange Committee) to help me dig into what could be substantial detriments to a ski company. Here are some of the interesting risk factors I discovered…
- ECONOMIC RISK Simply put, if the national economy is doing poorly (unemployment spikes, inflation, lower consumer confidence) people will not go on vacation and spend money at pricy ski resorts. Also, the dollar might be an issue for foreign tourists as a strong dollar weakens their purchasing power. To combat these issues, they simply discount the price of tickets or other amenities.
- WEATHER (obviously) Lack of snow or drought can be costly for snowmaking and excessive snow can cost a ton to groom and can limit guests accessing the resorts [I’m OK with that!]. Early season snow and skier perception can create a momentum effect, whether good or bad. Climate change was also cited as a potential risk factor, hence why Vail Resorts has been buying other ski resorts for geographic diversification. Lastly, Vail cited forest fires as a concern as they can damage operations, terrain, buildings, and other assets. Disasters like these also ruin the aesthetics of the mountains.
- CONSUMER PREFERENCES High costs of travel, especially with higher energy (oil) prices, hit the consumer hard and can lead to decreased guests willing to spend the extra dollar to travel to the mountains, whether that be by plane or a good old fashioned road trip. Also, the general popularity of the sport of skiing and snowboarding has a substantial weighing how well a resort does.
- COMPETITION Apparently the ski resort industry is highly competitive. It is estimated that there are between 51 million and 61 million annual skier visits with around 480 ski resorts in America. The deciding factors on why people choose certain ski resorts over others are proximity to cities, available flights, transportation to ski resorts from airports, lodging, ticket and ski school costs, quality & duration of the season, and reputation.
While there are various other risks associated with owning a ski resort, I found it fascinating to see what managers of resorts find to be potential hazards of running an area where I recreate passionately. When I go skiing, I don’t necessarily ever think about the costs of what it takes to run a lift or book a family vacation let alone what factors may influence them. Needless to say, operating a ski resort comes with huge risks that are easily hidden by snowy mountain vistas.