When Vail Resorts announced it had finally leased Utah's Canyons resort in March 2013, analysts initially seemed wary of the deal.
It wasn't a surprise that Vail had landed its first Utah ski area; it had tried and failed to buy Canyons in 2007. It was the price.
Vail's 50-year lease for the 4,000-acre ski area had it paying Canadian owner Talisker Corp. $25 million a year plus a percentage of resort earnings over $35 million.
All told, it was a $305 million deal, compared with the $110 million Vail offered previous owner American Skiing Co. in 2007. Vail Resorts estimated resort operations would earn about $15 million in the first year. So the sale price was more than 20 times earnings before interest, taxes, depreciation and amortization, or EBITDA.
That's very high. Most of the resorts sold in the last decade went for less than 10 times resort EBITDA.
There had to be something else.
Turns out it was the resort next door.
Next week, Vail Resorts will go to court to battle its new neighbor Park City Mountain Resort in a lease dispute that could leave Vail running more than 7,000 acres of ski terrain in Utah and giving the continent's largest resort operator sudden dominance in a state that logs 4 million skier visits a year.
Talisker owns 85 percent of the land used by Park City Mountain Resort — or PCMR — and argues that the resort failed to properly renew its sweetheart, long-term lease of roughly $155,000 a year. Park City argues it did renew the lease and sued Talisker when it raised the price for a new lease. In a letter sent this week by Vail chief Rob Katz to Park City owner John Cumming — offering to buy base-area assets for an undisclosed but "fair market" price — Katz said Talisker was "not happy with PCMR and wanted to bring in an operator like Vail Resorts."
Talisker offered the Park City lease to Vail Resorts, which promised to handle the court battle over the lease.
The high price that Vail paid for Canyons hints at its confidence in securing the Park City terrain.
"That deal would not have gotten done if Vail was not confident they could prevail in this litigation," said JMP Securities analyst Whitney Stevenson, who tracks Vail Resorts. "It was outrageously expensive. They would not have paid that if the deal for Park City was not in there."
At the end of January, Vail Resorts reported $205.3 million in cash on hand. It reported it had spent about $3 million on litigation with Park City and was planning to spend another $7.5 million on the lawsuit.
The March 25 letter from Katz urged Cumming — the chief of Powdr Corp., which owns Park City as well as Copper Mountain in Colorado — to sell the base and parking facilities that separate the town of Park City from the Talisker-owned ski terrain. Katz said he was willing to retain outside appraisers to establish the value.
Cumming, not surprisingly, rejected the offer. In a statement, he blasted Katz for the public letter and urged readers to "not be swayed by Rob's attempt to try the merits of this case in the press."
"We have repeatedly made it clear to Vail that PCMR is interested in exploring all possible solutions that will preserve the independence of PCMR as the nation's premier family ski resort," Cumming said. "What we won't agree to is a Vail takeover. Vail's domination of the ski market in (Utah's) Summit County would be bad for our community, bad for our guests and bad for our employees."
Jason Blevins: 303-954-1374, email@example.com or twitter.com/jasontblevins