Business Finance - Accounting assignment

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®

VAIL RESORTS’ FAMILY OF WINTER RESORTS VR’s family of winter resorts includes (a) 10 North American year-round destination facilities, (b) 24 regional “urban” winter resorts located near major U.S. cities, which combine to form a feeder system for customer visits to its more remote destination resorts, and (c) a growing list of global destination resorts located in Australia and Switzerland. Locations of the facilities are shown in Exhibit 1.

The firm’s North American destination resorts included combinations of owned properties (mostly in the villages) and long-term leases from both the U.S. Forest Service and private landowners for the mountain ski terrain. All these sites included centrally located retail and commercial structures contained in “ski-in ski-out” villages, embossed with quaint hotels and hotel/convention centers, some golf courses, and other unique entertainment facili- ties. Each resort was different in theme and atmo- sphere, but all ascribe to Vail Resorts’ reputation for quality service, all-season excellence, and trademark in providing a unique upscale experience to discern- ing vacationers.

The firm’s marquis resort was Vail, known by its slogan: “Like Nowhere Else on Earth.” The resort

Vail Resorts, Inc. in 2023

Herman L. Boschken San Jose State University

Vail Resorts (VR) celebrated its 60th anniversary season in 2022 and had achieved an esteemed reputation and commanding

presence in the North American winter resort indus- try. But, in some ways, the company was approach- ing a crossroads in both strategy and context. Unlike the earlier years when linear growth pursuits were the norm, VR was facing new and more difficult choices, many posing significant conflicts in resort activities and tradeoffs in corporate strategic direction.

Vail Resorts was also facing some difficult indus- try and environmental challenges that had been evolving for several years. The most significant of these included and aging U.S. population leading to decreased demand for skiing and a growing number of injuries on the slopes originating from the reck- lessness of some snowboarders. In addition, industry rivals were upping the ante by bringing forth stun- ning new designs and making vast new investments in on-mountain and village facilities. Several consoli- dations and mergers had reduced the field of large multiresort providers to the Big Four—Vail Resorts, Aspen Skiing Company (SKICO), Alterra, and POWDR. Also of concern were climate effects on production and maintenance of resort ski operations, as well as feeding longer term variability and uncer- tainty in skier expectations.

Going into the 2023–2024 ski season, Vail Resorts would continue to focus on the implementa- tion of its strategy to best sustain its position in the North American winter resort industry.

CASE 25

Copyright 2023 by Herman L. Boschken. All rights reserved. This case was originally developed in cooperation with the senior management of Vail Resorts, Inc.

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C-364 PART 2 Cases in Crafting and Executing Strategy

EXHIBIT 1 Vail Resorts’ Family of Ski Resorts

Region Resort

Pacific Northwest Whistler Blackcom Stevens Pass

Tahoe Heavenly Northstar Kirkwood

Rockies Park City Crested Butte Beaver Creek Vail Breckenridge Keystone

Northeast Stowe Attitash Wildcat Mount Sunapee Croched Mountain Okemo Mount Snow Hunter Mountain

Mid-Atlantic Jack Frost Big Boulder Roundtop Whitetail Liberty Mountain

Midwest Alpine Valley Brandywine Boston Mills Mad River Mountain Mt. Brighton Paoli Peaks Wilmot Hidden Valley Afton Alps Snow Creek

Australia Perisher Falls Creek Hotham

Source: Vail Resorts, Inc., 2021 10-K Report

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CASE 25 Vail Resorts, Inc. in 2023 C-365

1,800 acres of skiable terrain with exceptional variety for families having different levels of skiing ability. Its “Birds of Prey” downhill course was recognized by World-Cup skiers as the most challenging in North America. Its 250-acre McCoy Park offers gentle- sloping terrain, dedicated exclusively to beginner and low-intermediate skiers.

Located off I-70, about an hour east of Vail and Beaver Creek along the Continental Divide, are VR’s other two Colorado destination facilities. Opening as a ski resort in 1961, the largest of these was Breckenridge, consisting of a vast range of tree- less peaks anchored by a historical western mining town. Although slightly rebranded to fit VR’s multi- generational family clientele, this resort community’s reputation had emphasized the youthful exuberance of singles and couples seeking an active social life. As a consequence, it had more bars (totaling over 50) but fewer restaurants than Vail and over 100 shops. In addition, the town had a performing-arts theater, museums, a golf course, and a large convention cen- ter. It had overnight accommodations for 25,000 people.

The clientele of this historically preserved year- around resort often cites the unique “sense of place and fabled Main Street experience” as a prime reason for coming. Added to the town’s ambiance was a new “second” village completed in 2010 and situated on the mountain above the town. It was connected to the town by an enclosed gondola. Free buses also cir- culate throughout the resort. The resort’s mountain contains 2,358 acres of skiable terrain and caters to all levels of skier proficiency at many of Colorado’s highest elevations.

VR’s fourth all-season destination resort in Colorado was Keystone. Like Beaver Creek in origin and family focus, its off-mountain village facilities were crafted along meadowland as a free-standing planned unit development. Opened in 1970, the resort had steadily expanded over the years but had acquired a reputation for putting guests close to nature. Its trademark, “Nature of the Rockies,” indicates more rustic facilities and accommodations than VR’s other destination resorts. It contains two villages—the original Keystone Village and the newer River Run surrounded by residential areas contain- ing homes and condominiums.

The resort had accommodations for about 5,000 people and includes about 50 shops and restaurants, a convention center for 1,800 people, and a PGA golf

was among the three largest single-site ski resorts in North America. With major design facelifts over the years, its village nevertheless retains the appearance and ambiance of a traditional European alpine set- ting. Paralleling the interstate, the resort provides all the conveniences of a large rural town. It had two primary pedestrian-only village centers, connected to each other and the town’s outer areas (some of which are four miles up or down the freeway) by a compli- mentary bus system.

The town of Vail boasted accommodations for over 30,000 people and contains over 100 restau- rants and bars, 225 shops and markets, two skating arenas, outdoor amphitheater, a PGA golf course, regional hospital, transportation center, schools, and a library. It was the primary or second home to professionals and executives from numerous blue- chip companies, high-tech firms, and Wall Street investment houses, most representing the “movers and shakers” of globalization. As a group, this clien- tele prefers anonymity outside of their professional careers and had chosen Vail because of the resort’s relaxed but discrete atmosphere.

The resort had developed over 5,000 skiable acres within its permitted 12,500-acre terrain. Skiing was provided on both sides of a seven-mile ridge paralleling its villages, and in an adjacent back-bowl called Blue Ski Basin. Vertical drop (a measure of terrain steepness and ski-run length) was 3,450 feet and the longest run was 4.5 miles.

Ten miles west of Vail and located three miles off the interstate was the firm’s smaller but most upscale Colorado resort, Beaver Creek. The resort actually contains three separate villages at different points along the base of the mountain. Originally conceived as Colorado’s location for the 1976 Olympics (which was aborted by a state referendum), the core village opened in 1980 as a state-of-the-art CAD-designed facility with European alpine elegance and environ- mental sophistication tucked into a tiny valley and meadow.

With emphasis on exclusivity, first-class accom- modations, and “family friendliness,” the resort sports over 25 restaurants, 70 shops, an outdoor ice- skating arena, the Hyatt Regency and Conference Center, the Vilar Performing Arts Center, a Ritz-Carlton, and overnight capacity for 6,000 people (more accommodations are available in the town of Avon, about three miles down mountain from Beaver Creek). On the mountain, Beaver Creek provides

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Nevertheless, unlike most of the other overlap- ping segments of leisure, recreation and entertain- ment, the ski resort industry segment (esp. NAICS 721110 and 713920) had faced strong headwinds. As reflected in Exhibit 2, the long-term trend in customer demand, as measured by U.S. skier/ snowboarder visits per day, had been persistently flat for more than two decades. Within regions where VR had destination facilities, the trends mostly reflect the flattening nationwide demand. Even During the initial two years of the COVID pandemic, demand varied downward temporarily and then recovered by 2022 to its long-term flat demand levels.

Traditionally, customers in the destination recreational-resort industry (of which skiing was but one subtype) have been distinguished in the popula- tion by income, age, and family status (i.e., married/ unmarried, with/without children). These factors often differentiated people inclined toward large scale or mass recreational services coupled with lesser expensive accommodations (like the destina- tion profile of Disney World) from people seeking a more exclusive and intimate resort setting featuring high-value or high-status vacation venues (like those provided by VR’s destination resorts).

In the case of destination ski resorts, a greater variety of demographic factors was weighing-in as determinants of customer demand during the first two decades of the 21st century. In addition to traditional ones mentioned above, more recent fac- tors included age distribution (generational dynam- ics), education level attained (i.e., college degree vs. nondegree), occupational status (i.e., professional/

course. Additional housing and amenities are located about two miles away in the town of Dillon. With 3,148 acres of skiable terrain, Keystone developed its ski mountain with an emphasis on intermediate skiers but provided skier access to very steep ter- rain at an adjacent ski area not owned by VR, called Arapahoe Basin.

THE WINTER RESORT INDUSTRY With an emphasis on skiing and mountain recreation, Vail Resorts operates its core business primarily in the “destination” segment of the recreation-resort industry. As part of the sprawling leisure, recreation and entertainment industry (i.e., NAICS 71 and 72, esp. 713, and 721), this destination segment was itself an agglomeration of subparts having no exact boundaries. According to the U.S. Department of Commerce, recreation resorts also overlap other related industries composed of such segments as amusement parks (e.g., Disney), gaming (e.g., Harrah’s Entertainment), cruises (e.g., Carnival/ Princess Cruise Lines), and sporting events (e.g., the NFL and NBA). In this ill-defined setting, competi- tion therefore includes a vast assemblage of directly competing and partially substitutable products and services. Moreover, with loosely segmented markets, strategic opportunities tend to be more elusive and potentially conflicting in that they consist of differ- ent but partially overlapping customer profiles and product-market relationships.

0

1998/99

1999/00

2000/01

2001/0 2

2002/03

2003/04

2004/05

2005/06

2006/07

2007/0 8

2008/09

2009/10

2010 /11

2011/ 12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/ 18

2018/19

2019/20

2020/21

2021/2 2

10 20 30 40 50 60 70

TOT US ROCKY MTN PACIFIC WEST

EXHIBIT 2 Annual U.S. Skier/Snowboarder Visits, 1997–2022 (in millions)

Data Source: National Ski Areas Association, Vail Resorts

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CASE 25 Vail Resorts, Inc. in 2023 C-367

the structure of competition already had been chang- ing in dramatic ways. For example, a shift had taken place from a market environment ruled by year- over- year growth in skier demand and positive-sum behav- ior among industry competitors, to one dominated by flat demand, zero-sum gaming, and strategic alli- ances pertaining to jointly-sponsored ski-lift passes, which in 2022, was extended to several European partnerships.

While competitors continued to devise pro- grams to grow the overall-industry skier population, most recognized their dependency on such tactics described by VR as “attracting skiers away from other ski resorts, fending off competitors offering non-ski alternatives, generating loyalty incentives to attract more revenue per skier-visits, or encouraging more visits from each skier.” This zero-sum mindset created what VR’s president called an “arms race” among firms in developing on-mountain facilities, new village venues, social-media technologies, and skier incentive programs.

Adding to these factors was an evolving bifur- cation of ski industry players, partly as a result of maturing demand. For those with limited access to capital, developing off-mountain amenities and overnight accommodations was sacrificed to favor on- mountain infrastructure development, such as high-speed chair lifts, enclosed gondolas and snow- making equipment. As a result, most of these “old school” players became distinguished as “windshield” resorts, principally providing day-use ski slopes with few on-site accommodations, and usually requiring a same-day round-trip drive from an urban home.

For resorts with deep pockets, like VR, invest- ment in new elegant European-style villages with “ski-in ski-out” access transformed their sites to “des- tination resorts,” providing a complete recreation and entertainment experience, including upscale accommodations and “apre-skiing” activities for people who typically fly in to stay a week or longer. Extending upon this distinction, most of the better- financed destination resorts also had been shifting since the 2010s from a ski-resort image to an inte- grated “all-season” setting, featuring winter recre- ation as well as golf and tennis, on-mountain summer activities, convention venues, world-class performing arts, and international festivals.

The latest entry in this new 21st century approach had been Palisades (formerly Squaw Valley/Alpine), which in 2011 was sold to KSL

managerial employment vs. blue-collar/clerical jobs), lifestyle and other psychographic characteristics (e.g., cosmopolitan versus parochial awareness), and family makeup (i.e., singles/couples versus families).

In the instance of age distribution, the effects of generational evolution pose especially difficult strategic questions going forward. Historically, ski- ing demand and age have been correlated, with peak skiing interest occurring among people between 18 and 45. Hence, an aging population of post-war Baby Boomers (now mostly in their mid-60s) and late middle-age Gen Xers were thought to be a primary cause of the industry’s maturing demand. However, a secondary cause can also be attributed to less physi- cally active and less financially secure Millennials (ages 27 to 42 in 2023), who are currently the natural replacement stock for today’s aging skier population. As an age group, it may be too early to predict the impact of Gen Z.

Skiing is a rigorous and potentially dangerous outdoor recreational activity and requires physical stamina and a dose of youthful abandon. As baby boomers move into their senior years and family responsibilities become more important in determin- ing types of vacation venues, skiing’s reputation as an expensive, singles-oriented and physically demanding sport may be coming up short when matching it with future demand profiles. Many former skiers and the like have been moving to other segments of the vaca- tion and leisure industry where less physical activity was required.

Competition Among Winter Resorts in North America In 2023, there were about 760 ski areas in North America of which 462 were located in the U.S. Most were small day-use “windshield” operations located near metropolitan areas. The rest, fewer than 30, could be classified as destination resorts. In com- bined industry figures (both windshield and destina- tion) for the 2021–22 season, the United States had 60.7 million skier visits, and for all of North America, the total was 80.0 million. VR’s share of these totals was 25.3 percent and 19.5 percent, respectively.

Looking forward, interaction among industry rivals (especially in contriving new winter experi- ences and imagining new customer profiles), was likely to intensify competition and keep the winter resort industry in flux. Indeed, by the mid-2000s,

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single-resort operators. Vail Resorts was the largest player on the Pacific, holding 25.4 percent of the region’s 11.6 million skier visits, but more than 60 percent of its destination visits in the 2021–22 sea- son. Direct competitors in the California destina- tion ski resort market included Palisades Tahoe and Mammoth Mountain (both owned by Alterra).

The current market structure of destination ski- resort competitors came about in the years between 2005 and 2020, when a rash of consolidations and mergers reduced the field to a new “big four” (VR, Alterra, SKICO, and POWDR) and a few small specialized firms. Due to mismanagement and over- spending on development projects during the first decade of the 2000s, one firm (American Ski) was reduced to a small player, another (Intrawest) was forced into bankruptcy and subsequently acquired by Alterra, and another previously smaller firm (POWDR Corp) entered the “Big 4” elite standing. POWDR subsequently lost its major assets in Park City to VR, leaving the industry’s market power mostly to VR and newcomer Alterra (the SKICO/ KSL joint venture). With few exceptions, other firms that remain outside the big-four are operators of day-use windshield resorts, which have lower capital costs and offer few off-mountain amenities, activities and accommodations. Exceptions to this included destination providers Sinclair Oil (Sun Valley, Idaho) and Telluride Ski and Golf.

Consolidation and Increasing Rivalry in the Winter Resorts Industry During this period of industry consolidation, the technology-driven “arms race” in new capital- vintensive development sharpened the destination focus on such areas as (1) thematically planned vil- lages at the ski-mountain base, (2) costly snowmak- ing equipment to guarantee visitors a quality skiing experience regardless of the vagaries of natural pre- cipitation, (3) luxurious on-mountain restaurants to meet the cosmopolitan tastes of “high-end” skiers, and (4) mountaintop nonski recreation parks for tubing, ski biking, and other variant outdoor recre- ational activities.

However, even with these significant arms-race investments, the skier destination segment was not experiencing a corresponding response from the demand side of the market. Indeed, most of the big- four firms (and smaller ones as well) were showing

Partners (owned in part by former VR executives). With a well-publicized “retro-fit” strategy designed to join the “world class” destination market, KSL subse- quently formed a joint venture with Aspen’s SKICO to create a new firm called Alterra. By late 2016, the resort had received final government approvals for a massive $1 billion redevelopment with a 25-year build-out horizon. Focus of the makeover was on (1) connecting the previously separate resorts with a high-speed aerial tram, completed in 2022 and (2) a village expansion from 15 acres currently to over 100 acres, with visions of many new accommodations and entertainment venues. Phase 1 of the new Palisades was opened during the 2022–2023 ski season.

In contrast to windshield resorts which are ubiq- uitous across North America and make up most of the ski industry in site numbers and skier visits, the destination ski industry was more geographically confined to four “production” areas. These included the Rocky Mountains (Colorado, Utah, Idaho, and Montana), the California Sierras, southern Canada, and New England (especially Vermont and Maine). With destination resorts having the most market reach demographically and geographically, the Rockies claim to be the location of the best known and most visited because of its central and scenic locations, situated between population corridors on the east and west coasts.

Within the Rocky Mountain region, Vail Resorts held a 32.3 percent market share of the 25.3 million skier visits (combined destination and windshield) in the 2021–22 ski season. In the Colorado subset, VR accumulated more than a 50 percent share of the des- tination skier market, competing with the Aspen Ski Company (aka SKICO, which owned the Aspen-3 mountains and Snowmass, all proximally located in the Roaring Forks Valley), Alterra (which owned Steamboat and managed Winter Park), POWDR (which owned Copper), and several smaller destina- tion operators, such as Telluride Golf & Ski. In the Utah subset, VR held the vast majority of the destina- tion market with its Park City/Canons complex.

Beyond Colorado, the “big four” destination- resort firms held widely distributed operations, with most located in the Rockies, Pacific Northwest, the California Sierras, Northeastern U.S., and in Southern Canada (mostly Quebec and British Columbia). On the Pacific Coast, ski resorts draw fewer out-of-state destination visitors than Colorado, and industry competition tended to include smaller

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CASE 25 Vail Resorts, Inc. in 2023 C-369

To a great extent, the firm’s persistent market dominance was attributable to the fact that VR was the only firm in the industry able to achieve a “cooperative” administrative control over all aspects of its destination resort context (i.e., mountain activities, local accom- modations, village concessions, entertainment venues, airline and ground transportation), even though much of it was owned or managed by a host of other firms acting as an integrated network of “co- producers.” As a result of its management of these multiple-partner stra- tegic alliances, VR stands out among its competition in creating a superbly- packaged seamless destination product for the customer. Increasingly, its peripheral feeder system of urban resorts was adding value as well to the EPIC whole.

In addition to its domestic-market skiers, Vail Resorts was also looking to global markets as an important source of new growth. Although 80 per- cent of the world’s skiers live outside the United States (mainly in Canada, Europe, Oceania, Japan, parts of South America, and increasingly China), the firm’s customer mix typically includes only about 12 percent foreign visitors. Since the turn of the cen- tury, VR pursued an ongoing but as yet unfulfilled goal of raising that figure to 15 percent.

The firm’s global reach was marked by three of its resorts hosting past Winter Olympics.

continuing decline and further pressure to consoli- date. In the case of VR, the flat market conditions would also have likely stunted its growth potential had it not been for the firm’s acquisitions and promo- tion programs, especially its EPIC program. Indeed, the VR threat of preeminence in this period of stag- nating demand and intensified rivalry led Alterra to introduce IKON to mimic the enlarged product-line image of VR’s EPIC.

Moreover, destination-resort visitors were becoming choosier about the price-to-value of individ- ual resorts. It had become clear that most destination visitors sought additional “creature comforts” both on and off the mountain, and were willing to pay for exceptional luxury where quality was assured. VR’s industry leadership in moving toward this high-end market was reflected in Exhibit 3, which compares a selection of destination-resorts according to each resort’s annual skier visits during the 2021–2022 ski season (calculated as one skier or snowboarder purchasing a lift ticket for one day). Consistent with this data, most of VR’s resorts have ranked for many years in the industry’s top 10 by annual ski magazine surveys. Upon the firm’s acquisitions in 2017 of Park City and then of Whistler, VR solidified its position in holding the three most popular destination ski resorts in North America.

WHISTLE R (V

R)

PA RK CTY (V

R)

VAIL MTN (V

R)

BREKNRDG (V R)

MAMMOTH (A LT

ERRA)

KEYSTO NE (V

R)

BEAVER CRK (V R)

WIN TER PA

RK (A LT

ERRA)

COPPER (P OWDR)

HEAVENLY (V

R)

STEAMBOAT (A LT

ERRA)

PA LIS

ADES (A LT

ERRA)

NORTHSTA R (V

R)

SNOMASS (S KICO)

ASPEN/3 (S KICO)

TELL URIDE (T

G&S)

SUN VLY (S

IN CLA

IR)

KIRKWOOD (V R)

CRESTED BUTTE (V R)

0

0.5

1

1.5

2

2.5

EXHIBIT 3  Most Visited Destination Ski Resorts in North America, 2021–2022 Season (Annual Skier/Snowboarder Visits, in millions)

Data Source: National Ski Areas Association, Individual Resorts.

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Much of the public’s awareness of a human- altered and degraded environment came from indi- vidual experiences and personal knowledge of losses in biodiversity, growing pollution and threats of global warming. But some attention was also height- ened by protests made directly against targeted firms, some involving “eco-terrorism.” Most in the industry have been the subject of environmental litigation, varying degrees of non-violent demonstrations and media attention.

VAIL RESORTS’ STRATEGY AND PERFORMANCE Vail Resorts’ mission recognized the linkage between employees and the guest experience and stated “Our mission is simple—to create the experience of a life- time for our employees, so they can, in turn, provide exceptional experiences for our guests. Along with this declaration, five policy guidelines drove the firm’s strategic-action agenda:

1. Create new attractions to enhance consumer appeal.

2. Broaden VR’s participation in varied guest experi- ences (produce more services previously provided by co-producers).

3. Provide value through our passion for quality. 4. Leverage our strong market position. 5. Capitalize on industry consolidation

opportunities.

Nearly all of these alluded to a need for new ways to improve integration of resort services and a devel- opment strategy involving significant on-mountain expansion and new venturing in the firm’s destina- tion ski-in/ski-out villages. Succeeding Aron in 2006, CEO Katz continued to reaffirm and embellish this action agenda. Indeed, much of this agenda remains intact going into the 2020s.

Financial performance Vail Resorts was a mid-size corporation with $6.3 billion in assets and annual revenues of $2.5 billion in 2022—see Exhibit 4. The firm reports results according to three market segments it

Augmenting this world status, it maintains an aggres- sive international marketing program. In part, VR expedites this program by annually hosting one or more of the several World Cup ski events held throughout the world. In addition, it had managed to acquire the rights about once a decade as the exclusive host of the World Ski Championships, which culminates the World Cup series every two years and was the worldwide equivalent to football’s Super Bowl. Most recently, VR hosted the 2016 Championships at Vail and Beaver Creek, and fol- lowed this event with a worldwide “prestige and pro- motion” campaign promoting its North American destination resorts. Going forward, growth potential in international demand may come more from Asia (especially China) than from its historical draw in the Western Hemisphere.

The effort to promote its global markets, how- ever, was partially blunted by continuing terrorist con- cerns worldwide and subsequent stringent security measures following September 11, 2001. The rise of global terrorism served not only to create resistance from a foreign market but also to cause a restructur- ing of destination ski-resort competition. In addition, the more recent COVID pandemic terrorism and gun violence added uncertainties to international travel and further resistance to intercontinental jaunts. The long-term outlook for a worldwide market demand remains unclear, partially due to these factors but also due to employment-based service disruptions, continually fluctuating foreign exchange rates, and persistent “nationalist” issues in a nascent global economy.

In addition to the industry characteristics described above, the ski resort business also had become more complex due to a growing environ- mental ethic among recreation and leisure customers concerned about biodiversity and ecological sus- tainability. Since landmark legislation in the 1970s, environmental awareness had not only become insti- tutionalized (by the inception of new laws, organiza- tions and processes), but also acquired much broader appeal culturally, especially among younger people. The impact of respectability for environmental sus- tainability was especially felt by firms dealing with or affecting natural resources, a prime example of which are ski-resort operators.

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CASE 25 Vail Resorts, Inc. in 2023 C-371

EXHIBIT 4  Selected Financial Data for Vail Resorts, Inc., 2000, 2005, 2010, 2015, 2018–2022 ($ in millions, except per share data)

Fiscal Year Ended July 31: 2022 2021 2020 2019 2018 2015 2010 2005 2000

Statement of Operations:

Revenue

 From Mountain $ 2,213.1 $ 1,689.9 $ 1,710.4 $ 1,956.2 $ 1,722.9 $ 1,104.0 $ 638.5 $ 540.9 $ 373.8

 From Lodging 312.1 218.1 248.4 314.7 284.6 254.6 195.3 196.4 116.6

 From Real Estate 0.7 1.8 4.8 0.7 4.0 41.3 61.0 72.8 48.7

  Total Revenue 2,525.9 1,909.7 1,963.7 2,271.6 2,011.6 1,400.0 894.8 810.1 531.1

Operating Expenses  (excl. D&A)

 For Mountain 1,181.0 1,146.2 1,212.1 1,279.6 1,132.8 777.1 456.0 392.0 284.1

 For Lodging 509.9 223.8 245.1 289.6 259.6 232.9 192.9 177.5 103.6

 For Real Estate 5.9 6.7 9.2 5.6 3.5 48.4 71.4 58.3 42.1

  Total Operating    Expenses 1,696.8 1,376.7 1,466.4 1,571.7 1,396.0 1,058.4 720.3 627.8 298.8

  Net Operating Income $ 829.1 $ 533.0 $ 497.3 $ 699.9 $ 615.6 $ 341.6 $ 174.5 $ 182.3 $ 101.3

Gross Operating Margin

 For Mountain 46.6% 32.2% 29.1% 34.6% 34.2% 29.6% 28.5% 27.5% 24.0%

 For Lodging 0.0% (0.1)% 0.0% 8.0% 8.8% 8.5% 1.2% 9.6% 11.1%

 For Real Estate (742.9)% (272.2)% (91.6)% (700.0)% 12.5% (17.2)% (17.0)% 19.9% 13.6%

Net Income $368.3 $124.5 $109.1 $323.5 $401.3 $114.8 $30.4 $23.1 $10.0

Annual Capital Expenditures  (Operations) $193 $115 $172 $192 $141 $124 $130 $80 $57

Cash Flows

 Net Cash From   Operations $710.5 $525.3 $395.0 $634.2 $551.6 $303.7 $36.0 $148.2 $110.7

 Net Cash Increase/   (Decrease) $(132.5) $856.5 $283.7 $(66.7) $60.8 $(8.9) $(54.6) $90.3 $(9.5)

Balance Sheet Data

 Total Assets $6,318.0 $6,251.1 $5,244.2 $4,426.1 $4,065.0 $2,487.3 $1,922.8 $1,525.9 $1,135.6

 Long-Term Debt 2,670.3 2,850.3 2,450.8 1,576.3 1,272.7 814.5 526.7 521.7 394.2

 Stockholders’ Equity 1,612.4 1,594.6 1,316.7 1,500.6 1,589.4 866.6 788.8 540.5 475.8

(continued )

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Fiscal Year Ended July 31: 2022 2021 2020 2019 2018 2015 2010 2005 2000

CEO Monetized Compensation (salary + other comp, in $000)

 Adam Aron, CEO   (1997–2006) - - - - - - - $ 1,848.6 $ 686.3

 Rob Katz, CEO   (2007–2021) - $ 3,814.8 $ 2,789.9 $ 3,624.7 $ 7,995.0 $ 5,344.4 $ 2,999.4 - -

 Kirsten Lynch   (since Nov. 2021) $ 6,610.0 - - - - - - - -

Average Stock Price  Per Share $240 $315 $212 $218 $250 $109 $43 $24 $23

Cash Dividend Per Share $5.58 none $5.28 $6.46 $5.05 $2.08 none none none

Data Source: Vail Resorts Annual 10-K Reports, 2000–2022.

identifies as mountain, lodging, and real estate. Its 10 destination resorts account for more than 80 percent of VR’s revenues, with the remainder sourced from its 24 urban windshield resorts, its three Australian winter-destination resorts, and the Grand Tetons Summer Resort. Its most recent acquisition in the Swiss Alps occurred late in 2022, and therefore financial results for it that year were not reported.

The firm’s financial results are greatly attribut- able to management’s long-term strategic choices, as well as dynamic market conditions and growing weather uncertainties. Nevertheless, total revenues have improved more than five-fold over the last two decades, due principally to robust on-mountain sources as well as (1) the addition of new sources of off-mountain operating revenues (especially lodg- ing), (2) the initiation of summer-season activities (reflecting movement to an “all-season” strategy), and (3) success of its EPIC program in integrating VR’s customer image across its destination resorts and its North American feeder-network of urban windshield resorts.

Regarding a desire to spread financial risk, VR continues to diversify its product line. Historically, more than 95 percent of its revenues came from the five-month ski season. With implementation of its “all-season” strategy at its various ski resorts and expansion of activities at summer resorts like its Grand Tetons facilities, the winter contribution had been reduced to about 70 percent of total operating sources.

Although real estate sales make little direct con- tribution to VR’s total revenues, they nevertheless are

important to the firm’s growth strategy because they feed future resort revenues by expanding the visitor bed base (especially from rental units known as “hot beds”). As a destination-resort provider, the firm depends on growth in total capacity of overnight accommoda- tions and the occupancy rate. The hot-bed concept encourages rentals which maximize occupancy with- out requiring the resort owner to put up capital for bed capacity. VR’s lodging control was maintained instead by dominating the guest reservation and hospitality systems which it operates on a fee basis.

For public firms, a comprehensive indicator of managerial success in implementing a well-designed strategy was usually found in the firm’s long-term stock price. In VR’s case, the picture had been an evolving work-in-progress, as shown in Exhibit 8. During the formative years of Aron’s term as CEO, the firm designed much of the substance of its strat- egy that remains in place today. However, it wasn’t until Katz took it to the next level, integrating all the pieces which Aron had put in play, that the results became publically recognized. Hence, the stock’s current price, representing an eight-fold increase since 2010 was best understood as a reflection of their dual efforts.

STRATEGY IMPLEMENTATION AT VAIL RESORTS With Vail Resorts’ commitment in the mid-2000s to an all-season growth strategy, the ensuing years unleashed a cascade of managerial events and

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CASE 25 Vail Resorts, Inc. in 2023 C-373

Over the years, the progression of reorganiza- tions created new corporate needs and expectations in human resource management. Driving these was the adoption of a new personnel credo:

At Vail Resorts, we believe in Customer-Focused Teamwork striving to Continuously Improve our Process Management skills through Fact-Based Decision Making to Enhance Customer Satisfaction and Retention and Shareholder Value (i.e., company profits).

As part of implementing this managerial credo, the firm engaged in ongoing talent searches for more and different professional expertise, which would require new approaches to motivating, retaining, and directing the best managerial employees. In recent years, the firm would also make dramatic improve- ments in employee productivity at both management and nonmanagement levels. To control the more complex information flows, VR created a new posi- tion of chief information officer, which oversees MIS, web design, and the firm’s cyber-technology subsidiary, called RTP.

VAIL RESORTS IN MID-2023 Over the last decade, however, the substantial corpo- rate growth came with a “changing of the old guard.” Attendant with CEO Aron’s departure in 2006, other key executives also moved on, including Daly, the firm’s original president (who went on to become a two-term mayor of the Town of Vail), one COO (lost to Telluride), several presidents of the Mountain Segment, one vice president of Vail operations (lost to KSL), three corporate CFOs (not counting one lateral transfer), four marketing vice presidents, three heads of lodging, and countless numbers of less senior executives. In 2006, a decision was also made to sever its corporate-level community ties to the Vail Valley by relocating its headquarters from Avon (near Vail) to Broomfield Hills (a Denver suburb).

The Katz leadership team would continue imple- mentation of much of Aron’s strategy by further leveraging off its earlier acquisitions, picking the fruits of industry consolidation, and investing heav- ily in resort development. Emphasizing continuity in the firm’s strategy, Katz would ask rhetorically: “Why Vail Resorts?” On behalf of five stakehold- ers, he defined as “our guests, our employees, our communities, our natural environment, and our

consequences. Indeed, the sheer complexity of com- bining and integrating internal capital investments and acquisition resources made necessary a massive reorganization of authority and a huge increase in the number of employees. Even though happening over 20 years, the changes in scale included a tripling of the firm’s employment base by 2021. At seasonal peak, VR employs over 40,200 seasonal people on top of its permanent year-round employment base of 6,100.

As a result, the original organization structure progressively underwent a transformation that took into account the massive increase in the diversity of new resources, product-markets, managerial cultures, personalities, and expertise. VR was organized with a mix of structural forms including functional hierar- chy, several kinds of divisions, and a partial matrix. A major accomplishment of the reorganization was separating management of the ski resorts and other product lines from general management func- tions. These production units were then divided into three activity segments, identified as “Mountain,” “Lodging,” and “Real Estate.”

To preserve the simultaneous organizational needs for differentiation of organizational specializa- tions and integration of authorities engendered by the firm’s synergistic complexities, three structural components were put in place. First, at the core of the business, each ski resort was given a separate pro- duction authority headed by a chief operating officer (COO). This meant each had control over the man- agement detail of designing and operating everything from grooming schedules, to customer reception activities, to ski-school programs, to food services, to purchasing and maintenance. Although market- ing was shown as a corporate function, the firm uses a “brand management” scheme built around each resort operating as a distinct brand within the VR family of iconic products.

Second, to ensure consistency with Vail Resorts’ overall corporate quality and image, each resort COO reports to the Mountain Segment vice president, who acts as a “peak coordinator” in making companywide policies pertaining to overall corporate production issues. Third, a partial matrix was set up consisting of the individual resorts and five corporatewide func- tions (highlighted on the organization chart in bold). For example, each resort had a marketing brand manager who simultaneously reports to their respec- tive resort COO and to the senior vice-president for marketing at the corporate level.

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C-374 PART 2 Cases in Crafting and Executing Strategy

agitation and conflict at many of the firm’s 24 feeder resorts, some observers were wondering whether the unfinished business of implementing the EPIC strat- egy lay principally with brand management or with an entrepreneurial approach to resort operations and local personnel. Equally concerning was whether the recent growth had made VR more “corporate” in focus, and further detached from its “ski town” local communities.

shareholders,” he reiterated a long-standing theme of offering extraordinary resorts and exceptional experiences.

This vision continued into mid-2023 even though Katz transitioned in 2021 from VR’s CEO to “Executive Chairperson of the Board,” leaving the CEO role to his protégé, Kirsten Lynch, who as senior vice president of marketing, had spearheaded the firm’s EPIC brand. However, given the considerable

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