Mammoth lays off 60-75 year-round employees

[Tony Crocker]

There are many ways that staff can be temporarily re-purposed or as others leave on their own accord retraining occurs or etc...

We know that Mammoth does that. Seasonal staff is always done 3rd or 4th week in April when Canyon/Eagle and most of the lifts (though in good years only 40% of terrain) is closed. Yet on busy spring weekends management (occasionally including Rusty) will staff the additional lifts needed to handle the crowds, something certain other areas seem unwilling to do.

Let's not kid ourselves, the only financial worry likely at Starwood is hitting budgeted profitability targets that have been massaged slightly for Wall Street. MMSA is only a small part of Starwood.

Yes, that's why I put a good share of blame with Starwood. They are willing to let this small part default on a loan when revenue is slashed by variable weather? When they bought Mammoth they could have seen the same historical snow/skier visit data from 1985-86 to 1986-87 that I saw for example and known full well that it would likely happen again on their watch.

I haven't heard of any yet, but even Vail Inc which has a history of being ruthless in personnel moves hasn't had mass layoffs yet in this horrible season.

Vail actually bragged that as of December 31 they had seen no revenue decline vs. the prior outstanding season as of that point. Presumably that changed to some degree as the season wore on. But Vail has all these destination visitors like johnnash who bought passes and booked their trips way in advance of the season. Only with very forceful argument did I convince him to relocate one and slightly modify the other two planned trips to VR ski resorts this season. Most of these advance bookers probably stuck with their plans in their entirety despite the horrid conditions for most of the season.

Mammoth's clientele was 95% SoCal drive-up when Intrawest came in in 1998 and it's still close to 90%. Drive-up skiers can be more flexible about where they go. Last year I had 25 days at Mammoth and this year the count will probably be 7. Smart investors should know what they are buying, and the evidence in Mammoth's case was quite plain to see IMHO.

[Petester]

Well the sad fact is the drop in skier visits is definintely the primary factor in decrease in skier visits, but another issue that needs to be looked at is ticket prices. At $92 a day, Mammoth is simply becoming unaffordable for the average person to ski there. Drive six hours, pay top dollar for lodging and then plop on another $180 for a lift ticket, and its just sours people. I belong to a ski club, and we work really hard to keep our trip prices really low (we don't include the lift ticket), but even then, the over priced lift tickets make it un-affordable. There was a time not too long ago when every weekend there would be 10 - 15 busses in the parking lot every weekend, now if there is 7 - 10, its surprising.

[Evren]

Well the sad fact is the drop in skier visits is definintely the primary factor in decrease in skier visits

Do you have any numbers to back such a bold statement?

[Tony Crocker]

While I'm sure Petester meant the drop in snowfall, the jury is out on the issue of ticket prices. There have been numerous threads on the Mammoth Forum on this topic. While day ticket prices have inflated rapidly, the max price really applies only during peak holidays. A 2 day rate of $89/day vs. $97 applies to non-holiday weekends. But of course the frequent Mammoth skiers have the $659 MVP. Before Intrawest a Mammoth season pass cost something like 30x the day ticket price. Mammoth like many areas is practicing market segmentation, charging top $ to occasional skiers who demonstrate price insensitivity by skiing holidays. Remember the holiday crowd is paying top $ for lodging too. The most price sensitive skiers with the MVP are getting a much better deal now than in the "good old days."

There was a time not too long ago when every weekend there would be 10 - 15 buses in the parking lot every weekend, now if there is 7 - 10, its surprising.

In the late 1970's it would be at least 100 buses. SoCal demographics have changed a lot since then.

[Marc_C]

Well the sad fact is the drop in skier visits is definintely the primary factor in decrease in skier visits

Do you have any numbers to back such a bold statement?

3.1415*r*r ?

[Tony Crocker]

Admin's News has final stats for Vail Resorts: http://www.firsttracksonline.com/2012/0 ... drop-12-6/

Broken down by region, skier visits at the company’s Colorado properties was down 8.9%, while its Tahoe resorts slumped by a remarkable 24.2%.

Throw in the 36% decline at Mammoth (as of sometime in February) and the clear relationship between drive-up vs. destination resort sensitivity to snow conditions is evident. Tracking week by week the case is strong that Mammoth actually had good conditions for more weeks than Tahoe or Vail's Colorado resorts.

Another point is that advance bookings are influenced by some degree by the "buzz" coming of the prior season. This would have helped Vail Resorts this season but will likely cause a few more people to heed advice like mine to hold off booking for next season until they know where the snow is.

[Tony Crocker]

On my last trip I got the 2012 Mammoth skier visit stats. March and April were basically normal in terms of ski conditions and terrain open, so the decline for the entire season vs. 2010-11 was 28%. If that was enough to get in trouble with the banks and close June hopefully lessons have been learned to prevent those consequences from happening next time.

Next time won't be this year, as Mammoth's month-to-date snowfall of 141.5 inches is the second highest December on record.

Shown below is a chart of Mammoth skier visits vs. season totals of my weekly index of snow conditions.

[Tony Crocker]

At the NASJA meeting I got to meet personally with Rusty on April 11 after the meeting with NASJA members April 10.

My questions regarding June (It's reopening next season and will have a replacement for J1 and more snowmaking by 2015-16) and Mammoth's overall focus were answered at the Wednesday meeting. With regard to the latter, in 1999 we heard mostly about Mammoth's ambition to become a destination resort. This time we heard more about Mammoth focusing on its SoCal customers and families in particular. Rusty views Mammoth's SoCal competition not as other ski areas but the beach, other outdoor sports, organized sports for kids, etc. The destination ambition is still there, but MMSA's first priority is to get the SoCal numbers up to where they were in 2005 and 2006.

For my private meeting I gave Rusty the chart in the above post and asked the questions I've posted here and on Mammoth Forum about debt service vs. revenue dependent upon cooperative weather.

That history really starts with the run of subpar seasons starting in 1987 (evident on the chart) which finally reached a crisis in 1991. In February 1991 Mammoth was on verge of default and had significant layoffs. Rusty was involved with that and worked to restructure Mammoth so that more costs would also be variable with revenue and profitability was significantly improved.

The sale to Starwood in 2006 was at the top of the market in terms of both resort assets and banks willing to lend for private equity deals like this. As a general rule it's financially desirable for these deals to be financed with debt and Rusty says he had no input on that. His job is to manage Mammoth both financially and as the resort we all know.

We have all read of these projections based upon prior good years to which skiace alluded. Rusty says that they also estimate what a down year might look like. Note on the chart that 2006-07, right after the Starwood purchase, was a bad year. While Mammoth did close June at the end of January that season, no debt covenants were breached and there were no layoffs or forced management decisions by the lenders.

Note on the chart that 2006-07 is only a slightly better snow season than 2011-12 and 3 others a bit worse than that. While the snow was only slightly worse in 2011-12 the skier visits (and revenue) were quite a bit worse. Rusty mentioned two reasons why 2011-12 ended up worse than the "down year" estimate.
1) Rusty believes that because 2001-12 started so poorly for most of the West, that attracted a lot of negative press that induced many skiers to write off the season prematurely. Rusty said Mammoth's Christmas business was down only modestly while January and February business declined precipitously. This despite Mammoth getting 50 inches of snow in late January, which opened ~75% of the mountain with decent conditions until the next big storm at the end of February opened the rest.
2) Mammoth subsidizes the winter flights. Those did not exist in 2007 and the 2012 subsidy ended up being $3.5 million. FYI the 4 flights from LA and SF are doing well enough this season to need no subsidy, while the San Diego flight has a modest subsidy and only the Orange County flight is not doing that well. Going forward Rusty wants the ski area not to be the only source of the airport subsidy. It's obviously not desirable to have a component of your cost structure which varies inversely with your revenue.

As we know a covenant was breached in 2012 that contractually required the actions Rusty made. This year is at least a normal year from a revenue standpoint with the strong early season, and in average or better years Mammoth is quite profitable. This has resulted in substantial amortization of the Starwood purchase debt from 2006, and furthermore Rusty refinanced that debt in 2010. The new debt structure is very complex but in aggregate averages a 6 1/2 % interest rate.

Rusty's mindset in general is to reinvest Mammoth profits in the mountain to keep it up to date and modernize older facilities. The $11 million budgeted for June upgrades would all be funded by profits from operations.

Rusty manages a balancing act among the "expected projection," the "down year projection" and the desire to reinvest in the facilities. I asked what would have happened if the January-March snowfall of 2012-13 had occurred in November-January instead, ensuing upon 2011-12. Rusty candidly said that in an extreme scenario there would be a cash call from the private equity partners in order to prevent foreclosure. In the chart above you can see that the consecutive 1975-76 and 1976-77 seasons are probably the only historical case of that extremity.

My original view is that all of the seasons in the 40 or below range on that chart, roughly 15% of them, would produce a revenue crisis like last year. Rusty believes it is much rarer than that as evidenced by 2006-07. We could all debate what was or was not unique about last year, but I'm now inclined to believe that the "crisis" scenario is somewhat less likely than I might have believed earlier. With continuing amortization of the debt perhaps that risk declines over the long run.

[jamesdeluxe]

Mammoth's ambition to become a destination resort. This time we heard more about Mammoth focusing on its SoCal customers and families in particular.

I knew that Mammoth always wanted to become a big destination resort, but I didn't know which kind of destination visitors they meant (SoCal or long-distance fly-ins), so now it's clear.

Despite Admin's about Mammoth's winds, I'd like to check it out one of these days, but given that location -- a 3.5-hour drive from the closest decent-sized (Reno?) airport or having to change planes in LA or SF for the short flight to Mammoth -- I can get to the Alps faster, so unless I'm already in the region, I don't see it happening for me.

Also, was June's closure simply a short-term cost-cutting measure after an exceptionally horrible season (from a revenue standpoint) or was it a long-term money pit? Do you think that the new strategy, a type of Mammoth feeder hill, will work?

[Tony Crocker]

Also, was June's closure simply a short-term cost-cutting measure after an exceptionally horrible season (from a revenue standpoint) or was it a long-term money pit?

2011-12 revenue was in fact enough to make the debt payments, but it breached a "buffer covenant" which allowed the lenders to require specific cost cutting measures including June's closure. As long as those covenants are not breached Rusty has absolute control of Mammoth decision making. So if he thinks it's a good idea to spend $11 million on June by 2015-16 out of the profits of the next 3 seasons, the banks have no say in that unless we have repeat of last year's scenario.

In the 79-page thread on Mammoth Forum last summer accounting statements were presented claiming June lost about $1.5 million a year. There was an "adjustment" at the bottom of that statement for MVP revenue. I analyzed that June's proportion of MVP visits was similar to the overall proportion of Mammoth/June skier visits (about 5%) and thus June deserves its share of MVP revenue. So my best estimate is that June's real loss has been in the range of 700K per season.

Do you think that the new strategy, a type of Mammoth feeder hill, will work?

June is an exceptionally good mountain for beginners IMHO. My view, expressed here and on Mammoth Forum last summer, is that this is the most likely survival strategy for June. Unlike soulskier and a few others, I am skeptical that June could survive as an independent operation in competition with Mammoth.

Mammoth has quite a bit of easy terrain but those sectors are disjointed. I also believe that intensely busy ambience around Mammoth's base areas during peak weekends and holidays can be somewhat intimidating to first timers. So it's a reasonable view IMHO that subsidizing beginners at June and giving them a more positive experience there will result in more of them sticking with the sport and becoming Mammoth regulars in the long term.

Will a pro-forma June Mt. accounting statement show profits from this strategy? I would be surprised, and I suspect it will look a lot worse in the short term with the $11 million in improvements (presumably on an amortized basis) allocated there. Nonetheless as long as it's Rusty's call and he thinks the subsidy of June Mt. is worth it in the long run, the strategy will go forward.

[ShiftyRider]

Rusty views Mammoth's SoCal competition not as other ski areas but the beach, other outdoor sports, organized sports for kids, etc.
...
Mammoth subsidizes the winter flights. Those did not exist in 2007 and the 2012 subsidy ended up being $3.5 million...Going forward Rusty wants the ski area not to be the only source of the airport subsidy. It's obviously not desirable to have a component of your cost structure which varies inversely with your revenue.

Excellent reporting, thank you!