Prior to July of this year, the industry had not heard much about Sport & Health Clubs, a chain of clubs in the Washington, DC, area, since the company was sold four years ago.
That was by design, its leaders now say.
“This company is a different place than it was four years ago,” says Sport & Health Clubs CEO Jonathan Adler. “It was a dinosaur four years ago. We had a lot of housekeeping to take care of. That's behind us. Now, we're a fast-moving, intelligently run company with a lot of top-notch people.”
Mark Fisher, the McLean, VA-based company's president and COO, adds, “We were kind of the sleeping giant, and now we're really ready to move.”
The reason for the gung-ho attitude comes in part from the $25 million of financing poured into Sport & Health from Pittsburgh-based PNC Mezzanine Capital and Wynnewood, PA-based CMS Mezzanine Fund. Adler and Fisher plan to open three Sport & Health Clubs each year for the next five years beginning in 2010. They also may consider acquiring clubs in two other metro areas — Baltimore and Richmond, VA.
“Over the long term, we've shown that we're not a highly leveraged, high risk kind of company,” Fisher says. “We continue to perform. With a track record of 37 years in the industry, we have a pretty solid base for [PNC and CMS] to jump in on. They like the market that we're in. They see the relevance to our strength in this market and the relevance to the strength of the market.”
In late 2005, Adler was part of a group of real-estate developers and investors that included Donald Konz, who founded the clubs in 1973, and Tom Fauquier, a principal in the Vanguard Realty Group, that purchased Sport & Health Clubs for $75 million. The purchase included 26 clubs and three full-service day spas.
Konz's clubs were called Courts Royal Clubs back in 1973. The clubs merged in 1980 with the Arlington Tennis & Squash Club to become the Sport & Health Co. Konz served as the company's president and CEO from 1997 to 2003 before becoming the CEO again upon his group's purchase. He left the company in 2007 but remains an investor.
Adler's background includes the marketing, Internet, exclusive golf club and publishing industries. He co-founded Washington Dossier Magazine in 1975 and later became CEO of The Adler Group Inc., a company that published apartment guides, new home guides, consumer directories, trade newspapers and interactive media. The company was sold in 2000.
Fisher has been in the health and fitness industry for almost 30 years and has been a part of Sport & Health Clubs since 2003. Previously, Fisher managed and owned several club companies throughout the country, including 24 Hour Fitness, U.S. Fitness Management and Ladies Fitness and Wellness.
At the time of the July financing announcement, Sport & Health Clubs had 23 clubs and three day spas in the Washington, DC, metro area, which includes parts of Virginia and Maryland. Sport & Health Clubs ranked 12th on Club Industry's Fitness Business Pro's Top 100 clubs list this year, reporting $93 million in revenue in 2008.
The company boasts more than 90,000 members throughout the Washington, DC, area and has more than 2,000 employees, 500 of which are full-time. The employees include about 350 trainers, 100 club directors or club managers and 12 people in the senior management group.
Same-store membership sales are up 4 percent over last year, and average daily workout traffic has increased 15 percent over last year, Adler says.
“With the economic pressures that the consumer experiences, people are more interested in services,” Fisher says. “They want to have programs and services that they can become engaged in and enmeshed in. And more important than ever is a sense of community in the club. The members are more engaged in the club this year than they were last year.”
In addition to the latest equipment, Sport & Health Clubs includes group exercise options, such as Pilates, yoga and mixed martial arts. Many clubs feature basketball, swimming and tennis. (The clubs have a combined 60 tennis courts, the most of any club company in the DC metro area, according to the company.) Sport & Health Clubs owns three Serenity Day Spas, located in three of its clubs. The company also caters to family and children with its Kidz Klub, featuring a nursery, climbing mazes, dance classes, camps and a variety of junior programs.
Sport & Health Clubs has two distinct operating divisions: an athletic brand and a fitness brand. The athletic brand, which has more multi-sport functions and more programs, has a higher price point and caters more to families. Its largest facility is about 120,000 square feet. The fitness brand has a competitive price point in a big box format, and its largest club is about 60,000 square feet. The company's clubs are split about evenly in each group, Fisher says.
An advantage Sport & Health Clubs has over other companies in other markets, Adler and Fisher say, is its Washington, DC, location, which is generally viewed as a recession-proof area supported by numerous federal jobs. In statistics released on Sept. 1, the unemployment rate for the metropolitan area including Washington, DC, Arlington, VA, and Alexandria, VA, was 6.2 percent in July, well below the national unemployment rate of 9.7 percent in July.
Sport & Health Clubs is clearly not lacking competition. National competitors include Life Time Fitness, LA Fitness, Gold's Gym, Planet Fitness and Washington Sports Clubs. Both Adler and Fisher say that they believe in their brand and that it will hold up in the future.
“People are coming onto the beachhead, but we already own the beach,” Fisher says. “The national brands are all worthy competitors, but because they understand how to operate in New York and Chicago, doesn't mean that they understand the intricacies of the communities around the DC metro area. We are firmly entrenched in those communities. We're a fairly formidable competitor to come in and try to take market share from. Everybody gets a little piece, obviously, when they come in. But we haven't had anybody come into the market that we believe is gaining a toehold or experiencing the success that they anticipated. And yet our company continues to grow.”
Fisher says the success of Sport & Health Clubs can also be attributed to an experienced management staff as well as favorable lease relationships with landlords.
“Our competitors come in at market rate in one of the most competitive real-estate markets in the country,” Fisher says. “It becomes tough to make your margins. While I think we were a strong operating entity previously, the competition has helped Sport & Health get refocused on the leverage advantage that we have in the market. I think we can grow quicker and more strategically because of our relationships and the knowledge of the market.”
For interviews with other executives in the fitness industry, visit the Executive Insights section of the Web site at www.fitnessbusinesspro.com/executive.