Okay, maybe that headline is a little hard for you to swallow. Whether you own one club or 20, you probably prefer to think that your club is the fitness industry. However, except for 24 Hour Fitness in its markets or Gold's Gym perhaps, Bally Total Fitness has the most recognizable club name in the general population.
The troubled company is one of the few clubs that advertises nationally. Their PR people pump out releases on a regular basis and distribute them nationally, which means they get even more play in the media.
Bally is also the fitness industry to anyone looking at the health club business as an investment opportunity. Because it has been public longer than the other two public clubs in the industry, new investors look to Bally to check the health of the industry. Unfortunately, Bally has never been a straight health club company — it's also a finance company since it finances the memberships of many of its members. That skews the view of the company and makes it difficult to understand, let alone compare to Sports Club Co. (which also has a confusing model because it's also a real estate company — besides it may soon go private) or Life Time Fitness, which — while it is a straight club business — is a baby as a public company (its IPO was just last year).
Whatever any club does reflects on the industry as a whole. It's too bad that the reflection from Bally hasn't been a prettier one. If you search the Internet for Bally Total Fitness, you find several sites devoted to bashing the chain. You also find articles and press releases about lawsuits and settlements over membership contracts.
Now, the public and investors not only await word on the restatement of the company's financials from 2000 through the first quarter of 2004, but they also await word from the Securities and Exchange Commission (SEC) about its investigation into accounting issues and from the U.S. attorney's office about what is involved in its criminal investigation of the company.
In the meantime, the company released findings of its audit committee — which pointed the finger at two executives who are no longer there — and suggested that the company's former audit company made errors that contributed to the accounting problems. If the SEC investigation and the U.S. attorney's office's investigation both come to the same conclusion, then perhaps Bally can put some makeup on this black eye and move forward — but it must offer its restated financials first and prove that its accounting methods have been reformed. It also must cut its $725 million debt by selling off some of its assets.
However, if something more is found in these outside investigations, no makeup is going to cover that black eye — and the bruise could spread across the industry as the nongym-going population that we are so desperate to reach look at the industry — and all health clubs — with suspicion. And you think recruiting is difficult now? The industry has come so far since the 1970s and 1980s when clubs would open quickly and close even more quickly without warning or refunds for members. The public's view of the industry has begun to change; we don't need something to take us back to the bad ol' days in the eyes of the public.
In addition, if you are 24 Hour Fitness, Town Sports International or maybe Equinox, and you might be considering an IPO, right now isn't the best timing, which is unfortunate since the industry could benefit from more clubs going public.
So the best thing that can happen right now is that the investigations are completed thoroughly and quickly, and that Bally decreases its debt, says mea culpa for past accounting errors and becomes the brand that Jon Harris, spokesperson for the company, told me that it wants to be.
And for the sake of the industry, let's all root that they succeed in turning this ship around. Because if they can sail their ship out of the rocky waters they've been moving in for the past several years, then that can only be good for the industry.