If the deal is priced in pesos
June 7, 2013
Like many of you, my week has been filled with conversations and speculations about the Vail/Canyons deal. The conspiracy theorists have had a field day with speculation over what it means with the PCMR lease and lawsuit, the Solitude gondola proposal, and the price of lift tickets. Employees of Canyons are concerned as rumors of a corporate SWAT team coming in to thin the herd swirl around. Meanwhile, owners of ParkWest-cum-Vail condos were buying lunch for their friends.
At one point I thought I had it all figured out. If the deal is priced in pesos, it makes perfect sense. If it’s 25 million pesos, the rent seems in line with what I’ve seen in similar deals through the years.
But when I looked at the information available online and elsewhere, it was clear that the deal is priced in dollars. Twenty-five million bucks a year in rent, plus a revenue share of 42 percent under some circumstances. It was hard to make sense of that. Six years ago, $120 million bought the whole place, including the real-estate development potential. Historically, that’s where the big money has been made. Now, $25 million leases only the ski resort operations lifts, lunches, and lessons and whatever they can make in the summer.
Vail’s president said they were essentially booking it as a $300 million debt, in other words valuing it as if they had paid $300 million for the smaller, real estate development-free, package. Talisker has made some significant improvements in the years since buying it, the economy is rattling back to life, and things look a little brighter now. But do things look $180 million, minus the development profits, brighter? I guess that depends on the color of the lens in your goggles.
Anyway, the comparisons that led me to the peso conclusion were wrong. The deals I was considering were leases of bare ground. The Forest Service or some sheep rancher would lease bare ground that was too steep for anything other than falling down on, and the resort owner/tenant would be responsible for everything else. That would include the zoning approvals, lift installation, snow cats, water and sewer, and everything else on down to the ketchup dispensers in the yet-to-be-built restaurants.
The Canyons deal isn’t that. It’s turnkey. There is a crew of competent and experienced (and perhaps nervous) employees already in place, ready to flip the switch and open up when the time comes. Although we all hope they continue making improvements, they could start up next fall without any unusual expense. The most complicated thing Vail will have to do is get the Utah liquor licenses transferred, and while that is no small feat, it’s not like starting from scratch. Vail leased the going concern: the whole kit and caboodle. They got everything from the new orange bubble to the ancient Indian curse.
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There is real value to a going concern. Canyons has a brand that probably has a lot more power behind it nationally than it does locally. In the local market, it’s still muddled because "the canyons" will always mean Big and Little Cottonwood canyons. The fact that three different owners have stuck with that name indicates pretty clearly that their future is not dependent on day skiers from Salt Lake any more.
So when you factor all that in there, the rent obviously should be significantly higher than a lease of bare ground. I’m still stunned at the price, but it has gone from full-blown-heart-attack stunned to merely jaw-dropping stunned.
Meanwhile, back at the ranch, summer has come on nicely. The hay is practically exploding with growth, and so far it hasn’t frozen. There was ice on the pasture the other morning when I went out to move the water, and I never really feel safe from frost until about the 12th of June. But so far
The water supply will be tight this summer. The river has already dropped a lot, and with the lame snowpack from last winter, it can’t hold up for long. So we’re irrigating everything as heavily as we can, practically drowning some pastures. The theory is that if we really soak it up now, it will remember all that water and keep growing in August. Or maybe the water table will stay a little higher and the roots can reach something other than dust. It’s the camel theory of agriculture.
It’s a little bit like taking two showers on Monday because you know you are going to go for a bike ride and get all sweaty on Thursday. It may not be the best logic, but it’s all I’ve got. And logic plays very little role in farming in this climate anyway.
Tom Clyde practiced law in Park City for many years. He lives on a working ranch in Woodland and has been writing this column since 1986.
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