The Club Industry editors looked over the stories we covered in 2016 and selected these five as the stories that affected the fitness industry the most this year and that will continue to affect the industry into the future.
We recently shared a gallery of top news stories for 2016 based on page views, but page views can be deceiving, as stories from earlier in the year can pull more page views by virtue of their longevity on the website.
So the Club Industry editors looked at the news we covered this year, and we selected our top five news stories of the year. They are listed below with our top story appearing last.
In February, we shared a story about small and medium-sized health club owners who alleged that third-party billing company National Fitness Financial Systems, Layton, Utah, failed to pay them their share of their members' dues. The alleged lack of payments caused financial hardships for many of the health club owners. Because we did not have access to National Fitness Financial Systems' client list, we do not know how many club operators were affected by the company's alleged actions (or lack thereof), but to this day, we still receive emails from health club operators complaining about not receiving payments from the company. In addition to financial issues, many of these operators then had to find a new billing company and endure a transition to a new system.
This saga of Bikram Choudhury actually involves more than one article. We have been covering the sexual assault and sexual harassment allegations against the founder of Bikram Yoga for more than a year. In January, a jury found against Choudhury in a wrong termination and sexual harassment lawsuit filed by his former lawyer, Minakshi Jafa-Bodden. The jury awarded her $924,000 in compensatory damages and an additional $6.4 million in punitive damages. Choudhury still faces at least six civil cases brought by former employees and students alleging sexual harassment and rape. Choudhury has denied the allegations. In October, Choudhury was featured in an episode of HBO's "Real Sports with Bryant Gumbel." In that episode, several former students of Choudhury's Bikram Yoga College of India likened Choudhury to a cult leader who berates his students. Choudhury told "Real Sports" correspondent Andrea Kremer that the allegations against him were lies for the purpose of making money, and he later stormed off the set.
This month, a judge ordered that Choudhury had to turn over the Bikram Yoga College of India, franchise agreements and intellectual properties to Jafa-Bodden because he had not yet paid her the $6.4 million he owed her in punitive damages. Jafa-Bodden's lawyer, Carla Minnard, alleges Choudhury has left the country to avoid payment, and she plans to seek a bench warrant for his arrest in the United States and abroad.
Some Bikram Yoga studio operators have already taken the Bikram name off their studios, but how this order by the judge will affect any franchisees is unknown at this time.
Town Sports International (TSI), New York, which operates clubs as New York Sports Clubs, Boston Sports Clubs, Philadelphia Sports Clubs and Washington Sports Clubs, was one of the big players in the health club industry for years, so big, in fact, that the company went public in June 2006. However, the company's revenue has been declining, as its stock price has stayed below $4 since May 2015.
In 2014, TSI announced it would convert some of its clubs to a low-price model, and in 2015, TSI expanded that model to most of its clubs. The move initially caused an increase in TSI's memberships, but in first quarter 2016, the company blamed its 9 percent revenue decline in the quarter in part on the lower dues price. Despite the company lowering its debt during the first quarter, TSI continued a revenue decline in the second quarter (5.9 percent decrease) and in the third quarter (5.1 percent decrease).
In March, TSI added a second studio brand, Tone House, to its portfolio. Tone House is an extreme athletic-based training studio that operates independently of TSI. TSI's first studio brand, Boutique Fitness Experience (BFX), launched in 2014.
In November, TSI announced a branding initiative to make over its health clubs, website and digital app. The new branding was to position the clubs as community-centric neighborhood gyms.
This month, TSI signed an agreement with NFL player Rob Gronkowski to bring his Gronk Fitness Program to one of its Boston Sports Clubs.
Most of the latest moves to save the company have been led by Patrick Walsh, an active investor, who took an interest in the company in 2014 and in March 2015 moved himself and others onto the board. He moved into the chairman of the board role in June 2015, and in September positioned himself as TSI's CEO. In May, Bob Giardina, who had been with the company since 1981 except for a three-year hiatus from 2007 to 2010 for personal reasons, left his non-employee position on the board of directors, essentially the last of the longtime management to leave the TSI team.
No. 2. Consolidation of fitness equipment manufacturers with the sales of Cybex International and Octane Fitness
In January, Brunswick Corp., the parent company of Life Fitness, purchased Cybex International for $195 million. Cybex was owned by UM Holdings, a company founded by married couple John Aglialoro and Joan Carter. Its board members included Art Hicks Jr., former president and CEO of Cybex; Art Curtis, president of Curtis Club Advisors LLC; and John McCarthy, former executive director of IHRSA.Brunswick announced it would move Cybex into its Life Fitness Division but would keep the Cybex brand name. In October, Brunswick announced that Cybex's production and support operations would move from its Medway, Massachusetts, location to existing facilities in Minnesota and Illinois.
Technically, the Octane Fitness purchase by Nautilus Inc., Vancouver, Washington, occurred on Dec. 31, 2015, but we are including it in this 2016 recap because it really hit the industry in 2016. Nautilus purchased Octane from North Castle Partners for $115 million, moving Nautilus back into the commercial fitness equipment market under the Octane brand name. Nautilus, which trades on the New York Stock Exchange under the symbol NLS, divested itself of the commercial side of the business in 2009, focusing on the retail side with brands such as Bowflex, TreadClimber and Schwinn. The Nautilus brand that remained in the commercial market is owned by Core Health and Fitness, Vancouver, Washington. Core Health licenses the Nautilus name from Nautilus.
Despite the confusion that Nautilus commercial fitness equipment is owned by Core Health while Octane commercial fitness equipment is owned by Nautilus, the sale of Octane and Cybex to two publicly traded companies may be signaling the strength of public companies to use their manufacturing efficiencies to grow with additional brands without having to rely as much on R&D investments and new product introductions for revenue growth.
Who could be next? Technogym is now a public company in its headquarter country of Italy. Precor is owned by the public Finnish company Amer Sports. Will either be open to a purchase? And then we have Core Health, which already has multiple brands under its ownership. 2017 could be an interesting year.
No. 1. 24 Hour Fitness Sale of Its Midwest Clubs to Genesis Health Clubs
In June, 24 Hour Fitness, San Ramon, California, exited the Midwest market with the sale of its 19 Midwest clubs to Genesis Health Clubs, Wichita, Kansas. The purchase price was not disclosed.
The year prior, 24 Hour had completed a club exchange with LA Fitness in which 24 Hour gained three Midwest clubs (two in Oklahoma City and one in Omaha, Nebraska, where it already had four clubs) while letting go of 11 clubs in Arizona. The Oklahoma City and Omaha clubs were part of the June sale to Genesis.
24 Hour President Frank Napolitano told Club Industry at the time of the sale of its Midwest clubs that the executive team, which also includes CEO Mark Smith, plan to concentrate on areas with significant density to support a cluster of the company's clubs. They decided the Midwest markets that they were in, which included clubs in Kansas City, Missouri; St. Louis, Missouri; Omaha; Oklahoma City; and Tulsa, Oklahoma; were not large enough to support their business model.
24 Hour owned 441 clubs as of Dec. 31, 2015, according to the Top 100 Clubs list form that the company submitted to Club Industry in May. The clubs were in 17 states: California, Colorado, Florida, Hawaii, Kansas, Maryland, Missouri, Nebraska, Nevada, New Jersey, New York, Oklahoma, Oregon, Texas, Utah, Virginia, Washington. After June, Kansas, Missouri, Nebraska and Oklahoma were off that list.
We saw this story as the top story of the year not only because it signals a change in strategy by 24 Hour Fitness, one of the largest club chains in the country, to focus on higher-density cities (and at least temporarily out of the Midwest) but also because it signals a new rising club operator in Genesis Health Clubs. With his 2016 purchases, which included the purchase of six Midwest clubs from Gold's Gym International during the same week as his 24 Hour purchases (and four other Gold's Gym locations earlier in the year), Genesis Health Club owner Rodney Steven has 41 locations (as of Dec. 28) in four Midwest states. His 2016 purchases put Genesis into larger Midwest metropolitan areas than it had previously operated in. So markets that were too small for 24 Hour Fitness are now an opportunity for growth for Genesis Health Clubs. And Steven has signaled that he is not yet done buying.