are established. The gym business in that sense isn’t so different from any other retail concern.
The birth of what we know as the modern gym is generally pegged to the early 1980s, driven in part by a few pop-culture moments. In addition to Jane Fonda’s videos, there was 10, the 1979 Bo Derek movie that inspired many women, and men, to get in shape.
By 1980, according to history compiled by Club Industry, about half the adult population claimed to exercise, up from about 24 percent in 1960.6 Tennis was popular, as was racquetball, and racquet clubs with both kinds of courts proliferated, especially in suburban areas. Over the early part of the 1980s, those clubs expanded their offerings, adding some equipment and classes to broaden their appeal and their membership. In 1981, there were about 5,000 fitness clubs across the United States; by 2012, that number swelled to more than 30,000.7
Clubs like Bally, one of the early stalwarts, advertised heavily, relying on some of the biggest stars of the late 1970s and 1980s, including singer Cher. The ads, available for grainy viewing on YouTube, are fun to watch. A very young Cher, in various combinations of leotards and wigs, strides through a busy fitness center, delivering a message meant to underscore that gyms aren’t just for meatheads anymore. In one ad, released around the holidays in 1985, she starts out saying, “Some people worry about getting muscles. I worry about getting fat. Dieting doesn’t keep me in shape. Exercise does.”
After Cher’s exhortations, the ad lays out the business model that Bally’s helped create and persists among its legion successors in some form today: the monthly plan. Back in 1985, Bally’s would sign you up for $18 a month, assuming you agreed to a two-year contract. That wasn’t exactly dirt cheap – it’s almost $40 in 2015 dollars. The subsequent years have seen all kinds of price wars that have pitted gyms against each other. In the New York area, where nothing is inexpensive, a chain of gyms offers a no-commitment monthly fee of $19.95. Other chains, including discount leader Planet Fitness, charge as little as $10 a month.
Bally’s was onto something and competitors proliferated, creating a sector that stood firmly at the center of the burgeoning fitness economy, for a time.
Fitness centers are a sector of the business where private equity has long played, owing largely to the business model advertised by Cher and her cohorts, from the 1980s on. At its core, the business has a lot of what an investor is looking for, especially one of the private equity variety. The key is predictable cash flow.
A gym that signs its members up for long-term contracts has a clear picture of its business. Its costs – rent, salaries for staff and instructors, equipment, and maintenance – are effectively fixed. With those contracts in hand, the gym operator also knows the revenue side, with very little downside risk. Once a contract is signed, the member is obligated to pay the monthly fee, or face a stiff penalty that’s designed to recoup enough of the money owed to make it hurt the member. Plus, that penalty can be easily modeled into the gym’s business plan.
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