The state of North Carolina’s litigation against former Peak Fitness owner Jeff Stec is still ongoing.

The state of North Carolina’s litigation against former Peak Fitness owner Jeff Stec is still ongoing.

That information came in a press release from the office of North Carolina Attorney General Roy Cooper, who recently announced that his state has stepped up its efforts to ensure that health clubs are prepared to refund members whose clubs have closed.

Cooper’s office stated that multiple locations of ZX Fitness, which took the place of the former Peak Fitness clubs after Peak Fitness went into bankruptcy, are still under investigation, along with two Curves for Women clubs in North Carolina. Two other Curves for Women clubs have entered into settlements with the Attorney General’s office requiring their compliance with the law. Three more Curves for Women clubs have complied with the law after receiving a warning letter from the office’s consumer protection division.

In all, the division has recently contacted 28 North Carolina clubs and related businesses, such as dance and martial arts studios, about their compliance with state law. Over the past few years, the division has recovered more than $500,000 for members whose clubs have closed.

“My office hears every week from people whose gym shut down, leaving them in the lurch,” Cooper said in a statement. “Fortunately, North Carolina law requires health clubs to set aside money for refunds, and we want to make sure that businesses are following the law so consumers are protected.”

Under North Carolina law, health clubs, dance studios, martial arts studios and dating services are required to have a bond or letter of credit to cover certain prepaid contracts in case they go out of business and need money to repay consumers. Businesses are required to file sworn statements with the Attorney General’s office about their bonds twice a year.

Urban Active Faces Lawsuit, Responds to BBB Rating! Looking Really Bad For Urban Active

Urban Active says it cannot comment on a recent lawsuit, but it is attempting to resolve complaints filed with the Better Business Bureau (BBB) of Central Ohio, which last week issued the Lexington, KY-based company an “F” rating.

An amended version of the lawsuit was filed Tuesday in Franklin County (OH) Common Pleas Court. The complaint was originally filed last Wednesday on behalf of Ohio resident Amber Gascho. The amended version includes Ohio residents Ashley Buckenmeyer and Michael Hogan on behalf of themselves and all other similarly situated plaintiffs.
Gascho, Buckenmeyer and Hogan claim Global Fitness Holdings LLC, Lexington, KY, which does business as Urban Active, violated the Ohio Consumer Sales Practices Act and the Ohio deceptive trade practices act and breached a contract. The plaintiffs, represented by the law firm of Vorys, Sater, Seymour and Pease LLP, Columbus, OH, are seeking an award of damages of more than $25,000. The lawsuit is seeking class-action status for all Ohio Urban Active members who purchased membership contracts from Nov. 1, 2007, to the present.

Specifically, Gascho, Buckenmeyer and Hogan allege that Urban Active:

Misrepresented the terms and duration of its membership contracts, personal training contracts and other contracts for services. Misrepresented customers’ cancellation rights. Failed to notify customers of their cancellation rights as required by law. Failed to provide customers with copies of contracts at the time of signing as
required by law. Failed to honor notices of cancellation. Continued to charge customers after cancellation. Failed to inform customers of hidden $15 “maintenance fees,”which increase the cost of its membership contracts. Failed to provide customers with personal training sessions as contracted for in their agreements.

Gascho claims that Urban Active told her that she could cancel her personal training contract for a $10 fee, but when she tried to cancel the contract, she was told the
charge would be $250, according to the complaint. Buckenmeyer claims that an Urban Active personal trainer pressured her into signing a contract, but after she tried to cancel the contract four hours later, Urban Active refused to cancel the contract and continues to charge her bank card, according to the complaint.

Like Gascho and Buckenmeyer, Hogan claims he was not advised of his cancellation rights, nor was he provided with duplicate copies of a notice of cancellation form.
Hogan claims that he tried to cancel his Urban Active contract in October 2010, yet his bank card was still being charged through last February, according to the
complaint. Hogan was charged more than $100 in additional fees after he resent a notice of cancellation, fees that Hogan claims Urban Active has refused to refund.

John Gragg, general counsel for Urban Active, says the company does not comment on litigation, but he did tell Club Industry that the company “will vigorously defend
our good name.”

The lawsuit comes on the heels of a release from the BBB of Central Ohio, which says it has received more than 200 complaints from Ohio Urban Active members within the last year. Of those complaints, 78 of them were either unanswered or unresolved, as Urban Active did not respond to written requests for explanation, the BBB said.

“We’re aware of the complaints that have been filed, and we’re aware that people are frustrated and that it’s taken a while to respond to concerns,” Gragg tells Club
Industry. “Our goal is to provide the best fitness experience, and we take any complaints very seriously.”

Most of the complaints deal with billing issues. Specifically, members have complained that Urban Active continued to charge their bank accounts or credit cards after
the members believed that their contracts had expired or had been canceled.

“The trends we’re seeing in complaints against Urban Active tell us consumers need to read the fine print on the contract before they sign and keep a close eye on their
bank statements to insure they’re not getting billed more than they should,” Kip Morse, president and CEO of the BBB Central Ohio, said in a statement.

The Lexington Herald-Leader reported last week that the BBB of Central and Eastern Kentucky also has given Urban Active an “F” rating. That chapter has processed 93
complaints against Urban Active over the past three years, with 62 of them resolved, the newspaper reported.

Gragg told media outlets last week that the complaints represent less than half of 1 percent of the company’s overall membership base.

“We apologize to our customers who have experienced problems,” Gragg says. “We’re working diligently to resolve these issues by promoting more personnel to provide
better customer service. We’re also working with all of the Better Business Bureaus to resolve these issues as well.”

Gragg adds that Urban Active had taken steps to resolve these issues before the BBB Central Ohio released its report.

“Every one of those cities that we have BBB issues, year in and year out, we’re unanimously voted the top health chain of that market,” Royce Pulliam, CEO of Urban
Active, tells Club Industry. “We know we’ve got a few customer service issues that we’ve got to get under control, and we’re going to put forth all our best efforts to
make sure that we do so. We do have a few things to be better at, and we’re going to be better at it.”

Urban Active has 34 clubs in operation, primarily in Ohio, Kentucky and Tennessee. The company also has expanded into Pittsburgh, Omaha, NE, and Charlotte, NC. Last
year, Urban Active closed two of its clubs in Cincinnati and a club in Brentwood, TN.

Gragg confirmed that Urban Active will open two new clubs in July, one in the Buckhead section of Atlanta and the other in Dublin, OH. He adds that Urban Active also is considering seven to 10 other locations for development.

Urban Active Faces Lawsuit, Responds to BBB Rating! Looking Really Bad For Urban Active

Urban Active says it cannot comment on a recent lawsuit, but it is attempting to resolve complaints filed with the Better Business Bureau (BBB) of Central Ohio, which last week issued the Lexington, KY-based company an “F” rating.

An amended version of the lawsuit was filed Tuesday in Franklin County (OH) Common Pleas Court. The complaint was originally filed last Wednesday on behalf of Ohio resident Amber Gascho. The amended version includes Ohio residents Ashley Buckenmeyer and Michael Hogan on behalf of themselves and all other similarly situated plaintiffs.
Gascho, Buckenmeyer and Hogan claim Global Fitness Holdings LLC, Lexington, KY, which does business as Urban Active, violated the Ohio Consumer Sales Practices Act and the Ohio deceptive trade practices act and breached a contract. The plaintiffs, represented by the law firm of Vorys, Sater, Seymour and Pease LLP, Columbus, OH, are seeking an award of damages of more than $25,000. The lawsuit is seeking class-action status for all Ohio Urban Active members who purchased membership contracts from Nov. 1, 2007, to the present.

Specifically, Gascho, Buckenmeyer and Hogan allege that Urban Active:

Misrepresented the terms and duration of its membership contracts, personal training contracts and other contracts for services. Misrepresented customers’ cancellation rights. Failed to notify customers of their cancellation rights as required by law. Failed to provide customers with copies of contracts at the time of signing as
required by law. Failed to honor notices of cancellation. Continued to charge customers after cancellation. Failed to inform customers of hidden $15 “maintenance fees,”which increase the cost of its membership contracts. Failed to provide customers with personal training sessions as contracted for in their agreements.

Gascho claims that Urban Active told her that she could cancel her personal training contract for a $10 fee, but when she tried to cancel the contract, she was told the
charge would be $250, according to the complaint. Buckenmeyer claims that an Urban Active personal trainer pressured her into signing a contract, but after she tried to cancel the contract four hours later, Urban Active refused to cancel the contract and continues to charge her bank card, according to the complaint.

Like Gascho and Buckenmeyer, Hogan claims he was not advised of his cancellation rights, nor was he provided with duplicate copies of a notice of cancellation form.
Hogan claims that he tried to cancel his Urban Active contract in October 2010, yet his bank card was still being charged through last February, according to the
complaint. Hogan was charged more than $100 in additional fees after he resent a notice of cancellation, fees that Hogan claims Urban Active has refused to refund.

John Gragg, general counsel for Urban Active, says the company does not comment on litigation, but he did tell Club Industry that the company “will vigorously defend
our good name.”

The lawsuit comes on the heels of a release from the BBB of Central Ohio, which says it has received more than 200 complaints from Ohio Urban Active members within the last year. Of those complaints, 78 of them were either unanswered or unresolved, as Urban Active did not respond to written requests for explanation, the BBB said.

“We’re aware of the complaints that have been filed, and we’re aware that people are frustrated and that it’s taken a while to respond to concerns,” Gragg tells Club
Industry. “Our goal is to provide the best fitness experience, and we take any complaints very seriously.”

Most of the complaints deal with billing issues. Specifically, members have complained that Urban Active continued to charge their bank accounts or credit cards after
the members believed that their contracts had expired or had been canceled.

“The trends we’re seeing in complaints against Urban Active tell us consumers need to read the fine print on the contract before they sign and keep a close eye on their
bank statements to insure they’re not getting billed more than they should,” Kip Morse, president and CEO of the BBB Central Ohio, said in a statement.

The Lexington Herald-Leader reported last week that the BBB of Central and Eastern Kentucky also has given Urban Active an “F” rating. That chapter has processed 93
complaints against Urban Active over the past three years, with 62 of them resolved, the newspaper reported.

Gragg told media outlets last week that the complaints represent less than half of 1 percent of the company’s overall membership base.

“We apologize to our customers who have experienced problems,” Gragg says. “We’re working diligently to resolve these issues by promoting more personnel to provide
better customer service. We’re also working with all of the Better Business Bureaus to resolve these issues as well.”

Gragg adds that Urban Active had taken steps to resolve these issues before the BBB Central Ohio released its report.

“Every one of those cities that we have BBB issues, year in and year out, we’re unanimously voted the top health chain of that market,” Royce Pulliam, CEO of Urban
Active, tells Club Industry. “We know we’ve got a few customer service issues that we’ve got to get under control, and we’re going to put forth all our best efforts to
make sure that we do so. We do have a few things to be better at, and we’re going to be better at it.”

Urban Active has 34 clubs in operation, primarily in Ohio, Kentucky and Tennessee. The company also has expanded into Pittsburgh, Omaha, NE, and Charlotte, NC. Last
year, Urban Active closed two of its clubs in Cincinnati and a club in Brentwood, TN.

Gragg confirmed that Urban Active will open two new clubs in July, one in the Buckhead section of Atlanta and the other in Dublin, OH. He adds that Urban Active also is considering seven to 10 other locations for development.

Health Club Pre-sale Investigation Guidelines

Pre-sale Investigation Guidelines

Every gym that has been approved to pre-sell memberships must be inspected by the Administrator’s designee. Appointments for pre-sale inspection should be scheduled within fifteen days of a planned opening. When there are delays in gym equipment delivery or construction, gym owners may be compelled to change the date of their gym’s opening and pre-sale inspection. In such cases, owners must contact this office to schedule a new inspection appointment.

On the day of the pre-sale inspection, gym owners will be required to provide:

1. A copy of a permanent Certificate of Occupancy.
2. A list of all pre-sale memberships, including names, addresses and amounts paid.
3. Copies of the escrow account statements for all months through the date of the inspection.
4. Membership contracts for review, even if the contracts are stored electronically.
5. An in-depth onsite examination of the facility and services.
Please be aware that temporary Certificates of Occupancy will not be accepted by this office. If a local municipality does not provide Certificates of Occupancy, a letter or other documentation must be provided by that office which authorizes the occupancy of the facility. In addition, all construction must be completed within the facility prior to the pre-sale inspection.

The pre-sale membership list must be in a format which includes complete names, addresses, zip codes and amounts paid at the execution of each membership contract. The list must include a total of all funds collected by the gym during the pre-sale. Remember, the list total, must be reconciled to the final escrow account statement balance. This means that all deposits and credits must be reflected in the final escrow account statement.

Membership contracts will be inspected for completion. Each contract should accurately show the member name, address, amount paid, term of the contract, 7 day cancellation date and signatures of the gym’s representative and member. There should be no blank spaces or errors within the contracts at any time.

After the pre-sale inspection, a written statement will be issued by this office which will certify to the bank or trust company that the health spa is fully operational and available for use and, that all funds which are held in trust may be released to the gym.

In Summary

Every gym that has been approved to pre-sell memberships must be inspected by the Administrator’s designee. Appointments for pre-sale inspection should be scheduled within fifteen days of a planned opening.

On the day of the pre-sale inspection, gym owners will be required to provide:

1. A copy of a permanent Certificate of Occupancy.
2. A list of all pre-sale memberships, including names, addresses and amounts paid.
3. Copies of the escrow account statements for all months through the date of the inspection.
4. Membership contracts for review, even if the contracts are stored electronically.
5. An in-depth onsite examination of the facility and services.
After the pre-sale inspection, all funds which are held in trust will be released to the gym.

Health Club Pre-sale Investigation Guidelines

Pre-sale Investigation Guidelines

Every gym that has been approved to pre-sell memberships must be inspected by the Administrator’s designee. Appointments for pre-sale inspection should be scheduled within fifteen days of a planned opening. When there are delays in gym equipment delivery or construction, gym owners may be compelled to change the date of their gym’s opening and pre-sale inspection. In such cases, owners must contact this office to schedule a new inspection appointment.

On the day of the pre-sale inspection, gym owners will be required to provide:

1. A copy of a permanent Certificate of Occupancy.
2. A list of all pre-sale memberships, including names, addresses and amounts paid.
3. Copies of the escrow account statements for all months through the date of the inspection.
4. Membership contracts for review, even if the contracts are stored electronically.
5. An in-depth onsite examination of the facility and services.
Please be aware that temporary Certificates of Occupancy will not be accepted by this office. If a local municipality does not provide Certificates of Occupancy, a letter or other documentation must be provided by that office which authorizes the occupancy of the facility. In addition, all construction must be completed within the facility prior to the pre-sale inspection.

The pre-sale membership list must be in a format which includes complete names, addresses, zip codes and amounts paid at the execution of each membership contract. The list must include a total of all funds collected by the gym during the pre-sale. Remember, the list total, must be reconciled to the final escrow account statement balance. This means that all deposits and credits must be reflected in the final escrow account statement.

Membership contracts will be inspected for completion. Each contract should accurately show the member name, address, amount paid, term of the contract, 7 day cancellation date and signatures of the gym’s representative and member. There should be no blank spaces or errors within the contracts at any time.

After the pre-sale inspection, a written statement will be issued by this office which will certify to the bank or trust company that the health spa is fully operational and available for use and, that all funds which are held in trust may be released to the gym.

In Summary

Every gym that has been approved to pre-sell memberships must be inspected by the Administrator’s designee. Appointments for pre-sale inspection should be scheduled within fifteen days of a planned opening.

On the day of the pre-sale inspection, gym owners will be required to provide:

1. A copy of a permanent Certificate of Occupancy.
2. A list of all pre-sale memberships, including names, addresses and amounts paid.
3. Copies of the escrow account statements for all months through the date of the inspection.
4. Membership contracts for review, even if the contracts are stored electronically.
5. An in-depth onsite examination of the facility and services.
After the pre-sale inspection, all funds which are held in trust will be released to the gym.

This guide to negotiating and maintaining business deals and relationships in the fitness industry outlines six important steps to produce a deal.

“THE ONLY GOOD deal is a win/win deal,”says Robert Dedman Sr., founder of ClubCorp, Dallas, Texas, in the book King of Clubs.

In his mind, dealmaking is both an art and a science, a process of bringing multiple parties together in a business relationship that produces success for
everyone involved. This may seem counter to what is often seen in the news today, or what many people may have experienced in their professional
careers. In recent years, far too many business leaders and politicians measure the value of a deal solely in terms of what they receive from
the arrangement, no matter what the results end up being for the other parties involved. This modern-day approach to deal-making is counter to
the philosophy and business practices of insightful organizational leaders who understand and accept the value of creating business
relationships that result in positive outcomes for everyone involved. A win/win approach to deal-making drives long-term business partnerships
and helps foster continual growth and profitability in an organization. The relevance of such a precept could appropriately be summed up in
another quote from Dedman: “In the deal-making business, we are also in the repeat business.”

Deal-Making Tips Given the aforementioned foundation for what constitutes appropriate deal-making and the steps involved in its success,
several general suggestions can be applied to the process of buying, leasing and selling a fitness center. Leasing space for a facility • Apply
the 15-percent rule, which refers to the fact that a fitness center should never spend more than 15 percent of revenue on rent. • Be clear about
the cost of the rent. Is it a triple net rent that also requires the lessee to pay taxes, utilities, etc.? • Understand the common area
maintenance costs (CAM charges). • Set 20 as the upper limit for space (e.g., the rent should never exceed $20 per square foot for the base
rent). • Know what is allotted for tenant allowance (TI). In most markets, clubs should be able to get $15 to $20 per square foot for their
facility’s TI. • Determine if the deal provides anything else (e.g., signage, good visibility, partnering in promoting the business). Buying a
fitness center • Determine the base value of the business by using a fair multiple of EBITDA. In the health/fitness industry, a multiple of
between three-times and sixtimes earnings is relatively fair for a leasehold space and a freehold (e.g., land and building). It should also be
noted that, in some instances, the multiple can jump as high as eight-times earnings. • Make sure to do due diligence on the proposed deal, and
get a succinct EBITDA number for the trailing 12-month period, as well as for the past three years. • Establish a strategic return on assets or
return on equity that needs to exist to make the deal work. Establish the price based on what it will take to achieve this return. • Determine
realistic five-year projections. Don’t rely on the calculations of others. • Be careful on leaseholds about buying the business and then having
to lease the land and building from the current owner. Such a situation is seldom, if ever, a great deal. • When someone buys the business, the
purchaser is getting the company’s assets and liabilities. Selling a club • Develop an investment memorandum on the business. This package
should tell the story of the fitness center, including its history, marketing data, financial data, information on the people, the competitive
market, etc. • Initially, try to sell the facility to people you know. Work your existing relationships to identify potential buyers. • Remember
that, while brokers can be helpful, they can also be costly. Keep the broker’s commission under 6 percent if at all possible. • Start with the
investment memorandum, but get down to personal presentations. • If the facility for sale has been a successful operation, set a high
price-point, but also set a walk-away price. For example, a high asking price for a fitness center could be eight times earnings, while a
walk-away price could be five times earnings. • Determine what financial return the selling price should provide. Sellers need to know what
their return on investment is just as much as the buyer does.

What is deal-making? Deal-making is the process by which multiple businesses or individuals negotiate a business relationship that provides
each group with certain desired benefits. A deal can range from the negotiation of a lease to the establishment of working conditions between
employers and their employees.While the term “deal” is most often associated with real estate transactions and the purchase and sale of
businesses, a deal is really a process involving a situation in which two or more parties come to a mutual understanding regarding a working or
personal relationship. In the fitness industry, deal-making can include such business transactions as purchasing a fitness center, selling a
facility, negotiating a lease, negotiating out of a lease, negotiating an independent contractor agreement, settling a member dispute or
negotiating purchasing agreements with vendors. The art of doing a deal is about negotiating a business relationship that produces win/win
results for all involved, both from a process perspective and an outcome perspective.While simple in its definition, it is a complex and
challenging undertaking few professionals ever have the chance to fully develop. A framework for deal-making Deal-making involves six important
steps, each of which is critical to helping produce a win/win process and outcome: 1. Establish a relationship. Far too many business deals fail
or succeed at this first step. All too often, deal-makers want to discuss the terms and conditions of a deal before actually getting to know
with whom they are getting into business. It is absolutely critical that all parties who are considering doing a deal together get to know each
other. In some cases, the first several months of talks can revolve around getting to know each other; only after that can discussions proceed
to talks about possible terms. The underlying moral is that great deals are often the result of building a trusting relationship with the other
party. As Dedman so aptly puts it, “Deal-making needs to be a courtship, not just a transaction.” 2. Discuss the deal’s social context. Before
jumping into a discussion of the business-related terms of the pending arrangement, reach a clear understanding of the underlying social
contract of the potential business relationship — and the ongoing social contract. In essence, each party must be able to clearly delineate two
key points: what is the real nature of the deal (e.g., what, if any, are the hidden expectations and agendas attendant to the relationship that
might not have been put in writing); and what do the parties to the potential business relationship want the ongoing social contract to be
(e.g., how will they deal with each other and how will decisions be made, beyond the legal nature of the deal)?

After weak relationships, this factor is probably the second most common reason that most deals fail. Individuals who enter into a business
relationship must understand what the other party expects from the relationship and how they want to be dealt with beyond the standard legal
verbiage of most deals. Individuals should not allow their perceptions of the social contract to cloud their level of objectivity concerning the
deal. An effort should be made to discuss these important issues and arbitrate any areas of potential disagreement or misunderstanding. 3. Do
the due diligence on both sides. Fitness professionals should determine what it is they are really negotiating, whether it is a purchase, sale,
lease or simple contract. In other words, you should know everything you can about the other business and the people involved with that
company.An article that appeared in the Harvard Business Review in 2004 noted that “deal-making is glamorous, but due diligence is not.”Many
deal-makers fail to do their homework, and, as a result, don’t have a thorough understanding of the deal. In this regard, a list of the key
elements that should be addressed before entering into a business relationship includes the following: • Know the customers of the business with
whom you are considering doing business. • Know the competition for the business. • Verify the economics of the business with your own people;
don’t depend on the data you are given. • Verify the cost economics of the deal. • Take stock of the core capabilities of the other party (core
competencies). • Determine the stand-alone value of any deal as if it was not going to be a part of your business. 4. Know the synergies and
skeletons of the deal. From the club professional’s perspective, this step involves knowing both your business and that of the other party. It
requires that an honest S.W.O.T. (strength, weaknesses, opportunities and threats) analysis be performed for both your business and the other
business. Once the S.W.O.T. analysis is conducted, a spreadsheet should be compiled that illustrates how the various strengths, weaknesses,
opportunities and threats line up. This depiction will help delineate key points. For example, are there synergies between the parties involved?
Do your perceived strengths work well together or do they complement each other’s perceived weaknesses? Are the business opportunities enhanced
by the potential relationship or weakened? Once a spreadsheet has been developed that clearly shows the potential synergies between the parties
involved, a timeline and cost should be assigned to each of them. Then, assess if the timelines and costs make sense, and what effect they might
have in influencing the direction of the negotiation. Such a detailed investigation will also help you identify and deal with any potential
skeletons (i.e., barriers and hurdles that will have to be overcome if the deal is to be done) that might exist. Sometimes individuals choose to
ignore such skeletons because the synergies attendant to the relationship seem to be strong. Other times, skeletons can bring down the entire
deal, but usually only after the deal has been made. 5. Determine a walk-away price. For every deal, individuals need to establish a set of
clear benchmarks that frame whether they will proceed with a deal. Such a benchmark may be any number of criteria or factors (e.g., a minimal
purchase or sale price, a certain lease rate, a particular timeline for closing the deal, the involvement of a certain person). Draw a firm line
that you won’t step over, no matter how good the rest of the deal looks. Too many people dis-miss red flags or warnings concerning a possible
business relationship because the perceived immediate outcome looks so good to them. Having a walk-away price or benchmark enables you to create
an objective perspective of every deal, and diminishes the emotional capital that often comes along. 6. Employ a team approach.Deal-making is
not and should not be a lone shark approach. When only a single individual controls the deal-making process for a business,emotional thinking
can interfere with objective decisionmaking. All factors considered, if a business forms a relationship with another company, it’s better to
have several people from each business have some sort of relationship with individuals in the other company in the event that an individual
integral to the potential business relationship leaves the organization. Too many deals fall apart because an influential person left an
organization. Once a business enters into due diligence, it’s critical to have a team of individuals from that organization with contrasting
strengths be involved in the process. This step can enable the strengths of an organization to be leveraged to the benefit of everyone.
Furthermore, having more than one person from a particular business involved in the negotiating process can help facilitate matters when
sticking points are reached. Finally, several minds working together almost always arrive at solutions and decisions that inspire greater
ownership than those reached by a single person. More than a handshake Sound deal-making involves adhering to certain precepts, concepts and
principles. The days are long past when deals are consummated with a heavy dose of trust and a simple handshake. Rather, deal-making should be
the systematic process that leads to a fair and appropriate business relationship between the involved parties.Ultimately, the basic foundation
of the process will be the underlying elements of the proposed relationship and the people who are part of it. Perhaps no one states this
critical connection better than Dedman: “It takes two things to make a great deal — the deal and the people who come with it!”

This guide to negotiating and maintaining business deals and relationships in the fitness industry outlines six important steps to produce a deal.

“THE ONLY GOOD deal is a win/win deal,”says Robert Dedman Sr., founder of ClubCorp, Dallas, Texas, in the book King of Clubs.

In his mind, dealmaking is both an art and a science, a process of bringing multiple parties together in a business relationship that produces success for
everyone involved. This may seem counter to what is often seen in the news today, or what many people may have experienced in their professional
careers. In recent years, far too many business leaders and politicians measure the value of a deal solely in terms of what they receive from
the arrangement, no matter what the results end up being for the other parties involved. This modern-day approach to deal-making is counter to
the philosophy and business practices of insightful organizational leaders who understand and accept the value of creating business
relationships that result in positive outcomes for everyone involved. A win/win approach to deal-making drives long-term business partnerships
and helps foster continual growth and profitability in an organization. The relevance of such a precept could appropriately be summed up in
another quote from Dedman: “In the deal-making business, we are also in the repeat business.”

Deal-Making Tips Given the aforementioned foundation for what constitutes appropriate deal-making and the steps involved in its success,
several general suggestions can be applied to the process of buying, leasing and selling a fitness center. Leasing space for a facility • Apply
the 15-percent rule, which refers to the fact that a fitness center should never spend more than 15 percent of revenue on rent. • Be clear about
the cost of the rent. Is it a triple net rent that also requires the lessee to pay taxes, utilities, etc.? • Understand the common area
maintenance costs (CAM charges). • Set 20 as the upper limit for space (e.g., the rent should never exceed $20 per square foot for the base
rent). • Know what is allotted for tenant allowance (TI). In most markets, clubs should be able to get $15 to $20 per square foot for their
facility’s TI. • Determine if the deal provides anything else (e.g., signage, good visibility, partnering in promoting the business). Buying a
fitness center • Determine the base value of the business by using a fair multiple of EBITDA. In the health/fitness industry, a multiple of
between three-times and sixtimes earnings is relatively fair for a leasehold space and a freehold (e.g., land and building). It should also be
noted that, in some instances, the multiple can jump as high as eight-times earnings. • Make sure to do due diligence on the proposed deal, and
get a succinct EBITDA number for the trailing 12-month period, as well as for the past three years. • Establish a strategic return on assets or
return on equity that needs to exist to make the deal work. Establish the price based on what it will take to achieve this return. • Determine
realistic five-year projections. Don’t rely on the calculations of others. • Be careful on leaseholds about buying the business and then having
to lease the land and building from the current owner. Such a situation is seldom, if ever, a great deal. • When someone buys the business, the
purchaser is getting the company’s assets and liabilities. Selling a club • Develop an investment memorandum on the business. This package
should tell the story of the fitness center, including its history, marketing data, financial data, information on the people, the competitive
market, etc. • Initially, try to sell the facility to people you know. Work your existing relationships to identify potential buyers. • Remember
that, while brokers can be helpful, they can also be costly. Keep the broker’s commission under 6 percent if at all possible. • Start with the
investment memorandum, but get down to personal presentations. • If the facility for sale has been a successful operation, set a high
price-point, but also set a walk-away price. For example, a high asking price for a fitness center could be eight times earnings, while a
walk-away price could be five times earnings. • Determine what financial return the selling price should provide. Sellers need to know what
their return on investment is just as much as the buyer does.

What is deal-making? Deal-making is the process by which multiple businesses or individuals negotiate a business relationship that provides
each group with certain desired benefits. A deal can range from the negotiation of a lease to the establishment of working conditions between
employers and their employees.While the term “deal” is most often associated with real estate transactions and the purchase and sale of
businesses, a deal is really a process involving a situation in which two or more parties come to a mutual understanding regarding a working or
personal relationship. In the fitness industry, deal-making can include such business transactions as purchasing a fitness center, selling a
facility, negotiating a lease, negotiating out of a lease, negotiating an independent contractor agreement, settling a member dispute or
negotiating purchasing agreements with vendors. The art of doing a deal is about negotiating a business relationship that produces win/win
results for all involved, both from a process perspective and an outcome perspective.While simple in its definition, it is a complex and
challenging undertaking few professionals ever have the chance to fully develop. A framework for deal-making Deal-making involves six important
steps, each of which is critical to helping produce a win/win process and outcome: 1. Establish a relationship. Far too many business deals fail
or succeed at this first step. All too often, deal-makers want to discuss the terms and conditions of a deal before actually getting to know
with whom they are getting into business. It is absolutely critical that all parties who are considering doing a deal together get to know each
other. In some cases, the first several months of talks can revolve around getting to know each other; only after that can discussions proceed
to talks about possible terms. The underlying moral is that great deals are often the result of building a trusting relationship with the other
party. As Dedman so aptly puts it, “Deal-making needs to be a courtship, not just a transaction.” 2. Discuss the deal’s social context. Before
jumping into a discussion of the business-related terms of the pending arrangement, reach a clear understanding of the underlying social
contract of the potential business relationship — and the ongoing social contract. In essence, each party must be able to clearly delineate two
key points: what is the real nature of the deal (e.g., what, if any, are the hidden expectations and agendas attendant to the relationship that
might not have been put in writing); and what do the parties to the potential business relationship want the ongoing social contract to be
(e.g., how will they deal with each other and how will decisions be made, beyond the legal nature of the deal)?

After weak relationships, this factor is probably the second most common reason that most deals fail. Individuals who enter into a business
relationship must understand what the other party expects from the relationship and how they want to be dealt with beyond the standard legal
verbiage of most deals. Individuals should not allow their perceptions of the social contract to cloud their level of objectivity concerning the
deal. An effort should be made to discuss these important issues and arbitrate any areas of potential disagreement or misunderstanding. 3. Do
the due diligence on both sides. Fitness professionals should determine what it is they are really negotiating, whether it is a purchase, sale,
lease or simple contract. In other words, you should know everything you can about the other business and the people involved with that
company.An article that appeared in the Harvard Business Review in 2004 noted that “deal-making is glamorous, but due diligence is not.”Many
deal-makers fail to do their homework, and, as a result, don’t have a thorough understanding of the deal. In this regard, a list of the key
elements that should be addressed before entering into a business relationship includes the following: • Know the customers of the business with
whom you are considering doing business. • Know the competition for the business. • Verify the economics of the business with your own people;
don’t depend on the data you are given. • Verify the cost economics of the deal. • Take stock of the core capabilities of the other party (core
competencies). • Determine the stand-alone value of any deal as if it was not going to be a part of your business. 4. Know the synergies and
skeletons of the deal. From the club professional’s perspective, this step involves knowing both your business and that of the other party. It
requires that an honest S.W.O.T. (strength, weaknesses, opportunities and threats) analysis be performed for both your business and the other
business. Once the S.W.O.T. analysis is conducted, a spreadsheet should be compiled that illustrates how the various strengths, weaknesses,
opportunities and threats line up. This depiction will help delineate key points. For example, are there synergies between the parties involved?
Do your perceived strengths work well together or do they complement each other’s perceived weaknesses? Are the business opportunities enhanced
by the potential relationship or weakened? Once a spreadsheet has been developed that clearly shows the potential synergies between the parties
involved, a timeline and cost should be assigned to each of them. Then, assess if the timelines and costs make sense, and what effect they might
have in influencing the direction of the negotiation. Such a detailed investigation will also help you identify and deal with any potential
skeletons (i.e., barriers and hurdles that will have to be overcome if the deal is to be done) that might exist. Sometimes individuals choose to
ignore such skeletons because the synergies attendant to the relationship seem to be strong. Other times, skeletons can bring down the entire
deal, but usually only after the deal has been made. 5. Determine a walk-away price. For every deal, individuals need to establish a set of
clear benchmarks that frame whether they will proceed with a deal. Such a benchmark may be any number of criteria or factors (e.g., a minimal
purchase or sale price, a certain lease rate, a particular timeline for closing the deal, the involvement of a certain person). Draw a firm line
that you won’t step over, no matter how good the rest of the deal looks. Too many people dis-miss red flags or warnings concerning a possible
business relationship because the perceived immediate outcome looks so good to them. Having a walk-away price or benchmark enables you to create
an objective perspective of every deal, and diminishes the emotional capital that often comes along. 6. Employ a team approach.Deal-making is
not and should not be a lone shark approach. When only a single individual controls the deal-making process for a business,emotional thinking
can interfere with objective decisionmaking. All factors considered, if a business forms a relationship with another company, it’s better to
have several people from each business have some sort of relationship with individuals in the other company in the event that an individual
integral to the potential business relationship leaves the organization. Too many deals fall apart because an influential person left an
organization. Once a business enters into due diligence, it’s critical to have a team of individuals from that organization with contrasting
strengths be involved in the process. This step can enable the strengths of an organization to be leveraged to the benefit of everyone.
Furthermore, having more than one person from a particular business involved in the negotiating process can help facilitate matters when
sticking points are reached. Finally, several minds working together almost always arrive at solutions and decisions that inspire greater
ownership than those reached by a single person. More than a handshake Sound deal-making involves adhering to certain precepts, concepts and
principles. The days are long past when deals are consummated with a heavy dose of trust and a simple handshake. Rather, deal-making should be
the systematic process that leads to a fair and appropriate business relationship between the involved parties.Ultimately, the basic foundation
of the process will be the underlying elements of the proposed relationship and the people who are part of it. Perhaps no one states this
critical connection better than Dedman: “It takes two things to make a great deal — the deal and the people who come with it!”

Nondues Pricing Outperforms Pricing for Membership Dues and Fees

Last year, fees for club lessons and instruction increased by 1.49% over 2009. This accords closely with the increase in fees for “all items,” which rose by 1.64% between 2009 and 2010. However, fees for club dues fell by 1.75% last
year, reflecting intensified competition in terms of dues pricing among competing club businesses.

A month-to-month comparison reveals that, in December ’10, club dues were comparable to those in December ’09,reflecting a negligible increase of just 0.33%. In the previous one-year period, from December ’08 to December ’09,dues had dropped by 1.68%.

Pricing consistency from December ’09 to December ’10 suggests that, by year’s end, club operators had identified the right price point for consumers.

Reflecting the yearly trend, prices for nondues services recorded modest increases in December for the second consecutive month: fees for lessons and instruction were up by 1.07%. Steady-to-increased pricing for nondues items
continues to demonstrate that operators can capitalize on ancillary services while consumers remain sensitive about membership dues.

Nondues Pricing Outperforms Pricing for Membership Dues and Fees

Last year, fees for club lessons and instruction increased by 1.49% over 2009. This accords closely with the increase in fees for “all items,” which rose by 1.64% between 2009 and 2010. However, fees for club dues fell by 1.75% last
year, reflecting intensified competition in terms of dues pricing among competing club businesses.

A month-to-month comparison reveals that, in December ’10, club dues were comparable to those in December ’09,reflecting a negligible increase of just 0.33%. In the previous one-year period, from December ’08 to December ’09,dues had dropped by 1.68%.

Pricing consistency from December ’09 to December ’10 suggests that, by year’s end, club operators had identified the right price point for consumers.

Reflecting the yearly trend, prices for nondues services recorded modest increases in December for the second consecutive month: fees for lessons and instruction were up by 1.07%. Steady-to-increased pricing for nondues items
continues to demonstrate that operators can capitalize on ancillary services while consumers remain sensitive about membership dues.

The Fitness Life Marketing Sales Process: From Leads to Members

THERE ARE three basic stages when selling memberships.

This three-stage process incorporates planning, teamwork and determination.

Stage 1:
Identifying leads “Leads” are individuals whose demographics (personal characteristics and behaviors) align with the demographics of your members,
and have given an indication that they might be interested in a membership. Examples of leads include individuals who complete a lead card, responded
to an advertisement or called because of a direct-mail piece they received. Leads are individuals who, when exposed to the features and benefits of
your facility, may become more interested and eventually decide to join. The process of generating leads should be the top priority of your
membership sales team and marketing department. The lead-generation process involves two distinct phases. The first is marketing, which is designed
to generate consumer interest and awareness of your fitness center. The second is lead tracking, or database mining, which enables you to place a
name with a lead. You should make every attempt to get the mailing address, phone number and email address for each person who calls your facility,
responds to a lead card or marketing piece, attends a health fair or visits using a guest pass. Generating leads is a full-scale effort that ties
marketing to information collection.

Stage 2:
Qualifying prospects A prospect is a lead who has expressed a need for or an interest in your fitness
center. Accordingly, a prospect is more likely to become a member than someone who is a lead. Turning leads into prospects occurs in many ways. The
most critical factor is talking with the lead and identifying his or her desires and needs, and then having the salesperson offer solutions through a
facility membership. Core marketing strategies that are likely to be successful at generating prospects include member referrals, guest visits from
distributed guest passes and referrals from corporate accounts. Leads turn into prospects when they indicate, verbally or non-verbally, that your
fitness center offers them an opportunity to fulfill a specific need, when they have previously been members of another fitness facility, have a
history of exercising and want to resume the activity, are looking for a way to achieve a fitness or weight-loss goal, have contacted the facility
based on the recommendation of a current member, have taken a tour of the fitness center or have used a guest pass. When your sales members determine
that a lead has become a prospect, it is their responsibility to move forward with the final process of closing the sale.

Stage 3: Closing the sale
The process of moving a prospect to membership usually takes place in one of two ways. The first is referred to as “relationship selling,” where
prospects choose to become members because the facility has demonstrated that it can fulfill an expressed need. The second method is often referred
to as “high-pressure sales,” wherein the salesperson applies pressure for the prospect to join using certain “closing” techniques. The relationship
approach is likely to generate the highest closing percentage (i.e., the percentage of prospects who become members) and the highest quality member,
while “high-pressure” closing techniques usually produce high closing percentages, but low-quality members. Relationship selling usually brings in
members who will remain members. This method involves an indepth process of uncovering a prospect’s needs and then connecting your services to those
needs.

This process does not intimidate the prospect, and it does not employ discounting or other rehearsed processes to move the prospect to
membership. As easy as 1–2–3 Membership sales — like most things of value — do not occur by accident. Rather, they are a byproduct of a wellthought-
out plan. Each stage involves a number of key steps that are an essential part of selling memberships.

The three stages of membership sales take
individuals from leads to prospects to members.Generating leads should be the top priority of your membership sales team and marketing department.

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