Profiting on Physical Fitness

Article excerpt

Most economic theories inherently bestow the market advantage to profit-hungry capitalists. But in the metro fitness industry race, nonprofits provide serious competition.

Only four for-profit companies ranked among the top 10 fitness centers in the 1998 Journal Record Book of Lists. Four others were hospital-supported institutions, and then there are the Y's -- the industry-leading YMCA, which has eight metro locations and is looking to open its ninth, and the YWCA with two. With the list's January update, the YMCA hung on to the number one spot with 14,225 members. Its closest follower was The Weight Room, a for-profit firm with 6,500 members.

Despite that huge gap, the race remains heated. In this young sector, with only two of the 19 largest competitors over the age of 20, some combatants feel tax advantages tilt the slate in the nonprofits' favor. Others point to a growing contest between the nonprofits. For with the national emphasis on health care reform focusing on wellness and preventative care, physical fitness plays a primary role -- which some think may tilt the slate towards hospital- based systems. Growth figures might support that, with three of the four hospital centers in the Top 10 being less than three years old. The fourth, Integris Health's Pacer Fitness Center, is the industry pioneer. Recent developments indicate how the sands shift in health care economics. * Nonprofit Integris, Oklahoma's largest health care provider, bought out 23 investors to gain a 51 percent share in The Adams Course last year. That for-profit fitness center, which specializes in training for high school athletes, relocated from a 10,000- square- foot facility to a new 51,000-square-foot center in January. The facility is technically located in Oklahoma City, but sits right on the edge of Edmond -- nowhere near any of Integris' facilities. * SSM Health Care of Oklahoma, which operates St. Anthony Hospital, went the other direction. Through a partnership with Players Inc., SSM folded the members of its St. Anthony North SportSciences fitness center into Players' The Santa Fe Club, North's across-the-street competitor. With a minority share in its former rival, St. Anthony then closed down its own center. To accommodate this change, the club has added about 3,000 square feet of new fitness equipment in its 57,000-square-foot facility. The renovated club, renamed Saints Santa Fe, will unveil its new offerings Feb. 28. According to Jeff Moody, the club's membership director, its membership has expanded from about 600 to 1,000 as a result of the merger. Pam Troop, executive director of Saint Anthony North, said the partnership is harmonious partly because the two share a "wellness philosophy." Likewise, Colin Robertson, one of the owners of Players Inc., said the club benefits by being able to draw on the expertise of St. Anthony's medical staff -- including doctors, physiotherapists and dieticians. In both cases, the hospitals sacrificed the option of a nonprofit tax exemption in order to join with commercial establishments. The tax factor While Oklahoma's nonprofit fitness centers do pay sales taxes and property taxes, their foundation is built upon the corporate income tax exemption. About 72 percent of medical fitness centers claim nonprofit status. Those who do not may be choosing to avoid a growing controversy and possible legal hassle. Jay Ablondie, assistant director of government relations at the International Health Racket Sports Club Association, says the tax exemption enjoyed by most hospital fitness centers and Y's is unfair to other small businesses. "They have strayed from their charitable mission to those who can't afford private centers," he claims. But he concedes "it can be a tough issue for businesses to relate to the public,"because of what he called the "halo effect" surrounding nonprofit organizations. Nonetheless, in December the IHRSA scored a major victory in Pennsylvania with the passage of legislation which says, "no charitable institution shall use their tax-exempt status to compete unfairly with small business. …