Broker’s Report, March 13, 2016 –– Maybe $1,000 ski passes are a good idea?

Update March 28, 2016: For those of you who don’t subscribe to my bi-weekly newsletter this was from yesterday’s issue.

The Ski Area ended up offering $699 ski passes for 2016-17 season if previous pass holders purchased in the three day span of March 21-23. It was a last minute announcement and most were notified by a postcard in the mail. The Mountain acts more amateurish as time goes on. Many asked; why the need for a hasty 72-hour “sale?” But since “servicing debt” is the pre-occupation of the Ski Areas administration one can only assume that there is a large end-of-the-quarter interest payment due.

I reviewed my own confusion and mis-interpretation of the 2016-17 pass pricing and in my notes I have a perfect screen shot of the “Premium Pass” page (I’ve been dreaming of a ski vacation) and it is explicit what the ’16-’17 pass price is/was. It wasn’t the 72-hour price or the current price. I’ve concluded it was either some deliberate confusion or sloppy web page building. And I wasn’t the only one mis-interpreting the information.

But some of the reactions I experienced were fascinating!

• The economic “elasticity of demand” is apparently alive and well with Mammoth Mountain ski passes. At $999 a very significant number of previous pass holders expressed they would “pass.” But at $699 they were eager to purchase. We now know what the upper threshold of season pass pricing is. The nebulous price plan and confusion could have been a perfect test to see what the market would bear. It won’t bear $999.

• Nobody I communicated with cares one-bit about the opportunity to ski at the Big Bear resorts. And that adds no value to the pass. But as I pointed out in an associated blog post, Vail Resorts sees “feeder” ski areas in close proximity to major metropolitan areas as the future to grow the season pass numbers. They can tout the benefits of the Big Bear experience, but they are simply feeder resorts to hopefully cultivate more pass sales in the future. And emulate the Vail Resorts strategy.

• Many Mammoth pass holders did respond that they would gladly pay $1,000 for a pass that would include Mammoth and the Vail Epic Pass resorts. That might be the best news. That trend could add real value to the Mammoth enterprise. I hope I live long enough to see it to fruition.

• Some pass holders chastised my math; they clearly see the “resort credits” of the past two drought seasons as having 100% cash value. Ridiculous. Next they’ll be rationalizing that if they purchase $4,700 worth of the 15% Bonus PassCash (good through April 5) that they got their ski pass for free. Smart move for some.

• Many pass holders are looking at the Ski Area with a new level of distrust based on Rusty Gregory’s comments that he will close the Sierra Star golf course because it is not profitable. And the lack of transparency on the ski pass pricing and the 72-hour sale made it all appear “like a Sham-Wow infomercial.”….I also have a screen shot in my notes of Vail Resorts’ pass programs; one page with all four pass offerings clearly spelled out and nothing to be confused about. Maybe the transparency is why they have 500,000 Epic Pass holders. I’m glad Mammoth’s lift maintenance, grooming and Ski Patrol aren’t run this way; they are the saving grace.

Why is any of this important to the Mammoth real estate market? When the Mammoth Value Pass was introduced over a decade ago it changed the demand dynamics for local real estate. Especially in the low-end of the market in what I subsequently dubbed “crashpads.” It still drives strong demand for these affordable properties. Quite frankly it has created price stability in this segment of the market. Without this demand most of the condo projects with small affordable condos would be full of long-term rental housing. The overall quality and value of the projects would likely be very different. And there is no doubt the Pass program has helped generate demand in all segments of the Mammoth real estate market.

The Value Pass program has had many other impacts. It has created seasonal rental demand that has helped maintain long- term rent stability, even through economic downturns and drought winters. The program has increased transient rental demand which in turn generates more bed tax for the Town. And the underlying premise of the Value Pass is that the consumer will have more discretionary dollars to spend on goods and services. Every Mammoth Lakes retailer and food/bar establishment benefits from that. This was all part of the Intrawest business philosophy to raise the gross daily revenue per skier day. They often referred to it as “creating a third spending cycle.”  It has been very successful for the industry and it flows though the associated communities.

Here’s the original post…

I started discussing this in my Bi-weekly newsletter (today’s) and decided it was worthy of a longer discussion. There will likely be an uproar about this but maybe it is a sign of something else.

The Ski Area recently posted their season pass programs for 2016-17 and many people are a bit shocked. It appears that the “Value” pass is gone. What has been the Value Pass the past decade or so is now going to cost $999 (but you still get to ski at Big Bear). This is a big price increase and the word isn’t out yet. And there has been no explanation for the ~25% increase, just here it is. It is a “4” resort pass even though most Mammoth pass holders don’t really care about two of the ski areas and rarely visit the third one.

Obviously they want to test the demand. These are back to the prices of season passes before the Mammoth Value Pass. Back then they used to sell 1500-2000 a year depending on the season. Back then you didn’t pre-purchase, you waited to see if the season was going to be good. There were seasons in the late 1980’s that I didn’t buy a pass. These were drought years and there was no snowmaking.

Meanwhile, Vail’s Epic Pass will cost $809 for the 2016/17 season. It is good at Vail, Beaver Creek, Breckenridge, Keystone, Park City/Canyons, Heavenly Valley, Northstar, Kirkwood and others. It is unlimited. Vail also offers a “Tahoe Local Pass” for $529 which is good at Heavenly, Northstar and Kirkwood with holiday black-out dates. It also includes five days at the other Vail resorts. As you can see there are other deals to fit different pocket books and ski desires.

So Mammoth Mountain has taken a bold step with aggressive pricing for their season pass. It is like the “old days” when season passes came with a significant price. Almost a luxury. Of course the basic lift ticket price has gone up too. We’ll see if the numbers fall off. Or not. Maybe they think the southern California economy is so good that the price will be supported. Maybe it will mean fewer skiers on the mountain.

The CEO of Vail Resorts was on CNBC last week and he reported that Vail has seen a “double digit” increase in Epic Pass sales. It is reported that they sell more than 500,000 season passes and pass holders come from all 50 states and 80 countries internationally. The Epic Pass is considered by many as “the ultimate travel loyalty program.” The value of their stock is also up 53% in the past 12 months. I wonder if there is a correlation.

But there is something else interesting about some of Vail Resort’s recent reporting. They note that part of the Epic Pass success is a new strategy they embarked on in December 2012. That strategy is to create a pipeline of future skiers an snowboarders (and Epic Pass holders) by acquiring two small ski areas near major metropolitan areas with substantial populations of skiers. They are Mt. Brighton outside of Detroit, Michigan and Afton Alps outside of Minneapolis. And they have now expanded to Wilmot Mountain which is 65 miles north of Chicago. These are considered “feeder” ski resorts.

So now Mammoth Mountain’s acquisition of the Big Bear resorts is making sense. They are natural feeder resorts to Mammoth Mountain. Not only it is a trend in the ski resort industry but it may be an important step to making Mammoth a extremely valuable acquisition target for Vail Resorts. But the Mammoth Mountain people know a potential selling price would have to be substantial to satisfy the debt, investors and owners. For Vail Resorts, maybe a significant amount of pass holders paying more than Epic Pass prices and having a couple of feeder ski areas at the fringe of the massive southern California demographic could warrant a big acquisition price. The privatization of the Main Lodge area property could be icing on the cake.

Besides successfully selling season passes, Vail Resorts has led the industry towards “dynamic pricing” that reflects the demand of the particular day. Holidays and Saturdays can run as high as $165 at Vail. The industry is trying to incentivize more advance purchases. At Mammoth they don’t even post prices; the walk-up price is determined by some algorithm.

Vail Resorts was recently named one of the “World’s 50 Most Innovative Companies” by Fast Company magazine. The Epic Pass is noted as the cornerstone of that innovation.

We’ll see if Mammoth can remain competitive with their new season pass prices. And maybe there will be a silver lining down the road. Or maybe nothing will change at all.