Is Skico feeling lucky?
If you’re feeling lucky, you might want to give the folks at the Aspen Skiing Co. a call. They could use some good gambling advice.
Skico executives must decide in the next few weeks whether to spend hundreds of thousands of dollars for insurance on their company’s business performance next winter.
For the first time ever, this fall the Skico is considering “skier visits insurance,” according to Dave Bellack, senior vice president of administration.
The company didn’t take out a policy the last two seasons and saw skier and snowboard rider visits plummet. Both losses were due, in large part, to poor snow conditions.
Now the Skico executives have to decide whether that trend will continue for a third season or whether the odds are finally with them for an abundance of snow.
Skico President and CEO Pat O’Donnell said the odds seem to favor a good winter. However, the only guarantee is there are no guarantees, he said.
“I have no gut instinct,” O’Donnell said about snow for the coming season. “I’ve been doing this for too long.” Vail gambled, and won Vail Resorts Inc. gambled on the skier visit insurance last season and scored big. It anticipates a $9 million payment, said spokesman Paul Witt.
The actual payment amount hasn’t been released, but may be disclosed in the publicly held firm’s next earnings statement, Witt said. No figures were available on what the company paid in premiums. But as the state’s largest ski area operator, the premium payments had to be costly.
Vail Resorts is the operator of Vail and Breckenridge, which logged increases in skier and rider visits last season, and Keystone and Beaver Creek, which saw business drop.
Vail Resorts is considering buying the insurance again for 2000-01. “Coming off of three bad years it makes it more attractive for this coming season,” Witt said.
Business insurance for ski area operators is a relatively new and rare offering. A company in Steamboat Springs offered it to the state’s resorts last season. Skico skiers dropped O’Donnell said Skico officials thought the premium payment combined with the deductible was too high to make the investment worthwhile last season. As it turns out, the insurance may have been money well spent.
“We didn’t realize we wouldn’t get all of Snowmass open until mid-January,” said O’Donnell.
For the season, the Skico’s skier and rider visits dropped 7.5 percent. The customer numbers were down even farther from preseason projections – the number that counts in the insurance premium.
Entering the season, O’Donnell had been looking for an increase in skier visits of at least 2 percent.
Bellack said only such “reasonable” increases are accepted by the skier visit insurer.
Here’s how he explained the way skier insurance works: The insurer looks over five years or so of skier visits and determines whether a resort operator has a reasonable target mark for the coming season. Other factors that come into play are the resort’s marketing plan, competition and positioning in the industry.
The insurer and ski area operator then must agree on a deductible – the margin of loss in skier visits that is acceptable and uncovered by insurance.
The insurer calculates those figures to set a premium price. The ski area’s brass must decide if the potential pay-out is worth the premium payments. No windfall Bellack said the insurance was inaccurately portrayed by the media as providing a windfall for some ski areas.
“It’s not like you can set up a policy based on a bunch of unrealistic expectations,” he said. “The amount of benefits is reasonably tied to the amount of the loss.”
It’s like fire insurance on a home, Bellack added. The homeowner who suffers a loss can’t collect $1 million for a house valued and insured for $300,000.
The Skico has filled out an application with the insurer and is now waiting to hear back about the premium price, Bellack said. “I would guess it is hundreds of thousands (of dollars),” he said.
O’Donnell said it is a misnomer to call it “snow insurance.” The ski area operator is protected against losses in skier visits for whatever reason, not just snow.
For example, if United Express stopped flying into Pitkin County’s Sardy Field for the ski season, the Skico’s drop in business would be covered by the policy.
Bellack said he and Chief Financial Officer Craig Ferraro will crunch the numbers of the insurance deal and soon make a recommendation to O’Donnell.
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