Official KSL Bitch AND Bitch about people bitching about KSL thread

[rod9301]

I'm jumping into this thread from the east coast. For full disclosure, I have only been to Tahoe once and skied Mt. Rose, Homewood, and Alpine for a day, and Squaw for two.

However, I spent over ten years working for one of the largest private equity firms in the world. More specifically, I focused on investing a $1 billion fund, similar in size to the fund KSL used to purchase Squaw and Alpine Meadows. I'm also a big believer in community ownership of ski areas. Recently, I helped the owners of Vermont's Magic Mountain sell the hill to a group of investors who were primarily regular everyday customers. I think straddling both worlds gives me an interesting perspective.

A few observations:

1) With almost 100% certainty, I can tell you that no one at KSL is sitting around deciding which lifts to open. At best, they go to one board meeting a month and are getting most of the information about the operations from management. They may set broad parameters such as approving budgets, significant capital expenditure decisions, and management incentive programs. In other words, almost all of the complaints here are decided by asset level management. This structure also leads KSL to hear most information through the lens of management. Management teams can often distort the facts to make them look better, deflect criticism, etc.

2) PE changes management frequently. If you complain about operations and management and try to partner with KSL, you may have a better chance of achieving your desired outcome.

3) Most PE firms are focused on safety. Every board meeting I ever went to started with a review of safety statistics. Safety is important for employee morale. Operating a safe operation is the right thing to do for all stakeholders. It's also expensive to operate unsafely. Most management bonus schemes also have a significant safety component. I am not surprised at all they are moving cautiously given recent events as this would be an area where KSL would get involved.

4) KSL is likely not motivated to focus on this investment for two reasons: i) KSL just raised a $5 billion fund and is actively investing that capital. Prices are extremely high and competition for assets significant. I would guess that KSL spends 70-80% of their time working on identifying new investments. Once these investments are complete, execution of the investment thesis is typically turned over to management. ii) My guess is this investment hasn't worked out well for KSL. They've been in it a long time, didn't handle community relations well, and faced years of drought. Human nature is such that it's a lot less fun to work on a failure. Plus the people who made the investment are unlikely to earn carry on it, further reducing the incentive to work hard.

5) KSL likely needs to start getting out of this investment. PE fund lives are finite and tend to be around ten years in duration. Typical hold periods are five years. KSL is at the end of the standard hold period. It's also a good time to sell as ski area prices are high. Vail is trading at ~16.0x EBITDA, Intrawest at ~12.0x, and Peak Resorts at ~10.0x, these are historically high multiples. They won't wait on the development prospects forever. One unwanted scenario is that KSL could sell the mountain and keep some of the development rights which I assume scares a lot of people on this thread. I don't have anywhere near enough info to evaluate whether that would even be possible.

6) Before a sale, KSL will likely approve some capital expenditures and try to rehab the image before they sell the place. PE is often accused of "stripping and flipping" which doesn't make any sense to me. You wouldn't trash your house right before you put it up for sale. You would fix it up a bit, perhaps paint it, etc. The same logic applies to a PE investment and is even more pronounced as most of the value of the asset is in the terminal or exit value. Buyers buy future cash flows. If the asset isn't maintained or has a bad reputation, the future cash flows will be reduced, lowering the exit value and lessening the value to KSL.

So why do I share all this? After reading the thread, I think the anger to KSL may be justified, but only in so much as it relates to the development proposals. When it comes to the mountain operations, it's not very productive as KSL likely has a lot less influence than is assumed. Besides, whatever your opinion of KSL, you will get rid of them. But management will most likely transfer with the asset. Based on the comments in your thread most of your complaints relate to areas where in my experience management would be making the decisions. I could be wrong (I usually am) and every PE firm is a little different. However, if you want to affect change, I think the best course forward would be to focus on challenging management rather than the equity investors. I'd spend time focusing on management and perhaps trying to find ways to inform KSL as to how management is performing.

Good luck!

You are correct, but I believe when people complain about ksl, they means current management.

[TahoeJ]

People are using "KSL" generally to stand in for a KSL-controlled Squaw Valley Ski Holdings. Of course they aren't directly involved in the operations, but they are certainly applying pressure for SVSH to make whatever profits they can, as that will make the books more attractive to potential buyers when they're ready to unload their investment. It's those cost-cutting and short term profit chasing moves that everyone is complaining about, such as short staffing and selling too many season passes.

[Magicsnowboard]

People are using "KSL" generally to stand in for a KSL-controlled Squaw Valley Ski Holdings. Of course, they aren't directly involved in the operations, but they are certainly applying pressure for SVSH to make whatever profits they can, as that will make the books more attractive to potential buyers when they're ready to unload their investment. It's those cost-cutting and short term profit chasing moves that everyone is complaining about, such as short staffing and selling too many season passes.

Of course. Perhaps the point I was trying to make is that KSL may not be fully aware of management's performance and working to make them aware could help your cause.

[hercule33]

Of course. Perhaps the point I was trying to make is that KSL may not be fully aware of management's performance and working to make them aware could help your cause.

That's a good point. Perhaps that is part of the reason behind trying to silence criticism on social media.

I work for a big company where Management is responsible for fiscal performance. I would imagine a PE is the same. Complaining to KSL about management is a good idea. I will write them a letter but I think it's much more powerful if you put your money behind it. Then KSL sees complaints and waning profits.

[stanmarsh]

However, if you want to affect change, I think the best course forward would be to focus on challenging management rather than the equity investors. I'd spend time focusing on management and perhaps trying to find ways to inform KSL as to how management is performing.

Good luck!

Thank you for this excellent post. Very informative.

Unfortunately, this thread is for complaining, not for coming up with constructive ways to address the problem(s).

[spnce]

Super interesting, thanks for the insight dude

They may set broad parameters such as approving budgets, significant capital expenditure decisions, and management incentive programs.

So then isn't the incentive program the crux of the issue here? For example, if Wirth's bonuses are contingent upon cost savings, then his actions are predictable, right? Or is that an uncommon way to measure asset performance in the PE world?

[mmmm...pow!]

Valid points. Interesting your thoughts on the possibility of selling the ski area and keeping the real estate. Should be possible considering they were originally separate, and would make sense considering ksl is a real estate company that obviously knows nothing about running a ski area, let alone ones with unique challenges such as Squaw and Alpine. I think most of us would generally be in favor of that, though that would depend on the buyer. The real estate will be sold eventually, that is ksl's stated plan, but whoever buys will be set on carrying out whatever development plans are approved.
For me personally it's still kinda an abstract concept that a company can exist solely to make money, rather than operate a specific business and make money doing it.

[old goat]

Great post, Magic.

In the current Moonshine Ink the person in charge of the world cup race in March says that they've been working on planning for 9 months and have 60 employees (her word). For the race itself they plan to have 500. There will also be bands and other entertainment as well. Anybody know who pays for this? The resort, the FIS, USSA, any or all of the above? I'm going to guess that most of the cost is being born by the resort. If so, that's 60 people who aren't shoveling snow, knocking off ice, plowing parking lots, driving snow cats, throwing hand charges, etc. But to quote Andy Wirth, "There is almost entirely one reason we are doing this, and that's to inspire the next generation of ski racers." So it's all good, I guess.

[TheK12]

Valid points. Interesting your thoughts on the possibility of selling the ski area and keeping the real estate. Should be possible considering they were originally separate, and would make sense considering ksl is a real estate company that obviously knows nothing about running a ski area, let alone ones with unique challenges such as Squaw and Alpine. I think most of us would generally be in favor of that, though that would depend on the buyer. The real estate will be sold eventually, that is ksl's stated plan, but whoever buys will be set on carrying out whatever development plans are approved.
For me personally it's still kinda an abstract concept that a company can exist solely to make money, rather than operate a specific business and make money doing it.

Ironically, it seems that these (companies built just to make money) are usually the companies that actually make money because they are specifically designed to and only exist to make money. Gotta focus on your goal.

[meter-man]

Great post, Magic.

Agreed. And really appreciate the larger PE context.

The Village development (and the red herring S2AM gondy) are both pretty awful profit extraction schemes. But I think the genesis of this thread has been the focus on this year's (and recent years, to a lesser extent) operations issues.

I think Magic nailed it when he said KSL likely approved the budget for this year, but does not get involved in day to day ops decisions. Of course they don't. But in past years (or for at least 4 of last 5 years), they were fine operating at far reduced staffing levels due to drought, lack of terrain opening, and low numbers of skier days. And budgets -- particularly in a PE funded situation -- are probably set based on the past 3-5 years' expenditures. Have a few drought years with low operations and personnel costs...and it's easy to see why they can't open anything for days after a storm - because they did not budget or PLAN to have enough personnel for a normal to big winter.

But hey, they're opening Silverado on Wednesday, a mere 6 days after the storm ended.

[mmmm...pow!]

I'm wondering if they actually made out better in the drought years. The amount of passes sold was probably similar, but they were able to run with reduced lift operations and staff for an entire season, and cut the season short. Might have made up for lost revenue from lodging, food, and lift tickets. And the place was still packed during the holidays those years, even when there was only a handful of runs and/or bad snow. What is strange is that it seemed like they ran things pretty well last year - I had a bunch of good pow days on Silverado midweek, and even rode Broken Arrow chair a few times (first time ever for me).

[mandudebro]

But hey, they're opening Silverado on Wednesday, a mere 6 days after the storm ended.

Can't wait. I hope it skis as good as it did between storms in January- oh, wait...

[4matic]

............

[TahoeJ]

I'm wondering if they actually made out better in the drought years. The amount of passes sold was probably similar, but they were able to run with reduced lift operations and staff for an entire season, and cut the season short. Might have made up for lost revenue from lodging, food, and lift tickets. And the place was still packed during the holidays those years, even when there was only a handful of runs and/or bad snow. What is strange is that it seemed like they ran things pretty well last year - I had a bunch of good pow days on Silverado midweek, and even rode Broken Arrow chair a few times (first time ever for me).

I've been thinking about this and the only major difference is this year they have their BoS approval whereas last year they were still pretending to give a shit?

[skier666]

My twitter must be hacked...says that Silvy opens tomorrow via Gate 7 & 8

[stanmarsh]

I've been thinking about this and the only major difference is this year they have their BoS approval whereas last year they were still pretending to give a shit?

The 15 feet in extra snowfall this season counts for nothing?

[xtrmjoe]

The 15 feet in extra snowfall this season counts for nothing?

It would count a hell of a lot more if kirkwood, mt rose and Sugarbowl were operating in a similar very limited fashion. Or if they had similar operations in 10/11, (or 04/05, 97/98) Neither of which have been the case IMO.

Alpine and squaw when they were separate competed to open the season first, close last, and have more terrain open sooner after cycles as bragging/marketing/branding (especially as alpine has open boundaries and squaw does not) was the a key to $

[heckacali]

I just wanted to chime in and say I support the loud and wide discussion of Squaw and Alpine's lackluster customer service this year. I hope they (KSL) see these discussions and hold Mtn management (Andy) accountable.

I will add, Andy has done his job pretty well for KSL on the big ticket items he was tasked with, he successfully killed off the incorporation efforts and greased Placer in all the right ways to get the approvals for the development, so he likely got a big fat bonus last year from his masters.

Unfortunately for us, he is neglecting to run a ski resort, which is the reason most of us go (went?) there.

[Bunion 2020]

Further proof that merging ski areas to create one behemoth does not always benefit the average skier.

[TahoeJ]

The 15 feet in extra snowfall this season counts for nothing?

There was less snow than that with week long breaks between storms and Silvy never opened. It's always there's either too much snow or too little snow - sounds like a bunch of excuses for not being prepared. They did manage to get it ready for a Warren Miller shoot and then didn't bother to open it for their paying customers and passholders.

[rod9301]

I just wanted to chime in and say I support the loud and wide discussion of Squaw and Alpine's lackluster customer service this year. I hope they (KSL) see these discussions and hold Mtn management (Andy) accountable.

I will add, Andy has done his job pretty well for KSL on the big ticket items he was tasked with, he successfully killed off the incorporation efforts and greased Placer in all the right ways to get the approvals for the development, so he likely got a big fat bonus last year from his masters.

Unfortunately for us, he is neglecting to run a ski resort, which is the reason most of us go (went?) there.

Actually, he did a horrible job. He should have found out who the influential people at squaw were, talk to each of them individually, and find a good solution, instead of presenting plans as a fait accompli.

He pissed off a lot of people with big money who have a home at squaw, and this cost him at least a couple of years, if not more.

I am amazed he still has his job.

[MashedPotatoes]

Can someone share what happened between Wirth and Jeremy Jones?

curious about this too although I bet he bitched and then Wirth bitched about him bitching or something like that

[TahoeJ]

Supposedly Wirth sent out some (email?) rant in response to Ryland Bell and Jeremy Jones but I've only heard it referenced once and don't know anything more than that.

[hercule33]

I just wanted to chime in and say I support the loud and wide discussion of Squaw and Alpine's lackluster customer service this year. I hope they (KSL) see these discussions and hold Mtn management (Andy) accountable.

I will add, Andy has done his job pretty well for KSL on the big ticket items he was tasked with, he successfully killed off the incorporation efforts and greased Placer in all the right ways to get the approvals for the development, so he likely got a big fat bonus last year from his masters.

Unfortunately for us, he is neglecting to run a ski resort, which is the reason most of us go (went?) there.

I disagree. I think that Andy underestimated the resistance that would come to KSL's plan, especially the way that they didn't work with the community. Yes he did score victories but they were costly (he had to form his own group to counter-act Incorporate Olympic Valley) and I think the local community has shown that they are willing to fight to the end. Smart investors will see this strong resistance.

Smart investors will have something else to worry about: rich people wanting to ski Squaw/Alpine. Let's face it, for ski resorts the money is in the blues. And that's where Andy has really hurt Squaw/Alpine. Most big money spenders at Squaw/Alpine (condos, rentals, lessons) don't care that Silverado is spinning but they will be furious that there will be a one hour line on Shirley or Roundhouse. And they won't be happy that during their ski week the only lifts that were running were Magic Carpets and that the lift status was misleading.

It's clear that Squaw/Alpine's plan is to get people coming from all over U.S. to ski (look at what at they are doing with cheap flights). But if Squaw/Alpine can't open lifts (even blues) and handle the local crowds, there is no way that those people are going to come. It doesn't matter if they have a nice village and water park.

On a side note, Vail must be loving that Andy is getting cheap flights to Reno because now their Epic Pass holders have even more options.

[TahoeJ]

On a side note, Vail must be loving that Andy is getting cheap flights to Reno because now their Epic Pass holders have even more options.

Ha, that's funny, but I'm pretty sure some Vail folks were involved with that as well and it was a Tahoe initiative as opposed to just Squaw / Alpine.