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Bally Total Fitness In a Tailspin

(3/20/07) The news keeps getting worse about Bally. Last week was the double whammy, first the company announced it would be late with its SEC filings, then it announced it may have to file for bankruptcy, its stock tanked once again.

March 20, 2007 Chicago, IL -- The news keeps getting worse about Bally Total Fitness (BFT). Last week was the double whammy, first the company announced it would be late with its SEC filings, then it announced that it may have to file for Chapter 11 bankruptcy.

On 3/16/07 Bally shares fell to 80 cents from $1.99 -- a 60% drop -- in mid-afternoon trading on the New York Stock Exchange. As this story is being posted the stock is trading at around $1 a share.

The challenge, the company faces is: would any prospective member knowing of Bally's woes want to join this organization and its current state of affairs? Less members obviously means less revenue, and hence a downward tailspin.

Remember, the migration of travelers from troubled airlines. Travelers felt, they may get stranded somewhere, or at the very least would lose their frequent flyer miles, so they simply stop traveling with troubled airlines. The same holds true with troubled health clubs.

Just about a year ago, it was rumored that a suitor would purchase Bally and potentially save it, at the top of the list was Richard Branson of Virgin Airlines, who has his own health club chain in Europe.

Is the Current "Fit" Health Club Model In Trouble?

Is this indicative that the current health club model that caters to the less than 40-year-old crowd, no longer works? This audience has been the backbone of Bally's marketing strategy using rock stars in their commercials. There are several other national chains that also follow this model and have to be asking themselves some serious questions.

In September 2006, at the SIBEC North America conference at Mohegan Sun in Connecticut, IHRSA release some rather startling figures. It turns out that there are more health clubs, but less health club members to go around. The below table shows how more clubs are competing for less people. So clearly, those business models, apparently such as Bally, are at great risk of the shakeout.

IHRSA Member Growth IHRSA Club Growth

Bally May Have to Seek Reorganization

Late on 3/15/07 Bally said it "may seek to reorganize its operations under Chapter 11" of the U.S. Bankruptcy Code because of $827 million in outstanding debt and $300 million more due in October.

The company has "approximately $45 million" in available cash, it said, and has three interest payments on its public notes to make.

The company said it was "unable to file its annual report" Form 10-K with the U.S. Securities and Exchange Commission by March 16th's deadline. They also stated they are not yet able to determine when it will be able to file this report.

Source: AP

More Like This…

Paul Toback Resigns as CEO of Bally Total Fitness, Stock Plunges, What's in Store for Its Future

Richard Branson Pumping Up – Virgin Group Rumored to be Acquiring Bally Total Fitness

Shareholder Lawsuits Take Aim at Bally

Bally Total Fitness,Under SEC Investigation, Replaces CFO

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