Not a single snowflake has fallen on Whistler, but the famed B.C. resort town is already feeling a chill. Last week, Fortress Investment Group, the New York-based hedge fund that owns Intrawest ULC, Whistler-Blackcomb’s parent company, narrowly averted bankruptcy. After a week of fierce speculation that Fortress would fail to make a deal, an 11th-hour package to refinance its $1.7 billion in Intrawest debt came through. But the relief may be short-lived.
Over the past two decades, B.C. has become a paradise for skiers, snowboarders and outdoor enthusiasts. But many feel that thanks to a host of threats, Whistler’s close call is just the beginning, and the province’s resort boom could turn into a bust. The industry has kept on opening new hills and building new resorts even as skier numbers have flattened, and the visitor demographic is aging quickly. As the global economy slows, B.C.’s many resorts and condo developments may be facing an ugly awakening.
The most immediate threat facing the industry comes from an impending global recession. Americans in particular have been hit hard by the financial crisis, and a full quarter of Whistler’s visitors are from the U.S. Already, the local tourist board is predicting a 12 per cent decline in visits this season. But a worrisome, longer-term threat is on the horizon too. As today’s skiers age, they’re not being replaced by younger blood. Ridership on B.C. ski lifts peaked at 6.2 million in the winter of 2001-2002, and within the next decade, skier visits are projected to drop by half a million. These days, when the toques come off, you’re likely to see a head full of grey hair; the average skier age is 40, and getting older each year.
Oddly enough, though, fewer skiers may not be the industry’s biggest problem. That’s because the ski industry doesn’t make much money from skiing anymore, says Paul Kedrosky, a California-based CNBC analyst and editor of the Infectious Greed business blog. Ski hills are intrinsically not that profitable, he explains. They have massive, fixed costs due to snow-making and daily run maintenance, plus the army of staff who run the lifts, day lodges, parking lots and ski patrols. So lift-ticket revenue, which brings in $50 to $60 a head for less than six months of the year, isn’t the real money-maker. “The dirty secret of the ski industry is that there isn’t a ski industry,” says Kedrosky. “It’s a real-estate industry.” And indeed, in 2006, real-estate profits alone made up two-thirds of Intrawest’s $268-million operating profit.
Since much of the money in the ski industry now comes from selling property, it’s no surprise that as real estate has boomed in B.C., so have the hills. Adding fuel to the fire, the province has “incentivized” resort-sector development, says an official with the resort development branch of B.C’s Tourism Ministry. Not only does the province subsidize the industry with cheap land, priced at $5,000 per acre for the first 10 years, but the 1985 Commercial Alpine Ski Policy stipulates that if a ski hill goes bankrupt, or the owners walk away, the province is required to step in and run the resort until a buyer can be found.
Given all those incentives, it’s no surprise that over the past five years, the local ski industry has undertaken its biggest expansion ever. Less than a year ago, the province’s newest billion-dollar hill, Revelstoke Mountain Resort, opened for business. Four B.C. resorts are currently undergoing complete overhauls, and just last week, developers cut ribbon at an all-season resort in the northern B.C. town of Smithers. Three more developments are pending approval, including Jumbo Glacier, a controversial $450-million project near Invermere, whose 20 lifts will allow year-round skiing on a series of glaciers in wilderness terrain, and Juliet Creek, a resort slated for the Coquihalla Pass, a two-hour drive from downtown Vancouver.
When Victoria agreed to backstop the industry in 1985, B.C. had a smattering of low-key mom-and-pop hills. Now the province is standing behind an industry worth several billion dollars, and as Whistler’s close call showed, parts of that industry are on shaky ground.
As long as boomers were snapping up holiday properties in B.C., and the province’s ski hills were choked with Brits and Americans, the ski industry was a money machine. When Revelstoke’s first two condo projects hit the market 18 months ago, they sold out in three hours. But what will happen if B.C.’s real estate market hits the skids? Resort properties are particularly prone to real-estate busts—when money gets tight, the holiday home in the mountains is the first to go. Because of this, Kedrosky believes the “perfect storm” could be about to hit. And it won’t be one of those helpful storms that dumps a layer of killer powder. It could be the nastiest storm B.C.’s ski hills have ever seen.