Vail Buys Whistler; A Good Deal For Everybody?

You know, I always try to write things that identify a valuable business lesson.  The valuable business lesson here I guess is do what Vail did.  While I think there are a couple of interesting industry considerations, I can’t strategically fault this deal.  Vail by no means got a great deal with a price of a little over US$1 billion, but paying a fair price for a good property is the kind of combination that’s most likely to work out in my experience.

Vail, by acquiring Whistler/Blackcomb (WB for short), moved to further address the two biggest problems any winter sports business has.  The first is the weather.  If it snows, life is a good.  If it doesn’t, not so good.  In a period of climate change, that’s become an even bigger issue, as the odds of it not snowing as often or as much seem higher.

It is of course particularly bad if you own just one mountain and it doesn’t snow (depending on your snow making capabilities I suppose).  Even before the WB purchase, Vail has a certain amount of geographic diversification with, according to vailresorts.com, four resorts in Colorado, three in California/Nevada, two in Park City, Utah, and smaller resorts in Minnesota, Michigan, and Wisconsin.  A year ago, they bought Perisher in Australia which, interestingly, isn’t shown on the list.

Anyway, they are diversifying further geographically with the acquisition of WB.

The other bad thing about a winter only business is that, well, it’s winter only.  As you know, and as I’ve discussed enough times that I’m not going to do it again, the financial model is difficult.  There’s just no right way to finance a business that mostly generates revenue only 5 months of the year or so.

WB gets 18% of its revenue during the summer season and they are working to increase that.  According to Vail, WB is profitable in all four quarter.  I’ve got to believe this got Vail’s attention.

I know from running snowboard companies that just a little summer revenue goes a long way.  Unfortunately, I learned this selling closeouts for damn little, which is not part of Vail and WB’s plan.  Reliable year around cash flow makes the business more attractive to banks and investors and probably reduces the net working capital investment required.

The next thing you should know is that Vail sees opportunities to reduce some expenses in consolidation (the fabled and often mythical “synergies”).  But in the conference call, they almost went out of their way to say that these weren’t that significant and didn’t drive the deal.

One more financial issue- Vail is about to be operating in three currencies.  There will be some natural hedging opportunities to be had.

Now let’s get to the part that has me (and Vail and WB too) most excited.

Vail had about 8.3 million skier visits during their last complete year.  WB had 2.2 million (2.7 million year around visits).  Vail’s Epic season pass allows unlimited access to all Vail’s resorts for $809.00.  If you’ve got a kid who’s 12 or under, it’s $419.  You can buy it right now.   Note that it includes Perisher in Australia.  And there’s already a link on that page that takes you to the press release about the WB deal.

Soon, it’s going to include WB as well.  An adult season pass at WB is currently US$1,319.  From what I heard in that conference call, the price of that pass will be coming down.  So if you’ve already bought your WB season pass for the coming season, you might call them up and grovel a bit.  I’ll bet you can save some money.

As part of this integrated marketing approach, Vail notes that, “Whistler Blackcomb’s more than 2.7 million year round visits will significantly improve our data-driven marketing efforts and customer insights.”  The cross marketing opportunities, and the advantages not just to Vail, but to its customers, seem pretty significant.  I don’t remember the exact words, but in the conference call they talked about giving their customers more for their money.  Maybe they even said something to the effect of more for less.

Even if this is a great deal for Vail and WB, how should the rest of the industry view it?  I guess the first thing I’d say is that the 500-pound gorilla in the room just bulked up.  Every mountain is different, but the number of locations, their quality, the financial strength and flexibility, growing year around activities, and growing ability to interact with their customers that Vail will be able to offer are pretty impressive.

Vail says of itself: “We are the premier mountain resort company in the world and a leader in luxury, destination based travel at iconic locations.  Our product is the great outdoors.  Our mission is simple: Experience of a Lifetime.”

Experiences of a lifetime tend to be pretty pricey and as an industry we already cater to the fairly to very well off.  Every time we take another step in that direction it bothers me, because the number of small, comparatively inexpensive, day resorts has declined.  I’m pretty sure the lawyers and insurance agents have made sure that the golf course where I got my introduction to winter sports doesn’t allow you, unsupervised and for free, to jump their sand traps any more in the middle of January after a storm when there’s not much golf being played.

For an awfully lot of people, the economy still sucks.  Maybe they just aren’t our customers.  Still, both Vail and WB get an awful lot of regional, day visitors and I hope they continue to do what they can to make it possible for people who can’t afford a week in a condo to get on their mountains.

Well, enough philosophy.  Basically, I think this is a great deal for Vail and WB for all the right reasons.  I don’t see it as financially driven.  I mean, you can’t ever have a deal where the numbers don’t work (okay, clearly it’s possible as we’ve all seen, but then bad things happen).  However, there are a lot of obvious and potential benefits to customers from this combination and my sense is that’s what drove the deal.  It’s not that Vail doesn’t want to make more money but maybe, just maybe, they are planning to do it in a way that allows their customers to do better as well.