How to Value: Gyms & Fitness Centers

Industry Description

The Fitness and Recreational Sports Center industry in the U.S. contains facilities featuring exercise and other active physical fitness conditioning or recreational sports activities, such as swimming, skating, or racquet sports (NAICS 713940). They can also contain facilities management and fitness instruction.

The following are some basic characteristics of the Fitness Clubs industry:

  • Fitness Clubs industry has a combined revenue of $35.3 billion, with a growth rate of 2.7% in 2021-2026
  • There are approximately 104,000 businesses as of 2021
  • The Fitness Clubs industry employs approximately 473,000 people

Not included in the scope of this analysis is Diet and Weight Reducing Centers.

Industry Trends

The Fitness Clubs industry is highly fragmented and has low levels of market share concentration, with the top four industry operators comprising  approximately 20% of revenue in 2021. The largest players have numerous locations across the US, while small players are typically independently owned and operated in 1-2 states. Some key external factors that influence this industry are (i) shift to hybrid in-person and online fitness offerings, (ii) rise of boutique studios, and (iii) increased use of technology.  Each of these is described in further detail below.

According to International Health, Racquet & Sportsclub Association, the number of health club memberships in the US increased 64.2 million members in 2019, a 28% increase from 2010. The industry is still recovering from COVID-19 pandemic-related closures and mask mandates in 2020, but with 67% of Americans engaging in fitness-related activities, including cardio, resistance training and group-based activities, illustrates how important fitness is to the public.

Since the start of the 2020 pandemic, there has been a boom in digital platforms and virtual fitness options, with 75% of active adults using livestream workouts and 70% using on-demand videos to support their exercise regime according to RunRepeat. However, consumers miss the personal connection that a gym offers, stating only 15% of exercisers feel that digital fitness platforms have eliminated the need for gyms according to Mintel.  In addition, gyms and studios that offer virtual workouts increase their in-person class attendance by 12%. In conclusion, there is a shift in consumer demands and industry offerings to have a hybrid business model with on-site and online fitness solutions to allow members to train more flexibly and conveniently.

Over the past decade, boutique fitness studios have been on the rise, offering niche, targeted classes. About 42% of all gym memberships in 2018 came from boutique fitness studios according to ClubIntel. In contrast to traditional gyms with large open spaces, different weight machines and equipment, boutique studios offer a specific type of fitness and intimate experience, such as high-intensity interval training, hot yoga, or kickboxing. In addition, these studios capture demand in local, niche markets by locating themselves in proximity to urban residential areas to be more accessible. Pioneering brands offering boutique fitness include Barry’s Bootcamp, SoulCycle and Orangetheroy Fitness. Large traditional fitness club operators have responded to this shift in consumer trends by offering new services.

The American College of Sports Medicine has named wearable technology the top fitness trend for the second consecutive year in 2022. Wearable technology includes fitness or activity trackers, smart watches, heart rate monitors and GPS tracking devices. These devices can track step count, heart rate, body temperature, calories, sitting time, sleep time and much more. This can have multiple implications empowering individuals’ health and wellness, by incorporating data and fitness habits. For example, some US schools are experimenting with online physical education, meaning students are given a school-issued wearable device that gives school-credit for fitness exercises that align with each students’ personalized interests and schedule demands. Industry operators are expected to incorporate technology to enhance consumers’ experience, with everything from virtual-reality and wearable technology to achieve shared goals and bring people together.

Key Performance Metrics

In evaluating the Fitness Clubs industry, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions.

  • Revenue/ Cost per Member
  • Average Class Attendance
  • Member Retention/Usage Rate
  • Profit Margin
  • Average Daily Attendance
  • Revenue per Session/Class, by product format
  • Revenue per Square Foot
  • Gross/Net Profit Margin
  • Member Lifetime Value

Industry Organizations & Publications

The following organizations publish useful information:

  • International Health, Racquet & Sportsclub Association (IHRSA)
  • Physical Activity Council (PAC)
  • American College of Sports Medicine
  • ClubIntel

Guideline Information: Private Purchase Transactions

Most fitness centers, including household names like Gold’s Gym, 24 Hour Fitness, Equinox and World Gym, are privately owed.  As such, the best market information to appraise a fitness center will come from data regarding the sale of 100% of closely-held gyms.  The following are typical appraisal multiples from the sale of fitness centers:

  • Revenue multiples between 0.3 and 0.8  times
  • Gross Profit multiples between 0.4 and 0.9 times
  • EBITDA multiples between 1.8 and 5.9 times

In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.   

Guideline Information: Publicly Traded Companies

Most Fitness Clubs are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.  

The four largest publicly traded U.S Fitness and Recreational Sports Clubs, which include exercise facilities, ranked by market capitalization are:

  • Plant Fitness, Inc. (PLNT) – $5.4 billion market capitalization
  • Peloton Interactive, Inc. (PTON) – $2.8 billion market capitalization
  • Xponential Fitness, Inc. (XPOF) – $974.2 million market capitalization
  • F45 Training Holdings Inc. (FXLV) – $218.2 million market capitalization

Most of these companies were not profitable in the most recent periods, so deriving meaningful Price-to-Earnings ratios is not currently possible.

Appraisal Rules of Thumb

Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.

Gyms and fitness centers are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.