Introduction
As an owner of a Sports or Fitness Facility, increasing the value of your business is a key goal. Understanding basic valuation concepts and approaches is crucial for strategic planning and day-to-day decision-making. Let’s start with an overview of the fitness industry.
Key Sports and Fitness Facility Statistics
According to a 2023 report by IBISWorld, there are over 50,000 health and fitness centers in the United States, generating approximately $12 billion in annual revenues and employing over 320,000 people. The industry remains highly fragmented, with most clubs being small businesses, averaging 7 employees and $400,000 in annual sales.
Value Drivers for Sports and Fitness Facilities
To understand what factors impact the value of a fitness business, consider the following key value drivers:
Historical Financial Performance
- Profitability over the last three years
- Margins compared to industry averages
- Trends in revenues and profits
Projected Financial Performance
- Future revenue and profitability projections
- Impact of market changes and industry growth
Strong Member Retention
- Membership retention rates at or above 70%
Strong Niche Focus
- Specialization in specific demographics (e.g., women, young professionals, seniors)
Location
- Market size and affluence
- Competitive positioning within the market
Facilities
- Modern, well-maintained, and well-designed facilities
Quality Fitness Programs
- Diverse and high-quality programming (e.g., group exercises, personal training, aquatic activities)
Technology
- Adoption of modern technology (e.g., club management software, social apps, wearable tech)
Valuation Multiples for Sports and Fitness Facilities
Rules of Thumb
- Business value as a percentage of annual gross revenues, plus inventory (not recommended)
- Business value as a multiple of EBITDA, plus inventory
More Accurate Valuation Techniques:
Multiple of Discretionary Earnings Method
- Suitable for smaller, owner-operated fitness centers
- Includes net profit, owner’s salary, and personal expenses
Discounted Cash Flow Approach
- Projects revenues, profits, and EBITDA for the next five years
- Discounts future cash flows to present value using a risk-adjusted rate of return
Capitalized Excess Earnings Method
- Useful for asset-intensive clubs (e.g., tennis clubs owning real estate)
- Allocates purchase price between hard assets and goodwill
Contact Us
If you’re thinking about buying or selling a Sports or Fitness Facility, contact Jim Bates to learn how Sports Club Advisors can help.