DOVER, NH -- It appears the World has become too much to handle for one Planet.
Planet Fitness, which two years ago bought World Gym for around $10 million, is putting World Gym up for sale, Planet Fitness CEO Mike Grondahl confirmed Tuesday.
Within the last two months, Planet Fitness, Dover, NH, was approached by two groups with offers to buy World Gym, Grondahl says. One of the groups was from Asia, and the other group was led by Mike Uretz, the former World Gym CEO and president who sold World Gym to Planet Fitness in 2006. Planet Fitness has not been able to come to an agreement with either group, but negotiations are “very much alive,” says World Gym President Ben Midgley.
Uretz says he has a meeting scheduled for next Tuesday with potential buyers, after which he should know more about the possibility of World Gym returning to his fold.
“I have a very strong attachment to World Gym, and if the opportunity presents itself to where I can make a difference in the company on some level, I’d be very interested in it,” Uretz says. “Is there anything happening as we speak? No. Could there be? I’ll know in a few days.”
Uretz acknowledged that some World Gym franchisees have contacted him about buying back the company.
“I don’t want to make it seem like they’ve come to me like I’m some messiah,” Uretz says. “It’s not like that at all. They just want to have a clearer picture of where the company is going. The guy who bought it [Grondahl], in my opinion, is one of the smartest guys that ever opened a gym. I haven’t changed my mind a bit about that. But I don’t know whether or not all the moving parts are fitting together. I’m going to know very soon.”
Grondahl would not disclose the asking price for World Gym, but he says, “We won’t be making any money on the deal.” Despite the talks with the two groups, Planet Fitness does not have a formal book out on World Gym and has not been actively shopping it around, Midgley says. However, Grondahl says Planet Fitness will be marketing World Gym soon.
The main reason for selling World Gym is its “less-than-stellar performance,” Grondahl says. At the time of Planet Fitness’ purchase, 295 World Gym clubs were open, but now just 190 are open, Grondahl says.
“A handful changed over to Planet,” Grondahl says. “The bulk of them we got rid of for different reasons, whether they owed us money or weren’t paying for the right amount of franchises. The organization was very loose when we bought it, and when we tried to tighten it up, I think that caused a lot of the contraction.”
Grondahl adds that he misread World Gym franchisees, many of whom did not fully comply with the philosophy of Planet Fitness. That was never more evident than at an information forum held last year in Las Vegas, attended by both Planet Fitness and World Gym franchisees, in which some World Gym franchisees left frustrated that their questions were still not answered.
“I think that a lot of the [World Gym] franchisees—not all of them—are more interested in owning a business than they are in making money,” Grondahl says. “Right from the very beginning, we misread the situation by thinking that the World Gym franchisees would be as excited about us as we were about them, and it turned out not to be the case.”
One of the franchisees who was at the conference in Las Vegas was Manny Kaye, who owns a World Gym in Monrovia, CA. Kaye was not aware that World Gym is up for sale but says he’s not surprised to hear the news, adding that he has had trouble communicating with the corporate office.
“They know how to do Planet Fitness,” Kaye says. “They don’t know how to do World Gym. They’re two different entities. That’s why a lot of people were showing a lot of frustration.”
The World Gym 1440 All Axcess 24-hour key-card clubs have provided a boost to the company. Grondahl says about 40 of the All Axcess clubs are in operation.
“That’s a very promising proposition,” Grondahl says. “It’s really too bad that we don’t have the time to really develop that market. There’s a lot of money to be made on that side of the game.”
The potential sale of World Gym could mean a shift in responsibilities for Midgley at the company. Midgley, hired last year from 24 Hour Fitness, says he could serve as an executive vice president at Planet Fitness. In the meantime, he’ll maintain his focus on World Gym.
“You’d be nuts to leave this company,” Midgley says. “It would just be a simple reorganization.”
“We’re not walking away from World on any level,” he adds. “We’re going to support these guys as much as we can until, when and if a transaction happens. It just depends on when that time comes. Long term, World’s got a great future. Internationally, the brand has tremendous value.”
After the sale of World Gym, which Grondahl says he hopes will occur by the end of this year, the company would then focus its attention back on its bread and butter, Planet Fitness. Grondahl says about 230 Planet Fitness clubs are open and another 600 clubs are pre-sold. During pre-sale in February 2007, the Planet Fitness in Middleton, NY, sold 1,206 memberships in one day, 548 of them online—both company records.
Last year, Planet Fitness generated $48 million in revenue, a 58 percent increase from 2006, according to numbers the company provided to Club Industry’s Fitness Business Pro for the magazine’s annual Top 100 clubs list. Planet Fitness did not provide financial numbers for World Gym, however.
“Planet Fitness is just growing through the roof, and World Gym has become a distraction for us,” Grondahl says. “Nobody likes to lose money. It certainly didn’t work out the way we had hoped. Sometimes you learn more by your losses than by your wins. At least that’s what they say.”