Drowling Mountain Ski Resort’s Financial Problem

Prepared for: Ms. Easter for SM570-01

Prepared By: Shane Brown

Presented on: 11/12/2015

Transmittal LetterThis paper was requested by our teacher, Beth Easter, to see if we understand how to

write formal reports for sport organizations. This was asked of me on November 3rd at 12:30 p.m.

I have tried to meet the requirements and rubric that you provided for me and talked about in

class. I hope this report can be of use for you and provide information on my understanding of

the case.

When writing this formal report, I read the article provided for us at least 15 times. I

made sure that I clearly understood the entire article before anything was written down. From

there, I made an outline for my paper by using the SWOT analysis worksheet that was provided

for us earlier in the school year to help us write our case studies. Once I picked through all the

material and found the best solutions and answers for each question I proceeded to type my paper

while referring back to the article several times for support as well as my book and the internet.

The recommendation that I chose was to go with a larger target market. I recommended

this because I felt it was the best option that would provide the company with the most revenues

the fastest so that they would get out of debt. They need to do something or else the company

will foreclose and Syracuse will be out of a skiing resort.

If for any reason at all I do not answer any of your questions or concerns from reading

my report, I will do my best to do so in person. You can reach me on my cell phone at 314-504-

3409. If I do not pick up, please leave me a voicemail, and I will call back once I have figured

out the answer to your question. I do not like leaving my work unfinished, so if you feel that you

do not understand any part of my article then please do not hesitate to contact me via phone or in

the classroom for SM570-01 in Parker on Tuesdays and Thursdays at 12:30 p.m. I’m looking

forward to helping out by all means necessary.

Table of Contents

Transmittal Letter…………………………………………………………………….……. 2

Table of Contents……………………………………………………...…………………… 3

Executive Summary……………………………………………………………………........4

Introduction………………………………………………………………………….……... 5

SWOT Analysis………………………………………………………………..……..……. 5

Main Problem…………………………………………………………………………..….. 6

Short-Term Problem…………………………………………………………………….. ...8

Long-Term Problem………………………………………………………………….……..9

Alternatives……………………………………………………………………………..… 10

Recommendations……………………………………………………………………...…. 13

Conclusion……………………………………………………………………………....…14

Works Cited…………………………………………………………………………….… 15

Executive SummaryThe current owner and CEO of Drowling Mountain Ski Resort, Martin Cartier, set up an

advanced meeting to discuss potential new pricing schemes and how to increase current sales.

Cartier felt that this meeting would be advantageous to the company if he met with only select

board members. This meeting was being set up to help solve the problem that, for the past couple

of years, Drowling Mountain has been operating at a loss, hitting an all-time low in 2010. 2010

marked the first year that the company did not make a profit, instead reporting a net loss of

$360,000. This loss can be contributed to Drowling Mountain’s higher prices and their small

target market, compared to its competitors Devil’s Hill and Timber Valley. If this problem is not

fixed in the near future, then Drowling Mountain is looking at an overall worse customer and

employee experience than they once had. If the problem is not taken care of in the next couple

years, then Drowling Mountain is looking at bankruptcy or, even worse, foreclosure. Everyone

within the company knew that it was time for a serious change as some expressed their thoughts

on how to help keep the company alive. This includes a lower pricing scheme to get people to

buy lift tickets and focusing on top-line growth. For this alternative the benefits barley outweigh

the costs, but it is a step into the right direction. Other alternatives include keeping the labor

expenses as is, focusing more on where in their current marketing location that they can exploit

to their advantage, and changing the target market so that they are covering more people than

just the normal or regular customers. The second alternative, while still an alternative, does not

provide that much help for the problem, but the third alternative seems to be the best fit for

Drowling Mountain’s current situation because it will be the easiest to implement and will give

the best results. After all is said and done, Drowling Mountain needs to make a change if they

want to stay in business in the future.

The purpose of this report is to inform the staff and board members of Drowling

Mountain about their current financial situations and steps to take so they can fix these problems.

This report could also be for my instructor Ms. Easter to prove to her that I know how to

accurately write and develop a formal report for sport organizations. I gathered the information

presented above and below from the internet, the class book, and the article we received for

SM540.

S.W.O.T Chart

Strengths: They have the highest ski hills of any

of their competitors and some of the top in the whole state.

Evidence: Many of its customers valued the high

slopes, and experienced skiers opted for its more challenging hills. (They go more often than casual and non-skiers)

The majority of employees, including the management team, lived in Syracuse and held close relationships with local businesses.

All 8 members of the board live in Syracuse. They had a vested interest in the future of the company because it was the ski hills they grew up on and continued to use.

It is a community resort located 45 minutes away from Syracuse, which is their target market.

Popular choice among Syracuse residents regardless of skiing ability.

Weaknesses: They have not had a solid ownership

for the resort for the past 10 years.

Change in ownership has affected the company’s performance, and decline in profitability was far-reaching because of it.

The company’s revenues keep falling every year.

$4.2 million in 2006 to $2.8 million in 2010, and net income dropped from $40,800 to -$360,000

Opportunities: The local community supports

Drowling Mountain.

It had historically been the ski resort of choice for the local residents of Syracuse

Competition Threats of new entrants at a minimum Onondaga County They have a population of 321,830

people, which is over double that of Syracuse.

Threats: Decline in the amount of visitors each

season

64,000 in 2006 to 46,000 in 2010

The current economy Recent economic recession have affected industry profitability

The weather of New York The warm weather enticed customers to engage in other recreational activities

Location Drowling Mountain was located 45 minutes from Syracuse and 6 hours away from New York. This was a problem because they have difficulties attracting big city customers

Main Problem

The main problem of this article is that Drowling Mountain Ski Resort has been operating

at a loss from year to year with their current pricing strategies. For the past two years, Drowling

Mountain has totaled earnings to be over -$345,000. Their last recorded net profit was in 2006

when they only profited $40,800. One of the big issues Drowling Mountain faces is that its prices

are much higher than its main competitor Devil’s Hill. Exhibit one below shows just how much

more Drowling Mountain charged for the same services at Devil’s Hill.

Exhibit 1

Adult Pass Holders

Senior Pass Holders

Youth Pass Holders

Student Pass

Holders

Adult Ticket (Day)

Youth Ticket (Day)

Adult Ticket

(Night)

Youth Ticket

(Night)

$0

$100

$200

$300

$400

$500

$600

Pricing For Drowling Mountain and Devil's Hill

Drowling Mountain Devil's Hill

As the chart above shows, Drowling Mountain’s prices are either the higher or the same of

Devil’s Hill’s prices. This is one reason that Drowling Mountain is having to face such a

problem, “They are priced relatively higher than its competitors, although a variety of packages

provided flexibility to customers. However, the value of the flexibility was questionable: some

customers thought these packages to be overly complex and ignored them” (Huang, Leong:

Drowling Mountain). Another key contributor to Drowling Mountain’s problem could be its

target market. While Syracuse was a large city, there are many more around it that hold a lot of

people, “Syracuse was one of the larger cities in New York with a recorded population of

145,170 people in 2010. The surrounding communities in Onondaga County comprised an

additional 321,830 people. Both of these areas had posted slow population growth trends over

the past five years” (Huang, Leong: Drowling Mountain). As the quote mentions above,

Drowling Mountain is cheating itself of customers that could also be considered local and bring

in double the revenue that Syracuse alone provides. With over twice the amount of people being

considered in the advertising plan, the benefits seem to be countless. The only thing that is

stopping this from helping out the main problem is, “We’re limited by our budget. I’d love to be

able to market all around New York if we could, but the fact of the matter is that we don’t have

money. What we should be focusing on is where, within Syracuse, we can advertise and to

whom” (Huang, Leong: Drowling Mountain).

Short-Term

If the Main Problem is not fixed immediately, the company’s debts will continue to rise,

employees will be stressed out and probably not perform well, and the company will continue to

think of solutions and not actually do anything to implement them. It sees that the managers and

board members of Drowling Mountain have good ideas, but the President, Cartier, cannot make

up his mind and actually go forward with an option to save the ski resort. He had all the facts that

he needed with proof why change was urgent, but couldn’t come to a solution, “Cartier reviewed

all the facts and still had no solution. While management and the board of directors agreed on

some issues, clearly some held differing views on other issues. Cartier didn’t know where to

begin. How was he to determine who was right? Were all the options really on the table, or was

he missing something? Cartier wondered how much change he could really implement and how

fast he could get things done. Was Drowling Mountain poised for change” (Huang, Leong:

Drowling Mountain). It is obvious that they need a change and need it quick, but the President

cannot make the hard decisions that need to be made in tough times. Mr. Cartier is exemplifying

Laissez-faire leadership by not doing anything. Borland, Kane, and Burton explain Laissez-faire

leadership in their book, Sport Leadership in the 21st Century, on page 49, “Laissez-faire

leadership is the absence of leadership. Leaders do not make necessary decisions and actions are

not taken” (Borland et al, 2015).

Long-Term

If the problem never reaches a solution then the company is looking at either going

bankrupt, out of business, or being forced to apply for foreclosure. The company is not doing

well financially by any means. By looking at Drowling Mountain’s income statements from

2009-2010, it shows that the ski resort is actually bringing in more revenues than expenses and is

technically operating at a gain of $120,000-$200,000. The thing that kills them, however, is the

Amortization of the money borrowed, and the interest on the long term debt. These two alone

combine to reach over $400,000-$500,000. Drowling Mountain’s total debt is enormous for a

small ski resort. Crawford, a member of the board said, “We’ve got 2.1 million in debt and if we

can just get $700,000 so that the grant can match that three-fold, we should be good. I’m not sure

how else to do that other than selling more tickets. Perhaps a different pricing module will attract

more customers” ()? As large as the debt might be, there are solutions that people have

mentioned that could help eradicate the debt or if anything, slim it down. In the article, exhibit 6

shows that the ski hill is only 40% of Drowling Mountain’s total revenue, yet it is accountable

for 60% of its total debt. All the other numbers seem to be accurate when comparing revenues to

expenses. By just analyzing the data, it seems that the Drowling Mountain’s ski hills are the

biggest problem and need considerable consideration if they want to survive and not go out of

business in the next couple of years. Just to shed some light on how the last two years, from

2009-2010, have gone for Drowling Mountain, it was mentioned that “Drowling Mountain

financed capital investment through a change in working capital and long-term debt. However,

losses over the past years had taken their toll on the company’s cash reserves, and the debt

burden remained. By the end of 2010, the company had no excess and would need to find some

creative way to finance any new initiatives” (Huang, Leong: Drowling Mountain). The company

needs a power move soon because they are about out of options, “Board members had tried to

use their own company ties to assist with Drowling Mountain’s ailing financial situation. At one

point, the board considered selling the naming rights of Drowling Mountain to Lasario Steel. The

sale never proceeded, as Lasario did not want to attach its brand to an ailing organization”

(Huang, Leong: Drowling Mountain). Drowling Mountain cannot even get other companies that

have strong ties with their board members to help out. Everyone sees the financial situation and

does not want to get sucked into their black hole that they have created. All of these are tale signs

that a company is getting ready to go out of business or bankrupt, and drastically needs a change.

Alternatives

One alternative would be to create a new pricing model. With anything new, there are

costs and benefits that come with it. Some of the costs that come with this one include that once

you change the prices, “Everyone remembers the low prices, and the moment you increase them,

the people complain about it” (Huang, Leong: Drowling Mountain). Another cost of this new

plan is that the company will have to sell a whole lot more tickets so that they can justify the new

price levels. If Drowling Mountain lowers ticket prices, it is not a guarantee that more people

will come. The last cost that comes with this alternative could be that time and energy could be

wasted if, at the end, it doesn’t end up working out. As all signs seem to be in favor of the lower

ticket pricing, it is never a for sure thing that ticket sales will increase especially in a sport like

skiing. As stated in the article, “In the 2008-09 season, typically running from December to

March (depending on weather conditions), 4 million people visited New York state for the

purpose of skiing, which was consistent with figures from previous years. Participation in alpine

sports totaled 8.1% in the state” (Huang, Leong: Drowling Mountain). If you calculate the

numbers, there are more people coming into New York to ski than people who live in New York

that actually ski or snowboard.

Total Number of People who Live or Travel to New York to Ski/Snowboard

Number of people who come into New York to ski/snowboardNumber of people who live in New York that participate in alpine sportsNumber of people who live in New York that ski or snowboardNumber of people who live in New York that ski and snow-board

The data above indicates that New York either has too many destination skiing resorts, or needs

to do a better job of advertising people to participate in snow sports. There are a total of 19.1

million people who lived in New York at the time, and only 8.1% of those people did any alpine

sport activities. Some benefits that can come from lower ticket model include increased

revenues, customers valuing the flexibility of the prices without question, and can ultimately get

out of debt with this plan. Once something goes on sale, or the price is lowered, people tend to

buy more of it because they do not know if the prices will go back up or not. Customers will start

to value the ticket packages without question because right now without it that is a huge concern

for the customers. By implementing a new price model, the company can come out of debt. It

might take a while but lower prices help sell tickets when there are too many tickets left over

than there should be. Cartier recalled that, “some of his colleagues felt that a new pricing model

could help increase sales and alleviate the decreasing profitability trends” (Huang, Leong:

Drowling Mountain).

Another alternative could to keep the current labor expenses by not doing anything at all.

Some of the cost that come with this alternative include it lowers employee’s morale, staff

continues to be overworked, and they cannot afford to lose anybody else even if they violate

rules. Patrick Stanley stated that, “We've done all the labor cuts we can. It has already lowered

employee morale and we’re running bare bones here. Our staff is running double duties; your ski

lift operator in the morning may be serving you lunch later that day! Decreasing labor expenses

isn’t really an option” (Huang, Leong: Drowling Mountain). Benefits that can come from this

include that they can focus more on advertising in their current target market area of Syracuse

and to whom in Syracuse to advertise to. Their target market is already loyal to them because, “it

is the popular choice among Syracuse residents regardless of skiing ability” (Huang, Leong:

Drowling Mountain). Another benefit could also be that they do not have to cut people and make

the unemployment rate rise even more.

The third alternative would be to change the current target market. Costs of this

alternative include that they will become a non-community resort. Right now Drowling

Mountain is considered a community resort because it is located near Syracuse and that is where

the majority of its customers come from. If they widen their target market, then it will probably

no longer be considered a community resort. This new plan will cost a lot of money so that they

can reach out to more people for business, which they do not have at the moment, and potentially

loose repeat customers. Right now, the people of Syracuse have close ties with Drowling

Mountain because most of its higher ups have close ties within the community, and by changing

the target market to focus on more people, it will cause them to focus less on Syracuse which

could make the people feel left out or forgotten. Some of the Benefits that can come from this

include that new customers provide new revenues. There is a huge market opportunity for

Drowling Mountain because, the surrounding County of Onondaga has over twice the population

of Syracuse does. Another benefit of this alternative includes the potential for them to become a

destination establishment. Once they start to advertise to unknown territory, the benefits are

endless. If business continues to grow, then Drowling Mountain will have no choice but to grow,

and eventually become a destination establishment. Another benefit of this includes the company

getting out of debt the quickest. Studies show that the more people that see or hear about a

destination, the more business they are likely to have. All studies show positive results from

increased exposure. The same cannot be said about changing prices however. This cannot only

keep the company out or operating at a loss the quickest, but also keep them at the top of the

market for ski resorts.

Recommendation

I recommend that Drowling Mountain implements the third alternative, because I see it as

the best choice. To get this done, Mr. Cartier needs to take control. He needs to stop being scared

and use his power because right now they are using a divisional model of organizational design.

They have bad technology support, great staff support, and a huge operating structure that does

not work with the current situation. Mr. Cartier needs to tell his marketing and advertising team

to start marketing to people who live in Onondaga County. Focus on them as much as they do

Syracuse and wait for the increased business. Since Mr. Cartier was appointed the position of

President, he can bring it up in the October board meeting that he is having with his team. He has

the executive power by being President, because as stated in the article, “Cartier held significant

influence in the general meeting coming up in October, and any recommendations he made for

the upcoming season were likely to determine the future success of the company (Huang,Leong:

Drowling Mountain). Onondaga County is only 9 minutes or 2.6 miles away from Syracuse, so

reaching these people would not be a problem at all. This either needs to be brought up in the

board meeting, or a decision that the CEO will have to make solo. If they do this, I feel that the

company will have a bright future ahead of them and will no longer have to worry about

operating at a loss.

Conclusion

Drowling Mountain is a community ski resort located 45 minutes from Syracuse. The last

4 years or so, it has been operating at a loss that can be contributed to its pricing strategies to its

target market. Drowling Mountain is currently $2.1 million in debt, and needs a way to get out of

it. Recommendations such as a new larger target market, to a new pricing scheme, to doing

nothing have all been proposed to the president and board but nothing has yet to be done.

Drowling Mountain is waiting until its October board meeting to make a decision as they are

currently weighing all options. There is a little disagreement within the company s to what is

right to do, but one thing is clear across the board and that is they need to get out of debt and

start operating at a gain rather than a loss.

Works Cited

"Population+of+new+york+in+2009 - Google Search." Population+of+new+york+in+2009 -

Google Search. N.p., n.d. Web. 10 Nov. 2015.

Borland, John F. Gregory M. Kane, and Laura J. Burton. Sport Leadership in the 21st Century.

MA: Cathy L. Esperti, 2015. Print.

Huang, David, and Lonan Leong. "Richard Ivey School of Business." Drowling Mountain

(2011): 1-11. Web. 9 Nov. 2015.