Race for the Flag: Clubs nationwide line up to see whether they will come out on top in this year's Top 100 list.
For almost 10 years, the top of Club Industry's Top 100 Clubs list has been a race between Bally Total Fitness and 24 Hour Fitness. For the first few years, 24 Hour was the junior driver, only truly threatening the veteran for the lead since 2000. Since then, the two have traded leads several times (the battle only interrupted last year when Bally was omitted from the list due to unfiled 2004 financials at the time).
However, it's a new year and a new race. With a delayed, late-June filing of its 2005 financials, Bally was again in the running for the checkered flag, but 24 Hour Fitness' corporate revenue numbers pulled the company ahead of Bally, making 24 Hour Fitness a triple repeat as top dog in the club world with 2005 corporate revenue at $1.121 billion. Bally placed second with $1.071 billion in total corporate revenue for 2005.
The Top 100 Clubs list, compiled each year by the staff of Club Industry magazine, ranks clubs by total corporate revenue dollars for the previous year. The list does not include franchise companies unless they own corporate facilities.
24 Hour Fitness, San Ramon, CA, had a 9.2 percent increase in corporate revenue in 2005, with a projection by the company of a 14 percent increase in revenue in 2006 — and the opening of 35-40 new clubs this year. Although Rick Caro, industry consultant and president of Management Vision in New York, calls those club addition plans “ambitious,” he says that 24 Hour Fitness may be one of only two club companies in the industry — LA Fitness being the other — that can add that many clubs in one year.
“What gives them more likelihood of success is that they are rumored to be interested in doing some acquisitions,” says Caro.
Bally Total Fitness, Chicago, had 2.2 percent revenue growth in 2005 compared to 2004, according to its filing with the U.S. Securities and Exchange Commission (SEC). Of course, Bally entered this race under the caution flag of SEC and U.S. Attorney General Office investigations.
Third on the list is Life Time Fitness, Eden Prairie, MN, with corporate revenue of $390.1 million in 2005, an increase of 25 percent from 2004. That growth bumped Life Time slightly above last year's third place finisher, New York-based Town Sports International (TSI), which sits this year in fourth place with $388.6 million.
TSI — which operates clubs under Boston Sports Clubs, New York Sports Clubs, Philadelphia Sports Clubs and Washington Sports Clubs brands — added eight clubs to its fold in 2005 and last month went public. The company has said that it plans to grow in its current markets at the pace of 10 clubs per year.
“What was made clear is that they need to grow and grow at a faster rate than in the past,” Caro says about TSI, noting that the industry and Wall Street will be watching to see how well the company can achieve its growth goals. “It will be a very important year for them as it's their first year as a public company.”
Ranking fifth on the list at $139.89 million (a 1 percent increase in revenue from 2004) is Wellbridge Co., Greenwood Village, CO. The company, which owns 32 multipurpose facilities and manages seven, is rumored to be for sale. According to the Top 100 form it submitted, the company does not plan to open or acquire any clubs in 2006 and expects a 2 percent decrease in revenue this year.
Western Athletic Clubs (WAC), ranking sixth, stayed strong with a 5 percent revenue growth despite reducing its club numbers in 2005 to four owned and four leased clubs (down from five owned and six leased in 2004). The club's ability to continue growth is partially due to its high per member revenue, says Caro.
“It's a high-end club that will be a major producer of revenue,” says Caro, who notes that while some clubs average $1 million, WAC averages closer to $8 million per club.
WAC expects to acquire one club in 2006 and is adding medical, spa and children's fitness with expectations of a 5 percent revenue growth in 2006.
Crunch Fitness, New York, is new to the list this year since it was sold by Bally in 2005. It ranks seventh with 2005 corporate revenue of $90 million. Owner Marc Tascher expects a 10 percent increase in revenue in 2006 with the opening of two clubs. The company is adding Pilates and expanding personal training in its 32 clubs.
Rounding out the top 10 are Sport & Health Clubs, Vienna, VA; ClubCorp, Dallas, TX; and Spectrum Athletic Clubs, El Segundo, CA. Sport & Health ranks eighth at $86.67 million and 11 percent increase in revenue. ClubCorp owns such a variety of club types that it can be difficult to separate its fitness club revenue from the revenue of its other clubs. That's one reason it did not appear on our list last year. This year, however, it ranks ninth with $79 million, a 3.9 percent increase in revenue from 2004. Spectrum Athletic Clubs ranks 10th at $80 million, a 10 percent increase in revenue.
One of the most notable aspects of the list is that some of the bigger players on it this year were relative unknowns two to three years ago, says Caro. In particular, XSport, Chicago, and Lifestyle Family Fitness, St. Petersburg, FL, may not have been known by many outside their regional areas three years ago.
XSport, which ranked 11th on the list last year at $59 million, is ramping up to build clubs in the Washington, DC, and New York areas, stepping outside of Chicago for the first time. Unfortunately, the company did not submit a Top 100 form this year, so their numbers were estimated at $74 million, and they remain in 11th place.
Lifestyle Family Fitness, which ranked 19th on the list last year, comes in this year at 16th with $55.33 million in revenue, a 52 percent increase. The company ventured outside of Florida for the first time in late 2005, purchasing eight California Fitness Centers in Columbus, OH, but that acquisition wasn't included in the 2005 revenue numbers, says Geoff Dyer, CEO of Lifestyle Family Fitness. The company is evaluating additional opportunities in Florida and Ohio but is also looking outside those markets for expansion in 2006 (although as of press time, Dyer wouldn't say where).
Revenue growth in 2005 came from double-digit, same-store sales and a doubling of personal training revenue, Dyer says. To improve upon its personal training group, Lifestyle moved all its personal trainers to full-time employees and hired a manager to support personal trainers at each club.
“Building a management structure to support personal trainers was the most significant improvement in our company,” Dyer says. “Having a strong personal training program is a true differentiator and opens doors into the medical community.”
Lifestyle Family Fitness predicts aggressive growth again this year — 50 percent revenue increase with a planned opening of six clubs and the planned acquisition of two clubs.
Other high revenue growth companies on the list include DMB Sports Clubs, Phoenix, and Atlantic Coast Athletic Club (ACAC), Charlottesville, VA. DMB, which ranks 37th, earned $25 million in 2005, an increase of 25 percent from 2004. DMB has developed its group training, which has played a part in the increased revenue, says Caro.
ACAC ranks 38th with $24.5 million in 2005 corporate revenue, an increase of 38 percent from 2004. Caro attributes that increase to the addition of one club and the company's programming and wellness connections.
The Rush Fitness Complex, Knoxville, TN, at number 62 had one of the largest increases in revenue, jumping 41 percent to $12 million. Larry Gurney, owner of The Rush, attributes some of the growth to his emphasis on personal training, but most of the growth stems from opening two locations in 2005.
“As you continue to grow, you have a broader base to work with,” says Gurney. “The talent pool is getting deeper. With opening of new locations, it allows us to have a broader resource to draw from. All our employees and associates are gaining in tenure and experience, and our confidence in their abilities to open new locations has grown.”
Gurney, a veteran in the industry having helped Ray Wilson build Family Fitness in California years ago and serving as president for 24 Hour Fitness in the past, expects a 54 percent increase in revenue in 2006. This is despite a growing number of low-priced clubs in his area. Rather than lowering his dues to compete, Gurney intends to remain a $39-per-month club and continue his 15-year growth plan, which has The Rush increasing from seven clubs (not including the four clubs opening this year) to 25 clubs by 2010. That's a growth rate of four clubs per year until 2010, a rate The Rush might even surpass, Gurney says. He expects most of that growth to be in North Carolina and South Carolina.
The biggest mover on the list this year is Total Fitness Systems in Brentwood, TN, a management company and World Gym's largest club ownership group. The company jumped from 70th place to 48th place with an increase of 100 percent in 2005 corporate revenue to $19 million from $9.3 million in 2004. The company owns 19 facilities and manages 51.
Manny Butera, owner of Total Fitness Systems, attributes the revenue growth to factors beyond opening several clubs in 2005. The company created a new personal training company division, Body by Total Fitness, which the company runs in its facilities and those it manages.
“We have a two-fold agreement — to manage a club for a percent of profit and then we pay them a rent fee to be in the club and run the personal training company,” Butera says.
He has apparently chosen well in the clubs he manages, sticking to secondary markets with populations between 50,000 and 100,000, because he predicts another 100 percent increase in corporate revenue for this year. Some of that increase may come from the profit center opportunities he is exploring such as a golf component, sports-specific training camps and joint ventures.
It's not surprising that with this growth has come offers to purchase the company, but so far, Butera has resisted.
“We had two opportunities this year [to be purchased], but it wasn't the right timing because a lot of our clubs are still green,” he says. “We want to get EBITDA to a certain level, and then we'll see what happens.”
Not all news was good for club companies in 2005. Some clubs in the Coastal South, including New Orleans-based Elmwood Fitness Center, were hit by Hurricane Katrina. The blow hit Elmwood Fitness Center in the pocket, causing a 14 percent decrease in revenue from 2004. That was the biggest decrease of any club on the Top 100 list.
“Katrina and other natural disasters had a severe impact on clubs in 2005, which meant some clubs were closed for a time and others were partially open,” says Caro. “Some will never open again.” Insurance reimbursement issues continue to plague some clubs, causing numbers to be inconsistent with the past, he adds.
Overall, though, the Top 100 clubs experienced growth in 2005 and most expect continued growth this year.
For 2006, Caro says the big story won't be in sales of clubs but in the growth and success of certain companies. Club companies to watch this year are 24 Hour Fitness, Crunch and Millennium Partners, which purchased five clubs from Sports Club Co. for $80 million in January 2006.
And watching is what the industry will be doing as the Top 100 health clubs begin their race to the finish line in next year's Top 100 list.
Our Top 100 club list ranks all corporate-owned clubs and club companies by total corporate revenue in 2005. No franchisors are on the list unless they own corporate facilities — and then we rank them only by corporate revenue. Some franchisees are large enough that they do appear on the list.
A club's appearance on this list does not mean that it is the best run, best designed or best managed club but rather that it pulls in substantial revenue. Too many factors (customer service, programming, club design, retention of members and staff, management capabilities, etc.) go into making a club a “top” club. The only reasonable way to rank clubs at this time is by corporate revenue.
In mid April, Top 100 forms are e-mailed to club owners, general managers and CFOs at companies who have been on our list in the past (if we have contact information for them). In addition, we publish a copy of the form on our Web site and in at least one issue of our magazine. Then, beginning in late May, we begin calling companies that have not turned in their forms.
If forms are not submitted by the end of June, the editorial staff works with Rick Caro, president of consulting company Management Vision, to estimate numbers for as many remaining clubs as possible.
If estimations are not possible, we do one of two things: