By Karen D. Lorentz
posted
Jun 13, 2012
Editor's note: This is part three in a four-part series that
provides an historical perspective on the Killington Village and
lack of its completion over a 44-year period.
One of the ironies of history is "live long enough" and you see
that history has a funny, if not perverse, way of repeating
itself.
The early 1970s saw some terrifically challenging years for
Vermont's ski industry when low natural snowfall, poor economy, and
recession adversely affected the area. The same was true for the
early 1980s and 1990s (and 2000s, but we're not there yet in this
series.)
For areas that were struggling to catch up with the need for more
snowmaking, or to pay for increasing liability insurance premiums,
the result was often bankruptcy and/or closure. Vermont lost some
30 areas from 1970 to 1985 and another 9 by 1990. From 79 areas
operating in 1970, there were only 40 areas in 1976, 33 in 1991,
and 24 for the
2008 season, including private and municipal surface lift
areas.
In the 1970s, all but six of today's remaining ski areas changed
hands. Mount Snow, which faced bankruptcy, was purchased by
Killington. In 1982, Okemo was unable to borrow money to install a
needed chairlift (banks were not in the lending mood-sound
familiar?), so stockholders/owners decided to sell the area to
someone with the wherewithal to update the mountain.
Ascutney, which pumped over $50 million into a base area village
and mountain improvements, closed in 1991 and sold at bankruptcy
auction for $1.1 million in 1993 (closed again in 2010). Bolton
Valley also went through closings and several ensuing owners in the
1990s (now doing well). Ditto Burke Mountain.
The challenge to survive recessions as well as to update snowmaking
and lifts and offer village amenities so as to compete simply "did
in" many areas during a decade-long stagnation of skier
visits.
This trend was not limited to Vermont. Nationally, a total of 1,100
areas had functioned at some point. In 1983 and 1984 seasons, there
was a high of 735 operating areas; that steadily declined to 481
areas in operation today.
Killington/S-K-I Challenges
As owner of Killington and Mount Snow, S-K-I Ltd. had been one of
the top five ski companies in the country by skier visits from the
1982-3 through 1986-87 ski seasons, and the only one that showed
consistent growth during that time period. The purchase of Goldmine
(Bear Mountain) in January 1988 was part of an aggressive
acquisitions strategy to continue that growth.
But without a commercial core with shops, restaurants, and
slopeside hotels and faced with western competition (from growing
resorts in Colorado, California, and Utah as well as cheaper
airfares), Killington, which competes with world-class resorts, was
at a competitive disadvantage in the 1990s.
Social trends, cultural values, and skier demographics were
changing. Skiers and snowboarders were now looking for more
activities than just a day on the slopes followed by the vibrant
nightlife of the Killington Road.
At the same time, interval ownership at slopeside villages was
becoming the new trend and sensing the change in the industry,
Killington's parent company S-K-I Ltd. changed direction yet
again.
Perseverance and Progress
Developers were pursued for Killington Village, but S-K-I failed to
find takers in the early 1990s recession.
The ski area did make some progress with other significant issues,
notably the idea of giving up on Parkers Gore and moving in the
direction of Pico.
Vermont Senator Jim Jeffords had initiated a mediation process that
ultimately resulted in a January 1991 Agreement among some 30
parties that addressed a number of issues and paved the way for
Killington to expand in the direction of Pico. But when permit
conditions proved "too onerous," Killington backed out (July
1991).
While stymied at Killington with growth of the village or expansion
to Pico, Smith, who had turned daily management of Killington over
to Hank Lunde, turned S-K-I attention to expansion and growth
elsewhere.
Larry Jensen, who worked in business development for S-K-I before
becoming Killington's controller in 1993, recalled that the company
had been seriously interested in Steamboat, but that the price was
not in line with expectations for revenues.
S-K-I was looking at upwards of 20 ski areas a year "always with an
eye toward purchasing at a price that they felt was prudent and
reasonable," he explained. S-K-I Ltd. would not pay two or three
times what an area was capable of earning, he said, noting the
importance of not being overleveraged and the company's history of
carrying modest debt loads.
As a result, S-K-I lost out on bids to purchase Steamboat and
Breckenridge, which were sold to Japanese firms at high
prices.
S-K-I entered into a marketing management agreement with Bromley in
1994 in an exploratory move to acquire that area. Similarly,
Haystack, near Mount Snow, was acquired in a management and buyout
process (1994). In 1994 S-K-I purchased Waterville Valley (NH) and
a majority interest in Sugarloaf (ME).
But in 1995 they also sold Bear Mountain (CA) after a Mexican
Spotted Owl allegedly settled in between two ski trails. Rather
than go through another costly environmental process to proceed
with plans there, S-K-I sold.
Back home at Killington, President Lunde was also able to make some
progress on the stalemates. On February 20, 1996, the Agency of
Natural Resources (ANR) announced that the State and Killington had
signed a "Memorandum of Understanding" to explore a land exchange.
Killington would exchange its Parker's Gore lands for land in the
vicinity of the Killington Basin.
At the time, Lunde noted that there were "many ideas on the table"
but "no hard and fast proposal." Those ideas included the issue of
the Killington-Pico Interconnect, a water source for snowmaking, a
snowmaking pond for Pico, and the aforementioned January 1991
Agreement. (Pico had once again approached the area regarding a
merger.) But it was too late.
The Sale of Killington
On February 13, the S-K-I Board had accepted an offer from a party
to acquire it for $18 a share, reasoning that the acquisition was
in "the best interest of the shareholders."
In the fall of 1993, S-K-I Ltd. had obtained the services of
Wertheim Schroder & Co. as 'strategic advisor." The investment
firm offered a variety of services, including advice on mergers and
acquisitions and initial public offerings. Schroder contacted over
50 potential investors. Over ten investors/companies had made
overtures but none had resulted in an acceptable proposal.
Then in January 1996, a cash offer of $17 a share for 100 percent
of the company rose to $18 a share for all shares. The party had a
substantial deposit and ski experience so the board had determined
it was a viable offer.
Upon the shareholders' affirmative (73 percent) June vote, S-K-I
Ltd. passed to LBO Enterprises President and Founder Leslie B.
Otten.
Many people erroneously assumed that Smith and Joe Sargent had
simply wanted to get their money out of the company and retire.
Nothing could be further from the truth. (Smith went on to
consulting and Sargent is still working.)
Asked in 2008 why they sold, Smith had to think - there was no
single answer but a myriad of factors. When asked the same
question, Joe Sargent replied, that's "simple. It was a decision
that Pres and I made, and Wally Morrison, too." [The three were the
executive committee.] The reason, he explained, was the new
industry model centered on real estate and they had a serious
reluctance to get into real estate, particularly the interval
ownership trend on the horizon.
"Neither of us knew the real estate business or wanted to do it,"
Sargent had noted.
The real estate business model with interval ownership meant that
the nature of competition would change. They realized that resorts
like Okemo were doing exceptionally well using real estate profits
to reinvest in growing the mountain and skier visits.
Smith and Sargent preferred to drive skier visits through building
a lift, not real estate.
They had tried to find a strategic partner or investor that was to
their liking but had come up empty. So with the decision not to get
into real estate themselves, they followed "a deliberate process
and had even approached the Japanese to see if we could work out a
50/50 partnership, but we were too late," Sargent said.
With an expand-and-grow or stagnate-and-die mantra, S-K-I was
interested in the cash offer.
Smith also noted that he had only been "moderately successful" with
the acquisitions. While Mount Snow worked out extremely well, and
Waterville and Sugarloaf were doing well, the earlier Sunday River
and later Bear Mountain forays had not turned out as hoped. "Maybe
it was time for a change," he recalled thinking.
Dave Wilcox, former vice president and mountain manager, said,
"Killington offers the finest ski experience east of the Rockies,
but it needs the excitement of a world-class village to match."
Others concurred.
Killington needed an owner who could envision how to make that
happen.
Smith conceded that he was disappointed not to have been able to
get skiing in Parker's Gore and the Burley designed Village Center
done, and he hoped the new company would continue those
pursuits.
Next week, we'll conclude this series with a look of progress made
by the new owner.
Tagged:
killington, sale
