Magazine article Parks & Recreation

Good Leases Gone Bad: Who Is Running Your Golf Course?

Magazine article Parks & Recreation

Good Leases Gone Bad: Who Is Running Your Golf Course?

Article excerpt

Leasing has its advantages and disadvantages. If your municipal golf course is leased to outside management, simple monitoring and a well-constructed lease agreement can prevent a potential financial disaster.

The "Acme" course is in abysmal condition. Due to what appears to be the failure [of the lessee] to perform even the most basic course maintenance over the past several years, "Acme" has steadily fallen into a sad state of disrepair: Of the competitive courses in the region, "Acme," by far, is in the worst condition. These poor conditions permeate not only the course itself, but also the clubhouse, maintenance facilities, and driving range. Public perception of the course is not good.--Actual language from a 1999 NGF Consulting operational review of a public golf course.

In this case, the leaseholder of this course took everything and the bathroom sink from the halfway house. It was ripped right off the wall. After neglecting the course for years and turning a community jewel of a course into a beaten-down goat farm, this lessee absconded with the proverbial sink (and three of the four toilet seats)! So, who is running your municipal golf course?

According to National Golf Foundation data, approximately 2,600 municipal courses were in operation in the United States as of year-end 1999, with several more on the way in 2000. Many of these courses are managed under a lease agreement, whereby the municipality transfers control of the course (and revenues) to the leaseholder in exchange for a rental payment. Many leases serve the community well and enhance the operational and fiscal performance of the course by bringing in responsible and experienced personnel to manage the golf course. Unfortunately, that is not always the case. When the wrong leaseholder takes control of the right course, the results can be disastrous.

Lease Advantages

Not all leases are bad. In fact, a lease may be exactly what a municipality needs to ensure that its golf course operates at optimal capacity and performance. There are several advantages to a lease agreement--none less important than the fact that it can provide experienced golf course management. Most municipalities do not have individuals on the payroll who have numerous years of golf course operational experience and who can step right in and run the course like a finely tuned Swiss watch. Theoretically, experience is what you are paying the lessee for.

A lease can also relieve a municipality from having to make the substantial expenditures necessary to run the golf course, which can be expensive. Depending on the quality of the course, maintenance alone can cost between $500,000 to $1 million, while the general and administrative expenses can add another several hundred thousand to the mix. Golf carts, equipment purchases, and inventory aren't cheap either. Under self-operation, the municipality is responsible for all of these obligations. The lease agreement shifts the financial burden to the lessee, thereby letting the municipality keep its money for other services. Some lessees, in exchange for a long-term agreement and rent concessions, will make those necessary capital improvements that the municipality has been meaning to do but just couldn't find the money for, such as refurbishing tees and greens or a installing a new irrigation system. In theory, a lease can get you out of the check-writing business, and the municipality can earn money for doing next to nothing at all. Each month or each quarter, the checks come rolling in and all the municipality has to do is deposit them in the bank. This is sort of like manna from heaven--assuming, of course, that you disregard the manna's return on investment. But be wary of whom you entrust with this investment.

Lease Disadvantages

The biggest drawbacks to a lease agreement are the loss of control and the limited financial gain. With a lease, the municipality no longer runs the show. …

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