According to a recent study released by Dr. Lisa Neirotti, a professor at George Washington University, travel sports or “sports tourism” is an $8-billion industry that accounts for 14% of all tourism. As a parent with two children who competed at the national level in high school, a good share of our time and household income was spent on traveling to tournaments around the country. But sports tourism doesn’t stop with youth sports. The adult travel sports segment is growing too as seen by record numbers at regional marathons and tennis tournaments around the country with many adults traveling long distances to compete.
Sports Club Advisors believes there are 10 trends that will affect the future of the travel sports industry in 2017 and beyond:
#1 – Facility Development. Designing and building a “premium” facility is becoming increasingly important to make the experience memorable and enjoyable for all participants, from athletes to spectators. The recent development of premier indoor and outdoor soccer facilities around the country is evidence of this.
#2 – Ownership Structures. In the past local communities, sports commissions, or counties have financed, owned and operated facilities. However, increasingly, we are seeing that well-run privately operated sports facilities create better overall experiences and are more successful. We expect more public-private partnerships to develop over time.
#3 – Social Media. Social media is not just for marketing events. It has become a tool to provide real time updates and highlights during events, changes in schedules and VIP sightings. Due to flexibility, convenience and cost, apps have replaced the printed flier or guide.
#4 – Volunteers. Many events are run by a combination of paid employees and volunteers. A pending lawsuit filed by a volunteer alleges she should have been paid for her work at a sporting event. The outcome of this case could have massive implications on the way events are organized and staffed, not to mention the economics of sporting events.
#5 – Partnerships. We are increasing seeing groups partner to create a world class sporting venue. Public private partnerships have been around for a long time, but we are now seeing partnerships between owners and concessionaires, service providers, sponsors, sports equipment manufacturers, etc. We expect this trend to continue.
#6 – Sponsors. In the long-term, sponsor involvement is more important than a sponsor’s money. It is arguably more valuable to have the Chicago Cub’s name associated with a baseball tournament or camp than to have their financial support. Through well planned involvement, the sponsor will get more out of the experience and so will you. Get to know your sponsors and let them get to know you before you ask for money.
#7 – Bid Fees. Host cities are less willing to pay bid fees, and are instead looking for a financial partnership with event organizers. This shared risk-reward model is becoming more common every day. In addition to diversifying risk, many host cities want a share in the financial results (just the upside) of the events they host.
#8 – Housing. Securing adequate hotel space for events and negotiating rebates and commissions with hotel operators is likely to become more of a challenge. At least one major hotel brand is exploring capping commission and rebate programs. The challenge of protecting rate integrity and of tracking room blocks and rebates (especially in smaller communities) may force the industry to revisit how housing is secured for travel sports events.
#9 – Helping Others. The most successful events have a charitable side to them that make participants feel good about competing. From charity runs to playground clean-ups these events do well by helping others. The question is, “How can we engage our target market and create a positive impact on our community.”
#10 – Creating Experiences. The NCAA Women’s Final Four slogan, “It’s More Than Three Games” says it all. Athletes, young or adult, and spectators at events want their trips to be an experience for the entire family. That means event organizers need to plan supplemental activities for family members to do (apart from the sporting event or competition) that will create memories. This is equally true for world-class running events to youth travel gymnastics tournaments. The more you invest in creating a memorable experience for all participants, the more successful your event and facility will be.
About the Author: Rich Jackim is a licensed attorney, an experienced investment banker, a sports industry entrepreneur and the managing partner of Sports Club Advisors, Inc. Sports Club Advisors is a boutique mergers and acquisitions firm that provides financial advisory services to clients in the sports, fitness and leisure industry. Rich may be reached at email@example.com.Read More
When it’s time to grow your fitness business, how you grow is important. There are two ways to grow your business: organic growth and growth through acquisitions.
Organic growth basically means doing what you currently do, just doing more of it or doing it better. That means increasing the amount of the products or services you sell. You can do this by fine tuning your marketing and operations, or entering new marketing by introducing new products and services or opening new locations. This is how most businesses grow. It takes time and effort, but it is tried and true. The only risks are those that are inherent in operating your business.
Growth through acquisitions, on the other hand, is buying companies and consolidating them into your own. It can be a good way to rapidly expand your business. It sounds easy, but a famous study at Harvard Business School showed that almost 50% of acquisitions do not live up to the buyer’s original expectations. So what determines a good acquisition from a bad one? How to you decide if it makes more sense to buy another club or business, or just start one from scratch? Should you adopt an acquisition strategy just to get bigger, or are there other strategic objectives to consider?
These questions lie at the very heart of every CEO’s decision on how to grow his or her business in a way that creates value for the company’s stakeholders – its owners, its employees, and its customers or members. While buying companies may sound simple, ensuring that you buy the right company is still as much art as it is science. When you acquire and merge two companies together, the result must be greater than the sum of the parts or the acquisition does not make sense.
A study published in the Harvard Business Review years ago concluded that successful acquisitions must do at least one, but preferably two things.
Eliminate Redundant Expenses
The first factor is an elimination of redundant expenses. What this usually means is that the acquisition or merger allowed the combined company to reduce costs. The largest of these cost savings are usually in the form of reduced payroll or reduced headcount. When two companies are combined, they typically don’t need as many people doing the same jobs. The second biggest expense reduction comes from the fact that the combined companies don’t need the same number of offices, warehouses, factories or retail locations. So rule number one is be sure the proposed acquisition will reduce your overall cost structure and enhance your margins.
Gain New Know-How
The second factor is a transfer of knowledge. Each company has its own proprietary knowledge base or skill set. Some companies have a competitive advantage over other businesses in their industry because they have developed proprietary products, a unique service models, an excellent training program, superior marketing or purchasing program, or some other skill or knowledge. When a company acquires another company, this knowledge or skill is an “off balance sheet asset” that is a big part of the value of the acquisition. The transfer and integration of these skills, requires a lot of work and careful thought, but is a major factor in whether or not the acquisition is successful. So rule number two is to be sure the acquisition you are considering brings some unique knowledge or competitive advantage to your business.
In the world of mergers and acquisitions, these factors are referred to as “synergies.” In our experience, growing for growth’s sake alone does not make sense. Growing to capture synergies is the key to growing through acquisitions. That said, one of the biggest mistakes buyers make is to underestimate how long it will take to see the benefits of these synergies.
Consider Impact of Culture
The largest obstacle in the realization of these benefits comes from cultural differences between the two companies. The stronger a company’s culture, the harder it is to assimilate a new one. In our experience, when culture and strategy clash, culture always wins, so buyers need to invest a lot of time and effort to understand their culture and the culture of the company they are thinking of acquiring to see if the cultures are compatible. Understanding and quantifying the synergies of a possible acquisition and helping to determine if the cultures are a fit are the keys to making a successful acquisition.
So, in short, when deciding whether to pursue an acquisition growth strategy, be cautious and get good advice from knowledgeable experts. Acquiring another company can be a transformative event for your company when done well and with proper thought. However, without a careful and objective process in place, it can be a disaster.
Rich Jackim is a partner at Sports Club Advisors, Inc., a leading mergers and acquisitions firm that serves the sports, fitness and leisure industry.Read More
2) Proximity or Travel Time. In suburban markets, where people drive to get around, clubs draw approximately 70% to 80% of their members from an area within an eight minute drive of the club. This is the club’s primary market. The club’s secondary market, from which it can draw approximately 20% of it members is an area within a 12 minutes drive from the club. The remaining 10% of a club’s members may come from outside of the club’s primary and secondary markets.
It’s important to note that these markets are defined by travel time, and not miles or distance. In every market, these two factors are distinct. Note, also, that markets can be defined as travel time from either a person’s home or office. Many health club demographic studies show that up to 80-90%% of a club’s members come from within 12 minutes travel time of the facility. When measuring travel time, you should use the most popular routes used by local residents during peak times.
Peak times are the peak club usage times such as between 6 and 8 a.m. or between 4:30 and 7:00 p.m., Monday through Thursday. In most cases these times are also rush hour so travel times are at their longest. In most suburban markets, 8-12 minutes of travel time is equivalent to approximately three or four miles from the club, and it can be as low as two miles in congested areas or during peak commuting times.
In urban markets, where parking is limited and car travel less popular, the club’s primary market is an area within an 8 minute walk or commute of the club’s location and a 12-minute walk/commute for the secondary market.
These markets need to be researched and plotted precisely. These concentric rings on a map should show you the primary, secondary, and total market for a club’s location. Once a club’s total market is calculated, you should use various demographic services to obtain essential information, like the number of people who live or work within the primary and secondary markets, their ages, their median household incomes, home ownership, etc.
3) Household Income. There is a strong correlation between median household income in a market and fitness club membership and dues. While roughly 20% of the general population are members of a health or fitness club, member penetration rates among high-income earners can often exceed 30%. Conversely, when household income falls below $25,000, only 7% of that population are members of a health club.
Household income is also a key determinant of membership dues rates. Generally speaking, in markets where the average household income is $75,000 or more, members are comfortable paying monthly membership dues in the $60 to $125 range. .
In markets where the average household income is between $50,000 to $75,000, the market will support monthly dues in the $45 to $74 range. And where average household income is between $20,000 and $50,000, the market will support monthly dues in the $10 to $44 range. However, you need to be aware of the competitive environment in your primary market. In the last 10 years, the success of the of low-priced clubs has created downward pressure on dues in many markets.
4) Educational and Professional Attainment. Educational or professional attainment levels are two other factors that can predict demand for fitness clubs. In general, the higher the educational attainment in a market, the higher the overall demand for health and fitness clubs serving that market.
It is interesting to note that the overall health & fitness club membership rate among full-time college students is 24%; similarly the health club membership rate among people with advanced degrees (masters degrees, doctorate degrees, etc.) is 25%. However, among high earners (making $75,000 or more) but who did not go to college, the membership rate is less than 12%.
5) Competition. It’s important to remember that all of these factors help predict total market demand in a club’s market. As a result it is also helpful to plot the club’s competitors on this map so you know how many other clubs you are competing with for the total number of potential fitness club members in your club’s market. For example if the feasibility study shows that there is total market demand of 15,000 potential fitness club members in your club’s market and there are six other clubs in your market (or that have markets that overlap yours) then the total projected demand for your club would be 2,500 members.
Because of the importance and complexity of assessing demand in a club’s market, it is essential that a feasibility studies be conducted by an experienced third party who is not a developer, architect, or builder. This feasibility study should then drive a financial model so you as the buyer, investor or lender, can do a sensitivity analysis to understand the impact that different levels of demand and different pricing structures will have on the overall success of the club.
If you would like to schedule a free consultation with Sports Club Advisors, feel free to Contact UsRead More
The goal of any successful transaction should be to benefit both parties. The following legal documents make sure that all of the terms and disclosed and agreed to so that there is no misunderstanding later on.
The goals of these legal documents are to :
- Create a safe and secure environment in which both parties feel comfortable sharing information and conducting due diligence
- Define the terms of the transaction including what is being sold or purchased, the purchase price, terms, and the buyer and seller’s obligations
- Protect both parties against misrepresentations and fraudulent actions
- Provide a process of legal remedy should that the buyer and seller’s agreements be violated.
Below are just a few of the most common documents you can expect to run across in buying or selling your leisure or fitness related business or health, fitness or sports club.
Letter of Intent
A letter of intent provides the general framework of a final transaction. Although it is not a binding contract like the final purchase agreement, it certain sections of the letter of intent like confidentiality, remedies, and non-compete provisions are often binding.
The letter of intent provides a high level outline of the terms that the buyer is proposing, including the total purchase price, what is being purchased, the amount of seller financing requested and the terms, the expected closing date, a period of exclusivity to allow the buyer to do due diligence, and any other elements or terms that are important to the buyer.
Sellers usually respond to the letter of intent with a counter offer. Once everything is accurately documented and agreed to in the letter of intent, the final purchase agreement should mirror the terms in that letter of intent. If during due diligence the buyer discovers some facts that were not disclosed or that we misrepresented, i.e., the financials are different that presented or material facts were not disclosed prior to signing of the letter of intent, the final purchase agreement may account for these differences (assuming the buyer does not walk away from the deal).
The key to ensuring that a letter of intent leads to a final purchase agreement is make sure all material facts are presented and that they are accurate and verifiable.
The purchase agreement is the governing document in the transaction. It is often 30+ pages long and includes all of the terms and provisions of the deal and is the binding agreement that governs the transaction. All other closing agreements (non-compete agreements, employment or consulting agreements, asset allocation agreements, promissory notes) are tied to this agreement.
Drafting the purchase agreement is typically held to the end of due diligence because of its importance. Because it is time consuming and expensive to draft this document, buyers will only instruct their attorneys to prepare the purchase agreement once they have completed their due diligence and are comfortable with everything about a company.
In some highly competitive transactions, a buyer may be willing to provide a conditional asset purchase agreement instead of a letter of intent. The goal here is to demonstrate the buyer’s eagerness and commitment to getting a deal done, but this is pretty rare.
Buyer Promissory Note
If a transaction involves seller financing, and the financing is in the form of a seller loan, one of the key transaction documents will be a buyer’s promissory note. The promissory note is an agreement that spells out the amount of seller financing provided to the buyer, the payment schedule, interest rate, and default remedies related to the seller financing.
A promissory note is typically tied to a purchase agreement so that both parties (and the courts if necessary) understand the context under which the note was issued.
The asset allocation is an agreement between the seller and buyer about how the purchase price should be applied to the different assets the buyer acquired. The asset allocation agreement itself is not a complex document, but its implications can be significant from a tax standpoint to both the buyer and seller. Sports Club Advisors recommends that buyer and seller consult a tax attorney or tax advisor regarding the implications of the asset allocation for their deal before an offer is accepted and then again before signing the Asset Allocation Agreement.
Most purchase agreements include a non-compete clause within that document itself. However, many attorneys like to have the non-compete agreement as a separate document. Doing this allows the terms of the non-compete agreement to be more fully defined and to have different remedies from the Purchase Agreement. Sellers should always expect to sign a non-compete agreement when they are selling fitness center, sports club, or fitness related business. Buyers need to be assured that they will have an adequate time to recoup their investment and will not be immediately competing with the seller.
Bill of Sale
The bill of sale is a receipt that acknowledges the buyers receipt of assets and the seller acknowledging the receipt of purchase price as spelled out in the purchase agreement. It exists to protect against any claims of a lack of delivery. As a result, it should only be signed when the purchase price and assets being sold have been received by each party.
While these documents appear in every transaction, each club or business is unique, and every buyer and seller have unique needs, so it is not uncommon for transactions to require additional documents, like leases, assignments of contracts, consulting agreements, indemnification agreements, or lien waivers.
When selling your health club or fitness related business, you should hire the most qualified M&A attorney you can find to represent you. These legal documents are intended to protect you, and while attorneys fees represent an additional cost, the cost is minimal compared to the expense of a lawsuit.Read More
You may have heard the term “fair value” or “fair market value,” so you might expect that a “fairness opinion” is focused on the same thing. The truth is, a fairness opinion may be based in part on fair market value, but there the similarities end. Let’s look into exactly what a fairness opinion is and when they are used. It’s best to start with an example. Let’s assume you are CEO of a family-owned business and you have several family members who are shareholders, but who are not active in the business. The shareholders have decided to sell the company and have entrusted you as CEO with that responsibility. You engage a business broker like Sports Club Advisors who finds a buyer and helps you negotiate a deal. The deal is ready to close when one of the minority shareholders claims the price is too low, or worse, the deal closes, then the minority stockholder decides to sue you, claiming the selling price was too low. A fairness opinion prepared as of the date you accepted the offer, or as of the closing date, provides an objective, third party opinion that the value paid for the company and the terms of the deal agreed to are reasonable and “fair”. So in essence, a fairness opinion is designed to protect corporate officers from complaints by shareholders that the officer violated their fiduciary duty to the shareholders by accepting a value or terms that were not reasonable.
A fairness opinion is usually in the format of a letter, about two to six pages long, that sets forth the factors or items considered, and a conclusion on the fairness of the selling price along with standard caveats or limitations. These caveats usually state that all the information relied on has been provided by others and not independently verified and that the actual assets of the business have not been valued.
A fairness opinion is usually prepared by an expert in business valuation such as a business appraiser or a business broker. The content of the fairness opinion letter is limited to establishing a fair price based on the opinion of the expert. It does not contain any recommendations on whether the deal should be accepted or rejected.
Fairness opinions are often used in the sale of public companies and when a private company has a large number of shareholders. It helps ensure that the board or the officers of the company are looking out for the best interests of the stockholders, at least as far as the selling price is concerned. A fairness opinion is especially important in the sale of a privately held companies if the company is being sold as part of a divorce settlement or the dissolution of a partnership since it helps ensure that the value arrived and negotiated between the parties is fair and reasonable and in the best interest of the shareholders.
If you are interested in getting a fairness opinion for a transaction you are contemplating, please contact Richard Jackim at 224-513-5142 or at firstname.lastname@example.org.Read More
How to Value a Health Club or Fitness Center
If you are an owner or manager of a health, fitness and sports clubs one of your goals is to slowly and steadily increase the value of your business. To do that it is important to understand basic valuation concepts and approaches and apply them in your strategic planning process and in your day-to-day decision making. First, let’s take a look at an overview of the fitness industry.
Key Health, Fitness and Sports Club Statistics.
· A 2015 study by IBIS World Reports indicates that there are over 46,000 health & fitness centers in the United States alone. The health, fitness and sports club industry generates a whopping $11.2 billion in revenues per year, and employs over 300,000 people.
· The fitness industry is highly fragmented with the vast majority of health & fitness clubs being small businesses, with approximately 7 employees and $350,000 in annual sales.
Value Drivers for Health, Fitness and Sports Clubs
If you are wondering what factors or value drivers have the most impact on the value of a fitness business, here is a short list:
· Historical Financial Performance. The most important factor in a business valuation is a club’s historical financial performance. Has the club been profitable for the last three years? Are margins above or below industry averages for clubs of its type? Are revenues and profits stable, trending upward, or trending downward?
· Projected Financial Performance. Buyers are essentially buying a business for the stream of future cash flow that it will generate. As a result, the most important question is what will future revenues and profitability look like? Buyers often look to the past to provide some indication of what the future will look like, but if you are in a rapidly changing neighborhood or a fast-growing sector of the fitness industry, your future earnings might be significantly higher than in the past.
· Strong member retention. The third most important value driver is membership retention. Successful fitness centers have membership retention at or above 70%.
· Strong Niche Focus. Given how competitive the fitness industry is, a gym or fitness center that has developed a loyal following by focusing on a specific niche, such as women, young urban professionals, or active senior citizens, is more valuable than a club that tries to appeal to everyone.
· Location. Being in a market with a large and affluent population is one aspect for a club’s success, but being the largest player in a small market can also be a competitive advantage.
· Facilities. Fitness club members have become increasingly discerning and expect their clubs to be well designed, modern and well maintained. Clubs have not been updated or that have deferred maintenance issues we be less valuable than other clubs.
· Quality Fitness Programs. The most valuable heath, fitness and sports clubs differentiate themselves by offering members a wide range of high quality programming, including niche group exercises, professional personal trainers, tennis instructions and leagues, and swimming instruction and other aquatic activities.
· Technology. Fitness clubs that are keeping up with changes in technology, including things like club management software, social apps, and wearable technology will be more valuable than clubs that are still operating the way they were in the 1980’s.
Valuation Multiples for Health Clubs
Rules of Thumb
Fitness centers sell often, so you can get reliable data on the private business selling prices. You can estimate the fair market value of a health club by using one or more of the following valuation rules of thumb:
· Business value as a percentage of annual gross revenues, plus inventory (not recommended because it doesn’t take into account whether the club is profitable or not.)
· Business value as a multiple of EBITDA, plus inventory. (See our recent article on the rules of thumb for valuing a fitness club.)
More Accurate Valuation Techniques for Fitness Clubs and Gyms
As with any other personal service businesses, the best way to determine the value of a health or fitness club by using one of the following income-based business valuation approaches. For smaller fitness centers that are owner-operator managed, consider using the Multiple of Discretionary Earnings method. Discretionary earnings are the net profit of the club, plus whatever salary the club owner received, plus any personal expenses the club owner ran through the business. The trick when using the Discretionary Earnings Method is to determine what the right multiple is. This is where a subjective and qualitative analysis of the financial and operational performance factors listed above becomes important.
For larger fitness centers or more complex operations, it is more accurate to use the well-known Discounted Cash Flow approach. This method projects the club’s revenues, profits, and EBITDA or free cash flow for the next five years based on its historical performance and an analysis of the operational value drivers list above. Then the EBITDA is discounted back to present value, using a risk-adjusted rate of return, to give a buyer a sense of what the stream of future cash flows is worth today. This approach is especially useful if you are dealing with sophisticated investors or potential buyers since this is the approach they will use.
Last but not least, you can use the old Capitalized Excess Earnings method to determine the value of the club’s assets and its goodwill. While this approach has been discredited in many applications, it is still useful in situations where a fitness club is very asset intensive, including for tennis clubs that own the real estate they occupy. This approach is also useful if the fitness center is being acquired and the buyer needs to allocate the purchase price between the club’s hard assets and goodwill.
For an accurate market assessment and valuation consult a mergers and acquisitions advisor like Sports Club Advisors. If you are interested in selling your sports or fitness-related business we are happy to provide you with a Free Opinion of Value of your business. Contact Rich Jackim at 224-513-5142 or at email@example.com.Read More
Ever wonder what professional athletes do when it’s time to retire before they’re 40? With the competitive drive to win, combined with lots of free time and, usually a very healthy balance sheet, for many the answer is to pursue a second career as an entrepreneur or in private equity.
In this post we take a look at a few professional athletes who have retired and made the cut to get into the exclusive world of private equity. Among those who have made the move are one of the greatest goalies in NHL history, a two-time NFL MVP, and a member of the 1992 Dream Team to name a few.
Gary Fencik—Partner, Head of Business Development at Adams Street Partners
After a rewarding career as a safety for the Chicago Bears during the ’70s and ’80s, Gary Fencik was a member of one of the most powerful defenses in NFL history. Now he’s in charge of business development for a private equity firm with more than $27 billion in assets under management .
Steve Young—Co-Founder, Managing Director at HGGC
As an NFL quarterback, Steve Young was a two-time MVP who won three Super Bowls with the San Francisco 49ers. After retiring in 2000, he earned a law degree, tried politics and helped launch a successful private equity firm. HGGC has more than $2.4 billion in assets under management with a portfolio that includes tech companies like Selligent and Serena.
Kerry Kittles—Associate at Ledgemont Capital Group
The former NBA wing took a bit of a different path to Wall Street. Rather than founding his own office, Kittles went back to get his MBA at Villanova (the same school where he played college basketball) before catching on as an associate at Ledgemont. Kittles is also an advisor to Fantex, a platform that lets users trade stock in the brands of professional athletes.
David Robinson—Co-Founder at Admiral Capital Group
A 7-foot-1 NBA champion, Robinson retired from professional basketball and jumped into the private equity field by co-founding Admiral Capital Group, an investment group focused on real estate but with investments in companies like online ticket marketplace ScoreBig and sporting goods retailer Academy Sports + Outdoors.
Detlef Schrempf—Partner at Coldstream Capital Management
A native of Germany, Schrempf spent much of his basketball career in the Pacific Northwest and now works for Bellevue, WA-based Coldstream Capital. After joining the firm in 2007, the former three-time NBA All-Star has worked primarily in business development; sourcing new deals for his PE firm.
Muhsin Muhammad—Managing Director at Axum Capital Partners
Instead of catching passes, Muhammad, a former NFL wide receiver, is now sourcing deals, making investments and helping manage a portfolio companies at Axum, a private equity group based in North Carolina. During his pro football career, Muhammad was probably best known for his 85-yard catch in Super Bowl XXXVIII which is still the longest touchdown in Super Bowl history.
Mike Richter—Founder, Managing Partner at Healthy Planet Partners
Many consider Mike Richter, a member of the U.S. Hockey Hall of Fame, to be one of the best goalies in history. Each year the NCAA awards the best goalie in men’s hockey the Mike Richter Award. Mike has been busy in retirement, earning a degree from Yale, getting involved in politics, and starting his own environmentally focused private equity group called Environmental Capital Partners.
Zoltan Mesko—Former Intern at Graham Partners
Zoltan Mesko, the Romanian native and former New England Patriots kicker has an interesting story. During the 2011 NFL lockout, the University of Michigan graduate worked for the private equity firm Graham Partners. Mesko took what he learned there and now that his playing career is over, is working at IBM in its Business Intelligence & Predictive Analytics division.Read More
There are roughly 1,052 companies in this sector that manufacture a range of sporting and athletic goods, including balls, bags, clubs, gloves, skates, protective equipment, boards, fishing gear and other supplies. These finished products are then marketed to wholesalers and retailers. According to IBIS World Reports, athletic & sporting goods manufacturing sector had total revenues of approximately $9.1 billion and net profits of approximately $398 million for a net margin of 4.4%.
Revenues and profits in the Athletic & Sporting Goods Manufacturing sector are expected to continue to grow as consumers become more health-conscious, which will stimulate demand for athletic equipment. As a result industry revenue is expected to increase at an annualized rate of between 0.5% to 1% and grow to $9.3 billion, as manufacturers benefit from strong demand from downstream markets. In addition, high rates of obesity will likely translate to heightened healthcare expenditures. Therefore, the government will likely invest in schools’ physical education programs and pass legislation to promote healthy lifestyle choices.
Trends in sports participation influence demand for different types of sporting equipment. While an overall rise in the number of consumers participating in sports bodes well for the sector, changing consumer preferences for certain types of sports will also affect demand. For example, as more consumers participate in equipment-intensive sports, such as hockey and scuba diving, industry revenue will reap the benefits of more equipment sales. That said, participation in sports is expected to decline slightly over the next five years as the population ages.Read More
What’s My Fitness Club or Gym Worth? – Simple Rules of Thumb
Thinking of selling your fitness club or gym? The first question most business owners ask is “how much is my business worth?”
Most businesses, including health clubs, fitness clubs, and gyms, are valued based on a multiple of the cash flow they generate. This cash flow is often referred to as earnings before interest, taxes, depreciation, and amortization or “EBITDA”.
These rules of thumb are used by business brokers, buyers and lenders to get a ballpark idea of the value of a fitness club or gym.
|0 – $50,000||1.0-1.5 times EBITDA|
|$50,000 – $150,000||1.5-2.0 times EBITDA|
|$150,000 – $250,000||2.0-2.5 times EBITDA|
|$250,000 – $500,000||2.5-3.0 times EBITDA|
|$500,000 – $1,000,000||3.0-3.5 times EBITDA|
|$1,000,000 and up||3.5-5.0 times EBITDA|
The selling price includes all of the equipment, fixtures, and other assets that are necessary to run your club or gym. If you own the real estate and want to include that in the transaction as well, then you would add the fair market value of your real estate to the asking price for your club or gym.
How to Calculate the EBITDA of your Fitness Club or Gym
To calculate your club’s earnings before interest, taxes, depreciation, and amortization or EBITDA, start with the profit shown on your P&L statement or tax return, then and add back interest, depreciation, and amortization. EBITDA is the starting point for any business valuation so it’s a good number to track on an annual basis.
Don’t Leave Money on the Table When Selling Your Fitness Club
Using valuation rules of thumb will give you a rough idea of what your club or gym is worth. But a word of caution. Because rules of thumb don’t take into account the unique characteristics of your club, they are usually wrong. They result in either too high a value or too low a value. To get an accurate idea of what your club is worth, the valuation needs to take into account things like past performance, future prospects, projected growth, and other things. In addition, business ownership comes with many perks including the ability to pay yourself an above-market salary and to offer yourself perks and pay expenses that a new owner may not incur. The value of your fitness club is also highly dependent on things like your historical growth trends, your margins compared to other clubs, the terms of your lease, including the remaining term on the lease, rent escalation clauses, and renewal terms. As a result, it is important to work with an objective third party to evaluate what adjustments can be made to your EBITDA to truly reflect the operating cash flow of your business.
To get an accurate valuation talk with a business broker or M&A advisor who specializes in representing health clubs and gyms. They will work with you to make the appropriate adjustments to your EBITDA, evaluate your lease, and value your gym properly so you don’t leave any money on the table when you sell.
If you are interested in selling your club or gym, contact Rich Jackim at 224-513-5142 or at firstname.lastname@example.org.Read More