Leasing Gets Less Resıstance

Today’s advanced turf equipment can produce superior playing surfaces, but those benefits have their price. Leasing is getting longer looks as a route to cost-effective course upkeep.

by Betsy Gilliland (editor@clubandresortbusiness.com)
October 2007
 

Summing It Up • Leasing can help to eliminate or minimize the approval processes for major purchases, thus making state-of-the art equipment more accessible. • The price of leasing is usually no more than the cost of a replacement program. • The type of equipment, the useful life of the machinery and the term length should be considered before deciding whether to lease or buy.

Keeping a course in top form is the aim of every golf course superintendent, as the quality and consistency of courses becomes an ever-more critical factor in capturing, and retaining, loyal golf customers.

Having state-of-the-art course maintenance equipment is a major part of achieving that goal. But advances in equipment technology have also added more cost to what has already been one of a club or resort’s largest operating expenses. As a result, more superintendents are taking renewed looks at the question of leasing rather than buying, as they consider how to acquire the cutting-edge tools that they need.

Scott McNeer, Director of Golf Course Operations at Spring Creek Ranch, an 18-hole private club in Collierville, Tenn., near Memphis, is one who believes that purchasing the majority of needed course maintenance equipment is now a practice that is past its prime.

Scott McNeer, Director of Golf Course Operations, Spring Creek Ranch

“I equate it to still having a VCR in your home,  when everybody else has a DVD,” says McNeer.

Playing the Percentages
Representatives of some golf course equipment companies estimate that 45 to 50 percent of their customers now lease equipment. In the Sunbelt states, where golf courses see year-round action, those percentages climb even higher.
“A majority of them will lease their equipment, and generally, they use it for a shorter term than five years,” says the national marketing manager at one company. “In the northern states, there are certain pockets where leasing is popular.”
Leasing is also popular, he adds, in the “middle” states, which generally have an eight-month season.

The finance manager at another equipment manufacturer says the number of properties that lease equipment in southern states is twice the number of courses that lease equipment in colder climates.

However, he adds, his company does not try to push leasing over purchasing, or vice versa. “We do what’s best for the customer,” he says.

Useful Considerations
One equipment supplier’s national marketing manager says superintendents should weigh a number of factors before locking into a leasing program. These considerations include the type of equipment, the useful life of the machinery and the term lengths to borrow or lease. A property should consult with its tax advisor to determine the best plan for its golf course, he adds.

Tom Werner, Superintendent, Shadow Hawk GC

“We lease about 95 percent of (our equipment) in some form or fashion,” says Tom Werner, CGCS. Werner is Superintendent of the private, 18-hole Shadow Hawk Golf Club in Fort Bend County, Texas, which is adjacent to another 18-hole private property, The Houstonian Golf & Country Club.

“We’re a corporation, and we like to do business the proper way,” Werner explains. “And it just made better business sense.”

Superintendents and supplier representatives agree that heavily used pieces of equipment, such as mowers, are good candidates for leasing. On the other hand, they say it is more feasible to buy a machine such as a tractor, which is not used on a daily basis.

Keeping Pace With Change
Superintendents cite a number of advantages to leasing maintenance equipment; however, they agree on the primary reason to adopt the practice.

“I think the number-one advantage is the fact that, as technology changes, we’re able to take advantage of that,” notes McNeer, who leases up to 60 to 70 percent of his equipment at Spring Creek Ranch, primarily under either a 36-month “true lease,” through which the equipment is returned at the end of the term, or a 60-month contract with a $1 buyout.

“These companies change their equipment—sometimes drastically—every few years; or sometimes more subtly every year,” McNeer says.

Changes can range from better performing engines to faster spinning blades, he explains.

Lease/Buy Tradeoffs Machinery that has daily usage and a useful life of fewer than 10 years is often better to lease, experts feel. This category can include: Fairway mowers Greens mowers Tee box mowers Rough mowers <10 Equipment that is not used daily and has a useful life of 10-plus years may have a better payoff if purchased. This equipment includes: Tractors Utility vehicles Aerators Sprayers >10

Bob Lively, golf course superintendent at Flossmoor (Ill.) Country Club, an 18-hole private facility in the southern Chicago suburbs, says he now leases 90 percent of his club’s grounds equipment. Here, too, the driving force for leasing is to help keep up with the latest technology.

“From my standpoint, it just gave me the ability to [provide] the best possible playing conditions with state-of-the-art equipment,” Lively says.

Lively, who has been at Flossmoor since 2002, says he just locked into his second four-year lease cycle. He leases his equipment—everything except tractors—under a true lease plan.

“After four years, it all goes back,” he reports. “That’s the way I like to do it. You always have state-of-the-art technology. To be able to give [members] the best product, you need to have the best equipment.”

When he arrived at the Chicago-area golf course, Lively says, it had “a hodgepodge of equipment” of various brands and ages.

“The equipment repair line item in my budget was very high,” he recalls. ‘There was a lot of downtime.”

Now, however, Lively says he has a state-of-the-art equipment fleet, while spending just under $100,000 annually.

“We weren’t spending any more money than we normally would on a [purchased equipment] replacement program,” he reports.

In addition, he says, the property is not replacing equipment in a “piecemeal” fashion.

“The downtime is very, very little, which means the equipment is out there doing its job,” he adds.

Lively also likes how leasing companies offer a variety of term options. Although Flossmoor has a seven- to eight-month season, the course makes lease payments 12 months out of the year. A daily-fee course that is open only half of the year, though, could set up a plan to make payments only during the six months that the course is making money.
Money management is a factor for McNeer as well.

“You know how much your monthly payment is when you’re in a lease, and it’s going to help you reduce the equipment repair budget,” he notes.

One equipment supplier’s national marketing manager says leasing agreements offer tax breaks to properties as well. If a facility does not own the machinery, he explains, then it does not have to depreciate the equipment’s value. In addition, he says, “One hundred percent of the rental payment is a deductible expense item.”

McNeer admits that leasing can be a costly expense and that purchasing equipment is the best option for some properties.
“You probably can come out cheaper over a 10-year span (by owning equipment) if you have a good equipment manager,” he reports.

Leasing can help to keep downtime to a minimum.

Werner says facilities in cold-weather states can rebuild machinery during the down time in the winter months. However, he says that is not feasible at his southeastern Texas property, which operates year-round.

“We’re just not into overhauling equipment. We’ve got too many other things going on,” he says.

In addition, he says, “Once you get locked into something, there’s always a piece of equipment or two that you wish you had.”

However, more superintendents are becoming converts to the belief that leasing pays off in the long run.
“It gives you better control over the unknowns,” Mc-Neer notes. “You don’t really have control over when something’s going to break down.”

Leasing also eliminates the need to get approval for major purchases, he adds, and can be a morale booster for grounds crew members who enjoy using state-of-the-art equipment.

Staying Power
Superintendents believe leasing equipment is here to stay.

“It used to be your upper-budget, high-budget clubs were doing most of the leasing,” says McNeer.

However, he notes, properties with lower budgets are starting to lease equipment as well. Many of these facilities do not have a “top-notch mechanic” on staff, he adds, and leasing gives superintendents better equipment—and fewer breakdowns.

Werner expects leasing to grow in popularity, particularly among corporations and management groups.
“We need to have good technology to help us out. We’re all about presentation. We want to give our members the best possible experience,” he says.

Lively agrees. “I think leasing is becoming more and more of an option for people, as golf course expectations become higher and higher,” he says.