With big deals still on the cards, including the
financing of equipment for U2’s world tour, leisure finance remains
a force to be reckoned with. Antonio
Fabrizio reports.
Leisure, entertainment and media equipment
lessors have experienced many of the negative effects that the
economic downturn is having on leasing in general – from reduced
availability of funding to increases in arrears and declining
residual values.
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But overall, this sector has managed to
survive as people continue to spend money going to gyms, concerts
and theatres, which means that businesses are still looking at ways
of financing their asset acquisitions.
However, performances of individual assets –
of which there is a wide range – have varied considerably.
Indeed, they include such things as
high-definition cameras for freelance cameramen, complex sound
systems and lighting for live concerts, single items of gym and bar
equipment for small businesses, as well as the whole suite of
equipment used by the big chains.
The significant differences have meant that
the broadcast, film and audio market for the entertainment industry
has been coping relatively better with the downturn than gym and
bar equipment.
According to Peter Savage, the MD of leasing
broker Azule, the broadcast and film industry has gone into
recession quicker than other segments, but is also expected to come
out of it quicker.
Savage, who has extensive experience of this
field, explains: “When things start picking up, people will start
spending money on adverts, and it is mainly advertising that pushes
the revenue stream within the broadcast market.”
Moreover, for Savage, lessors are more
inclined to broadcast equipment than gym equipment because of its
second-hand market.
“Broadcast equipment has a known length, and
we are still refinancing or financing equipment which is
15-years-old because people still want some machines in that
particular format,” he says.
The live entertainment sector – concert,
festival and theatre equipment – also seems well-placed for growth
at the moment.
According to Sam Geneen, MD of Five Arrow
Leasing and chairman of Fineline, the group’s company for the media
industry: “The market for outside broadcast is still pretty
interesting, as one can see from the number of outside concerts
that triggers off a great demand for the technology to support
those concerts.”
“Of course, the challenge is that you are
mainly dealing with SMEs, so there is an issue of availability of
funds and liquidity. But the demand has not reduced,” he says.
Paul Robson, director of specialist broker
Medialease, says that his business is becoming busier as it gets
involved in the funding for some upcoming live shows and concerts –
it is currently working on the financing of the U2 world tour and
has several other deals in the pipeline.
He has mainly seen an interest from short-term
hire companies, which typically have one week to three month hire
arrangements with their customers for the equipment, although big
tours and West End shows can last longer.
However, Robson highlights that the downturn
has drastically reduced funding and determined a “wholesale
disappearance of lessors”, which he believes comes from their
little knowledge – and therefore increased diffidence – of these
assets.
Bank-owned lessors, Robson says, don’t
understand enough about specialised equipment, such as non linear
audio/video editor and composition tools, as they tend to focus
more on general assets such as vehicles.
Moreover, when they only rely on their own
valuers, they risk being misled as the valuers themselves “don’t
understand enough about this equipment either, and sometimes tend
to guess what the values are”.
However, funders who don’t understand the
equipment but want to get more involved should refer to the
specialist brokers they can trust, Robson says.
“If they work with brokers who are not too
desperate for turnover but can genuinely distinguish between good
deals and bad deals, and are willing to trust them a little bit to
get the background information on the equipment, and what it is
worth in a second-hand marketplace, then there is money to be made
for them,” Robson says.
Savage agrees that specialist brokers are
better placed in this market.
He says that thanks to its knowledge, his
company recently helped advise some lessors on an administration,
and significantly increased the value that they recovered from the
assets compared to what they had been initially offered.
According to both Robson and Savage, some
leisure equipment, however, has been hit harder, particularly gym
equipment and equipment for pubs and clubs.
Medialease, for example, has helped finance
some audio/video installations for clubs and bars. But Robson says
that funders are now becoming increasingly unwilling to finance new
businesses as they tend to “evaporate” too quickly because their
“clientele in a short time has gone to the next new bar or
nightclub”, which reflects in unstable returns.
“Unless there is a good deposit or a
short-term payback, it’s difficult to fund them,” he says.
For Savage, things are getting “progressively
more difficult” also in the gym equipment industry. This is
reflected in the higher level of arrears his company has seen as
well as in poor residual values.
“For assets like gym equipment, we don’t find
as good a second-hand market as broadcast because people opening
new gyms wouldn’t be looking for second-hand gym equipment,” he
says.
However, according to recent statistics from
the UK Fitness Industry Association, the market is generally
showing some “resilience”, which could trigger increasing business
for lessors in this subsector, too.
The report showed that the market value
increased 3 percent in the last 12 months to April 2009, and that
114 new fitness facilities opened in the same period.
This “resilience” has been confirmed by one of
the UK largest fitness suppliers, Life Fitness.
The company has financing options available
for most of its products – including cardio-vascular machines,
treadmills, and bikes – and a partnership with Admiral Leasing for
leasing its products. It worked previously with Shire Leasing.
Jon Bennett, Life Fitness’ UK commercial
development manager, acknowledges that the market is tight,
although he says that some areas show potential for growth.
Difficulties, he says, mostly arise within the
small business private sector as lessors are becoming more and more
cautious about whom they lend to. But his company has increased its
business with local authorities, universities and schools.
He says: “People are still spending money,
although everything seems to be much more price-driven now. While
the business has slowed down with private businesses, it has
actually grown in the case of local authorities.”
As Sam Geneen puts it: “Not everything is
gloom and doom.” He could be well be right, after all, today more
than ever people need the services of the leisure and entertainment
industry to take their mind off this whole “recession stress”.
