Rusty has been around awhile but Starwood had not when they financed their 2006 top-of-the-market purchase with debt. In this link http://www.sierrawave.net/10665/mmsa-ceo-responds/
, Rusty notes that there was $35 million a year in debt service. Fortunately Rusty was proactive and got that refinanced during one of the good years or else this debacle would have happened sooner or been much more severe.
I've been reading year end Kottke reports for awhile, and as noted during the discussion of the 2008-09 economic crisis skier visits are much more sensitive to snow than to the economy. The Kottke Report summarizes skier visits by region.
For 13 years Northeast skier visits are 53% correlated to snowfall.
For 13 years Rockies skier visits are 60% correlated to snowfall.
For 11 years California skier visits are 61% correlated to snowfall.
For 11 years Pacific Northwest skier visits are 82% correlated to snowfall.
Washington/Oregon ski areas have a higher proportion of local vs. destination visitors. Locals can more easily time their trips for when there is more snow.
This week I obtained Mammoth skier visit history going back into the 1960's.
I correlated the skier visits since 1976 with several variables:
77% with my index of weekly snow conditions
60% with season snowfall
67% with snowfall before Jan. 1
38% with snowfall after Jan. 1
-8% with January California unemployment rate
I started with 1976 because:
1) I have the unemployment figures since then
2) Mammoth must have had major development/demographic growth in the 1970's. 1968-69 visits were only 357K
while 1987-78 were 1.156 million. The latter number is not that far off good years in the past 3 decades. Similarly the low skier numbers from bad seasons in 1975-76 and 1976-77 are not that different from 1986-87 and 1990-91. So starting the data comparison in 1976 seems reasonable.
Conclusions are what I expected from reading regional-based Kottke reports. The 60% season snowfall correlation is right in line with what Kottke has for California in aggregate over the past 11 seasons. The 67% vs. pre-January 1 fits with Rusty's opinion that many people's opinions are set by what happens early in the season and it's hard to change that impression later on. I have been charting week by week snow conditions, which provides a more refined rating for each season than total snowfall and has the highest correlation with skier visits. In my chart a bad early season week with minimal terrain open will get little or no credit, while a late season warm and dry week will get more credit if most/all of the mountain is open with spring conditions though not the full credit it would get if it were majority powder/packed powder conditions. So it does make sense that bad early seasons should hit visitation harder than bad late seasons.
The very low absolute correlation of -8% (we would expect negative, but if there were much sensitivity it would be -50% or -60%) with the California unemployment rate is not surprising in that it's almost impossible to pick out national recessions in Kottke's U.S. total skier visit data. Nonetheless 2010 and 2011 are the highest CA unemployment figures since 1976 and 2005 and 2006 were among the lowest. All 4 of these were strong seasons and the latter two seasons are 16% lower in skier visits than the former two.
A linear regression shows that Mammoth skier visits can be 61% explained by my conditions index plus early season snowfall. Also including the California unemployment rate raises the r-squared from 61% to 68%.
Good snow seasons followed by drought seasons are more dramatic in declining skier visits. From 1985-86 to 1986-87 visits fell 51% with CA unemployment being 6.7% in 1986 and 6.4% in 1987. From 2005-06 to 2006-07 skier visits declined 31% with CA unemployment being 5.0% in 2006 and 4.9% in 2007. So in both cases the economy was the same and the big hit due entirely in my opinion to snow. The 2007 decline was less than in 1987 due to 1) Mammoth's snowmaking (which did not exist in 1987) being quite effective during a dry but frigid January 2007, and 2) December 2006 had 56 inches snowfall while December 1986 had none.
Pre-January 1 droughts are occasional recurring events in the Sierra. 1976-77 and 1986-87 had no recorded snow at all before New Year's. The 19 inches in 1980-81 was the same as this year. In addition Mammoth had 25 inches in 1999-2000, 34 inches in 1990-91 and 36 inches in 1989-90. No surprise my records show Mammoth being less than half open on January 1 in these same seasons, about 1/6 of the total.
2006-07 doesn't even make the list above and visits dropped 31% below the prior season. So the 36% drop in skier visits quoted by Rusty in February from the strong year in 2010-11 to 2011-12 is entirely predictable in my opinion. Furthermore the past 43 years' snow history shows that the probability of such an event is on the order of 15%. Should a business take on enough debt that there is a 15% chance each year
(which means a 56% chance it will happen at least once over a 5-year period) that the weather (completely out of that business' control) could put that business in violation of its loan covenants and/or force drastic layoffs of key personnel?
There may be tax or other reasons that Starwood wants Mammoth to be highly leveraged. If that is true, Starwood should be willing to kick in some $ in the bad years as I'm sure it takes dividends out in the good years.