The Missed Deadline: What Does it Cost? The Story of Vail's Takeover of the Park City Ski Area b/c of a missed lease renewal

The story of the missed lease renewal in Park City, Utah

This simple story consists essentially of missing a deadline. Unlike missing a flight, a conference call, a weekly meeting, or missing a bill payment, this error cost a major ski resort operator millions of dollars in present and future value; literally changing the course of the company’s future. The instructions weren’t confusing; they're written in plain English on a lease; and yet, they missed it. This story also involves economics, management, law, history, negligence, opportunity, litigation, blame shifting, and most of all a ski resort! 

Introduction:

Had management recognized this lease document represented one of the company’s most valuable assets, it would have exerted all means necessary to see that its value and longevity were protected. Instead, it acted like the “third steward” entrusted with the care of money, in the Parable of the “Talents,” by locking the lease away in a file cabinet, where no one would get to it. (see Matthew's gospel, Ch. 25)

Call it negligence, but lack of care for the valuable asset of the very ground upon which they worked, caused an irreparable rip in the fabric of the company. In short, carefully inventorying assets and protecting those of highest economic value by watching them, reading them, encouraging them, nurturing, growing, and maintaining them in whatever form, must be a management priority.

The Operator:

Powdr Corp., privately held company founded in 1994, operates ski resorts, and is one of the three big companies like this in North America. It runs resorts in Vermont and Oregon, but its headquarters are in Park City, Utah. This corporation and its employees are the tragic characters of this story, because all this waste could have been prevented.

 The Resort:

Ultimately, this battle centered on the ski area called Treasure Mountain Resort opened in 1963,  with a single gondola, base and summit lodges, a chairlift, a J-bar, and a 9-hole golf course. Like any asset it grew into the wintry jewel of Utah.

By 1966, it changed its name to Park City Ski Area, and ground-leased the terrain from United Park City Mines, ("UPCM") with an annual lease payment of only $155,000 per year. A ground lease allows a business to operate as if they were landowners, for long periods of time.

In 1975, the parties amended the lease to expire on April 30, 1991; but added options to extend the lease for (3) three 20-year terms, possibly extending the lease out through 2051.

The Combatants:

The aggrieved party is Powdr Corp., who purchased Park City Ski Area in 1994 and renamed it Park City Mountain Resort ("PCMR").

Your opportunistic jerk is Canada-based, Talisker, acquiring United Park City Mines in 2003.

The ground lease between the successors-in-interest, Talisker and PCMR, covered approximately 2,852 acres of prime ski terrain, much larger than Aspen, Colorado; indeed, twice the size of the Texas Medical Center, and over 3 times the size of Central Park.

The Problem:

PCMR missed sending a timely 1^st renewal notice letter to Talisker (successor to UPCM). The lease required at least 60 days notice of the extension before the expiration  of the lease agreement, which was April 30, 2011. At a minimum, the letter had to be sent by March 1^st, 2011. Boom.

Seeing economic opportunity to make a better lease deal than they had w/ PCMR, Talisker decided to lease the land to Vail Resorts, Inc., one of Powdr Corp.’s biggest competitors. (Villain Vail could then link the PCMR land to their adjacent resort “Canyons”, making one of the biggest ski areas in North America).

Villain Vail paid much more in annual rent than PCMR’s $155,000; but they controlled 2 of the 3 resorts in the Park City Ski area (see map above). Twenty (20) years after the renewals were instituted, on the first opportunity to renew, PCMR failed to properly execute on the agreement. It was their fatal mistake.

The Lawsuit:

It took Talisker 8 months to respond to PCMR’s mistake but when they did, the lessee, PCMR filed suit against Talisker, claiming that Talisker waived, or was “estopped” by its own conduct from enforcing the notice provision in the lease. It was a desperate plea.

For these reasons and many others, this “high-profile lawsuit” involved most of the terrain underlying one of the largest ski resorts in North America. At one point in the litigation, PCMR foolishly presented a fake, "backdated" letter to make it seem as if the renewal was timely submitted; nevertheless, this tactic didn’t even come close to working, and they were severely punished by the court.

After Talisker reached their new lease agreement with the new tenant, Vail, they commenced an eviction action based on the expired lease with PCMR, sort of like getting rid of the ex-wife! The new marriage between Vail and Talisker was a 50-year deal, w/ six 50-year renewal options. Vail agreed to pay at least $25 million a year in lease rent; but the contract also leaves Talisker with the development rights to 4 million square feet of real estate on the resort. It was a win-win for the new parties to this agreement; but PCMR was left out in the snow without any skis.

The Ruling:

In 2014, Utah's 3rd District Court Judge Ryan Harris ruled in favor of Talisker because the resort missed a 2011 lease renewal deadline. He ordered eviction unless the parties could get together to settle the case before the 2014-2015 ski season. Naturally, PCMR wanted to appeal, but the parties couldn’t even agree on a bond amount for PCMR to post during the continuing court proceedings. Meanwhile, in June, 2014, the judge ordered the parties to Mediation.

Just two days after PCMR announced that it would pay the $17.5 million bond required to continue litigation and operate the ski area during the 2014-2015 season, PCMR's owner, Powdr Corp., announced the sale of the ski area to Vail Resorts, Inc. for $182.5 million in cash.

It was finally over, and the sale cancelled the bond and ended over 4-years of litigation between Toronto’s Talisker Land Holdings, LLC and PCMR, costing many millions of dollars in legal fees. Vail Resorts now owned both Canyons and PCMR in the Park City Utah ski area (colored purple and orange in the picture above). PCMR had to absorb decades of lost profits, for what was basically one simple sentence in a lease.

The Aftermath:

Previously, Talisker showed that Powdr CEO testified that the chief financial officer of Powdr Corp. was responsible for "understanding the lease," CEO Cumming said in his deposition, however:

 "that a 'combination of people' had responsibility for the Leases and that, as CEO of Powdr Corp., he was ultimately responsible for renewing the Leases."

CEO Cumming also said in his deposition:

"I run this business. Ultimately I'm responsible. And I have chosen not to try to pin the tail on the donkey . . . So the miss has been pinned squarely on me." Mr. Cumming viewed written confirmation as a “mere technicality.” 

At one point, Mr. Cumming, who was also a member of the board of directors of Powdr Corp., encountered a distraught PCMR President and General Manager, Jenni Smith, on May 2, 2011, after the deadline was missed:

"He explained that he was 'trying to tell her that things like this happen. Things like this mess that's going on right now happen,'"

Powdr Corp.'s chief financial officer at the time, Jennifer Botter, testified that:

"she thought the option to extend was 'automatic.'" According to court records, Botter, "actually testified that she believed the Leases had been extended because the renewals were 'automatic and . . . had already been gained verbally."

Botter resigned from Powdr in 2014. The moral of the story: don't let "things like this happen," read the lease and follow its provisions; or risk losing your business, a good job, and your favorite ski run.

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[much of this story is summarized from earlier news reports, but the fair use of any copyrighted material shown or paraphrased herein, is not an infringement of copyright. 17 USC.Sec.107]

Opinions©Mark H. Pillsbury