IVGID GM’s Corner: Diamond Peak’s business model is strong | SierraSun.com

IVGID GM’s Corner: Diamond Peak’s business model is strong

Steve Pinkerton

The more things change, the more they stay the same. That was the phrase ringing through my head after reviewing the past 40 years of financial history for Ski Incline/Diamond Peak.

In the early '70s, there was debate about whether or not to purchase the privately held, poorly maintained ski area. The 1980s marked discussions regarding the management alternatives for the ski area and then a robust debate about expansion. Throughout the '90s and new millennium, new ski lifts, expanded snowmaking, and replacement of the lodge and skier services building were the big focus.

While the debates changed, the ski area continued to consistently generate annual skier visits of 120,000 in good snow years and around 100,000 in drought years. Other than 1990, the operating revenues always exceeded operating expenses.

In good years, there was enough cash flow to cover capital expenditures as well. The biggest single period for investment was 1986-88 when the mountain was expanded. The next biggest investment was 2008-2010 when the Main Lodge was expanded and updated, the new Skier Services was built and our snowmaking system was brought up to modern standards.

During the last 30 years, the resort generated a total of $22.5 million in positive cash flow and around $35 million was spent to maintain the ski area's capital stock.

Given that we've still got plenty of useful life left in much of our capital stock, I would argue that Diamond Peak has been a pretty good investment of District dollars during that time.

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Looking forward, we don't foresee a lot of large capital projects needed over the next two decades — many of the costs are to maintain the existing infrastructure. In addition, our staff has developed a business model over the past two decades that isn't completely drought resistant, but mitigates the volatility of revenues due to climate risk as much as possible.

The current business model focuses on value-oriented families with children under the age of 14. This group finds our small mountain with reasonable lift ticket prices and plenty of beginner lesson opportunities most appealing.

Lower lift ticket prices help spur more spending for lessons, rentals and food and beverage. In addition, ski conditions aren't as important when the ski visit is focused on family and ski lessons.

Our business model has been fully validated in the first two months of this year's challenging ski season. Despite our late opening and very little snow, we exceeded our anticipated revenue numbers year-to-date and expenses are down due to the late opening.

In fact, we exceeded our January revenue budget by 4.5 percent and are 37 percent ahead of last January despite experiencing one of the warmest Januarys on record.

We could not have hit our January numbers without our extensive snowmaking system. As we've noted before, Ski Incline was the first the ski resort in the Tahoe Basin with snowmaking, and the community has allowed the resort to reinvest and update the system consistently over the past 25 years.

None of the other smaller ski resorts in California have made this significant investment. In fact, our peer ski areas have all experienced significant operating losses the past two years during the extended drought. While we continue to generate significant revenue, a couple of our peers have been closed for the majority of the current season.

Even during good snow years, our ski area has steadily outperformed our peer group. In 2010-11, the last pre-drought season, our operating revenue was 50 percent above our peer group, our labor expenses were ten percent lower and our profit per skier was triple the group average.

There is no doubt the gap between Diamond Peak and its peers will be even more significant this year. There will be some who debate the validity of our numbers and how we do our accounting.

There are some costs that could be attributable to Diamond Peak that are charged to IVGID's general administrative accounts, but Diamond Peak also has a number of expenses that are likely higher due to being part of a governmental agency as well.

In addition, unlike our peers, Diamond Peak provides significant resident discounts not available at any of the privately held ski areas. None of our peer group has a $25 lift ticket!

At the end of the day, these cost and revenue factors balance out — and I would argue that the financials provided for Diamond Peak are a very fair reflection of our cost and revenue structure.

In a future column, I will talk a bit more about our view regarding Diamond Peak's future financial opportunities and challenges.

"GM's Corner" is a twice-monthly column from Incline Village General Improvement Distinct General Manager Steve Pinkerton, who will discuss issues and offer updates regarding various district matters.