Day one at Deer Valley, I pulled my held-together-with-road-salt-and-axle-rust-and-border-collie-hair Subaru Forester up to the front of Deer Valley Ski Resort to drop my girlfriend off to go get tickets, as was custom. Three guys in Wrigley spearmint gum-green jackets and matching pants ran up to my car the way gas station attendants do in movies about the '50s and:
1) Opened the door for my girlfriend. (The look of shock on her face stated clearly this was something unaccustomed.)
2) Opened my hatchback and started unspooling the spidery tangle of our gear.
3) Came over to my side and started talking to me like I was someone that didn't look like I'd bounced three of my last five rent checks.
The attendant said I could either valet, or, since it was mid-morning, try my luck with the upper lot. I asked him if it cost more for premium parking and he said it all cost the same, free. I was just a bearded, beanie bro in a Frankenstein’d Flylow jacket and a pair of tattered-bottom Orage pants that were belted but unzipped (broken). And yet, this Deer Valley parking lot attendant made me feel like I was getting out of a Bugatti in a Bogner onesie with a Lloyd Christmas 10 gallon hat and a stack of hundreds protruding from my fringed glove.
Deer Valley suddenly makes KSL a mountain-for-mountain competitor with Vail's 15-resort Epic Pass.
On Monday, Deer Valley, a place that had been family-owned since Edgar Stern founded it in 1981 and was famous for things like corduroy lines extending to the locker rooms and turkey chili on demand, was swept off the board by a Hungry Hippo private equity firm that, over the last 18 months, has fashioned itself into Vail's chief rival in the ski industry. Where a deep-pocketed, publicly traded, 15,000-person company--Vail--owns and operates the ski resorts on one side of Park City (Park City Mountain Resort and Canyons), the other side is now owned by an upstart, as-yet-unnamed, aspirational big fish with a war chest of seemingly unlimited funds fronted by private equity firm KSL Capital Partners.
Deer Valley suddenly makes KSL a mountain-for-mountain competitor with Vail's 15-resort Epic Pass. (It is important to note that the Deer Valley purchase specifically is KSL in partnership with Chicago-based Henry Crown and Company. Snowmass, Aspen Mountain, Aspen Highlands, and Buttermilk--also owned by Henry Crown and Company--are not currently under KSL's umbrella.) KSL's growing megalo-corp will now boast 9 million skier visits between 13 resorts, or roughly 15 percent of projected nationwide skier visits in 2017-18. On the surface, if you're a consumer, it's #passwars, but just underneath that there is a high-stakes game of snow poker.
"We could not be more pleased that Deer Valley Resort will be part of our new company, and we look forward to working with the staff and Park City community to carry on the traditions that make it so special," said Deer Valley president and COO David Perry in a released statement. Perry also said no snowboarding will happen at Deer Valley "at this time" and yes to continued limiting skiers on the hill, ski valets, complimentary ski storage, host tours, free parking, and the occasional reassuring cup of hot chocolate. "There are no plans to change Deer Valley's offerings or programs."
But let’s take this moment to learn more about Deer Valley's new foster parent and its partners and subsidiaries. KSL is a Denver-based private equity firm, but they're not necessarily the biggest swinging private equity dude in the world, far from it. This is notable because most smaller (under $10 billion in management) firms have ties or backing from bigger partners.
Of all the holdings the KSL group has gobbled up of late, the Intrawest employees and patrons have the biggest reason to be skeptical. Why? They've been screwed by a private equity firm before.
Admittedly, I do not know who is on the KSL board's friends and family plan, but examples of these “bigger partners” in other private equity groups include Bain Capital (Utahns: think Mitt Romney), the Blackstone Group, BlackRock, Apollo, or Warburg Pincus. Noting that KSL has recently pushed through a 94-acre development at Squaw Valley complete with almost 1,500 bedrooms and a water park, the private equity firm likely does have a well-backed entity, and they are hell-bent on becoming one of the biggest ski resort operators in North America.
And they may pull it off. An August 9 piece in Forbes showcased the notion that private equity firms, in general, have more than $1 trillion in cash just hanging around, ready to be invested. They call the money that has been raised but not invested "dry powder." (FYI, when you hear the new resort overlords using this term, it's not about snow.) Why do they need to spend it? "They can't afford to have money sitting in cash or similar low-yielding investments," said Armit Bhambra, who works for BlackRock's iShares U.K. institutional team from London. "It's difficult to justify sitting in cash for 24 months, so they're having to think about different ways to fund these types of mandates."
And spend they will. Even though the KSL entity doesn't even have a name yet, their recent resort acquisitions, along with Deer Valley, include Mammoth in April, as well as taking embattled Intrawest off the hands of Softbank, a Japanese telecommunication company, that same week. In hardly any time at all, KSL has built a portfolio that includes Squaw Valley and Alpine Meadows, Mammoth Mountain Ski Area, Snow Summit, Bear Mountain and June Mountain in California, Blue Mountain in Ontario, Snowshoe Mountain in West Virginia, Steamboat and Winter Park in Colorado, Mont Tremblant in Quebec, Canadian Mountain Holidays in Alberta, and a resort in Zihuatanejo, Mexico. Cue closing credits of The Shawshank Redemption.
Of all the holdings the KSL group has gobbled up of late, the Intrawest employees and patrons have the biggest reason to be skeptical. Why? They've been screwed by a private equity firm before. Big time. In 2006, Intrawest was bought up by Fortress Investment Group. Here's what went down: the Fortress deal was underwritten by Goldman Sachs and Lehman Brothers (remember them? Watch acts two and three of The Big Short if you need a refresher.) The 2008 (again, see: Lehman) financial meltdown happened and Intrawest began to slowly melt to nothing. In a last-ditch effort to raise capital, Fortress took Intrawest public in 2013 but that effort to pump up the brand was anemic and in order to appease shareholders, they commenced with massive layoffs and began to sell off interests in Mammoth, Whistler Blackcomb, Copper Mountain, Les Arcs (France), Flaine Montsoleil (France), Panorama (BC), and the Village at Squaw Valley, along with Club Intrawest and Diamond Resorts International.
In February of this year, SoftBank bought Fortress for $3.3 billion, including its debt obligations. Two months later, SoftBank turned their Intrawest investment around to the KSL group for a reported $1.5 billion, ostensibly recouping half their Fortress investment within the first 60 days and shedding properties from their portfolio they had no interest in managing.
Want to learn more about private equity companies? Check out this New York Times infographic to see how these firms are in the business of making their top brass ultra-wealthy.
Here's an excerpt from another recent Times expose about what happens when the stakes grow bigger--you guessed it, so does the bottom line for the dude at the top: "Stephen A. Schwarzman, a co-founder of Blackstone, took home the largest haul last year: nearly $800 million. …The top executives at those six publicly traded private equity firms earned, on average, $211 million last year…Private equity firms note that much of their top executives' wealth stems from owning their own stock and that they have earned their fortunes bringing companies back to life by applying their operational and financial expertise. Yet even as private equity's ability to generate huge profits is indisputable, the industry's value to the work force and the broader economy is still a matter of debate."
Every family-run resort has a built-in character beyond the brochure. They are held together with unpaid overtime, extra wood screws, and hand-me-down uniforms. A giant corporation has the ability to replace the quirks with perks, yes, but charm is not a transaction, nor a part of the bottom line.