Crystal Meadows

Harvard Business School

9-192-150

Rev. June 28, 1993

Crystal Meadows of Tahoe, Inc.

Crystal Meadows of Tahoe (CMOT) was a holding company for two different alpine (downhill) ski resorts. The company had operated Crystal Meadows near Lake Tahoe, California since 1962 and had purchased Lake Ridge in Utah in 1975. In addition, the company was involved in the development of a new ski resort in Nevada through a limited partnership in the Toiyabe Resort Company. The ski business was both highly cyclical and highly seasonal. For the U.S. ski industry, on average 94% of revenues were received during the winter ski season. CMOT employed 100 people year round, but its employment swelled to 850 during the operating season. Because snowfall at given areas varied from year to year, the industry was cyclical as well. A string of several years of low snowfall at a given area could cause severe financial distress in order to cover fixed obligations. Revenues at ski areas came primarily from the sale of lift tickets and related items such as ski rentals, ski lessons, and food and refreshments. Exhibit 1 outlines the revenue sources for the average U.S. ski area. In addition, some ski areas were involved in the sale or rental of residential and commercial real estate around the ski area. Costs for ski areas included labor for operating lifts, patrolling slopes, selling tickets, teaching lessons, and staffing cafeterias and shops. While some ski areas owned the land on which they operated, many leased land from the U.S. Forest Service or from other private owners. Ski areas typically invested significant sums in buildings, lifts, and snowmaking and snow grooming equipment. Other expenses included administration, marketing, and advertising, which typically were spread through the year. CMOT owned both Crystal Meadows and Lake Ridge, two different types of ski areas. Crystal Meadows, with capacity for 6,500 skiers per day, was a day and weekend ski area. Its clientele consisted...