Type: Private Company
Address: 8700 West Bryn Mawr Avenue, Chicago, Illinois, 60631, U.S.A.
Telephone: (773) 380-3000
Toll Free: (800) 515-CLUB (2582)
Fax: (773) 693-2982
Web: http://www.ballyfitness.com
Employees: 19,200
Sales: $800 million (2007 est.)
Incorporated: 1983 as Bally's Health & Tennis Corporation
NAIC: 339920 Sporting and Athletic Goods Manufacturing; 611620 Sports and Recreation Instruction; 713940 Fitness and Recreational Sports Centers
SIC: 3949 Sporting & Athletic Goods Nec; 7991 Physical Fitness Facilities
Bally Total Fitness Corporation is the second largest commercial operator of fitness centers in the United States. The company has about four million members and operates 375 facilities in 26 states and a handful of foreign countries. Bally Total Fitness offers a variety of services in their fitness centers, including personal training services and BFIT Rehab, a physical rehabilitation service. They also sell a variety of health, fitness, and nutritional products. Facilities offer cardiovascular and strength training, as well as a variety of aerobic programs, from spinning and step to low impact and yoga. Club members may purchase either single club memberships or premier memberships, allowing the use of Bally Total Fitness Centers nationwide. Laden with debt and bruised by accounting problems, in 2007 Bally Total Fitness went through a prepackaged bankruptcy reorganization from which it emerged a private company.
The Origins of Bally Total Fitness
Bally Total Fitness has roots that extend all the way back to 1931 to a company by the name of Lion Manufacturing. Lion Manufacturing, which later became Bally Manufacturing, was formed as and expanded as one of the largest producers of coin-operated amusement games. Bally Manufacturing continued its growth in the entertainment industry for the next 50 years, developing and producing products such as slot machines, video games, and pinball machines. Bally Manufacturing also entered into the casino business by becoming the owner of a series of a few different gaming hotels.
In a push to become a leader in the recreation industry, in 1983 Bally Manufacturing purchased Health and Tennis Corporation of America, which had formed in Detroit and Chicago about two decades earlier. The deal created Bally Health and Tennis Corporation, which became a subsidiary of the Bally parent company, then named Bally Entertainment. Bally also acquired Lifecycle, Inc., an exercise bicycle manufacturer, renaming it Bally Fitness Products Corporation. With this expansion, Bally became the world's largest owner and operator of fitness centers by the year 1987. With the purchase of the American Fitness Centers business and 19 Nautilus Fitness Centers, Bally Health and Tennis Corporation continued to grow throughout the remainder of the 1980s and into the 1990s, at one point operating a total of almost 400 fitness centers in the United States and Canada.
The Bally Total Fitness name was developed in 1995, as Bally Health and Tennis Corporation consolidated all of its various health clubs under one name. Before the consolidation, the Bally clubs were operated under several different names, such as Bally's Health and Fitness, Vic Tanny, and Jack LaLanne. The move to consolidate under the Bally Total Fitness name was done in an attempt to unify the clubs and to increase Bally's already recognizable national image. Bally marketed this change with a promotional campaign featuring the slogan, "Turn on Your Life," and television's Teri Hatcher from the hit television show Lois and Clark.
New Leadership for Bally Total Fitness in 1996
In January 1996, Bally Total Fitness Holding Corporation emerged from Bally Health and Tennis Corporation after being spun off from Bally Entertainment. This move completely separated the health and fitness arm of the Bally operation from that of the Bally gaming and entertainment arm. On its own, Bally Total Fitness Holding Corporation began to institute a strong campaign to improve its operations.
In October 1996, Lee Hillman was named president and chief executive officer of Bally Total Fitness, and was put in charge of paving the way for Bally's growth. Hillman took over for the retiring Michael Lucci, Sr., who had decided to step down after leading the company through the early 1990s. Hillman, tasked with making Bally Total Fitness profitable after years of muddled fitness and gaming operations had eroded profitability somewhat, had helped Bally Entertainment CEO Arthur Goldberg turn that company around several years earlier. Hillman's main focus was to increase the shareholders' value, through efforts at expansion, increasing revenues per square foot, and increasing operating margins.
The company operated over 340 fitness centers in the United States and Canada, so the focus of Bally's expansion was not to increase the number of fitness centers, but to expand the variety of products that the company had to offer. Selling only one product--memberships--the company had well over 120 million visitors each year. With the desire to sell a variety of products, Hillman looked to his customers for ideas. He noticed that the customers all came into the fitness centers with T-shirts, sweatsuits, shoes, and socks, yet Bally did not sell any of those items. He also noticed the tremendous opportunity in the market of vitamins, nutritional supplements, and protein bars. He saw all of these items as avenues for increased product offerings from Bally Total Fitness.
Another avenue for increased exposure of the Bally name became the use of strategic partnerships. Bally entered into a deal with Florida-based ContinueCare Corporation to operate physical rehabilitation services in its fitness centers. The partnership was a perfect match for Bally, because the fitness centers had the necessary equipment and the demand for physical therapy often occurred between 10:00 a.m. and 5:00 p.m., the least busy time for Bally fitness centers.
Another partnership was developed with Metris Companies to deliver a cobranded MasterCard to Bally customers. The MasterCard, another step by Hillman to expand the range of products and services, offered a competitive interest rate, and customers who used the card could take advantage of significant travel benefits and savings while also collecting valuable savings on Bally memberships.
The last of the initial changes started by Hillman was to shift the company's marketing focus away from heavily discounting memberships as a means to attract new customers. Instead, the company began focusing more on people who were serious about their health. Bally stopped offering deep discounts to customers who paid cash up front for long-term memberships and they soon saw new membership revenue begin to rise.
Building a Strong Foundation for Growth in 1997
Bally Total Fitness returned a profit of $2.5 million for the first quarter of 1997. According to Hillman, the profit was not so much a sign of the changes starting to take effect, but more a sign that the company was still solid. He felt that the changes made would serve only to further increase profitability. With the prospect of bright days ahead, the income earned during that quarter marked an important step for Bally Total Fitness.
With initial plans working well, Bally continued to expand its operations in step with Hillman's five-year plan. Part of this included closing some of the less-profitable fitness centers, redesigning other existing centers, and building newly designed facilities. New clubs were built with more space for weight machines and cardiovascular areas and less space for the lesser-used swimming pools and basketball and racquetball courts. The new design cost 60 percent less to build, while providing space for 40 percent more people.
Also introduced in 1997 were 40 BFIT Essentials retail stores. These stores operated inside the fitness centers, and offered items ranging from vitamins to T-shirts to gym bags. The fitness centers were thus offering the products that customers traditionally had been purchasing away from the Bally Total Fitness Centers, another step toward increasing overall profits.
Despite all of the changes, Bally Total Fitness still showed a net loss for the overall year of 1997. Several signs pointed in the right direction, however, as membership revenues continued to increase. The company's goal for the following year was not only to increase revenue, but also to introduce new profit centers. With the addition of personal training centers in the facilities, BFIT Essentials retail stores, and the rehabilitation services, Bally was poised to build on strong profit centers that were ready to show results in the future.
Return to Profitability in 1998
The start of 1998 marked the real move of Bally Total Fitness toward becoming a profitable entity. Bally Total Fitness once again experienced growth in membership fees, bolstered by sales of all-club premier memberships. These memberships allowed customers to use their Bally memberships at any Bally location around the country, which was a very appealing feature to businesspeople who tended to travel a lot but did not want to sacrifice their workout schedules to do so. Continued growth in revenues from personal training, BFIT Nutritionals, and BFIT Essentials retail stores also helped the centers to raise profits.
In early 1998 Bally Total Fitness introduced its new BFIT Energy Bar, a snack bar designed to act as an energy source during and after workouts. This product became the 12th in a growing line of BFIT Nutritionals, including BFIT-RX, a meal replacement shake, BFIT for men and women, a daily multivitamin, and SnackFit--snack crackers that were intended to reduce between-meal cravings. Sales of these nutritional products reached nearly $1 million per month after fewer than 18 months in existence.
Bally's next move was to increase brand visibility and perception. Bally signed an agreement with Baywatch Production Company, owner of Baywatch, the most watched television show in the world. The deal included several promotions throughout the year, including an episode to be filmed at a Bally Total Fitness Center. Bally also penned an agreement with Quintana Roo to become the official sponsor of the United States Triathlon Series, in an effort to attract the serious athlete to the fitness centers.
As growth continued, Bally looked to outside sources to fund the development. In May 1998, Bally sold 2.8 million shares of common stock, with the proceeds of $83 million being used to build new fitness centers and acquire club-related real estate. The expansion came rapidly as Bally acquired nine new clubs, including entering into the densely populated San Francisco Bay area with the acquisition of the Pinnacle Fitness and Gorilla Sports Club chains.
As new centers were acquired through construction and aggressive acquisition, and the new programs and services became successful, Bally Total Fitness announced revenues of $365.4 million for the first half of 1998. Revenues from the new products--personal training services, BFIT Nutritionals, BFIT Essentials retail stores, and BFIT Rehab Centers--also surpassed 1997 levels.
Plans for the future included opening close to 110 new BFIT Essentials retail stores by the end of 1999, while also continuing to expand the number of BFIT Rehab Centers to over 100 and building more fitness centers in the coming years. With these plans in place, and with revenues from memberships and other products continuing to grow while the fitness centers operated more effectively and efficiently, Bally Total Fitness moved closer to being the biggest operator of fitness centers in not only quantity, but in quality as well.
Finding Room to Grow
Bally increased its holdings north of the border in 1999, acquiring a ten-unit chain in Toronto called The Sports Clubs of Canada. Crunch, a trendy chain of 19 fitness centers in major U.S. metropolitan areas, was added in 2000 in a deal worth $90 million, most of it in stock. The latter purchase was credited not just with adding an affluent urban demographic, but with infusing the rest of the Bally system with innovative workout ideas.
Apart from these acquisitions, Bally was looking to slow its rate of growth following its expansion spree in the late 1990s. It did, however, enter a number of agreements to spread the Bally brand overseas in China, Europe, and the Caribbean via joint ventures and franchises.
With its membership base losing about as many subscribers annually as were signed up, Bally turned to underexploited demographic groups for new customers. These included suburban baby boomers, Hispanics, and seniors. However, 18-to-34-year-olds remained the central focus of its marketing efforts.
Bally was tainted by a number of scandals in the first few years of the 21st century. The company unsuccessfully tried a merger with Healthsouth, itself embroiled in some fraud scandals. Lee Hillman subsequently resigned in 2002 after six years as Bally's CEO. The board designated Chief Operating Officer Paul Toback to be his replacement. Struggles to comply with required tax filings ensued, however. In 2004 an accounting problem was discovered that prompted the company to restate five years of results. Bally had lost a staggering $450 million in that time.
2007 Bankruptcy Reorganization
After losing almost $40 million in the previous two years, Bally regained profitability in 2006, showing a $43 million surplus on revenues of $1.06 billion; however, the company was teetering under a hefty $740 million debt. Toback stepped down as CEO in August 2006 after an effort to find a buyer proved fruitless. Don Kornstein, formerly an investment banker, was then named interim chairman. Although he was backed by activist shareholders, he would soon lead the company through a bankruptcy reorganization.
In May 2007, Bally lost its listing on the New York Stock Exchange as its share price plummeted. At the end of July 2007, it filed for bankruptcy reorganization via a prepackaged Chapter 11 Plan. Existing shareholders, led by Pardus Capital Management, LP, and Liberation Investment Group, LLC, saw the value of their holdings erased. Harbinger Capital Partners then acquired all the equity of the reorganized Bally Total Fitness for $233.6 million. This made Bally a private company again after 11 years of being publicly traded.
The cash-strapped company had sold some newly acquired assets. Fitness-club entrepreneur Marc Tascher bought Crunch for $45 million. Bally also sold off the Gorilla chain. Also divested were Bally's Canadian clubs, which went to two Toronto chains, Extreme Fitness, Inc., and GoodLife Fitness Centres, Inc. The proceeds were about $18 million in cash.
Bally was still bulky, even after trimming down somewhat. In 2006, its last year as a public company, Bally's revenues were $1.06 billion from its 375 health clubs and other ventures. There were 19,200 employees. The next year, in the trade journal Club Industry's Fitness Business Pro, an industry source pegged revenues for a slimmed down Bally at $800 million.
Principal Competitors
24 Hour Fitness Worldwide, Inc.; Gold's Gym International, Inc.; YMCA of the USA; Curves International, Inc.; PFIP, LLC.
Further Reading
Borden, Jeff, "Bally Total Fitness CEO Flexed Product, Partnership Muscles," Crain's Chicago Business, February 24, 1997, p. 6.
Curtis, Richard, "For-Profit Facilities Set Counterattack," Cincinnati Business, March 31, 1997, p. 6.
Fischbach, Amy Florence, "Balancing Bally," Club Industry's Fitness Business Pro, September 2006, pp. 22, 24-28.
------, "War and Peace," Club Industry's Fitness Business Pro, February 2006, pp. 20-22, 24-25.
"Fitness Chains Are Going Global," Club Industry Magazine, June 2002, p. 10.
Frank, John N., "Corporate Case Study: Bally Works Out Reputation Woes by Committing to PR," PR Week US, May 26, 2003.
Goldman, Stuart, "The Waiting Game," Club Industry's Fitness Business Pro, July 2007, pp. 20-22, 24.
Kirk, Jim, "Bally's Brand Workout," Adweek, June 6, 1995, p. 1.
------, "Bally Total Fitness Gets New President," Chicago Sun-Times, October 9, 1996, p. 64.
Kufahl, Pamela, "Time Ticking on Bally Turnaround," Club Industry's Fitness Business Pro, March 2005, p. 18.
Meyer, Gregory, "At Bally, Activist Gets Boxed Out," Crain's Chicago Business, June 18, 2007, pp. 1, 10.
------, "Critics Now in Charge of Bally: So What's the Plan?" Crain's Chicago Business, January 1, 2007, p. 2.
Meyers, Lawrence, "Tug of War," Club Industry's Fitness Business Pro, January 2006, pp. 20-25.
Murphy, H. Lee, "To Get in Shape, Bally Pumps Up Expansion: Health Club Chain Debuts Products, Buys Competitors," Crain's Chicago Business, July 26, 1999, p. 4.
"Paul Toback, President and CEO, Bally Total Fitness," Club Industry Magazine, January 2003, pp. 34-35, 37.
Pauly, Heather, "Bally Total Fitness CEO Gets Firm Back in Shape," Chicago Sun-Times, December 9, 1997, p. 57.
— Robert Alan Passage; Updated by Frederick C. Ingram
