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BFD Expert Voices - Climate Deals

BFD Expert Voices

Vail Resorts and Alterra Mountain Company, America's two largest ski resort operators, are in a season-pass showdown, competing in a race meant to address both cash flows and climate change, Alan writes. 

Why it matters: The growth push by both companies has reshaped the nation's map of ski trails and significantly changed the experience for snow lovers — some say for the better, some say for the worse. 

State of play: Warming temperatures are eroding the ski season by weeks or even a month at certain destinations, particularly in early winter and spring.

That means less money for operators and more reasons to pursue added cash flows and top line growth. 

What's happening: Alterra's Ikon Pass and Vail's Epic Pass have brought dependable revenue streams to an industry whose fortunes once rose and fell on the weather.

"The No. 1 strategy to navigate that is advanced commitment. I cannot emphasize enough how much important stability that creates for our mountain resorts," Vail CEO Kirsten Lynch tells Alan.

Zoom in: Both companies have beefed up their season-pass participation through consolidation moves.

Alterra is focused on partnerships: The company owns 15 resorts, but its Ikon Pass season ticket can be used at another 39 destinations.

Vail is focused on acquisitions. It owns 41 resorts outright. Telluride is the only Epic partner Vail doesn't own. 

Be smart: "Geographic diversity creates a weather edge — for both us and our pass-holders," Alterra CEO Jared Smith says. "If it doesn’t snow great in California, you have access to 50 other mountains."

It seems to be working. Last season marked the busiest ever for U.S. resorts.

Both Alterra and Vail saw big bumps in midweek and similar off-peak visits — a trend they each attributed to season passes.

By the numbers: Vail expects this year to reap $800 million in revenue from its Epic Pass and similar advance-commitment products. 

Those pass holders will account for a whopping 70% of visits to the company's resorts. 

"The goal is to move as much of our lift revenue as we can — 75% or more of our lift revenue — in a pass, because that creates enormous stability," Vail's Lynch says.

Between the lines: That revenue means more investment in climate-resilience infrastructure like snow-making.

👀 What we're watching: How Vail and Alterra further monetize their operations — especially as the number of snow days shrinks. More on that below.

1 big thing: Resort duopoly moves mountains

Illustration of a person skiing on a mountain made of money.

The winter outdoor recreation industry is grappling with how to adapt to a changing climate and mitigate its impact on the climate, Megan reports.

Why it's the BFD: Key economic drivers for counties and towns, ski resorts face constant threats of low snow winters and wildfires in summers. 

Threat level: Roughly 75% of ski resorts had invested in sustainability initiatives as of 2018, per an economic report from Protect Our Winters, as the effects of climate change have become hard to ignore.

Alterra addressed low-hanging fruit such as switching out lightbulbs while looking at longer-term solutions like on-site renewable energy generation, Alterra's VP of sustainability Darcie Renn tells Megan.

Vail Resorts invested in the 230MW Nebraska-based Plum Creek Wind project, its head of sustainability, Kate Wilson, says. 

Zoom in: Mountain town residents, resort employees and advocacy groups don't think resorts are doing enough with their economic and political capital.

"The resorts are big customers for the power companies and they do have an ability to say, 'Hey, we want clean energy and will write big checks for that,'" Protect Our Winters founder and professional snowboarder Jeremy Jones says. "These resorts don't use any of their power, and that's been really frustrating."

Housing affordability in mountain towns has been scrutinized as many resort employees are pushed further away from their workplaces and forced to commute longer distances, generating more Scope 3 emissions, Rocky Mountain Institute's Rushad Nanavatty says.

What's happening: Ski resorts have added summer recreation and events businesses to help offset the unpredictability of winter revenue lines. However, summer recreation is increasingly at risk due to drought and wildfires.

Low snow years are associated with a decrease of nearly $1 billion in added value compared to average snow years, the 2018 POW economic report found. Summer recreation is one way to make up for that, the report states.

"The time to talk was yesterday," Dr. Elizabeth Burakowski, one of the report's authors, says in an interview.

The bottom line: "I hope that most skiers can take the next step and look beyond their life to those that are not economically privileged to ski and are shouldering the impacts of climate change with the fewest resources to address it. It's a much bigger problem than skiing," Burakowski says.

2. The BFD: Resorts stare down climate change

Illustration of a person on skis jumping over mountains made of fire

Ski resorts are a tricky problem to solve for the host of startups already trying to retrofit existing buildings to be more sustainable, Megan reports.

Why it matters: Ski resorts are, in effect, large, luxury real estate markets — the ideal property layout for climate-focused retrofitting startups. 

However, a specific set of challenges make the ski industry and its properties less appealing to venture-backed startups. 

Context: A wide range of startups are working on sustainability improvements for real estate holdings, from those that make new heating and cooling units for commercial buildings to those that model solar installations for individual homeowners.

Fifth Wall, a real estate-focused venture capital firm, launched a $500 million Climate Fund in July to focus specifically on the real estate startups that were addressing sustainability issues.

State of play: The ski area opportunity is evident for companies working on climate-friendly upgrades, but the concern is sustainability becoming a "nice to have" for resorts. Examples of potential partners include:

RoadRunner Recycling, an on-demand recycling startup, could help address resorts' waste management needs, especially given their remote locations.

EV charging infrastructure startups would support both lodge guests and an electrified bus fleet.

Heating and cooling companies, particularly those working on heat pumps, would be able to help resorts manage rising energy costs in both winter and summer.

Yes, but: Ski resorts are often in remote locations without access to the resources typical in major metropolitan areas.

And as the ski industry consolidates, commercial contracts are often difficult to come by for younger companies.

Also, the ski and snowboard industry is relatively small and just not big enough to support multiple venture-backed businesses that require high growth to survive, Fifth Wall vice president Francesca Whitehead says.

"It is something where you need the market share, a really high percentage of market share, to go after a niche application and make it viable," Whitehead says.

The bottom line: Ski resorts need to figure out their sustainability priorities, fast, and there are a handful of startups able to make that happen.

3. Dry powder struggles to boost ski-friendly startups

Illustration of a large penny sitting on a chairlift with mountains of cash in the distance

Mega-developer Extell is building the country's first new ski resort since the 1980s, Alan writes.

Why it matters: It's not located way up north or at the top of some giant peak. It's at relatively low elevation — in water-parched, fire-imperiled Park City, Utah.

What's happening: An affiliate, Extell Utah, is investing at least $2 billion to build Mayflower Mountain Resort, adjacent to Deer Valley Resort. 

It'll feature about 15 lifts and a gondola for about 115 trails. 

The resort is planning a soft launch in the 2024-25 season, with a grand opening slated for the following season.

Details: Extell plans to retain ownership of the resort but to lease the property or its operation to a third party — almost certainly Alterra, which owns neighboring Deer Valley Resort. 

"Extell is working in good faith with Alterra in hopes to have a mutually beneficial ski operations deal, which would include leasing the land to the operator," Kurt Krieg, executive vice president of resort development at Extell Development Company, writes in an email.

The intrigue: The resort's base is 6,500 feet — not the lowest elevation, but modest in the Intermountain West, in the context of warming temperatures from climate change.

An EPA-funded study in 2017 concluded that elevation is a critical factor for resorts' climate resilience. 

What they're saying: "Yes, these are hurdles. But just this year, everyone was saying, 'We're never going to see snow again.' We just had more snow in the last two weeks than we had in all of January," Krieg says.

He adds that the resort's orientation brings "colder temperatures than other areas," enabling further snow-making.

4. Coming soon: the first new resort in 40 years

Illustration of a builder measuring the width of a mountain peak.

Vail and Alterra each anointed a new CEO in the past year or so: Alterra recruited Ticketmaster honcho Jared Smith, while Vail promoted its marketing chief Kirsten Lynch. 

Why it matters: Smith and Lynch bring different backgrounds to the job but they're facing the same mandate: guiding their companies through new phases of development and through the threat of climate change. 

What's happening: Smith and Lynch replaced veteran chief executives who shepherded enormous transformation in the industry.

Smith took the helm from Rusty Gregory, who spent 40-plus years rising through the ranks of the ski resorts industry. 

Lynch replaced Robert Katz, a company leader since the mid-1990s.

Zoom in: Those predecessors pushed their resorts from shaggy, boom-and-bust operations held together with six packs and ski wax into professionally run, family-friendly behemoths.

Catch up fast: Alterra burst onto the scene in 2017, when the owners of investment firm Henry Crown & Company and private equity firm KSL Capital acquired Intrawest Resort Holdings and Mammoth Resorts. 

Vail roughly doubled its holdings in 2019, when it acquired 17 resorts through its purchase of Peak Resorts for $264 million.

What's next: Now Smith and Lynch are responsible for steering their sprawling organizations into a more nimble, digital-first era that's being squeezed by warming temperatures, drought and wildfires.

What we're watching: How Smith and Lynch respond to investor pressure to find new revenue streams — especially as skiers and snowboarders bemoan eye-watering lift-ticket prices, expensive resort lunches, costly rentals, paid parking and interminable lines and traffic.

5. Changes at the tops of the mountains

Jared Lynch, CEO of Alterra Mountain Company (left), and Kirsten Lynch, CEO of Vail Resorts. 

Jared Smith, CEO of Alterra Mountain Company (left), and Kirsten Lynch, CEO of Vail Resorts. Photos: Rachel Murray/Getty Images and Hyoung Chang/The Denver Post

• Aquaconnect, an India-based aquaculture management provider for seafood cultivation, raised a $15m Series A led by Lok Capital. Louis Dreyfus Company Ventures and Suneight Investmen participated. https://axios.link/3BQrctG

• SLC Agricola, the largest agricultural producer in Brazil, announced it’s investing in the Series A round for Pink Farm, a Brazil-based vertical farming startup. https://axios.link/3G5yAmD 

• EQT, the Stockholm-based private equity firm, agreed to acquire Madison Energy Investments from affiliates of Stonepeak Partners, a New York-based infrastructure investor. Madison Energy, based in Vienna, Va., develops, owns and operates solar and storage projects for the C&I and community-scale markets. https://axios.link/3FIHRRf 

• Tesla informed employees it's implementing a hiring freeze and planning another wave of layoffs in Q1, per Electrek. https://axios.link/3HTgiHp

The move follows Elon Musk's expensive acquisition of Twitter. 

• Ecarx, a China-based mobility tech company, completed its merger at an implied $3.82b equity value with Cova Acquisition Corp. It had raised over $400m from firms like Geely Automobile and China Reform Holdings. https://axios.link/3YHxWEg

• Sparks Energy, a Danville, Ala.-based provider of power infrastructure services like storm response, agreed to go public at an implied $475m valuation via 10X Capital Venture Acquisition Corp. III, a SPAC which previously terminated an agreement to buy Senegal-based alfalfa farm operator African Agriculture. https://axios.link/3YGyN7V

• Tüv Süd, a Germany-based technical and safety certification provider, acquired Ruby Canyon Environmental and Ruby Canyon México, together a greenhouse gas accounting, reporting and auditing company located in Grand Junction, Colo., and Mexico City. https://axios.link/3v8OGH2 

• Plant Agricultural Systems, a Ft. Lauderdale, Fla.-based provider of retail data for produce, is acquiring MightyVine, a Rochelle, Ill.-based glasshouse tomato producer. https://axios.link/3WBAJNc 

• Tylin, a Canada-based infrastructure consulting firm, acquired Greeley and Hansen, a Chicago-based water infrastructure engineering firm. https://axios.link/3hLP7E4 

• Enviva, the Bethesda, Md.-based industrial wood pellets producer, signed a 10-year take-or-pay offtake contract with an undisclosed existing European customer, extendable for up to five years. https://axios.link/3FJw852 

• European Lithium, which is in a proposed SPAC merger with Sizzle Acquisition, signed a binding six-year lithium offtake agreement with German automaker BMW, which will make an advance payment of $15m. European Lithium, based in Australia, is focused on lithium exploration and development in Austria. https://axios.link/3PJ4w4m 

• Fulcrum BioEnergy, a Pleasanton, Calif.-based fuels producer, said it produced synthetic crude oil using landfill waste as a feedstock at its Sierra BioFuels Plant. https://axios.link/3G8SNcc 

• VinFast, the Vietnam-based automaker, said its first shipment of EVs has arrived in the U.S. The company expects to start making deliveries by the end of the year. https://axios.link/3jfoXtz 

According to the folks at the cars website Jalopnik, there’s plenty to be skeptical about.

• Archer Aviation, the Palo Alto-based eVTOL developer, announced that the proposed airworthiness criteria for its five-person Midnight aircraft were published in the Federal Register by U.S. Federal Aviation Administration, part of the agency’s aircraft certification process. https://axios.link/3Gcl95z 

• Air, an Israel-based electric aircraft manufacturer, completed the first full forward flight (and landing) of its consumer-focused eVTOL, the Air One. It’s designed for “short distance commuting in the sky.” Hopefully not too short. https://axios.link/3HTY0pM 

• Hithium, a China-based battery developer, connected a standalone, 200 MW/400 MWh lithium iron phosphate battery energy storage system to the grid. The company says it’s the largest such system in China. https://axios.link/3PRgx7Z 

• Arctech, a China-based solar tracker and racking systems provider, signed an agreement to supply 2.8 GW of single-axis trackers for a 15 GW solar project in India. https://axios.link/3G8RLwQ 

• Contemporary Amperex Technology (CATL), the China-based battery manufacturer, began production at its lithium-ion battery factory in Germany, the company’s first outside China. https://axios.link/3HTYBI2 

• HIF Global, a Chile-based e-fuels producer, said its Haru Oni Demonstration Plant in southern Chile has begun producing synthetic gasoline. https://axios.link/3jmyHCe 

• Tüv Rheinland, the Germany-based technical and safety certification provider, issued its first green hydrogen certificate in Latin America to White Martins, a subsidiary of industrial gas supplier Linde that’s producing green hydrogen in Brazil. https://axios.link/3YIyREg

6. Hot deals

• Caterpillar, the Irving, Texas-based heavy equipment manufacturer, appointed SVP Lou Balmer-Millar as chief sustainability officer. Balmer-Millar succeeds the company’s first chief sustainability officer, Julie Lagacy, who is retiring Feb. 1. https://axios.link/3jiQxGo 

• Black & Veatch, the Overland Park, Kan.-based engineering, consulting and construction company, appointed interim CFO Michael Williams as CFO. https://axios.link/3WsAunW 

7. It's personnel

Alterra's majority owner, private equity firm KSL Capital Partners, doesn't plan to exit the resort company anytime soon, a source tells Alan.

Why it matters: KSL is nearing the six-year mark in holding Alterra — unusually long for a private equity investment. KSL seems to have its sights set on a decade or longer. 

State of play: Speculation has swirled for years over how soon KSL could exit Alterra. 

Yes, but: KSL has held certain investments for longer than the industry norm.

It held golf resort operator ClubCorp for about 11 years. 

This summer, it merged Ross Aviation and Atlantic Aviation, and through a continuation vehicle extended its anticipated investment by seven to 10 years. 

Be smart: Resorts arguably lend themselves to longer-term investments. The business model depends on continual brick-and-mortar upgrades in lodging, retail, transportation and entertainment spaces, all of which take time.

They're also intertwined with real estate development, which brings longer investment timelines.

Plus, many ski resorts hold lucrative water rights — an increasingly valuable commodity. 

8. 💭 Bonus thought bubble: KSL's long game 

Data: National Ski Areas Association; Chart: Axios Visuals

After a drop in visits due to COVID, U.S. mountain resorts saw a boom in visits in the 2021-22 ski season. 

Vail and Alterra’s executives say it was at least partly driven by a surge in off-peak visits from Epic Pass and Ikon Pass holders.

9. Charted: headed to the mountain

⛷️ It's our final newsletter of 2022. We're hitting the slopes for a special edition, where we look at U.S. ski resorts through the lens of deals and climate change. Buckle the boots, and let's hit that pow!

⛏️ Megan has a healthy respect for skiers and snowboarders, since she prefers mountain travel with crampons and an ice axe during the winter months. That said, she always has a good time at Mammoth Mountain and spent lots of time acclimatizing there this summer in preparation for Mount Whitney.

🎿 Alan happened to work at Deer Valley in 2011-12, so his favorite run is Mayflower Bowl. (He still sometimes wonders why he stopped working there. And why he didn't try to buy any real estate.)

Thanks to Michael Flaherty, George Moriarty and Phoebe Neidl for today's edits.

And thank you for reading Climate Deals! Please share with your friends, family and ski bums. And have a wonderful holiday season and New Year.

December 21, 2022

1 big thing: Resort duopoly moves mountains