The meteoric rise of 24-hour key-card clubs has taken the industry by storm. Since 2001, the number of these clubs has grown by 400 percent, according to the International Health, Racquet and Sportsclub Association (IHRSA).
The two superstars of the model are Anytime Fitness, Hastings, MN, and Snap Fitness, Chanhassen, MN. The two franchise companies boast almost 1,500 clubs between them, 800 for Anytime Fitness and 700 for Snap Fitness, with several hundred more franchise rights sold. Each company shot up the ranks of Entrepreneur magazine's Top 500 franchise list this year, both placing in the top 100.
The key to the 24-hour key-card model, especially for franchisees, is the lower-than-normal overhead costs. The clubs are not staffed 24 hours a day, meaning club owners can savey money by not paying staff to be at the clubs during nonpeak hours.
And therein lies the problem. Last month, the city council in St. Paul, MN, upheld a judge's recommendation to fine two Anytime Fitness franchisees $500 each for violating a city ordinance that states a CPR-trained staff member must be on duty at all times the club is in operation. The unanimous vote took place last month, but the debate about the language of the ordinance and the battle to change it rages on.
Another wrinkle in the 24-hour key-card club model is the issue of mandatory automated external defibrillators (AEDs). Eleven states have laws that require AEDs in every health club. Most of these laws specify that a CPR- and AED-trained staff member must be in the club during its normal operating hours. Anytime Fitness and Snap Fitness have franchises open in some of these states, as do other key-card clubs. As of press time, no challenges have been filed to the operation of these clubs in these AED states, but that could change in the future. More states are considering laws with AED requirements.
The result of the St. Paul decision and the growing number of states with AED requirements in clubs could have lasting ramifications on the future of the 24-hour key-card club model.
A Twin City Re-Modeling
After the city council vote in St. Paul, the two fined Anytime Fitness franchisees were in the process of switching their daily hours from 5 a.m. to either 11 p.m. or midnight and were arranging schedules to staff those hours. A third Anytime Fitness club in St. Paul, which opened after the fines were assessed to the other two clubs in December 2007, is operating from 5 a.m. to 11 p.m. daily.
Joe Wittwer, who owns one of the fined Anytime Fitness clubs with his brother, Jason, says that he hopes the St. Paul ordinance gets changed so that they can run the club according to the original business model. Shutting down the club for good was never an option, Joe Wittwer says.
“Our life savings, our house, everything's in this place,” Wittwer says. “We don't have the option of starting up in a new town. We couldn't afford it. We're here, and we're here to stay, so we just have to figure out how to make it work.”
The St. Paul ordinance was initially put in place in January 1989 as a way to crack down on sex clubs posing as massage parlors or health clubs, with the CPR requirement added in 1992. Chapter 427.07, Section 12 of the St. Paul ordinance reads:
“At least one (1) employee or manager, trained and qualified in first aid and CPR according to standards established by rule by the department of safety and inspections, shall be on duty at all times that the licensed premises are in operation or open to members or the public. Such standards shall be in conformity with standards and guidelines established by the American Red Cross with respect to water safety instructors or by the American Heart Association for similar purposes.”
Wittwer and Anytime Fitness spokesperson Mark Daly question the interpretation of “on duty” in the ordinance. (The city council interpreted “on duty” to mean having a staff member in the club.) Daly also takes issue with the intent of the law as it applies to health clubs.
“Our clubs in St. Paul have always had a manager or staff person on duty and readily accessible by phone,” Daly says. “We believe it is not only possible, but incredibly simple for a city to devise laws that would prevent sex clubs from operating while simultaneously allowing legitimate fitness clubs to operate in an affordable manner.”
Most Anytime Fitness clubs are staffed between 6 a.m. and 8 p.m., Daly says. Cell phone numbers of club owners or managers are posted on the wall, along with a panic button that relays a signal through a security company to 911. Members can wear emergency necklaces while working out. Camera surveillance in the facilities allows club owners to see if someone tries to enter without a pass — or if someone is having a heart attack. Video is recorded, but the cameras are not monitored 24 hours a day.
Daly says Anytime Fitness is working with St. Paul Mayor Chris Coleman, a supporter of both Anytime Fitness and Snap Fitness, to change the ordinance. However, the mayor cannot introduce legislation to the council, according to St. Paul council member Kathy Lantry. Instead, ordinance changes require a council member to sponsor and introduce the change to the council. A majority vote of the city council (4-3) would then be required to enact the change, she says.
A change may be difficult to attain, however, according to Patricia Lindgren, a legislative aide to council member Dave Thune, a strong supporter of the ordinance.
“This has unfortunately been portrayed as being an ‘anti-health club' position,” Lindgren says. “St. Paul is happy to see health clubs locate here in our city as long as they abide by the city ordinance requiring staff on duty at times that health club members can gain access to the club. That key-club ordinance was passed in the 1980s for very good reason, and there is no need to change it.”
Daly says of the 46 states in which the 800 Anytime Fitness clubs are located, St. Paul is the first city to challenge the company's model.
“How can 800 other communities all be wrong and St. Paul alone be right?” Daly says.
Snap's Future in St. Paul
A more-than-interested observer in the St. Paul situation is Ben Cowan, who owns the rights to three Snap Fitness franchises in St. Paul. Cowan, who paid $40,000 for a three-pack of clubs, disagrees with the ordinance and will not open his clubs until there is a change in the law.
“I'm optimistic and hopeful that we can come to some sort of agreement with the city to make this work,” says Cowan, who owns two other Minnesota Snap Fitness clubs in Cottage Grove and Golden Valley.
If there is no change in the ordinance, Cowan could open his three clubs in another area — even out of state — without paying anything extra to Snap corporate, he says. But Cowan, a St. Paul native and Minneapolis resident, does not want to do that, nor does he want to open his model in St. Paul with restricted hours.
“The model does not work if you need to staff it,” he says. “If you start to staff it, you can no longer provide affordable memberships. Now they become more expensive memberships.”
Some Snap Fitness clubs are staffed 40 hours a week, and some are staffed 10 hours a week, says Snap Fitness spokesperson Patrick Strait. On average, the clubs are staffed about 15 to 20 hours per week and by appointment for tours and personal training sessions, he says.
“It's all in the hands of the franchise owner,” Strait adds.
An AED Issue
An even bigger potential threat to the operating model of Anytime Fitness, Snap Fitness and other key-card clubs may come in some of the 11 states that have laws mandating AEDs in health clubs. Those states are Arkansas, California, Illinois, Indiana, Louisiana, Massachusetts, Michigan, New Jersey, New York, Oregon and Rhode Island. Other states are working to pass AED legislation.
Of the 11 AED states, three states — Arkansas, Indiana and Rhode Island — have special clauses for 24-hour key-card clubs. The laws in Arkansas and Indiana state that clubs that are not staffed must have a telephone available for 911 access and signs in plain view that indicate an AED's location and instruction on how to use an AED.
Rhode Island's law simply states: “Any health club which operates a facility on a key pass basis with no attend-ing employees at anytime is exempt from the trained employee on duty requirement.”
Like many AED states, New Jersey requires a CPR-trained staff member in the club during all hours of operation. New Jersey's law goes one step further, stating that club owners must arrange and pay for CPR/AED training for their employees.
The New Jersey law does not exempt key-card clubs, and that's something Cary Adler, owner of Spa 23 Health and Racquet Club, Pompton Plains, NJ, isn't shy about pointing out.
“The law is the law,” Adler says. “The [24-hour key-card] model has a place, but at the same time, they have to play by the rules. They're going to have no choice but to spend the money and either staff the club at night or not open it.”
Spa 23, which opened in 1980, is not a key-card club and has a limited 24-hour schedule. The club is open from 5 a.m. Monday until 8 p.m. Saturday, and open from 7 a.m. to 6 p.m. on Sunday.
At least two staff members are on the premises at Spa 23 at all times, says Adler, who adds that all 150 part-time and full-time employees of the club are AED and CPR certified.
“We had an AED years before it was required,” Adler says. “Within a year of having the AED, we saved a guy's life.”
So far, no regulatory agencies in any of the AED states have fined key-card clubs for not having staff on duty at all times. IHRSA is trying to get the state mandates to apply a “staffed business hours” clause for 24-hour key-card clubs, says Joe Moore, executive director of the association for for-profit club owners. He adds that IHRSA is “committed to accommodating the schedule of all of those who wish to attend a gym. [24-hour key-card] clubs have specialized operating plans that warrant specific legal protections. IHRSA is working to ensure these facilities are able to operate without running afoul of the law.”
Strait says it is the responsibility of Snap Fitness franchisees to familiarize themselves with the rules and regulations in their respective territories. If a local official contacts Snap Fitness about a possible violation, the company will then contact the franchisees in that area and make sure they are in compliance with the law, he says.
“Furthermore, we are always quick to err on the side of caution as it pertains to the safety of our members,” Strait says, “and we recommend to all of our franchisees that they should invest in an AED — regardless of whether or not it's a requirement.”
In 2002, the American College of Sports Medicine (ACSM), along with the American Heart Association, urged fitness clubs to install AEDs and train their staff to use them. In ACSM's third edition of facility standards and guidelines, published last year, the organization made AED installation and training a requirement. However, the ACSM guidelines are not law.
Doyice Cotten, professor emeritus of sport management at Georgia Southern University, monitors AED state laws as they relate to health clubs. Although he has not examined the AED laws related specifically to 24-hour key-card clubs, he says that if the law states that all health clubs must have an AED-trained staff member in the club, then the 24-hour key-card clubs must obey the law.
Richard Lazar, the president of AED Risk Insights, a Portland, OR-based firm that provides information about AED laws and legislation, does not agree with most AED laws that single out 24-hour key-card clubs.
“Statutes or ordinances that impose requirements on these key-card clubs are frankly silly,” Lazar says. “These kinds of requirements for facilities with such low density, such few users in the wee hours of the morning, just make no sense to me from a public health or a public policy perspective. The probability of sudden cardiac arrest in a health club is only slightly greater than a sudden cardiac arrest elsewhere in the community. If public policymakers believe that AEDs are important, then they should broadly require them and not cherry-pick require them. [AED laws] make policymakers feel good but don't do much good from a public health perspective.”
A situation involving a sudden cardiac arrest has never occurred in one of Cowan's Snap Fitness clubs, he says. If it does, Cowan is confident that other members in the club could figure out how to use an AED in an emergency. Although Cowan is for mandating AEDs in health clubs, he doesn't want to be required to have an AED-trained staff member in his club during all hours of operation.
“What is the purpose of that person on staff?” Cowan says. “Are they there sitting around waiting for someone to have a heart attack? If they are, they're going to be waiting a long time. The bottom line is, the model does not work staffed.”
The model of 24-hour key-card clubs, based on operating without staff in the club at all hours of the day, has not been an easy one for insurance companies to come to a consensus. Some insurance agencies have created policies to cover these clubs. Other insurance companies are just now beginning to consider insuring these clubs.
Insurance Companies Becoming More Comfortable With Key-Card Clubs
Several features at Anytime Fitness and Snap Fitness have eased insurance companies’ concerns, such as having a panic button on the wall that contacts a security company, which then contacts 911. Other features include telephone numbers of the club owner or manager posted in the club, necklaces that members can wear during their workouts and 24-hour surveillance cameras.
George Spanjers of Spanjers Insurance Agency, which merged last year with Arthur J. Gallagher Risk Management Services, works with Anytime Fitness and Snap Fitness, as well as the new World Gym 1440 All Axcess 24-hour key-card clubs. Spanjers/Gallagher claims to be the first broker to develop an insurance program specifically for 24-hour key-card clubs.
At first, key-card clubs in general were required to pay higher premiums, Spanjers says, but his company has reversed that requirement.
"Because of the safety devices in place, the risk management we’ve done and the removal of hazards that cause the claims … [24-hour key-card clubs] don’t pay higher rates," Spanjers says.
VeNita Schnebele, area president of Arthur J. Gallagher, says that insurance companies have distinct differences in the types of risks they will insure. The 24-hour key-card clubs are perceived as higher-risk, lower-premium operations, she says, if they are treated on an individual basis.
"While we won’t see a high frequency of losses, the opportunity for a very large loss exists," Schnebele says. "Therefore, we work with insurance companies who understand that they will write thousands of the clubs who collectively will generate enough premium to offset the occasional very large loss."
Insurance costs vary from club to club, but according to Spanjers/Gallagher, the cost for property and liability coverage for average-sized key-card clubs is between $2,500 and $4,000 per club annually.
Ken Reinig, senior vice president of Association Insurance Group, a broker that connects insurance companies to their clients, says his company has been insuring 24-hour key-card companies for more than two years.
"They’re not as dangerous as we once thought," Reinig says. "We’re starting to welcome the 24/7 clubs and are trying to convince our underwriters to actually show a rate reduction if they have all the necessary things in place. You have to have the video. You have to have key access or fingerprint access. You have to have the proper waiver, which we provide to them. As long as we have those things in place, we’re absolutely OK with them."