Bally Total Fitness

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Bally Total Fitness Holding Corporation
Type Public
Traded as Grey MarketBLLY
Industry Fitness
Founded 1983[1]
Headquarters Chicago, Illinois[2],
United States
Number of locations 60[3][4]
Area served United States
Website www.ballyfitness.com

Bally Total Fitness is an American fitness club chain which operates 60 gyms, in several U.S. states. In November 2011, Bally sold 171 Bally locations to competitor L.A. Fitness.[3] In April 2012, Bally sold an additional 39 facilities to Blast Fitness.[4][5] At its 2007 peak, prior to the filing of the first of two Chapter 11 bankruptcies, Bally operated nearly 440 facilities located in 29 U.S. states, Mexico, Canada, South Korea, China, and the Caribbean under the Bally Total Fitness, Crunch Fitness, Gorilla Sports, Pinnacle Fitness, Bally Sports Clubs, and Sports Clubs of Canada brands. The company's headquarters are located in Chicago, Illinois.[2]

History[edit]

A Bally gym in Cedar Mill, Oregon in July 2011

In 1983, slot-machine maker Bally Manufacturing purchased Health and Tennis Corporation of America and Lifecycle, an exercise bike manufacturer. In 1987, it was the world's largest owner and operator of fitness centers. It further expanded with the purchase of the American Fitness Centers and Nautilus Fitness Centers, which were once connected to Vic Tanny and Jack LaLanne. The various brands were consolidated under the Bally Total Fitness brand in 1995.

In 1996, it was spun from its casino-owning parent. In May 1998, it was listed on the New York Stock Exchange trading under the ticker symbol of BFT. The company carried $300 million in debt at the time of its initial public offering.[6]

Paul Toback, a former White House aide in the Clinton administration who joined Bally as a corporate development officer in 1997, was named Chief Executive Officer (CEO) in December 2002, immediately after predecessor Lee Hillman resigned.[7][8][9]

On November 18, 2011, Bally Total Fitness announced the sale of 171 of its clubs located in 16 states and the District of Columbia to an affiliate of LA Fitness for $153 million.[10] In February 2012, it sold the Toledo Airport Road club to Red Fitness 24/7. In April 2012, Bally sold an additional 39 facilities to Blast Fitness. Blast Fitness has begun operating the new facilities under their own name in stages, transitioning entirely away from the Bally's name. Those two sales leaves Bally with 44 locations, 27 of them in the New York area, 8 in the San Francisco area, 1 in Louisiana and 8 in Colorado.[4] After the LA Fitness transaction, Bally had approximately 800,000 members; the sale allowed Bally to retire its corporate debt.[3]

All of the clubs in the Cleveland area were sold to Red Fitness 24/7, effective December 31, 2012. Some employees received termination notices the same day.

The number of clubs still in the Bally chain continue to dwindle. For example, the Bally Total Fitness location in Danville, California closed on June 22, 2012 and reopened as Danville Fit.[11]

Bankruptcies[edit]

Bally filed for bankruptcy in August 2007, with outstanding debts of $761 million.[12] Over the preceding ten years, its stock price had fallen from a high of approximately US$37.00 to less than $0.37 on the Pink Sheets, a plunge of over 99% of its value.[12] It was removed from the NYSE shortly thereafter.

On October 1, 2007, Bally announced its emergence from bankruptcy court protection, 100% owned by a hedge fund, Harbinger Capital. Earlier that year, it had sold off its 16 Toronto health clubs to existing chains: 10 locations were sold to GoodLife Fitness, and 6 to Extreme Fitness, allowing the latter company its first move into the downtown core for what had heretofore been a suburban chain.[13]

On December 3, 2008, Bally again filed for bankruptcy due to problems arising from the global credit crisis.[14] The company indicated at that time that it would explore options including reorganization or possibly even a sale, but that it hoped to emerge from bankruptcy as soon as possible.[15]

Investigations and controversies[edit]

Bally Total Fitness has been the subject of controversy over their sales and membership cancellation practices, with some customers claiming they were misled into signing long-term membership contracts that can last for three years, and subsequently found themselves dealing with collection agencies.[16]

In April 1994, Bally paid $120,000 to settle Federal Trade Commission charges of illegal billing, cancellation, refund, and debt-collection practices. But consumers complain that little has changed over the years.[17] From 1999 to 2004, over six hundred customers complained to the New York Attorney General's office, leading to an investigation and subsequent agreement by Bally Total Fitness to reform their sales tactics in February 2004.[18]

The company is the subject of numerous complaints on the ConsumerAffairs.com website, to which Bally company representatives sometimes post public responses.[19]

Bally has been the subject of at least one federal investigation, in addition to the aforementioned probe into consumer complaints against Bally, conducted by the New York State Attorney General, regarding the firm's sales practices. In April 2004, Bally disclosed the U.S. Securities and Exchange Commission (SEC) was investigating its accounting practices, and in February 2005, the U.S. Justice Department joined the probe.[20][21] The company eventually restated its financial statements for 1997 through 2003.

On February 28, 2008, the SEC formally filed financial fraud charges against Bally Total Fitness. Among the charges, the SEC alleges that in 2001, Bally overstated its originally reported stockholder's equity by roughly $1.8 billion (over 340%), and understated its 2003 net loss by $90.8 million (or 845%).[22]

In December 2009, the United States Securities and Exchange Commission announced that the auditing firm of Ernst & Young agreed to pay $8.5 million to settle charges against six current and former partners, five based in Chicago, for failing to detect and report accounting fraud at Bally.[23] The SEC also settled charges against former Bally chief financial officer John W. Dwyer, and former controller Theodore Noncek. Dwyer agreed to pay a $250,000 fine and was permanently barred from serving as an officer or director at a public company. Noncek consented to similar injunctions for two years. The Ernst & Young Chicago partners - where Lee Hillman and Dwyer had worked prior to Bally - audited Bally from 2001 to 2003 and failed to find and report fraud despite the fact that Ernst & Young had previously identified Bally as its riskiest account in the Chicago area. Bally overstated its year-end 2001 stockholders' equity by $1.8 billion and understated net losses in 2002 by $92.4 million and by $90.8 million in 2003.[24][25]

In 2010, Texas Attorney General Greg Abbott announced that the company mailed over 11,000 fake past-due notices to former members. The accusations state that Bally urged consumers to immediately pay their late fees and were a scheme to get them to re-join the club.[26]

References[edit]

  1. ^ "Bally Total Fitness Holding (BLLY:OTC): Stock Quote and Company Profile". Bloomberg Businessweek. Retrieved July 10, 2011. 
  2. ^ a b Bally Total Fitness Holding Corporation (June 29, 2007). "Bally Total Fitness Holding Coropration Form 10-K Annual Report". U.S. Securities and Exchange Commission. Retrieved December 2, 2011. 
  3. ^ a b c Goldman, Stuart (November 30, 2011). "Bally, LA Fitness Complete Sale of 171 Clubs". ClubIndustry.com. Retrieved November 30, 2011. 
  4. ^ a b c Goldman, Stuart (April 10, 2012). "Bally to Sell 39 Clubs to Blast Fitness". ClubIndustry.com. Retrieved April 25, 2012. 
  5. ^ Goldman, Stuart (May 2, 2012). "Bally Completes Sale of 39 Clubs to Blast Fitness". ClubIndustry.com. Retrieved May 21, 2012. 
  6. ^ Meyers, Lawrence (September 16, 2005). "Bally Totally Unfit: Part 1". The Motley Fool. Retrieved December 1, 2011. 
  7. ^ Meyers, Lawrence (September 16, 2005). "Bally's Totally Unfit: Part 2". The Motley Fool. Retrieved December 1, 2011. 
  8. ^ "Lee S. Hillman Separation Agreement". Bally Total Fitness Holding Corporation. December 10, 2002. Retrieved December 2, 2011. 
  9. ^ "Bally Total Fitness Names Paul Toback President and Chief Executive Officer". Bally Total Fitness Holding Corporation. December 11, 2002. Retrieved December 2, 2011. 
  10. ^ Goldman, Stuart (November 18, 2011). "LA Fitness Acquires 171 Bally Total Fitness Clubs". ClubIndustry.com. Retrieved December 1, 2011. 
  11. ^ [1]
  12. ^ a b Marco, Meg (August 1, 2007). "Sinking Ship: Bally Total Fitness Files Chapter 11 Bankruptcy". The Consumerist. Retrieved July 10, 2011. 
  13. ^ Associated Press (August 25, 2007). "Bally's to sell its 16 Toronto sites". Boston.com. Retrieved July 10, 2011. 
  14. ^ "Bally Total Fitness Files Again for Bankruptcy". The New York Times. December 3, 2008. Retrieved December 2, 2011. 
  15. ^ "Bally Total Fitness files for bankruptcy". CTV News. 2008-12-03. Archived from the original on 6 December 2008. Retrieved 2008-12-03. 
  16. ^ Meyers, Lawrence (December 3, 2004). "Bally's Bully Tactics Backfire". The Motley Fool. Retrieved December 1, 2011. 
  17. ^ Bally's Customers Hope To Exercise Their Rights
  18. ^ "Consumer Complaints lead to Health Club Sales Reform (New York Attorney General's Office)". Retrieved 2011-12-01. 
  19. ^ "Bally Total Fitness". ConsumerAffairs.com. Retrieved 1 February 2013. 
  20. ^ Meyers, Lawrence (March 8, 2005). "Bally's Totally Rotten Report". The Motley Fool. Retrieved December 1, 2011. 
  21. ^ Dougherty, Geoff (2005-02-09). "Bally ex-CEO, ex-CFO said responsible for accounting flaws; 2 other execs fired". Chicago Tribune. 
  22. ^ U.S. Securities and Exchange Commission, Litigation Release No. 20470 / February 28, 2008 "Securities and Exchange Commission v. Bally Total Fitness Holding Corporation", Civ. 08-00348 (HHK) (Judge Kennedy) (D.D.C. filed February 28, 2008), "Bally Total Fitness Settles Financial Fraud Charges With SEC"
  23. ^ Norris, Floyd (December 18, 2009). "Ernst to Pay the S.E.C. $8.5 Million". The New York Times. Retrieved April 21, 2011. 
  24. ^ Wernau, Julie (December 18, 2009). "Ernst & Young settles charges in Bally Total Fitness fraud". Chicago Tribune. Retrieved April 19, 2011. 
  25. ^ "SEC Charges Former CFO and Controller for roles in accounting violations at Bally Total Fitness". U.S. Securities and Exchange Commission. December 17, 2009. Retrieved April 19, 2011. 
  26. ^ Repko, Melissa (June 9, 2010). "Bally Total Fitness Accused of Sending Fake 'Past Due' Notices". The Dallas Morning News. Archived from the original on 28 June 2011. Retrieved July 10, 2011. 

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