Contract Thoughts from The ‘Hole

Last week I was in beautiful Jackson Hole, Wyoming to do some skiing. Unfortunately for me, this season also happened to be the first year that Jackson Hole (technically, “Jackson Hole Mountain Resort”) has partnered up with private-equity owned Alterra Mountain Co. (owners of, among other high-profile places, Colorado’s Steamboat Springs and Utah’s Dear Valley) to add itself to a list of premier ski resorts offered under an all-you-can-ski season pass called the “IKON Pass”.

Before I had even set one ski down at JHMR (I skied at the nearby–and far more sedate–Grand Targhee the first two days), I had heard locals grumbling about “IKON-ers” and what these carpetbaggers were doing to their once sleepy and uncrowded gem of a ski resort (arguably one of the Lower 48’s top ski destinations).

The early returns on IKON were in and, according to locals at least, they were not good. The flat-rate, mostly unlimited skiing IKON Pass (as with its competitor, Vail Resort’s EPIC Pass) encourages its members to hit affiliated resorts as often as possible and (given the fact that a single adult lift ticket at a resort like JHMR can easily exceed $150) effectively ski for free once the initial cost of the pass has been recouped. The net effect, in locals’ minds, was to turn the ‘Hole (as it is affectionately known) into an overcrowded, increasingly unaffordable nightmare for locals.

However, as a Phoenix contract lawyer, talking to these locals got me thinking about the contract law ramifications of JHMR’s partnership with Alterra, the supplier of the IKON Pass.

“Ich bin kein IKON’er!!” The author takes a break from waiting in lift lines for a selfie.

A good problem to have…until it isn’t.

What happens when one party’s assumptions about a particular deal that they are entering into turn out to be incorrect? Or, if they are correct, what happens when they turn out to be too conservative, leading to unforeseen consequences that possibly outweigh the benefits sought in the deal to begin with?

In the first case, contract law principles generally hold that the party is
(to use a technical term) SOL. Apart from being straight out lied to or deceived by the other side, the fact that a party’s assumptions or expectations turn out to be wrong does not give that party a right to get out of a contract.

The situation with the IKON Pass appears to be more like the second case. In other words, the owners of JHMR clearly believed they could draw more skiers (and, in turn, more revenue from lodging, equipment rentals, food, concessions, etc.) and income sharing by joining IKON than they could by just doing what they were doing. In that sense, they were correct, as average skier days will easily eclipse last year’s numbers.

However, as I experienced first hand (much to my chagrin), the decision to collaborate on the IKON Pass has led not only to more crowded liftlines, but issues with parking, transportation, traffic and other infrastructure-related snags which I’m not sure they (or the nearby town of Jackson) ever fully anticipated.

Contract Tips from Jackson Hole

Now I have not seen nor reviewed the actual agreement that JHMR has with Alterra (which likely contains very robust confidentiality and non-disclosure provisions), however what happened with JHMR and IKON does offer a few lessons for business owners on entering into partnerships or potential deals of their own.

When entering into a strategic alliance or other contract of significance, business owners must always think about what might happen if their underlying assumptions are just plain wrong, as well as what happens if they are correct but to a degree not initially predicted.

As a Phoenix business attorney, I would argue that thinking through and testing assumptions (both the good ones and bad ones) is perhaps as important as the focus on how much your company stands to make or will gain out of a deal (which–human nature being human nature–is usually where most of the focus lies).

By thinking through all of your underlying assumptions, including not only what could go wrong if the assumptions are off, but also what the outcomes might be if they do prove to be accurate but to an extreme degree, you will be in a much better position to craft an agreement that will accommodate a much wider range of possibilities and less likely to be caught with your pants down if one of them actually occurs.

Conclusion

I get it. As a business owner, these questions and discussion points are never as sexy as how much are we going to make if we do this or what is this going to cost us and when do we see that money back. However, I think the case of JHMR and IKON is an important case study for working with your lawyer on all of your transaction assumptions, particularly in the negotiating and drafting phase–when it’s far easier to make adjustments than after the ink on your signature is dry.


Ben Bhandhusavee is the founding attorney of BHANDLAW, PLLC, a Phoenix business and technology law firm working with start-up companies, creative intellectual property, Internet and digital media matters, and corporate M&A and technology transactions.  Ben can be reached at (602) 678-2970 or by e-mail at bbhand@bhandlaw.com