Lets start kicking around a few numbers for a basic extrapolated ROI......
- $3 Million capital for the basic interconnect project discussed above, generously. If they can't put in a fixed grip quad, cut some trails, and put in snowmaking for less than that, well, they have MUCH bigger problems and aren't running an efficient operation.
- Yearly operating expenses? The data just isn't out there for snowmaking and lift ops at Killington as a percentage of resort operating costs, which were $40,989,000 for 2006. So let's take a wild guess. Given the new trail acreage created and the relative acre-foot snowmaking demands (about 100 on top of ~3000 acre feet), partial reliance on natural snow, grooming needs, and resources required to run the lift, it is probably a 3% increase in the lift/snowmaking/grooming budget. If you assume the lift/snow budget is 50% of resort operating costs, the additional costs to operate this type of basic interconnect represent a 1.5% increase......or $614,835.....pricey, but I'd say that's a very conservative over-estimate of the percent increase and it's signifigantly less than that, maybe $300k to $500k. But let's stick with $600k since it's a pretty serious figure to work against.
So we have $3 million capital, plus $600k per year operating costs. How can this investment be returned and what's the ROI look like?
Let's look at revenue yields per skier visit, and skier visits.
- Given it's current status, Killington/Pico can count on about 950,000 skier visits per year
, give or take a range of 50k, dependant on weather and how directly competive they are with other resorts.
- Pico operates for around 3+ months out of the year, or around 100 ski days. It probably sees no more than 1000-1500 skier visits during a busy Saturday, and is very uncrowded otherwise. So let's say that they receive 50,000 skier visits per year, which may even be a high estimate. About 5% of the total.(however, Pico has 18% of the skiable acres at Killington, or 218 of 1,200 acres. It also has 2 out of 9 of the high speed lifts or lift sections. UNDER UTILIZED???)- There were three skier visit targets for Killington/Pico outlined in the Pico to ASC sale of 1996, where the seller would receive a payout....
Hundred Twenty-Five Thousand Dollars
($325,000) at such time as the
Killington Ski Resort and the Pico
Mountain Ski Resort have, on a
consolidated basis, generated at
least 1,135,000 skier visits in a
single season after Closing. A
"skier visit" shall mean a single
skier purchasing a ticket to ski at
either or both resorts for any
portion of one day for a fee. A
season's pass for either or both
resorts shall be counted as 20 skier
visits per year. The number of skier
visits credited to multi-day lift
tickets shall be equal to the number
of days covered by the ticket. Multi-
area tickets and passes allowing
access to all American Skiing Company
resorts located in Vermont shall be
included only if purchased at or
processed through or allocated to the
Killington or Pico Mountain resorts,
consistent with industry practice.
Buyer will provide Seller with an
accounting of skier visits within 60
days following the close of skiing at
the resort. Seller shall have the
right to audit Buyer's records
relevant to the skier visit
calculation during normal business
hours upon reasonable advance notice.
Installment Payments. At such time
as the Killington and Pico Mountain
Ski Resorts generate either (i) at
least 4,000,000 skier visits (as
defined above) on a cumulative basis
from the Closing through March 1,
2000 or (ii) 1,400,000 skier visits
(as herein defined) in any single ski
season following the Closing, then
Buyer shall pay to Seller the amount
of Two Million Dollars ($2,000,000)
in equal annual installments of Two
Hundred Thousand Dollars ($200,000)
each, beginning as of the March 1st
following the season in which such
condition is satisfied, and
continuing on each March 1 thereafter
until paid in full. Payment of the
foregoing amounts is to be guaranteed
by American Skiing Company, a Maine
corporation. In the event Buyer fails
to operate the ski resort for any
period of 10 consecutive days during
the period December 15 to March 15
for each ski season, then for
purposes of calculation of skier
visits, the resort shall have
attributed to it 5,000 skier visits
for each 10 consecutive day period
the resort is closed to skiing during
such period. Buyer will provide
Seller with an accounting of skier
visits within 60 days following the
close of skiing at the resort.
Seller shall have the right to audit
Buyer's records relevant to the skier
visit calculation during normal
business hours upon reasonable
- Killington's yields were discussed in a previous post:- $61.78 overall resort revenue per skier visit.- Between $23.04 to $27.80 in ticket revenues per skier visit.
- One has to assume that the yields at Pico are signifigantly less in tickets and lodging at Pico, but Food/Bev and retail revenue may be a little stronger. Ticket yields are lower because of depressed ticket prices and visits by low yield pass holders visiting from Killington occasionally. Thus, let's assume the following for Pico:- $55 Pico overall revenue per skier visit.- $20 Pico ticket revenue per skier visit.(So that's an estimated $2,750,000 in resort revenues for Pico. Barely enough to cover competive snowmaking efforts in marginal weather conditions at high energy costs: 175 acres at 4 acre-ft/acre at $4000/acre-foot = $2,800,000. Even based completely on estimates, that's a very disturbing conclusion.)So..........To achieve a one year ROI on a basic interconnect project, revenues must increase by roughly $3.6M.
That would require the follow exclusive increases in per skier yield OR skier visits:
- Overall yield increasing by $3.79 per skier visit (assuming 950,000 skier visits on average).
- Overall skier visits increase by 58,271 at a constant revenue yield of $61.78 per skier visit.OR.....obviously, a combination of the above. Let's assume the following loose numbers:
- The yields at Pico go from $55 per visit up to $60.
- This partially drives up the average yield across resort, which increases overall to $63.50 because of this project (up $1.78 per visit, due to reasons discussed in previous posts).
- Skier visits to Pico increase by 20,000, and by 30,000 at Killington/Pico overall. That's an average of 162 people per day across a 185 day ski season.Overall, that results in a one year revenue increase of roughly $3,605,500. Or, more or less a one year ROI.Now, I've obviously tweaked these numbers to make my case here. But I feel they are fairly realistic and show that costs can be recovered in relatively short order. If you have better data, or if you think you can make more accurate estimates, go for it. If it's not one year, it's maybe two....but not much higher.Way faster than they can get a Village built and sold off!!!!Actually, I have no idea what sort of crazy numbers these guys are using to justify things.
They are considering the wrong project, which is infact, a fool's errand and isn't viable......
.....these guys supposedly want to drop ~$20 Million on a complete Phase 1 Interconnect, which includes two new lifts (one of which is $4 Million High speed Quad), major snowmaking upgrades to support 100+ acres of high traffic trails, and Pico upgrades including more parking.
$20 Million. Plus operating expenses.
That's a pretty damn big capital outlay, to create a viable, fast ROI against. The only way that you're going to get a one year ROI is if there's a magical increase in skier visits by ~350,000+, which sure as hell isn't going to happen without an interconnect, a village, and an act of god. Something in the range of a 4-5 year ROI is much more realistic.....which is why they don't want to touch it with a 10 foot pole.....never going to happen.
Much more reasonable to develop it in 4-5 smaller stages, where return can build up and outstrip outlay rather quickly.