What is My Club Worth? Part 1
This article is a six part series originally printed in 2009, it has been updated and rereleased for 2011.
By: Mike McPhee
During my last 10 years as a club industry design, marketing and management consultant, the number of times I’ve been asked by club owners, “What do you think my club is worth?” are too numerous to count. What is relevant is that the research, data analysis and industry specific benchmarks that go into calculating the value of a specific club are not elementary - nor readily available from a glance at a couple of financial statements.
At the end of the day, a club’s EBITDA - Earnings Before Interest, (Income) Taxes, Depreciation and Amortization, is certainly the single biggest factor that dictates the value of a given club – excluding its real estate values in the event that the operator also owns the building and land which the club occupies. For the purposes of this exercise, we will only deal with clubs occupying leased premises.
For the record, it is highly recommended (for tax and equity share advantages) that club operators who own their building and land, split their company into two separate identities – one being a land and building owner, and the other a club operator/tenant. If done so, all club operators ultimately become tenants; and hence, the club valuation variables and factors examined in this series of articles become relevant to all operators.
Generally speaking, respectively profitable clubs sell in the range of 3 to 6 times EBITDA. There are instances where deals as high as 8 to 10 times EBITDA are consummated, but they are the exception to the rule. Having acknowledged this, if you think one could conclude from the benchmark above that a club with zero EBITDA is worthless - think again.
I sold a club in the GTA about 5 years ago with zero EBITDA, for $425,000 - and (obviously) not because that is what it was worth, but rather, that’s “what” the owner wanted for his club (and very fortunately for him) “what” a buyer was prepared to pay.
Therefore, at the end of the day - all sophisticated data analysis aside – your club is ultimately only worth what someone will pay you for it. With respect to the above example, the seller was able to consummate a deal that was directly related to the club’s value in term of its “potential performance”, as opposed to a value based solely on its current and historical financial performance.. In other words, acting on behalf of the owner (and in fact, with their blessing), I was able to convince the buyer that the vendor’s club was a perennial under-performer - not as a result of market, leasing and/or physical plant shortcomings - but by proving to the buyer that the current operator was incompetent!
The happy ending to this deal is that this particular club’s potential was achieved. The new operator, now running the club in a manner that takes advantage of the favourable market, lease and physical plant conditions present, is turning a respectable profit. In fact, if it were listed today, its real value (according to more traditionally accepted industry standards) would be very much in line with the $425,000 price paid for it originally – if not more.
So, how can you club’s value can be measured? Stay tuned, as in our next FitNet, we will examine the critical variables that influence (favourably or unfavourably) the value (or appropriate listing price) for your club; thus ensuring that if you are planning to sell your club, that you receive maximum value for it - or better still, much more than it would seem to be worth - based solely on its recent or current financial performance.
** Read Part 2 Here **
** Read Part 3 Here **
** Read Part 4 Here **
** Read Part 5 Here **
** Read Part 6 Here **
Mike McPhee is a 30-year veteran of the club industry, who spent his first 20 years general managing two of Canada’s most profitable multi-sports and fitness clubs, before starting his own independent commercial club design, marketing and management consulting company, Club TeamWorks. Over the last 10 years, he has provided over 100 clients throughout North America with hands-on support with customized reports, systems, and business plans; as well as public relations support and brokerage services. Mike can be reached at clubteamworks@hotmail.com.
Popularity: 4% [?]
