Bally Total Fitness

Bally Total Fitness Holding Corp.

Type	Public
Traded as	OTCBB: BLLY
Industry	Fitness
Founded	1983
Headquarters	Chicago, Illinois, United States
Number of locations	79
Area served	United States
Website	www.ballyfitness.com

A Bally gym in Oregon in 2011

Bally Total Fitness is an American fitness club chain which operates 100 gyms, in several U.S. states. In November 2011, competitor L.A. Fitness took over operation of 171 former Bally locations. At its 2007 peak, prior to the filing of the first of two Chapter 11 bankruptcies, Bally operated nearly 440 facilities located in 29 states, Mexico, Canada, 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.

History

The company traces it roots to 1931 Lion Manufacturing which was later named Bally Manufacturing (named for its successful pinball product called the Ballyhoo. Its success at building slot machines led the company to open casinos in Atlantic City and Las Vegas.

In 1983 it 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.

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.

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.

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. The sale leaves Bally with 100 locations, more than 20 of them in the New York, 10 in Houston, nine in the San Francisco-Oakland-San Jose area, seven in Denver, seven in Cleveland, five in Boston, five in Dallas-Fort Worth, and four in both San Antonio and Milwaukee. Bally had approximately 800,000 members following the sale, which allowed it to retire its corporate debt.

Bankruptcies

Bally filed for bankruptcy in August 2007, with outstanding debts of $761 million. 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. 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.

On December 3, 2008, Bally again filed for bankruptcy due to problems arising from the global credit crisis. 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.

Investigations and controversies

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.

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. 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.

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

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. 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%).

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. 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.

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.