Darlene Pallay’s passion for kickboxing changed her life both personally and professionally. Pallay was an overweight stay-at-home mom with three children when in 2009, she ventured into a CKO Kickboxing facility near her house in Franklin, NJ. Today, Pallay is 50 pounds lighter, and she and her husband, Joe, are owners of two CKO Kickboxing franchises.

“I make sure I explain my journey to members,” Pallay says. “A lot of the franchisees have been a member, have gone through a journey and then come to own a franchise. Sharing that story really touches people.”

The transformation of boxing, kickboxing and mixed martial arts (MMA) studio members into franchisees is not just happening with CKO Kickboxing, Hoboken, NJ, but with franchises such as LA Boxing, Santa Ana, CA, and Title Boxing Club, Overland Park, KS. Their growth is creating a stir in the rest of the fitness business, causing some traditional fitness facilities to look more seriously at offering this type of programming.

Keeping It Low

Several factors are at play in the growth of these facilities, but chief among them is that they are affordable to open, easy to implement with turnkey programs and require low overhead. Facilities for these franchises range from 2,500 square feet to 5,000 square feet and are located in B-tier strip malls. They include few pieces of traditional cardio and strength equipment. Instead, the main equipment is 40 to 60 heavy bags.

Payroll expenses typically consist of paying instructors per class and per personal training session and paying front desk staff. To get a return on the investment, many of these facilities need just 800 to 1,000 members. Start-up costs range from $98,000 to $306,000.

The cost of membership at these types of facilities is also kept low (typically $59 to $100 per month) partially because operators are aware that some of their members also belong to traditional commercial clubs where they can use the pool, basketball court or other services not offered at the studios.

However, LA Boxing members are more loyal than members of traditional clubs, says Philip Jacobs, director of franchise development at LA Boxing.

“They show up more,” Jacobs says. “Ours average three times per week.”

He adds that LA Boxing differentiates itself with efficient and effective workouts that teach members new skills, build their confidence and empower them. The staff also engage with members.

“Walking into an LA Boxing should be like walking into your local bar where they know your name and what you drink,” Jacobs says. “That engagement leads to more loyalty, fewer cancellations, more referrals—and they spend more money.”

DOLLARS AND SENSE

Up-selling for that additional revenue is a big part of the model for all three franchises. Franchisees earn additional revenue through personal training sessions and through sales of apparel and merchandise in the pro shop. Branded apparel sells well, according to the three companies.

LA Boxing recently began earning revenue by offering seminars to members and nonmembers on self-defense, weapons takeaway and antibullying.

“It’s a way for them to bring a friend—a referral vehicle—and we believe we are actually doing good by teaching something of value,” Jacobs says.

The model seems to be working. Growth for LA Boxing and CKO Kickboxing has earned them spots on Entrepreneur magazine’s Franchise 500 list. CKO, which was founded in 1997 by Joe Andreula and began franchising in 2007, had 21 locations (including four company-owned) in 2011, placing it at No. 360 on the Franchisee 500 list this year and at No. 35 on the magazine’s top new franchise list. In 2011, it ranked No. 428 overall and No. 48 on the new franchise list.

Its 2010 total revenue was $347,291, with a gross profit of $204,292, according to its 2011 Franchise Disclosure Document (FDD).

LA Boxing, which was founded in 1992 and was purchased by member Anthony Geisler, who began franchising it in 2004, appeared on Entrepreneur magazine’s list in 2009 (No. 496), 2010 (No. 427) and 2011 (No. 498). The company now has 70 open locations, 12 of which are company owned, and another 60 locations under development, Jacobs says. Total revenue for LA Boxing increased from $3.4 million in 2009 to $3.7 million in 2011. In first quarter 2012, LA Boxing brought in $1 million in total revenue.

A Comparison of Franchised Boxing and Kickboxing Facilities

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The average net sales for an LA Boxing facility that has been open for more than one year was $442,879 in 2011, according to the company’s FDD. Jacobs says that the earnings claim can serve as a sales tool.

“It also helps our franchise owners manage their expectations,” Jacobs adds. “What can they really make? How much will this really cost? That’s what they want to know, and an earnings claim helps them manage that.”

Title Boxing Club, which is owned by former professional boxer Danny Campbell, businessman Tom Lyons and the Title Boxing equipment company, had one company-owned facility in 2008, then three in 2009 before franchising in 2010. As of last month, it had 195 franchises sold, 30 of those open. In that first year of franchising, the company had revenue of $92,000, but it jumped to $515,000 in 2011. Revenue for 2012 should be even higher as the company recorded $325,000 in revenue for the first quarter, according to Rick Washburn, CFO for Title Boxing Club.

A WOMAN’S WORLD

Some people credit the popularity of MMA for the growth in these types of workouts. Takedown Entertainment, an MMA promotional company, estimates that the MMA industry is worth more than $3 billion, with annual pay-per-view revenues making up about $500 million of that total. The first UFC on FOX event in November 2011 drew 5.7 million viewers, and a February event drew 4.6 million viewers, ranking first in the adult 18-49 market that night, according to MMA Weekly.

Although Dana White, president of Ultimate Fighting Championship (UFC), which is the main force behind MMA events today, has said that 18- to 34-year-old males are the main core of the MMA audience, he also said last summer that women now make up 45 percent of the fan base.

Even though White’s numbers are difficult to verify, the boxing franchise companies estimate that 60 percent to 70 percent of their members are female. That estimate may seem incongruous, considering that boxing and MMA can be intimidating to many people. However, these facilities have overcome that partly by doing something simple: installing big windows in their clubs.

“When you walk by a shopping center and see someone on a treadmill or bike, you don’t look up anymore,” Jacobs says. “But you see a real boxing ring—and you more often than not see a woman in there working out—that causes people to stop, put their hands over their eyes and look in. They will walk in, gingerly at first, and that’s engagement. Then we combine that with our TV ads, print ads, social media. We know about the nervousness. We expect it. That is overcome by making it easy for them to come in. That’s a challenge, but a good challenge.”

Campbell says the popularity of these workouts for the middle- to uppermiddle- class suburban women that his company targets (although men are members, too) stem mostly from the fact that the hour-long workouts are quick and can burn up to 1,000 calories.

“Not only do you get physically fit, but you get mentally fit, you get stress relief,” Campbell says. “You feel empowered.” And women tend to invite their friends to come with them, making it a group social event, as opposed to men who come by themselves, Campbell says.

“Men are not as social as women. They are withdrawn,” Campbell says. “Men might not be intimidated by the fact that they are coming to hit a bag, but if they do not do it well, they might be embarrassed. Women don’t care. They come in and say, ‘Show me how to hit a bag.’”

Traditionalists Go MMA

The growth that these franchised facilities are experiencing has caused some big-box club operators to look to this programming for additional sources of revenue. And those clubs include high-end facilities, such as Renaissance ClubSport, Aliso Viejo, CA, which unveiled its new MMA, boxing and CrossFit training studio after its existing boxing and MMA programs outgrew their former space. The studio features a bag rack that includes various training bags, pull-up bars and rolling monkey bars. A hydraulically bent I-beam track allows the space to transform from an MMA training room to a studio for traditional yoga, stretching and cross training by rolling the bags on the U-shaped track to any part of the room.

Gold’s Gym franchisee Bill Lia also has gotten in on MMA programming. Lia’s four Gold’s Gym facilities in the Albany, NY, area had offered traditional boxing programming with little success in the past, but this year, he implemented a circuit-style MMA program that gave him a return on his $15,000 per club investment in just three months.

Lia says the cost of an entirely new program, which includes the installation of striking pads and equipment, is equal to three treadmills.

“This is a program that sets us apart and is unique and is affordable to install and allows us to earn revenue,” Lia says.

The classes, which are offered as a separate paid program or as a higher-cost membership for unlimited classes, last 30 minutes and are limited to 12 participants. The participants are coached by an instructor and are reminded of the moves at each striking station by an instructions placard. Between the striking stations, participants do core exercises.

“It fit into our model of trying to develop small group training,” Lia says. “We believe it is part of the future of our business as well as the industry.”

FAMILY-FRIENDLY MMA

For John Narleski, MMA is not just part of his business—it is his entire business. The one-time New Jersey state champion kickboxer opened Strategic Combat Academy, Sayreville, NJ, in 2009 around the MMA concept, eventually expanding from 3,000 square feet to 6,000 square feet by merging with a business next door called Weapons 9. He has just 200 members, but those members, who range from age 5 to 65, come in three to four times per week on average. The facility offers training for novice and pro fighters as well as people looking to get in optimal physical condition. Members can get one-on-one attention, take classes or simply use the equipment in the facility, Narleski says.

Narleski’s facility weathered the recession and now is seeing an increase in memberships, perhaps partly because he targeted 5- to 18-year-olds for memberships. Narleski reasoned that parents would continue to pay for their children’s activities during a recession, even at the cost of $124 per month. Despite his club’s growth, Narleski is not ready to franchise, preferring to perfect his model before considering franchising, he says.

However, one company that is considering franchising its MMA concept is UFC Gyms, Lafayette, CA. UFC Gyms was created in 2009 by Mark Mastrov, founder of 24 Hour Fitness and now founder and chairman of New Evolution Ventures (NEV), and Jim Rowley, founder and CEO of NEV, in partnership with Lorenzo and Frank Fertitta and UFC’s White. The company has four facilities open in California and one in Hawaii.

Mastrov and Rowley expanded the UFC Gyms slowly to test the family-friendly concept, which mixes traditional cardio and strength equipment offerings in 35,000 to 42,000-square-foot facilities with MMA-style group exercise classes. Rowley says they wanted to get the right demographics, pricing and programming before expanding.

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Although the company is considering franchising as a growth opportunity, no decisions have been made, he says.

“The amount of requests that we have received to franchise these gyms—if I told you, your jaw would drop,” he says. “We are getting it from every country in the world.”

Rowley says that UFC Gyms have had double-digit revenue and membership growth each year, and one of the reasons may be because they offer something different.

“The gym industry had become very myopic,” Rowley says. “Everybody was doing the same thing. Every club had the same treadmills, everyone had the same gym bike, everyone offered the same classes, everyone had the same square footage, basketball, swimming pool. We felt like it was best to break out of the industry a little bit and bring in something different.”

So far, breaking out of the routine has proven to be a knockout for UFC Gyms and other MMA and boxing facilities and franchises.