THE VERSATILITY OF

EQUIPMENT PURCHASING

PROGRAMS, ESPECIALLY

THOSE OFFERING LEASED

AND REFURBISHED

EQUIPMENT, CAN HELP

EASE THE FINANCIAL

BURDEN OF OUTFITTING

A FITNESS CENTER.

THE VERSATILITY OF

EQUIPMENT PURCHASING

PROGRAMS, ESPECIALLY

THOSE OFFERING LEASED

AND REFURBISHED

EQUIPMENT, CAN HELP

EASE THE FINANCIAL

BURDEN OF OUTFITTING

A FITNESS CENTER.

few weeks late to the City of Fort

Morgan (Colo.) Community Services

Department, director Chris Nunes

doesn’t seem to mind. That’s because come

Jan. 16, for the first time in the history of his

department’s Armory recreation center, the

fitness area will boast brand-new cardio

equipment, “just in time for people who’ve

made New Year’s resolutions,” says Nunes.

Users will also have at their disposal a

variety of refurbished, secondhand strength

machines in near-mint condition. “For a

small amount of money, we’re providing residents

with quality equipment,” says Nunes.

The Fort Morgan Community Services

staff managed to equip 80 percent of its

2,000-square-foot fitness center for only

$20,000 by splitting its equipment bid: half of

the money went toward the purchase of

three new cardio machines, the other half to

buy three refurbished strength pieces,

including a leg press and a Smith machine.

“Budget dollars are getting tighter and

tighter,” says Nunes. “With the refurbished

equipment, we had the ability to stretch

those dollars.”

The equipment needs of Fort Morgan Community

Services, which provides for a town of 11,000

residents, are certainly much less than, say, a metropolitan

chain of 25 health clubs. Nevertheless, in

efforts to cut costs amid an economic climate that

is dubious at best, operators of fitness centers of

all sizes are exploring the increasing variety (and

versatility) of equipment purchasing programs.

For some facility operators, buying new equipment

is still more advantageous than any other

means. For example, all fitness equipment at the

Peak Health & Wellness Center in Great Falls,

Mont., was purchased new — first, when it

opened in March 2002, and then five

months later when the club was expanded

to accommodate 30 more pieces. “One of

our owners has seven clubs throughout

the Northwest and has really good purchasing

power,” says Lynn Compton, the

Peak’s director. “He might put in a

$250,000 order, spread the equipment

around in all of his clubs and get a substantial

discount. If we were a stand-alone facility, it

would be a lot more expensive.”

It’s fairly common for manufacturers to offer bulk

discounts, says Tim Cluny, regional director of

Advanced Exercise Equipment, a full-service

provider of commercial exercise equipment serving

eight states stretching from Arizona to Missouri.

However, don’t expect to receive the same discount

from two different manufacturers, even if

they make the same types of equipment. Several

factors prohibit vendors from following a standard

discount formula, or what Cluny calls a “cookie-cutter

approach.” “Manufacturers may get a better

profit margin from one product than another. It

really depends on the mix of product, and of

course, the volume of the purchase,” he says. “So is

there a standard discount? Typically not. Even if

we, as distributors, offer a discount, it will eventually

depend on the customer and his or her setting.”

for large fitness facility chains of regional or

even national stature, but for smaller operations

leasing has emerged as an increasingly popular

option.

In point of fact, equipment leasing isn’t that new

of a concept. Macrolease, a Plainview, N.Y.-based

national equipment leasing company specializing

in a variety of markets, has been leasing fitness

equipment to YMCAs for 35 years. The difference

these days, says Al Rousseau, Macrolease’s vice

president of sales and marketing, is that capital is

at such a high premium, especially for start-up

businesses. “Leasing is tied to the equipment, the

equipment is your collateral,” he says, advising

facility operators to “keep your bank lines of credit

open for renovation, advertising, whatever.”

“When it comes to owning a building or land, I

would love to, because those types of assets retain

their value fairly well,” says Jim Mellor, vice president

and chief financial officer of Metro Atlanta

YMCA, a Macrolease client. “But I don’t see any

need to own athletic equipment. What I want is the

benefit of use. Why would you own equipment that

lasts two years? Are the reasons emotional?

Because they’re certainly not financial.”

Leasing is an attractive option for many

because it allows facility operators to

acquire tens or hundreds of thousands of

dollars of equipment in return for one

fixed monthly payment. “Every month it

shows up on our budget, we send the bill

to City Hall and they cut a check,” says

Lisa Donald, fitness supervisor for The

Heights recreation center in Richmond

Heights, Mo., which leases more than $400,000

worth of strength and cardio equipment. “With the

lease, I have an idea of how much I can spend

monthly, and I can structure the amount of equipment

we lease within those boundaries.”

In reality, it’s not quite that simple — lessees are

making payments to the lessor for the rights to use

equipment from one or more vendors, and must

agree to contracts ranging from 18 to 48 months in

length. (See “Good Credit,” p. 62.) “A lot of people

think a lease is like a rent,” says Joe Schmitz, president

of F.I.T. Leasing in Tustin, Calif. “It’s really a

financing instrument, like a car lease.”

There are several types of equipment leases.

One option allows lessees, at the end of a lease, to

purchase the equipment from the lessor for 10 percent

of its original value. Generally, the lessee’s

accountant will advise whether to capitalize the

equipment or write off the entire payment. Then

there’s the $1 purchase option, also known as a

“capital” or “finance” lease. For $1, at the end of the

lease, title to the equipment is passed to the customer.

Because of the small purchase option, the

equipment is often depreciated and any accumulated

interest is expensed, similar to the method

utilized in bank financing. For both the 10 percent

and $1 purchase options, the lessee attains ownership

of the equipment at the end of the lease term.

Lessees can also choose a fair-market-value (or

operating) lease, which gives them the option of

either purchasing the equipment at fair market

value (anywhere from 10 to 20 percent of the original

value, depending on “manufacturer motivation

and wear-and-tear,” says Schmitz) or renewing

athleticbusiness.com January 2004 ATHLETIC BUSINESS 61

their contract. In the latter case, the lessee returns

the existing equipment to the lessor in return for as

much as 20 percent value toward the lease of new

machines.

This leasing option has become very popular

among both equipment vendors and facility operators,

particularly those who manage Ys and municipal

recreation centers. “The

equipment manufacturers like

it because they’ve got a good

chance to get us back to lease

more of their equipment,”

says Mellor, adding that it was

the wellness directors at the

Metro Atlanta YMCA’s 11 fitness

facilities who suggested

that equipment leasing would

better serve their end users.

“Our members like it because

they have new equipment, the

same equipment no matter

what facility they visit.”

Donald says that the new

cardio equipment in her facility,

which was installed in October under the parameters

of a three-year lease, has helped draw new

customers and retain loyal ones. “People seem to

be excited about it. In the spring, we brought in

several demo pieces and people gave us input on

what machines they liked and didn’t like,” she

says. “Of course, they were sad to see some of

their old favorites go, but it’s nice to say that we

can offer them state-of-the-art equipment.”

Roy McIntyre, director of fitness at Orion,

Mich.’s Great Lakes Athletic Club, agrees,

but also enjoys the fact that come renewal

time, he isn’t obligated to acquire equipment

from the same manufacturers.

“Everything gets replaced, whether it

needs it or not,” he says. “You get the latest

and greatest out there, and you don’t

have to keep the same manufacturers.”

In fact, it’s not all that uncommon for fitness facility

operators to renew their lease contracts with

the same funding source, but choose different vendors

the second time around. “Think about it:

you’re doing these agreements two to four years in

advance. Manufacturers don’t know what new

equipment they’ll come up with between now and

then,” says Mellor. “All you’re doing is establishing

a relationship with a vendor that says, ‘I’m going to

come to you first.’ But you don’t have to. You can

say, ‘I don’t think I like what you’ve got, so I’m going

to manufacturer B.’ It’s a relationship, but one that

has to be earned at the end of the lease cycle.”

Indeed, the final 90 days of a lease are critical. It’s

during this time that vendors and lessees, through

channels established by the third-party lessors,

negotiate anything from interest rates on future

leases to trade-in values for old equipment. Lessees

can also use this opportunity to request “bundled

transactions,” which allow them to acquire equipment

from multiple vendors. The 14,000-square-foot

fitness area at Great Lakes Athletic

Club, for example, houses

more than $1 million in leased

strength and cardio equipment

from five different vendors.

“Chances are if you’re doing

$200,000 total, and $100,000 of

that equipment is from one

vendor, you’ll do the rest of the

purchase from the same vendor

because of multiple equipment

purchase incentives,”

says Schmitz. “But if you get

$100,000 of equipment from

one vendor and you also want

equipment from three others,

we can do it.”

If requested, lessors will also occasionally

agree to lump in with larger transactions a small

amount to cover “soft costs,” for items such as

lockers and flooring. “We really don’t do much

more than $10,000 to $15,000 of soft goods per

$100,000 transaction,” says Schmitz. “If you said

you wanted $50,000 for flooring, we probably

wouldn’t be willing to do that, even if you had

IBM-quality credit.”

The reason, Schmitz continues, is that the collateral

value of weight-room flooring depreciates

significantly over a short period of

time, whereas a standing calf raise machine

retains a greater percentage of its original

value, even after two years of heavy use.

This is generally the case with strength

equipment, and lessees will structure their

leases accordingly. Both the Metro Atlanta YMCA

and The Heights have four-year leases on their

strength pieces. On the other hand, components

within most cardio machines, particularly treadmills

and exercise bikes, tend to wear out sooner.

Thus, many lessees choose to go the safe route and

renew leases for such equipment every two years.

Still, two years can be a long time to the facility

operator who doesn’t know a thing about repairing

a broken-down elliptical machine. Not to worry:

Many vendors offer lessees full parts and labor

warranties. To Donald, this is her lease program’s

best feature. “Almost everything that has gone

wrong, with the exception of two incidents, has

been paid for by the company,” she says, adding

that all of those repairs were to cardio machines.

By contrast, The Heights’ four-year-old strength

equipment remains “in really good shape,”

says Donald. “The most I’ve had to do to is

replace some ripped pads. As far as the

frames and the movable parts go, they’re

fine.”

Leasing or purchasing new fitness

There is no one-size-fits-all formula