{"id":8338,"date":"2016-11-03T13:38:01","date_gmt":"2016-11-03T17:38:01","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/can-mtn-keep-shreddin-the-gnar-in-the-face-of-climate-change\/"},"modified":"2016-11-03T13:40:58","modified_gmt":"2016-11-03T17:40:58","slug":"can-mtn-keep-shreddin-the-gnar-in-the-face-of-climate-change","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/can-mtn-keep-shreddin-the-gnar-in-the-face-of-climate-change\/","title":{"rendered":"Can MTN Keep Shreddin\u2019 the Gnar in the Face of Climate Change?"},"content":{"rendered":"

We often hear about\u00a0the impacts of climate change at low altitude: rising sea levels, melting of the polar ice caps, bigger hurricanes\u2026 but what about in the mountains?\u00a0 The U.S. snowsport industry ($3.2Bn of resort sales in 2015[i]<\/a>) is also at significant risk of global warming.\u00a0 Vail Resorts, Inc. (NYSE: MTN; $1.6Bn FY2016 net revenue), a premier ski resort in the U.S., has been taking steps to mitigate the impact of climate change on its businesses in the face of historically declining trends in snowfall[ii]<\/a>, but is it enough?<\/p>\n

Current Portfolio of Gregor Clegane, a.k.a. the MTN<\/strong><\/em><\/p>\n

MTN operates in three main segments, including Mountain (82% of FY16 revenue), Lodging (17%) and Real Estate Development (1%)[iii]<\/a>.\u00a0 Weather is one of the largest risk factors for MTN[iv]<\/a>, to the point where the company is typically valued by investors at a discount due to this downside[v]<\/a>.\u00a0 Given the concentration of earnings during the winter months[vi]<\/a>, changes in weather patterns can have a significant impact on the company\u2019s profitability.<\/p>\n

Lower Beta Through Diversification<\/strong><\/em><\/p>\n

MTN is already taking steps to diversify its operations.\u00a0 In 2015, the company closed its acquisition of Perisher Ski Resort, the largest and most visited ski resort in the Southern Hemisphere[vii]<\/a>.\u00a0 In 2016, MTN acquired a majority stake in Whistler, which boasts one of the longest ski seasons in North America[viii]<\/a>.\u00a0 As a result, customers are still able to ski at a MTN resort, even if their preferred location is negatively impacted by local weather.<\/p>\n

\"mtn-resorts\"<\/a><\/p>\n

Vail Resorts, Inc. portfolio of mountain resorts and ski areas as of FYE2016 (excl. Whistler)[ix]<\/strong><\/a>.<\/em><\/p>\n

A second mitigation technique is to artificially create snow.\u00a0 MTN utilizes the most popular option of snow machines, allowing more frequent skiing despite the increase in average temperatures (88% of ski resorts rely on snowmaking[x]<\/a>).\u00a0 Vail also uses cloud seeding technology, which pumps silver iodide into the atmosphere to generate additional snow (~5-15% increase in precipitation)[xi]<\/a>.<\/p>\n

Finally, Vail is focusing on increasing topline contribution from summer activities by attracting off-season customers.\u00a0 In 2016 the company opened its initial Epic Discovery programs, which are comprised of summer activities, at both Vail Mountain and Heavenly. \u00a0The company has announced plans to open a Breckenridge Epic Discovery in 2017[xii]<\/a>, and could continue this trend at other resorts.<\/p>\n

But How to Find More Alpha?<\/strong><\/em><\/p>\n

In the short-term, MTN should maintain focus on growth by acquisitions, as growth would likely be more weather-driven if deals stopped[xiii]<\/a>.\u00a0 This (i) increases its total customer base given lackluster ~2% organic growth (see table below), and (ii) further diversifies its geographic footprint.\u00a0 Specifically, MTN should consider acquiring resorts in Europe and in the southern hemisphere.\u00a0 Diversification to Europe increases the probability of a strong snow season somewhere in the MTN network when weather in the U.S. is poor.\u00a0 Acquiring a resort in South America diversifies southern hemisphere weather risk away from Australia during its peak season.<\/p>\n

\"macq-data\"<\/a><\/p>\n

Source: Macquarie[xiv]<\/strong><\/a>.<\/em><\/p>\n

In the long-term, MTN should look into diversifying its operations away from ski resorts.\u00a0 MTN already has expertise in the leisure industry, and should look to leverage this by focusing on hotels, beach resorts and sport facilities (e.g,. Chelsea Piers in New York or the Wide World of Sports complex in Orlando).\u00a0 These business models are still relatively similar to MTN\u2019s, and a focus on spring\/summer-related activities would help mitigate a decrease in revenues from its ski-related businesses.<\/p>\n

Conclusion: Just Buy the Market<\/strong><\/em><\/p>\n

MTN has been actively making decisions to protect itself against climate change, but their exposure to winter activity is still significant.\u00a0 Geographic and operational diversification would allow it to decrease its exposure to global warming, while keeping it firmly within the spectrum of its current business model.<\/p>\n

(800 words)<\/p>\n

 <\/p>\n

[i]<\/a> IBISWorld, http:\/\/clients1.ibisworld.com\/reports\/us\/industry\/keystatistics.aspx?entid=1653, accessed November 2016<\/p>\n

[ii]<\/a> Donna Bebb, \u201cClimate Exposure Impact on Equity Valuation: Case Study of Vail Resorts, Inc.\u201d http:\/\/media.law.stanford.edu\/organizations\/programs-and-centers\/steyer-taylor\/Vail_Final.pdf, accessed November 2016<\/p>\n

[iii]<\/a> Vail Resorts, Inc. 2016 Annual Report, page 3, https:\/\/www.sec.gov\/Archives\/edgar\/data\/812011\/000081201116000115\/mtn2016073110-kforq4.htm, accessed November 2016<\/p>\n

[iv]<\/a> Felicia R. Hendrix, \u201cSeason Pass Momentum Builds\u201d Barclays Capital Inc., September 26, 2016.<\/p>\n

[v]<\/a> Felicia R. Hendrix, \u201cSeason Pass Momentum Builds\u201d Barclays Capital Inc., September 26, 2016.<\/p>\n

[vi]<\/a> Donna Bebb, \u201cClimate Exposure Impact on Equity Valuation: Case Study of Vail Resorts, Inc.\u201d http:\/\/media.law.stanford.edu\/organizations\/programs-and-centers\/steyer-taylor\/Vail_Final.pdf, accessed November 2016<\/p>\n

[vii]<\/a> Vail Resorts, Inc. 2016 Annual Report, page 5, https:\/\/www.sec.gov\/Archives\/edgar\/data\/812011\/000081201116000115\/mtn2016073110-kforq4.htm, accessed November 2016<\/p>\n

[viii]<\/a> Whistler Blackcomb, https:\/\/www.whistlerblackcomb.com\/about-us\/media\/oct-31-2016, accessed November 2016<\/p>\n

[ix]<\/a> Vail Resorts, Inc. 2016 Annual Report, page 4, https:\/\/www.sec.gov\/Archives\/edgar\/data\/812011\/000081201116000115\/mtn2016073110-kforq4.htm, accessed November 2016<\/p>\n

[x]<\/a> Vice News, https:\/\/news.vice.com\/article\/climate-change-could-decimate-the-american-ski-industry, accessed November 2016<\/p>\n

[xi]<\/a> Vice News, https:\/\/news.vice.com\/article\/climate-change-could-decimate-the-american-ski-industry, accessed November 2016<\/p>\n

[xii]<\/a> Vail Resorts, Inc. 2016 Annual Report, page 6, https:\/\/www.sec.gov\/Archives\/edgar\/data\/812011\/000081201116000115\/mtn2016073110-kforq4.htm, accessed November 2016<\/p>\n

[xiii]<\/a> Matthew Brooks, \u201cVail Resorts\u201d Macquarie Capital (USA), October 20, 2016.<\/p>\n

[xiv]<\/a> Matthew Brooks, \u201cVail Resorts\u201d Macquarie Capital (USA), October 20, 2016.<\/p>\n

Banner image: Vail Valley Real Estate Incorporated, http:\/\/vailrealestatesearch.com\/vail-and-beaver-creek-named-best-ski-resort-town-real-estate-investments\/, accessed November 2016<\/p>\n","protected":false},"excerpt":{"rendered":"

Global warming isn't snow's best friend. Vail Resorts provides insights on how to enable year-round powder days.<\/p>\n","protected":false},"author":2438,"featured_media":8339,"comment_status":"open","ping_status":"closed","template":"","categories":[1218,1226,1295,1296,372,1250,370],"class_list":["post-8338","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-climate-change","category-global-warming","category-leisure","category-mtn","category-ski","category-snow","category-vail"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/climate-change-challenge-2016\/","yoast_head":"\nCan MTN Keep Shreddin\u2019 the Gnar in the Face of Climate Change? - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/can-mtn-keep-shreddin-the-gnar-in-the-face-of-climate-change\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Can MTN Keep Shreddin\u2019 the Gnar in the Face of Climate Change? - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Global warming isn't snow's best friend. 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