The Tragedy of Expertise

What is Vail doing?

Vail Resorts is a diversified ski-resort operator. They own four ski resorts in Colorado, three in the Lake Tahoe area, and one in Utah. They also own luxury resort hotels. Vail was opened in 1962 by a former 10th Mountain Division ski trooper, who saw what European skiing was like and thought the sport could be popular over here if developed properly.

Vail was successful and skiing took off in the US. But the ski business is difficult. Several operating companies have gone in and out of bankruptcy over the year, including Vail. The sport has high operating costs and a fickle customer base, and is notoriously weather-dependent.

The normal approach to uncertainty is diversification, at least in portfolio management. So Vail has started to purchase some ski areas in Minnesota and Michigan. But other than the fact that they both use snow, the ski business in the Midwest is very different than that it is in the Mountains: the hills are about one-tenth the size, sometimes built from landfill and construction debris.

We’ve seen this movie before: an operator succeeds in one area, so tries to parlay than expertise somewhere else. Vail’s top executives are former private equity guys. Just because you can run a high-end restaurant doesn’t mean you should buy the local bistro. Skiing may be a lot of fun, but it’s a tough business.

Douglas R. Tengdin, CFA

Chief Investment Officer

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