How private equity took over your gym

Bally wanted the monthly payment, and the gym came with it. In the 1960s just one in four Americans got any daily exercise; by the 1980s aerobics had turned fitness into a mass market. Bally, grown rich on arcade games and slot machines, bought the largest health spa chain in the country in 1983: 280 locations and a million dues-paying members. It could sell a slot machine only once, while a member paid every month. Joining meant an initiation fee of almost $1,000, spread over three years with interest and charged on top of $8 or $9 a month in dues. People who signed up believed they had a subscription. They had in fact taken out a three-year loan, binding whether they ever came back or not.

Bally's lasting invention was a financial product made out of gym memberships. It packaged thousands of member contracts and sold the bundles to investors as bonds, collecting on day one money its members would take three years to pay. Think of a landlord who sells a stranger your rent for the next three years at a discount, in exchange for cash today. Bally also booked every contract as revenue on the day of signing. All that cash was really an advance on what members had yet to pay, and Bally spent it opening clubs to find new members. In four of the years on the chart, the gyms themselves ran at a loss. Bally was a consumer lender with a gym attached.

The model was feeding on itself, and Bally's executives hid it with fraud. By 2000 the initiation fee ran from $630 to $2,175, financed at 16 to 18% with no credit check, and more than 90% of new contracts were sold on credit. For six years the fitness company cooked its books. It recorded each initiation fee as income at signing, kept members who had already left in its renewal count, and carried sales commissions as assets rather than costs, so it reported profits while losing around $100 million a year and hid more than $1.8 billion of losses. Rival chains, meanwhile, took its members by asking for no contract and no joining fee. Bally was bankrupt by the late 2000s, a forgotten name in the business it had built.

Gold's rented its name until the name meant nothing. A Schwarzenegger documentary made Gold's famous, and any gym that paid could put up the sign and run itself however it pleased. On the name alone the brand went from a single gym in Venice Beach to over 500. Its private equity owners promised a thousand new franchises, then sold the company for three times their price to an oil tycoon from Texas. When he tried to bring in standards and royalties, the franchisees, many of whom had run gyms for years before they ever bought the sign, simply left. Locations fell from a peak of 475 to 182 today, with a bankruptcy in 2020 along the way, and the average Gold's now takes in less than it did ten years ago.

Private equity piled into the big-box gym in the 1990s. Bally had shown that Americans would pay a gym every month as long as nobody made them take a loan to join, so any chain billing month to month looked like a better bet. Funds bought fast-growing chains on both coasts and in the Midwest, and every one of them owned and ran its own clubs. A franchisor keeps 5 to 7% of each month's dues, while an owner keeps 100%, and each extra dollar collected is one more dollar a lender will advance against. Running these clubs took a lot of people: about 50 staff per club at Town Sports, 60 at 24 Hour, 150 at Equinox and more than 250 at Life Time.

Planet Fitness was designed for members who would hardly ever come. Two brothers who had taken over a struggling Gold's in a small New Hampshire town found that the locals had never belonged to a gym, and the free weights and the $35 monthly fee frightened them off. So the brothers cut the price to $10, pulled out the squat racks, painted the walls purple and yellow, declared the place a judgment-free zone and ran it with 10 to 15 staff. The business depends on absence. At any point 50% of members have not been in for 30 days; they come for two or three months before a wedding, a reunion or New Year's and pay through the rest of the year. That is why the price stayed at $10 for decades. It was too small to be worth the trouble of cancelling.

24 Hour Fitness's owner hardly paid for it. A bank did, on the strength of the members. Private equity put $11.7 million into the 1994 purchase and had the chain borrow the rest. The bank was glad to lend, since hundreds of thousands of people paid 24 Hour every month and few loans come safer. None of that debt appeared on the fund's balance sheet. The fund picked the target and arranged the deal, yet the borrower was 24 Hour Fitness, which meant the gym took out the loan that paid for its own purchase and its members made the repayments.

Picture buying a car wash on Wall Street's terms. An ordinary buyer pays cash or takes out a loan personally, and if the business folds the buyer still owes the bank in full. A private equity buyer has the car wash take the loan itself, secured on its monthly-plan customers, and use it to pay for the sale. The buyer gets the keys while the debt stays with the car wash, and its customers pay it down month by month without knowing it. If the customers drift away, the bank repossesses the car wash and the buyer leaves owing nothing. If they stay, the buyer keeps all the upside on a business it hardly paid for. Ordinary people can't buy a business that way, which is the only reason we don't all own car washes.

Next, 24 Hour took on debt to grow, and more debt to pay the fund. A $95 million loan bought 105 clubs and took the chain from 32 locations to 137. Each acquisition brought members whose dues could secure the next loan, so one round of borrowing financed the one after it. The third loan came in 1997: $225 million, of which $57.5 million was passed straight up to the fund as profit. When 24 Hour filed for an IPO in 1998, its net worth stood at −$109 million. The owners had borrowed beyond what the company was worth and paid the money to themselves, and the members' dues were still needed to service the debt. The offering was called off.

Each new owner of 24 Hour Fitness paid with money the gym borrowed. When the second fund paid $1.6 billion for it in 2005, the gym itself borrowed $700 million of the price. The third fund paid roughly $1.9 billion in 2014, and $1.4 billion of it was fresh debt in the chain's name. No owner ever paid the balance down. The members simply kept up the payments. In 2019 24 Hour ran more than 400 clubs carrying $1.4 billion of debt, its revenue per club had been sliding for years, and it held on to 13 cents of each dollar it took in before rent. Then COVID cut revenue to nothing and the company filed for bankruptcy. Members got a gift card. The final owner lost its whole stake, while the two funds before it had long since cashed out, paid with other people's money.

Planet Fitness moved one step up the chain and made franchisees its real customers. Franchisees signed the leases and paid to build and staff the clubs, and their contracts obliged them to buy every machine from Planet Fitness, at a markup, for as long as the gym stayed open: new cardio every 5 years, new strength equipment every 7, a full remodel every 10. The brothers set royalties well under 5% to sign up franchisees quickly, and by the early 2010s equipment sales out-earned the royalties. Around the middle of the decade the average club ran an operating margin of about 40%, more than twice a fast food restaurant's, and Planet Fitness took its cut without serving a single gym member.

Then its owner had it pay out $721 million it never earned, and made seven times its money. TSG bought in during 2012 with $235 million, and the company borrowed $190 million against its franchisees' royalties to cover the rest, sending the two brothers off with $400 million in cash. In less than three years TSG grew the chain from 600 gyms to more than 1,000, every one of them paid for by a franchisee. It borrowed $390 million in 2014 and paid $173.9 million of it to its owner, then borrowed $120 million in 2015 and paid out $140 million. The same year the IPO raised $136.5 million, and all of it went to buying back TSG's shares. A $230 million loan in 2016 funded a $271 million special dividend. The old saying is robbing Peter to pay Paul. This was Paul robbing Peter to pay himself, and then leaving Peter's name on the bill. In all $1.6 billion went out to the owners, more than Planet Fitness had earned since the day it opened.

Life Time's owners harvested its real estate, then sold their stake to the public. Starting in the 2000s, the company built 100,000-square-foot resorts on land it owned in the priciest zip codes in America, each club grander than the last. In 2004 a single club cost around $20 million to put up, and by the early 2010s more than twice that. Two funds paid $3.9 billion for the company in 2015. Life Time borrowed $1.7 billion against its members and raised $900 million more by selling the land and buildings beneath 29 clubs, renting them back from the day the deal closed. Its rent went up fourfold, and a club margin that had led the industry sank to the middle of the pack. After taking Life Time public a second time, the funds sold their shares and turned $1.1 billion into $3.2 billion. Lenders and landlords financed the purchase. The members are left paying the interest and the rent.

Equinox owns no buildings, which leaves the members as the only thing to harvest. Private equity has owned it since 2000, and it grew by leasing every club and running each one itself, so when COVID arrived it had no property to sell and nothing a lender would take as security. S&P has twice downgraded it to selective default, landlords have sued it over unpaid rent, and it is kept alive by $1.8 billion borrowed from private lenders. Prices keep rising, and in 2025 New York fined it $600,000 for making cancellation too difficult. Even calling this a harvest flatters the owners, since a harvest needs someone to have planted, and not one of them borrowed to make a gym better. They borrowed against members who were already coming through the door, paid themselves out of the loan and sold the business on.

With no big chains left to buy, private equity built studios and borrowed against them the same way. A studio squeezed into a strip mall, needed under $1 million to open and charged several times what a gym could, and it could be sold like a startup, priced on the growth still to come. SoulCycle took in $3 million a year from 2,500 square feet. Then it borrowed $167 million, 93% of the price of its own sale and more than it had made in any single year, to buy out its founders, and Peloton went on to put the same ride in people's living rooms for $39 a month. Orangetheory's median studio slid from $1.16 million to $750,000, and Anytime Fitness has lost locations three years in a row. The fund that owns both merged them, borrowed $1.7 billion against their royalties and sent about $600 million up to itself. Xponential bought up eleven brands and unloaded Rumble and CycleBar for $7 million.

Boredom keeps a gym alive and kills a studio. Gym dues leave your account every month like rent, used or not, which is just what lenders like. A studio earns only when people turn up for class. Its buzz costs hundreds of millions of dollars to manufacture, and once its single workout falls out of fashion the room is good for nothing else, so private equity traded its old rule of hold and harvest for a new one: hype the brand and sell at the top. Pilates is the current round. Club Pilates has passed 1,400 studios even as its same-store sales slip below zero, and solidcore has had three private equity owners in four years. Even Planet Fitness's $10 membership now costs $15. That leaves one honest gym in America, the local independent, which no lender will touch, and your dues there pay for a gym and secure nobody's loan.