How to Take Over a Closing Health Club’s Membership Agreements

It’s a fairly common scenario: A nearby health club loses its lease, and rather than opening in a new location, the club operator decides to retire by the beach.

This presents you with the opportunity to purchase or take over the closing club’s membership agreements. Here are some guidelines on how to make the process go as smoothly as possible.

Check Your State’s Laws

First things first—check your state’s laws to see if there’s anything on the books that might prevent you from proceeding as planned.

And make sure the club you’re thinking of taking over has the appropriate safeguards in place, so you don’t open yourself up to needless trouble. It’s important to exercise due diligence before jumping the gun.

Since at least 27 states require health clubs to secure a bond to either sell memberships prior to opening or to run a club once opened, odds are good that your state requires clubs to post a bond to protect the members’ investment. For example, in Massachusetts, if a closing club sold contracts of less than 24 months, the club should have a bond in place for $25,000. If contracts were greater than 24 months, then the club should have a $100,000 bond. Then, if any of the members are unhappy with the terms you provide, their first recourse is to apply to the attorney general for a refund of their prepaid dues.

A club in Massachusetts that planned on taking over a closing club’s membership decided not to after learning that the owner of the other facility did not have the appropriate safeguards and bonds in place to enable them to acquire their members without concern. Instead his legal team encouraged the club operator to maintain the business for another year or so, get the safeguards in place in the meantime, and revisit the option next year.

Know Your State’s Business Climate

It’s advisable to proactively alert your state’s attorney general (or their office) to your plans. Though, while some people find their state’s attorney general’s office quite helpful, not all states' governments are "pro-business."

Does your attorney general’s office have a pro-business climate? If not, it might not be helpful.

Applying Prepaid Contracts

So, what should you do when the membership contracts you’re taking over are of lesser value than your club’s contracts? For instance, what would happen if you charge $100/month and you’re taking over a club with contracts of $50/month?

A common question that comes up covers whether or not you should apply the dollar value or honor the length of the contract the member paid for. In other words, should you apply the amount paid to your dues, or do you extend the contract for what they paid?

While you may choose to simply apply their pre-paid dues dollar for dollar to your current membership value, many club operators report that it’s far easier to honor the full length of the contract that they pre-paid. Though more expensive in the short term, this approach would be less expensive than making community members unhappy only to have them post their ill feelings on social media. Nothing travels further or faster than bad news, so it’s especially important to think about the ramifications.

If you choose to apply the dollar value, rather than the term of membership, Dennis Mathias, general manager of Healthplex Sports Club and founder of Atlas P.EP. Program, who has taken over multiple membership rosters acknowledges that the biggest challenge is always dealing with the competitive fees if they’re significantly different.

“In these cases you need a battle plan since this scenario takes more staff involvement,” he says. “Establish a human contact (i.e., sales rep) so they have an immediate relationship.”

Don’t Worry about Over-communicating

Sean Graham, long-time IHRSA member and developer of the soon to be open Backspin Pickleball & Fitness Club, advises that it is extremely important to “make yourself available to these members to answer any questions about the transition. And, if you have any plans for club enhancements or changes, they should be communicated as well. When dealing with change, people like as much information as possible about the future.”

And while we’re talking about communication, Colin Milner, CEO of the International Council on Active Aging, who has gone through this process at least three times, wisely advises to “make sure that all your staff are familiar and on-board with your plan, which will not only ease the way but show your club’s professionalism.”

Minimizing Stress

Since most people don’t like change—and most of these members will be wary of a new club operator soliciting their business—Jim Thomas of Fitness Management and Consulting suggests that “while you’re doing everything you can to roll out the red carpet, you should rework your class schedule to line up with some of the closing club’s more popular classes.”

Mathias also stressed the importance of providing information that highlights the similarities between the two clubs. Mathias suggests that you “have them complete waivers that ask the members to check off their interests so that your staff can follow up with details of how and when they can take advantage of these interests and get involved at your club.”

The best thing you can do is listen, be empathetic to the situation, show them how you will help ease their pain and get them back on the road to fitness. Milner added, “they have just been burned, but their anger is not about you so don't take it personally.” Milner also advises to “avoid presentations to large groups of these potential members as it can become a very uncomfortable situation.”

Enlisting the Outgoing Owner’s Support

Mathias suggests that you work with the outgoing owner to get their endorsement.

“Together with the outgoing owner, you could do a cooperative promotion stating that the former owner ‘specially’ negotiated this membership package for their members,” he says.

It helps to be aggressive. Mathias says, “In addition to offering a 30-day money back guarantee or free trial, you might want to hold a special event where these new members are welcomed and treated like VIPs.”

Another way you should work with the closing club comes from Jim Thomas who wisely suggests “to reroute the closing club’s phone number and website to your club’s phone and URL.” If you have any additional lessons that you learned from taking over a club’s membership, or questions about how to do so, please send them to us.