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A consultant hired by the city of Duluth is recommending the city spend about $23 million on capital upgrades to its Spirit Mountain ski area to improve the visitor experience — and in turn, hopefully, the city-owned ski area’s struggling finances.

That was one of the key takeaways from a 243-page report released Monday by a task force created by Mayor Emily Larson last July, charged with developing a set of recommendations to put Spirit Mountain on more sustainable financial footing. 

Spirit Mountain has come under increasing scrutiny

 in recent years, requiring two cash bailouts, totaling more than $500,000, from the Duluth city council to stay afloat.

The COVID-19 pandemic forced Spirit Mountain to scale back many of its operations in 2020. But even in typical years, the ski area has struggled to cover operating expenses while also paying down debt on past investments. 

Duluth's city-run Spirit Mountain ski area at financial crossroads

Spirit Mountain to ask Duluth for $235K to stay afloat after canceled Snocross

Over the past several years, it has relied on more than $1 million annually in revenue from the city’s tourism tax, which is applied to hotel rooms and bar and restaurant tabs, to pay its bills. 

The task force was asked to deliver guidance on a range of issues, including strategies to improve Spirit Mountain’s business approach; how to address its capital infrastructure needs; whether any adjustments to tourism tax support was merited; and and input on a preferred management structure. 

One key finding, said Duluth City Council member Arik Forsman, the group’s co-chair, is that Spirit Mountain has generated significantly less revenue than comparable ski areas. 

“And the key culprit there, in the opinion of the taskforce, was leadership,” Forsman said. “They  are not making enough money to run the operation sustainably.”

Forsman said the task force identified examples of how city leadership, along with Spirit Mountain’s board of directors and management, have all played a role in the ski area’s underperformance, and suggested areas to improve accountability and transparency.

The task force’s final report didn’t offer many specific recommendations. 

For example, it didn’t suggest a particular type of management structure — whether it should be run by the city, a nonprofit or a private company operating on a long-term lease — would be best suited to running Spirit Mountain.

Nor did it indicate precisely how much money should be invested into aging infrastructure, or how much in tourism tax revenue the ski area should receive every year to sustain its operations. 

Larson said she’s happy the task force didn’t back specific proposals at this stage. 

“I think that would be wrongly placed, on 16 volunteers, to be honest,” she said. The decisions about what to do moving forward will be big, difficult, political decisions, Larson said, “And I think they should land on the laps of people who are accountable to the public through the election process.”

Task force members instead listed what they viewed as strengths and weaknesses of different structural options — assessments that city administration and council members could consider when making future decisions about Spirit Mountain’s direction. 

But a study commissioned by the SE Group, a firm that, according to the task force, is one of only five in the world that specialize in consulting with ski areas, did identify several specific recommendations to turn around Spirit Mountain’s performance. The firm’s study made up the bulk of the task force’s report.

Most significantly, the study recommended investing about $23 million into Spirit Mountain’s aging infrastructure, including: 

The consultant also recommended improving summertime attractions, increasing marketing to lure more of Duluth’s tourists to Spirit Mountain, hiring more staff to check lift tickets, and exploring a modest increase in ticket prices. 

By making those investments, the report suggested Spirit Mountain could attract tens of thousands of more visitors in the winter, but also in the summer, for non-skiing activities. 

Task force members did not recommend a specific level of capital investment in the report — and comments from individual members were included, though anonymously.

“There may never be a better time to go for the recommended [highest level of investment],” wrote one unnamed task force member. 

“This might be Spirit’s time to ‘take a bite of the apple,’” wrote another. 

But other members worried that the promise of sharp increases in visitors after certain upgrades seemed overly optimistic, and they feared the city could again be left to pay off debt on improvements that didn’t pay for themselves. 

“I worry that Duluth historically gets caught up in making big investments using debt, with the justification that it will boost revenues and tourist dollars. Post-mortems often don’t look so good,” wrote another task force member. 

In addition to suggestions for improvement, the report also provided updated estimates of the broader economic impact that Spirit Mountain has on the city of Duluth. The consulting firm estimated that the attraction contributes about $22 million annually to the city, in the direct employment of about 300 workers, as well as in indirect benefits like spending at hotels, restaurants and gas stations. 

“Spirit Mountain is an asset that is clearly worth investing in,” Forsman said. “For every dollar we spend in tourism taxes, we get $18.72 back.”

Because of that broad economic impact, the task force recommended that the city continue to invest tourism tax revenue into the ski area — even if they declined to specify an amount. 

But in return, the task force recommended that the ski area “must enter into a binding agreement to develop and be held accountable for making strategic investments with tourism tax proceeds rather than relying on tourism taxes to cover day-to-day operations.”

The report will now go to the City Council. Larson said she wants the public to weigh in on the report to help guide city officials on next steps. But she says a decision needs to be made quickly, to place Spirit Mountain on a sustainable course. 

“In the next several weeks, we’d want to take action on something,” Larson said. “We want to get ourselves prepared for next winter, and really starting to think about what is the financial direction we want to take”

There are “a lot of cooks in this kitchen,” Larson said. But “at some point we need to come up with one recipe we agree on.” 

Dan Kraker

Author

A consultant hired by the city of Duluth recommends spending $23 million to upgrade the city’s struggling Spirit Mountain ski area. That’s one of several takeaways in a new report released by a task force to put the ski area on a sustainable financial path.

Report recommends $23 million in investment for Duluth's Spirit Mountain

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