THE WEEKLY HOWL IS RUNNING FOR CONGRESS

Sports marketing: For me, sports and fitness have always been intertwined. I have a strong interest in seeing what the human body is capable of and how hard you can push yourself. That’s why I am puzzled by the lack of correlation between sports fandom and physical fitness in the U.S. I’m sure that there are several reasons why this is so but I would bet that this is one of them. From Vox:

There’s a reason sports heroes like Michael Jordan have been appearing on cereal boxes for decades. Food and beverage companies have learned that spending billions of dollars on marketing targeted at kids as young as 2 can sway the food choices they make for a lifetime. Yet we have become numb to this advertising because it’s all around us — and it’s a major and often ignored driver of the obesity epidemic. 

New research in the journal Pediatrics reveals the precise role America’s beloved sports leagues play in this marketing blitz. The first study to quantify food marketing to children through professional sports organizations in the US, it casts these leagues in a new light: as key peddlers of junk food to children. 

The paper, led by researchers at New York University, focused on sports sponsorships — or the money food and non-alcoholic beverage companies pay teams to use their logos, brands, and products in sports venues and advertisements. The researchers found that major sports leagues like the NFL and NBA have millions of young viewers (about 412 million under the age of 17 per year, to be exact). And that food and non-alcoholic beverage companies — including McDonald’s, PepsiCo, Mars, Kraft Heinz, and Kellogg — were the second-largest category of sponsors to these leagues, after only the auto industry. 

The food sponsorships are ubiquitous — appearing in the names of playing fields and the socks players wear on those fields (see photos above and below). What’s more, the vast majority of the snacks and drinks featured through these sponsorships is overwhelmingly unhealthy.

              This association with sports gives these products the veneer of healthiness. Meanwhile, the obesity rates in this country have skyrocketed, especially among children. We need to start regarding junk food ads the same way that we regard alcohol and tobacco ads. We’re already lagging behind the rest of the world:

“There are data showing that when kids see a given food that is branded with a character or a superhero or a sports hero, they eat more of it than they would if it didn’t have branding or marketing, and they say it tastes better,” Kahan added. “[Marketing] strongly impacts kids’ assessment of food, kids’ desire for food, and ultimately creates potentially lifelong preferences for given foods and given brands.”

This is why groups like the World Health Organization have long suggested stricter regulations on food ads targeted at kids. And it’s why many countries, from Chile to Ireland to Norway, have followed those recommendations, cracking down on food companies’ abilities to reach kids through bans and restrictions on advertising and marketing.

              Sports should be inspirational and a gateway to physical fitness. Somehow, we’ve turned them into vehicles for selling junk food. That is completely backward. I hope that one day we address this issue.

Follow the money: The fitness industry is extremely fragmented, which is why there aren’t many publicly-traded fitness companies. This does not mean that Wall Street hasn’t developed an appetite for fitness, it has just found a different way to indulge it. The Street ran a piece this week on private equity firms buying up fitness properties. It’s easy to forget how much of a presence PE has in the fitness industry right now. The article mentioned TPG (Club Pilates, Cyclebar, Row House), L Catterton (Pure Barre, Bodytech), TRT Holdings (Gold’s Gym), TSG Consumers Partners (Planet Fitness franchises). That doesn’t even incude LA Fitness and 24 Hour Fitness which are also PE-owned. What makes fitness properties attractive:

Studios and gyms at large make for an attractive investment because the overhead costs are low, according to industry experts.

"What [Investors] like about it is the upfront cash flow," said Tom Bonney, a senior managing director at CBIZ CMF and an adviser to private equity firms.

Many independent studios are just beginning to scale nationally and many are in the early stages of their life cycle. Notables include the franchised DEFINE Body and Mind, a Texas-based studio that focuses on a fusion of yoga, ballet and Pilates; specialized workout-oriented gym MADabolic, also franchised; and New York's CityRow. Most charge monthly subscription fees to their gyms, though services like ClassPass, backed by Singapore investment firm Temasek Holdings among others, also allow patrons to use different studios for a monthly fee.

"In a subscription model, customers pay upfront and then the company operates the facilities," Bonney told The Deal. "Secondly, if you have a model that works, you can replicate it and stamp out hundreds and thousands of it."

              The subscription model is attractive but is this good for the fitness industry? The upside could be something like Exponential Fitness, which is TPG’s banner brand for several studios that it has acquired. The industry is so fragmented that some consolidation could be good for it. Perhaps PE firms can help fitness companies build national brands. The downside is the debt. The way that PE firms typically operate is to primarily use debt to make an acquisition and pile that debt onto the acquired company. These debt payments can become crippling. Case in point: the retail industry. From the New Republic:

We are in the midst of a mass extinction in retail. Over the past five years, dozens of retailers—once the bedrock of malls across the country—have shuttered. The most recent victim was Toys ‘R’ Us, which announced it was going out of business last week, a collapse that could cost as many as 33,000 jobs.

Many are blaming the stores themselves for failing to adapt to the rise of e-commerce and changing consumer habits. Others have pointed the finger at the rise of one-stop-shopping behemoths like Walmart and Target, both of which have made life hell for category killers like Toys ‘R’ Us. Some see the enduring impact of the Great Recession, while others still—including Toys ‘R’ Us—blame millennials for not having enough kids.

These explanations have some merit (with the exception of the millennials one). But the biggest ongoing threat to retail is debt. Over the past several years a number of major retailers have been saddled with billions of dollars in debt by private equity firms. Toys ‘R’ Us, for instance, was hit with over $5 billion in additional debt after it was acquired by private equity firms KKR and Bain Capital in 2006. With annual interest payments of over $400 million a year, Toys ‘R’ Us didn’t have a chance.

Private equity is remaking the retail environment, causing even successful companies like Toys ‘R’ Us to go out of business. And they’re fundamentally remaking American commerce in the process, with Amazon, Target, Walmart, and Dollar General set to benefit. Meanwhile, private equity is more or less getting off scot-free.

 

              Could this happen to the fitness industry? It depends on how much debt is piled on each company and whether there is some kind of market shift that requires investment. Toys R Us was still profitable, it just couldn’t afford to continue making those debt payments and respond to the threat of online commerce. The other issue is that there has to be an exit strategy. PE firms have outside investors who demand a certain rate of return in a certain time frame. That means that they can’t hold onto their portfolio companies forever. They need to either take these companies public or sell them to another PE firm. Since there are not a lot of publicly- traded fitness companies, I worry that the main exit strategy will be to sell to another PE firm. There are 2 downsides to this. Each company will already have been “fixed” by a PE firm. What can the next firm do except try to cut costs even more? Plus, the company will have to be sold for more money than it was bought for which means that over time the debt payments will only get larger.

              One emerging option as a strategic buyer is the hotel industry. Hotels are both purchasing gym operators outright and partnering with them in order to expand their amenities offerings.

Hyatt Hotels Corp, in August, acquired Exhale, a 15-year-old branded concept that "addresses mind and body through spa and fitness," with intentions to grow the brand via freestanding locations and within appropriate Hyatt Hotel product. The deal followed Hyatt's acquisition of New York-based Miraval Group, a provider of wellness experiences, from an affiliate of private equity firm KSL Capital Partners LLC for $215-million deal in January 2017.

Marriott International Inc. recently signed a partnership with SWERVE Fitness cycling studios, which will give guests of its W Hotels special access to rides and gear during their stay. SWERVE memberships now receive special perks at the W Hotels of New York.

"Fitness continues to play a more integral role in other areas of the leisure economy," wrote Jefferies analyst Randal J. Konik in an early March note. "Hotels have made a splash in the fitness M&A landscape over the past 18 months as acquirers. We believe that in addition to pursuing exits via larger fitness players or the public markets, boutique studios could find non-fitness strategics an increasingly possible route for monetization."

              The Related Companies, the real estate behemoth behind the Time Warner Center in NYC, is also the owner of Equinox and SoulCycle and is pursuing new fitness deals. They’re also backing Equinox’s quest to build a fitness-oriented hotel. If more hotel chains decide to get into fitness, then this could be a viable exit for the PE firms but we will see. The trend right now is partnerships. Owning and operating gyms will have to be viewed as an attractive venture on its own merits for the hotel industry to put both feet in.  

A parting thought on private equity: what if the fitness industry ends up being run by a bunch of suits who don’t know the first thing about fitness? Maybe I’m being paranoid. Or not.

The fitness industry at large is far from peaking, according to Bonney, as more trends emerge and millennials continue to gain spending power. "As fitness breaks into more verticals — boxing, biking, rowing, yoga — we're going to see continued investment."

"Have you heard of people working out with cow bells?" he asked. "As long as these trends keep coming, the market will accept a lot more capital and continue to evolve."

              Cow bells? Does this guy seriously think that people are working out with cow bells?

Malls: I have covered how malls are reinventing themselves with the help of the fitness industry numerous times. I wanted to include this piece from The Morning Call not because it has some new insight into that but because it condenses the strategy to 3 letters:

Shoppers’ tastes have changed, Hughes confirmed, and can be traced to the changing of the guard generationally.

“Regional malls were the retail centers of the universe. On the weekends it was a destination event to go to the mall,” Hughes said. “I think what we're seeing is a value change with millennials. They want experiences. That’s what a shopping mall has to provide today.”

The formula being used to do just that is known as the “triple F” — food, fun and fitness. Even a decade ago, a fitness center or gym in a mall was a harbinger of tough times, Hughes said. Now, it signals a mall in the midst of reinvention. Medical service centers, interesting dining options and entertainment offerings provide experiences and services that millennial consumers are after.

            I would prefer the 3 F’s over the Triple F. Triple F sounds like a low-rent version of the wrestler Triple H. The 3 F’s sounds like more something you would learn about in business school. Either way, it’s a great way to remember what shopping malls are doing to stay relevant. But I have one bone to pick with this article:

Along with the new look, part of an ongoing project, the mall brought in one of the triple F’s that Hughes mentioned — fun. That came in the form of the Sky Zone Trampoline Park, whose patrons have filled the parking lot. While much of the trampoline park was made possible by converting common space inside the mall.

              Doesn’t a trampoline gym fall into fitness as much as it does into fun?  

Fitness Campaigning: One of my favorite topics is companies using fitness to market their products and services. I call it fitness marketing and we’ve been seeing more and more of it lately. Perhaps it is time for this blog to coin a new term: fitness campaigning. From Mens Health:

They say running for office takes blood, sweat and tears. Suraj Patel’s political campaign is definitely leaning on the sweaty side.

The 34-year-old is running for Congress in New York City, and part of his strategy is to get more people to vote. One way he’s doing that? Sweating it out with potential voters in group exercise classes, then talking to them afterward about his campaign.

"Young people don’t vote in the same numbers as older people, and part of that is because the way most politicians engage with people is from a bygone era," Patel told Menshealth.com. "I wanted to figure out a way to infuse politics into the day-to-day lives of people. A lot of young people congregate around workout classes."

Which is why Patel set up special events with group exercise studios around New York City. So far, he's held events at spin studio Flywheel, treadmill studio Mile High Run Club, and a yoga studio. The first hour or so is completely devoted to the workout, no politics included. Afterward, although sweaty and a bit out of breath, Patel makes a small speech, answers questions, and lingers with participants.

              It’s the same concept as fitness marketing. Both marketers and politicians covet young people and realize that fitness is a great way to reach them. I wonder if we’ll see this become more common. That might depend on whether Mr. Patel’s campaign is successful.

Flexology: I think that it’s safe to say that flexibility is the neglected middle child of fitness, forever overshadowed by her flashier siblings, strength and conditioning. That may never change but that doesn’t mean that flexibility can’t get more attention as the fitness industry grows. From Outside:

 Enter the stretching studio. Practitioner-assisted stretching, as it’s sometimes called, is a growing craze in the fitness cosmos. The thinking goes like this: all of us, from serious runners to hunched desk jockeys, have neglected our fascia (the thin veneer of tissue that encases various muscles and organs), our joints, and a whole slew of other problem areas that even yoga can miss. Between Stretchlab in Los Angeles and franchises like Stretch Zone, Lymbr, and Stretch U with locations around the country, a growing army of stretching coaches and flexologists (they’re really called that) have assembled to bend us into better health.

In recent years, research has increasingly questioned the virtue of static stretching—passively holding a position for an extended period—before exercise. “When muscles are cold, static stretching isn’t that effective,” says Meir Magal, a fellow at the American College of Sports Medicine. The growing consensus suggests that it doesn’t prepare our bodies for whatever we’re about to do, and in some cases it’s even counterproductive.

As the chatter around static stretching has intensified, an array of alternatives have emerged, such as mobility training—a more targeted attempt to increase range of motion—and something called proprioceptive neuromuscular facilitation, a regimen designed for high-level rehabilitation that’s popular among athletes. Flexologists, for their part, have appeared on the scene to replace our bad old stretches with controlled, and repeated motions—some focused on fascia, others tailored to select muscles—with the added benefit of professional assessment and guidance.

              First off, I love the term “flexologist”. That’s fantastic. I kind of want to become one just so I can say that when someone asks me what I do for a living. Let’s talk cost: $160 for a 90 minute session is eye-opening. This is definitely the top-tier with that much personalized attention. Price-wise, this is similar to getting a massage, also a great recovery tool that it is out of range for most people. This also sounds similar to a Thai massage. Anything built on one-and-one interaction cannot scale which will limit its growth potential but I am curious to see how the focus on flexibility filters down.

TidBits:

-It’s all about underwear placement

-April Fool’s Day comes early this year

-Today’s children are less fit than their parents

-Confessions of a fitness tracker reviewer

-It pays to start young

-To grunt or not to grunt

-Mat Fraser and Cassidy Lance-McWherter win the CrossFit Open