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2016. Even though many independent club owners would seek to exit, their expectations are much higher than po- tential purchasers are willing to pay. The largest club companies are choos- ing to create new builds rather than acquire existing clubs. Some regional players are buying others in adjacent or neighbouring markets. A few indi- vidual outsiders are buying clubs, but it has not been easy to identify them. No new public companies were


created. Of the three existing, one is considering returning to private sta- tus. Private equity firms continue to research the club industry and enter it. Some who have had previous suc- cessful exits have re-entered. There has been no major increase in U.S. club ownership by international club companies or the reverse. Also, there has been no meaningful investment by potential strategic partners (e.g., hospitality, leisure or sporting goods manufacturers).


Other Relevant News The club industry is always con-


cerned about quick-fix solutions to health and weight loss. The FDA has not approved any miracle pills. The pure diet centres have still not incor- porated an exercise element to their weight loss offerings. There is always concern about the


growth of non-profit facilities who en- joy substantial financial and tax ad- vantages. But, in recent years, there has been minimal growth in the cre- ation of non-profit facilities (e.g., JCCs, hospital wellness centres, parks and recreation facilities, military base rec- reation centers and member-owned clubs). The only category which con- tinues to build mega fitness centres is the university market (often spend- ing $60 to $90 million). They are over- built intentionally through a one-time bond. Then they make them available


to the local community (“boosters” label) and affect the supply/demand equilibrium of the local market. Clubs have been challenged to take


advantage of the Affordable Care Act and to tie in with corporate employers, health care companies (insurers) and medical facilities (e.g., hospitals, medi- cal practices, urgent care centres). Now the challenge is to take advantage of the revised law that will be passed shortly. There are continuing pressures


from state legislatures to impose new laws that may affect club operations and maybe the bottom line. Efforts to create legislation to enact sales and taxes and to license instructors, to neg- atively affect the member cancellation process, etc., are constant throughout the states. Technology is a constant influence


today helping clubs to manage their businesses better, engage and learn more about their current customers and their behaviour, to help members track their progress (both inside and outside of the club), to analyze what members really do inside their clubs and then develop member profiles and predict future usage and member be- haviour. These are lessons currently being studied from retailing.


2017 IHRSA Financial Panel This year’s Financial Panel included


L Catteron, Eagle Merchant Partners and Jeffries. Each of the panelists has very recent experience with club transactions. All liked the club indus- try for a wide variety of reasons (e.g., attractive demographics, recurring revenue, ancillary income potential, low labour costs, a variety of segments to serve the various needs, represent- ing a “way of life,” and the potential to make it even more successful through the use of technology). They see our industry with a variety of user choices


“Technology is a constant influence today helping clubs to manage their businesses better, engage and learn more about their current customers and their behaviour, to help members track their progress (both inside and outside of the club), to analyze what members really do inside their clubs and then develop member profiles and predict future usage and member behaviour.”


44 Fitness Business Canada May/June 2017


and segments. They noted the impor- tance of customer engagement, the ideal of creating a sense of community and making a club an integral part of a member’s lifestyle. They commented on the HV/LP seg-


ment and suggested that it would do well in recessionary times; it is like the fast casual dining industry, it depends on a proper real estate deal (i.e., can- not pay much for rent but needs to be in a dense location), and it may need to challenge its pricing in the future. They also provided insights on the


studio arena. They see it as a lasting trend (with some internal movement in and out), highly female-centric, missing the recurring revenue ele- ment, trying to create an on-site “com- munity,” becoming more competitive with a shakeout coming, getting users to be price insensitive for the experi- ence, and a need to create a company culture. Clearly the use of a market- ing aggregator (such as Class Pass) has shown that a frictionless service is at- tractive to this type of consumer. They see private equity being inter-


ested in the club industry. They like the studios with fast growth and the possible use of the franchising con- cept. They think this may be a vehicle for the regional player with an exist- ing set of clubs and specific acquisition plans. But they do not see the largest club companies changing course and going on an acquisition binge. They noted that the home market may be changing and cited the new Peloton model of buying an expensive bike and streaming classes for a fee.


Conclusions Most of the club industry contin-


ues to have a positive outlook for 2017 with the rapid growth of studios and HV/LP clubs. Many are very interested in trying to specifically benefit from the revised ACA law and tying in with the medical opportunity. No one is re- alistically expecting to return immedi- ately to the industry’s high water mark of EBITDA margins of 2007. FBC


Rick Caro is president of Management Vision, Inc., a club consulting company with expertise in helping with club financials, valuations, mar- ket feasibility studies, expert witness testimony and sales/purchases. Contact him at 212-987- 4300 or mgmtvision@gmail.com.


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