Downhill Run
Last year's ski season was one of the worst in recent New England history. Mild temperatures melted away what little powder the Northeast usually gets and left slopes covered in slush, or, worse, not covered at all, with ice slicks, gaping patches of dirt, and exposed rocks turning trails into obstacle courses. Ski areas seemed deserted on some weekends, and few were hit harder than those owned by American Skiing Company, one of the largest ski resort chains in the United States — and the most financially strapped.
As the season wound down last spring, the weather had taken a devastating toll on the already weakened company, which counts among its holdings Killington, Sugarloaf, Mount Snow, Sunday River, and Attitash/Bear Peak. Ski conditions were poor everywhere, but Mount Snow in southern Vermont was a skier's nightmare on Easter Sunday in late March. It was too warm to make snow, and the slush that was left felt like mashed potatoes, lumps and all. By noon, soggy and disappointed skiers were hawking their $45 lift tickets in the parking lot for $10.
This wasn't what Leslie B. Otten had envisioned when he assembled the chain of resorts in the 1990s, expanded them with fast and fancy lifts, and jacked up ticket prices to levels approaching those at the best ski mountains in the West. But it's a picture that does explain, at least in part, why the brash entrepreneur lost control of his empire after 30 years in the ski business (he's gone on to become part owner of the Boston Red Sox) — and why skiers are paying the price.
Why should skiers, or anyone for that matter, care about one more CEO's business plan collapsing in a heap? After all, Otten is one of the reasons skiing enjoyed steady growth in the East over the last two decades — at least in the years the region was blessed with snowy winters. Some say he's also the reason it became one of New England's most expensive sports. When he went from being an employee of then-tiny Sunday River to becoming its owner in 1980, lift-ticket prices were less than $10 at some resorts. Today, thanks to Otten's aggressive and costly developments — which have been imitated by other ski mountains — skiers are paying off his whopping bills through lift tickets that cost $50 and up. The money has gone for luxuries skiers didn't have 20 years ago, from a heated gondola to spas to trailside condos. So much for solitude and roughing it in the backwoods. A snowy Saturday in January in Vermont is now little different from a sunny Saturday in July on Cape Cod: lots of people, lots of traffic, lots of waiting.
Skiers are accustomed to waiting, and for years it seemed worth it — sort of — as new trails, lifts, and lodges sprouted up. But their patience is about to be tested. Otten's build-like-mad approach and the financial mess he walked away from has brought to a standstill any further expansion or major renovation at American Skiing Company's five eastern resorts. The staggering losses posted in each of the last four years mean the company that now owns the premier resorts in New England — which, collectively, draw approximately 2.5 million visitors a year — has its hands tied for the foreseeable future. Even if it didn't, skiers here have no reason to believe their local mountains would be a priority for American Skiing Company. After all, it just moved its headquarters from Newry, Maine, to Park City, Utah.
What all this means is that what you see is what you get — and will be for a while. “Of all the public ski-resort companies in North America,” says Carlton Williams, who ran FleetBoston's ski-resort lending portfolio, “none is in as poor shape financially as American Skiing Company.”
Otten borrowed hundreds of millions of dollars to finance condominiums, upgrade ski lifts, and install high-tech snowmaking equipment at his resorts, which also include Steamboat in Colorado and the Canyons in Utah. Skiers, of course, loved it — until the avalanche began. All that borrowing coincided with several mild winters — picture Nantucket enduring back-to-back summers with no sunshine — and put American Skiing Company on the edge of collapse.
With his company deep in debt, Otten left. His remaining plans have been shelved, and the new executives are focusing on restructuring the debt and counting on a cold, white, and powdery ski season. Otten made many improvements on the mountains, “but he also drove the company to the brink of bankruptcy,” says a veteran ski instructor with American Skiing Company. “It's a tough economic climate for this company because of Otten's imprint.”
American Skiing is now controlled by Oak Hill Capital Partners, founded by the oil-rich Texan Robert Bass, which pumped $150 million into the floundering operation when Otten still ran it. New CEO William “B. J.” Fair has brought fiscal restraint to the ski chain; two of its three debt deals are now no longer in default. But any recovery rests on something New England rarely provides: winter after winter of heavy snowfall. “We've adopted the attitude of just keeping our heads down and providing the best skiing and resort experience possible,” says Fair, a former Universal Studios executive. “We're doing our best to reduce the debt, restructure the company, and set it on stronger financial footing.”
It's a steep trail. In fiscal year 2001, American Skiing Company reported an operating loss of nearly $70 million, while paying out more than $52 million in interest expense on $400 million worth of debt. That's a whole lot of red. This year, the company has reduced its debt to roughly $300 million, but that debt is still like skiing in slush — one big drag — and it's especially visible at Mount Snow, maybe the most popular mountain for Boston-area skiers.
“There haven't been any significant improvements on the mountain,” says Doreen Cooney, who owns the nearby Deerfield Valley Inn. “Some of the chairlifts are rusting and slow.” Plus, Mount Snow is constrained by limited rights to local water that it needs for snowmaking, which leaves the beginning of the ski season especially precarious. Cooney, like many business owners near Mount Snow, thinks that if Otten had spent less on real estate, the resorts would have been able to expand in other ways and advertise more. “The company isn't doing enough marketing,” Cooney says.
Or building. There had been plans for a new retail village and golf course at Sunday River, a similar village at Killington, plus a lift connection between Killington and neighboring Pico Mountain, as well as condos, townhouses, and perhaps movie theaters and skating rinks. Those are all on ice.
This, at a time when other resort operators are chugging along. Stratton, also in southern Vermont and owned by Intrawest, caters to a more affluent crowd than Mount Snow by luring customers to a retail village at the base of the mountain. Nearby Okemo, owned by Tim and Diane Mueller, just added a new network of trails and a high-speed chairlift. While the Muellers won't discuss the resort's financial performance, one source close to the privately held company says Okemo has posted an operating profit every year since the couple bought it 20 years ago. “Obviously, the good, well-managed companies continue to do well,” Tim Mueller says, “and the ones that are highly leveraged with debt are having a big problem.”
If Mueller sounds like he's got issues with American Skiing Company, well, he does. He's still seething over the company's decision last spring to bail out of a deal to sell him Steamboat in Colorado for $91 million. (The company instead sold Heavenly in Lake Tahoe to Vail Resorts for $102 million.) Mueller is suing over the broken deal.
The reversal on the sale of Steamboat, American Skiing Company's biggest resort, was a signal to New England skiers of where this company is focused — and it's not on Vermont, New Hampshire, or Maine. It's 2,400 miles west, on its two prized assets, most notably, the fastest-growing resort in the chain, the Canyons. A vast wilderness area known locally as Wolf Mountain, the Canyons saw traffic decline last season thanks to the throngs siphoned off to the Winter Olympics in nearby Salt Lake City. But American Skiing Company believes the resort's proximity to Salt Lake City's airport will lure skiers there from the East and overseas.
Meanwhile, American Skiing Company's investment in the East has slowed considerably. The strategy for the five New England resorts revolves around creating better ski schools, catering to ski clubs, and praying for blizzards.
But even with a white winter, it's snowmaking that holds the key to the future of American Skiing Company, and, for that matter, the future of skiing in New England. The science of making snow has become the lifeblood of resorts in the East, where relying on heavy snowfall is about as smart as banking on a free-flowing Bourne Bridge on Memorial Day weekend. Killington and Sunday River, which have the biggest snowmaking systems in American Skiing Company's family of eastern resorts, employ “chief snowmakers” whose sole responsibility is to make sure the man-made stuff is being pumped out day and night — assuming the weather is cold enough. And therein lies the rub: Snowmaking is a simple principle as long as the mercury stays below 32 degrees. Then the machines can break down water into small particles, remove the heat of fusion, and shoot the snow into the air. But when the air is above freezing, making snow becomes more expensive — or downright impossible.
“Snowmaking remains a competitive advantage of this company,” American Skiing CEO Fair says. “We're always looking for ways to make it more efficient.”
Otten gets credit for the tremendous snowmaking framework in place at the company's mountains. After he bought Sunday River in 1980 for roughly $132,000 plus a significant amount of debt, he widened the trails and cut new ones, planting the entire mountain with hundreds of snow guns and demonstrating that snowmaking really could blanket a resort on a cold day, even if there were no precipitation.
“What we were doing with snowmaking back then was so far advanced,” Otten says. Sunday River can now convert as much as 9,000 gallons of water to snow per minute. That has transformed the resort from a sleepy backwoods ski area for Mainers to a destination with condominiums, high-speed lifts, and two hotels. Sunday River now draws half a million visitors a year — more than Mount Snow in some seasons, even though Sunday River is much farther north. “Last season was horrible for the industry from a weather perspective,” Fair says, “but Sunday River continued to have outstanding conditions because of snowmaking. . . . I think, to a certain extent, that is part of Les Otten's legacy.”
But it's the other side of Otten's legacy — the misguided expansion — that has left the future of American Skiing Company in peril. The company embarked on numerous real estate projects and mountain renovations during the late '90s, relying heavily on borrowed money. Otten acknowledges that he expanded too fast, saying his bankers had him seeing dollar signs without considering the effects of mild winters. “With the investment bankers parading in and out of here, I just got sucked in before the initial public offering,” he says, pointing out that he plowed $15 million of his own money into the ill-fated IPO of American Skiing Company stock in 1997.
The result is that the company is now fighting to stay afloat — and competitive. While Okemo and other resorts open new trails and high-speed lifts and seek to acquire other properties — Loon Mountain in New Hampshire, for example, has obtained the rights to add trails to an untouched section of the ski area — American Skiing Company has no room to maneuver.
Of all the plans Otten set in motion that remain unfinished, he says securing better water rights for Mount Snow is the single most important one. Now it is Fair who will have to overcome opposition from planners and environmentalists and get better access to water. “We definitely want to have the best snowmaking possible at Mount Snow,” Fair says. “Last year, because of the drought, water was a concern. Clearly, being a ski company, we need to have good access to water, but we also want to make sure we're being as ecologically sensitive as we can.”
The company's resorts remain among the best in the East. But they also set the standard on pricing for lift tickets and lodging, which many angry patrons feel is the last, and most lasting, imprint of Otten's legacy.
“This year, prices are escalating quite a bit, especially for lodging and especially at the American Skiing Company resorts,” says Randy Friedman, travel director for the Boston Ski and Sports Club. He says weekend trips that include transportation, two nights, and a two-day lift ticket now cost almost $300 per person, up from $260 last season, even at the group rate.
And while the resorts today offer the creature comforts that families from the city demand, dyed-in-the-wool enthusiasts say brisk development has taken the romance out of skiing. Much of that can be attributed to Otten and American Skiing Company, but it's now true at every major resort in the East.
“I still remember skiing the narrow trails on these mountains in the '60s,” says Gardner Burton of Danvers, a retired engineer who has been skiing in New England for 40 years. “But these resorts have to make their money.”
The Gardner Burtons of the world who long for the more peaceful ski experience don't fit into the business model created by Les Otten — a model that, ironically, could doom the company where he built it. “Some day people will figure out that the weather is your enemy, and the weather is your friend,” says Otten, who still lives near Sunday River with his wife. For American Skiing Company, an unfriendly winter could bury the company for good.