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Almost every gym chain is owned by private equity. Planet Fitness, 24-hour, Golds, Equinox, Berries, Core Power, even SolidCore. Every brand and chain you can name has been bought, funded, and controlled by a small circle of private equity firms for the past 30 years. And these firms have been passing the same chains back and forth between each other. As a consumer, you can't switch your way out of it because they own every price point and format. Whether you're paying $10 a month at Planet Fitness, $30 at Crunch, $300 at Lifetime, or $200 on a class pack for yoga, spin, or Pilates, your money is all going to private equity. The reason private equity loves the gym business is
because of the monthly payment. Every month, millions of Americans are charged automatically for a space or a class, whether or not they show up. And if a gym owner can get enough people paying this monthly due, they can borrow against all of it. From that point on, your gym membership is the collateral on someone else's loan, and that loan only gets repaid as long as you keep paying. Once the owner has borrowed against your payment along with everyone else's, the one thing they can't afford is for you to leave. Picture your gym or the one you keep meaning to go to, the layout, what you pay for every month, the
classes, the machines, even the paint on the walls. Every one of those things started with a trainer or a gym owner somewhere. But private equity picked the winners. It took the brands and concepts it liked, scaled them across the country, built them into empires, and turned the gym into an essential monthly subscription that millions of people pay on autopilot. The modern gym is only about 40 years old. And for 30 of those years, private equity has been running the show. And now in the 2020s, it's all about Pilates, and even this trend is being fueled by Wall Street. So, in this modern NBA episode, we're going to follow the money and find out how private equity took over the entire
industry. Who really owns your gym? who gets paid every time your membership renews and why it's so hard to cancel. In the 1960s, there was no such thing as a gym. Families swam at YMCA and health spas sold annual memberships to weight rooms and saunas. Women went to figure salons for the vibrating belts and bodybuilders lifted in Venice Beach. Exercise wasn't something most Americans did, and it wasn't a habit. Only one in four did any kind of workout. And the idea was so foreign that the government had to sell it. The White House set up a fitness council, urged schools across the country to turn gym class into real exercise, and started a national test for kids. By the start of the 70s,
exercise had become something that everyone was supposed to do. Doctors started telling their patients to do cardio. Women jumped on aerobics. Machines were invented to let people lift weights without knowing how to use a barbell. And health spas filled up their rooms with these machines, classes, and mirrors to remake themselves into mainstream places to work out and meet people. The 80s were the decade of aerobics. The workout needed no equipment and could be done in a living room. It became the first mass market fitness trend to make money at scale with VCR tapes and books that brought in millions of dollars. But the
big money had its eye on reoccurring revenue. In 1983, Bali, a company that had made its fortune on slot machines and arcade games, bought the biggest health spa in the country with 280 locations and a million paying members. For Bali, memberships were a better business than gaming since they could only sell a machine once, but a membership meant money every month, and every payment got locked into a contract. As the only chain of its size, Valley pushed the subscription model to its extreme. It charged every member an initiation fee of nearly $1,000 and then just $8 to $9 a month in dues. Since most Americans couldn't afford that money upfront, Bali purposely split it into smaller payments over three years
and tacked on interest on top of the monthly dues. It was all packaging to make it sound like it was an affordable subscription. So, most Americans signed right away. But what they didn't know was they actually signed a binding three-year loan. If they stopped going to the gym, quit, or moved away, they still owed every single payment. And because every contract was a loan, Bali still got to count the whole thing as revenue the day it was signed and years before it even collected the money. Under this lens, Bali wasn't really selling fitness. Rather, it was a consumer loans business wrapped around a gym. Unsecured consumer loans are risky enough already, and selling them to
investors before the money came in made the entire business a house of cards because that cash effectively was just an advance on what the member still owed. And Bali spent it all on opening more clubs to get more signups. When a member finally did pay off their three-year loan, Bali immediately hiked their monthly dues, and that person would begrudgingly stay because they'd already sunk so much money. The 1980s also demonstrated two different paths to growing a gym. Gold's gym was already the most famous gym in the world after a hit Shoresenegger documentary, and its new owners decided to ride that star power by selling the name. For a fee, any gym in the world could slap Gold's
logo and name over their door while still running the place however they wanted. Every Gold's gym ended up completely different in pricing, layout, sizing, standards, and offerings. And yet, the name alone was enough to take it from one location in Venice Beach to more than 500 within 20 years. 24-hour Fitness started as a single club in the Bay Area, open around the clock, and instead of selling a name, it ran every single location itself. So, Gold grew by renting its brand, and 24-hour and valley grew by owning everything. One was fast and had no standards, and the other had standards, but carried every single cost. For the next 20 years, every gym chain in the world settled for
one of these two paths to growth until a newcomer on the East Coast figured out how to do both at once. Then came the 1990s and the era of the big box gym. More Americans were exercising than ever before, and every few years they latched onto a new trend, step aerobics, spinning, then table. and the big gym simply absorbed each workout as it trended, adding classes, spin rooms, and kickboxing to their memberships. Ballet was no longer the only game in town, but it was still the biggest and flashiest, so it ripped out the pools and courts to replace them with the machines and studios that people wanted. By the
mid190s, the fitness division got spun out as its own independent company. To keep growth up, its executives committed fraud for 6 years straight. They booked every initiation fee as immediate income, even though members were still paying it off. counted renewals from turn members and capitalized sales commissions instead of expensing them. By the end, they had concealed over $1.8 billion in losses. But the reality beyond all this fraud was that the model was eating itself. Consumers resented the 3-year contracts. Most defaulted on their payments, and Bali had to keep opening new clubs to keep up deal flow, which was all funded by the money sold against the old ones. At the same time,
rival chains were now winning over Bali's members. Not with bigger gyms or nicer gyms, but with a friendlier subscription. No three-year contracts, no thousand initiation fees, and no consumer financing. By the late 2000s, Bali had gone bankrupt and was forgotten in the very industry that it had invented. If we step back and think about it, Bali's greatest invention had nothing to do with fitness. The company made slot machines and arcade games, not treadmills. It didn't know anything about exercise and it had never run a gym. All it did was buy the biggest chain in the country and slap its own name on it. Instead, what Bali actually figured out was how to turn a gym
membership into a financial security. On its own, one member's monthly payment is only tens of dollars. And nobody on Wall Street cares about that. But bundle thousands of those payments together, and you can sell the whole bundle to investors as a bond and get the cash upfront years before any of that money actually comes in. Then, as members pay their bills every month, the investors get paid back with interest. It's like a landlord selling the next three years of your rent checks to a stranger for a smaller lump sum of cash today. Bali just did that with gym memberships. So, instead of waiting 3 years to get paid, Bali got paid on day one. And as clever as this was, it was nothing compared to
what Wall Street would figure out a few years later. By the mid90s, private equity had swarmed the industry, acquiring and investing surging chains on the West Coast, Midwest, and East Coast. All of them charged little to join, kept memberships monthtomonth, and let people cancel within 30 days, and they all owned and operated every single gym themselves. Gold's Gym had proven that franchising was a cheaper and safer way to scale, but nobody had shown it could work for a full-ervice club. When you franchise, you only get about 5 to 7% of every month's payments. But if you own all the gyms, you could collect 100% of it. And the more cash you could collect, the more you can borrow against
it. These were all also full-ervice gyms with pools, courts, classes, trainers, and juice bars. And because the chains generally own the building or the land, they could keep adding amenities and raise prices to maximize their cash flow. All of it was labor intensive. Town Sports needed 50, 24-hour about 60, Equinox about 150, and Lifetime needed more than 250 staff per club. Yet, the biggest and most successful gym in the industry was also born in this era. On the East Coast, two brothers had taken over a failing Gold's gym, doing the same things as everyone else. But in their small town in New Hampshire, no one came in. The locals were not the lifters or the fitness fanatics that the
industry had historically chased. Instead, they were first timers and the gym scared them. The free weights, the personal training, the classes, and the atmosphere were too intimidating, and $35 a month was too expensive for people who didn't know how to get value out of a gym in the first place. To survive, the two brothers adapted. They dropped the price to just $10 a month, removed the squat racks, filled the floor with treadmills and machines, painted the space with purple and yellow, branded the store as a judgment-free zone, and shamed anyone who grunted or dropped a weight. They shrank the box, removed the daycare, studios, classes, juice bar, and slashed the staff to a skeleton crew
of just 10 to 15 people. What was left was a cheap, barebones, and exceptionally profitable gym for people who had never been to one, and with nothing for the staff to get wrong. They called it Planet Fitness. If the '90s was the era of the big box, then 2000s was the era of the small box. Anytime Fitness launched in 2002, and Planet Fitness started selling its first franchises. Meanwhile, the legacy big box chains stuck to their same playbook and began to suffer as the market changed around them. Golds kept renting out its name, and its PE owners announced a thousand new franchises, licensed the brand to equipment makers, quadrupled the number of gyms that it owned, and then flipped the entire company to a Texas oil tycoon for triple
what it had paid. The new owner tried to impose standards and royalties. But most gold's franchises were experienced operators who had been running gyms long before they had ever licensed the name. The chain shrank year after year as franchises simply walked away and Gold's Gym ended up in no man's land where it was too intimidating for casuals, too old to be premium, and too expensive to be cheap. By the late 2010s, the oil tycoon had tried to sell multiple times, but no one would pay for a brand that meant nothing in the 2010s. 2 years later, CO hit and golds went bankrupt.
The average gold's gym today grosses less than it did a decade ago with earnings well below inflation. Meanwhile, 24-hour Fitness kept owning everything, and it got passed from one PE firm to another over the next 26 years. To grow from 30 to 300 locations, its PE owners ended up paying very little of these expansion costs themselves. The play was three steps. Number one, you buy. Number two, you expand. Number three, you harvest. And the trick was to do all three using borrowed money. First, the PE firm would borrow money to buy the gym. A bank would loan cash upfront against the future monthly payments of the gym's members and then that loan then paid for the chain. Let me stop here for a second because if you understand this one idea,
you understand the entire episode. When Private Equity bought 24-hour Fitness, the firm didn't really pay for it. The bank did and the bank was happy to lend because 24-hour Fitness already had hundreds of thousands of members paying their dues every single month. Those members were basically the collateral. The crazy part is that this loan never showed up on the PE firm's books. The firm wanted the gym. The firm set up the whole deal, but the debt went to 24-hour fitness. So, the gym in effect borrowed the money that was used to buy itself, and then its own members paid that loan back. To show how weird this is, say there's a popular car wash down the street from you. It's always busy. It's
got a couple thousand people on a monthly unlimited plan, and you want to buy it. For me and you, there are only really two ways to do that. You pay cash or you go to the bank and you borrow the money in your own name. The bank looks at your income, your credit, your house. You sign on the dotted line and from then on, if the car wash goes under, you still owe every single dollar because the loan is yours, not the car washes. Wall Street plays by a completely different set of rules. Private equity doesn't borrow the money. The car wash does. The car wash goes to the bank, borrows against its own members, and uses that cash to pay for its own sale.
So, if you did it their way, you'd get the keys, the loan would sit in the car wash's name, and the customers would pay it off every month without ever knowing it. If the customers all stopped coming, the bank takes the car wash, and you walk away without a penny of debt to your name, even though you're the one who wanted it, set up the loan, and owned it. And if the members keep paying, you get all the upside of the car wash that you barely paid for. Obviously, it just doesn't work like that for regular people, because if it did, then everyone would own a car wash. But that's exactly how three different private equity funds each bought 24-hour Fitness at a higher price than the last.
And every time the gym itself borrowed a big chunk of the price. Buying is just step one. Once the firm had taken over 24-hour fitness, it immediately borrowed again to get the cash needed to open more locations. Every small regional chain that it swallowed, and every new gym it opened brought more members. More members meant more monthly subscriptions to borrow against and so every loan paid for the next one. 30 gyms became 60, 60 became 300, and by the late '9s, the PE fund was ready for its payout. In 97, the gym borrowed a third loan of $225 million. But instead of using that money for the business, it sent most of that loan straight to its PE owners as profit. By the time 24hour tried to go
public in 1998, the company had a net worth of negative $109 million. The gym was worth less than nothing because its owners had borrowed more than what the business would worth and had handed all that cash to themselves as profit, even though the chain needed its members and that cash to keep paying up its debt. With such terrible numbers, the IPO for 24-hour fitness was eventually cancelled and the PE owner would hold on for a few more years before flipping the chain and instead to another PE fund. This is the second half of the trick. A PE fund buys a gym chain by borrowing against the monthly payment, and the loan goes on the gym's books rather than on the funds. The fund then borrows a little
more money against the memberships every few years and kicks up that cash to themselves as profit. It then sells the gym to the next fund, which takes out a new loan to pay for it. So, the old debt gets rolled into a bigger pile of new debt, and the previous owner walks away with all the money. Nobody ever truly pays down the loan. Instead, the members who go to that gym every month just service the loan year after year. All the debt that on paper should have gone into fueling growth, like better machines, more stores, nicer locations. Instead, all goes into the owners as profit. The entire strategy devolves into opening as many locations as you can to get as many memberships as possible just so you can keep affording
the debt. At 24-hour fitness, the harvest was during the sale. The second fund had bought it in 2005 for $1.6 billion, and $700 million of that was money borrowed by 24-hour fitness itself to pay for its own acquisition. The chain was then flipped for a third time in 2014 for $1.9 billion, and this time $1.4 $4 billion of that was borrowed as an entirely new loan. Thus, every PE owner bought the gym using money that the company itself borrowed. By 2019, the chain had over 400 locations and over $1.4 billion in debt. Revenue per club had been falling for years, and the whole chain was only keeping about 13 cents of every dollar before rent. When COVID hit, revenue went to zero. Every
lease and loan was still due, and 24-hour fitness declared bankruptcy. Customers got a gift card, and the last owner lost every dollar it had put in. Yet, the two PE funds that had owned the chain before had already walked away with the proceeds of their sales, paid handsomely with someone else's money. But Private Equity was still short-changing itself by borrowing money to build gyms that it had to run on its own. It was Planet Fitness who perfected the trick by getting other people to build and run the gyms and by moving the entire business model up one level.
Every other gym was focused on selling to the end consumer who showed up to exercise. In contrast, Planet Fitness's customers were its franchises who paid royalties every month, and bought machines regardless of whether anyone showed up. Their franchises paid for everything. They signed the leases, paid for the construction, hired the staff, bought the equipment, and Planet Fitness took a cut of every member's monthly payment without ever touching a single consumer. The two brothers purposely priced their royalties well below 5% to attract as many franchises and grow as fast as possible. But with tiny royalties, the company had to make its money elsewhere. Franchises were required to buy any and all of their
equipment exclusively from Planet Fitness, and their legal agreements required them to keep buying through the lifetime of the gym. Cardio machines had to be replaced every 5 years, strength equipment every seven, and the entire store needed to be remodeled every 10. Planet Fitness didn't manufacture any of its machines. All it was doing was taking the same machines that were available on the market and selling them to its franchises at a markup. By the early 2010s, the company was making more money selling equipment than it was collecting royalties. It let its franchises borrow money to open and it sold exclusivity rights where every owner had to agree to open a set number
of stores in a certain area by a certain date or they lost the entire territory. Since every Planet Fitness had the same floor plan, box equipment, and monthly price, it was as close to a turnkey business as you could get. Franchises didn't have to know anything about fitness or even work out to own a gym. And everything, including the billing, was all handled by corporate. By the mid2010s, the average Planet Fitness boasted an unprecedented 40% operating margin, more than double that of a fast food restaurant. Yet, the best part was that 50% of all members who paid every month to work out at Planet Fitness didn't actually even show up. The chain openly told investors that its members
only showed up for about 2 to 3 months a year before a certain life event like a wedding, reunion, or New Year's resolution and then stopped coming for the rest of the year. But these members would keep paying their monthly dues anyways because $10 a month to them was nothing. And keeping the membership was a cheap way for them to feel healthy without ever actually working out. As a result, the chain kept the price at $10 for decades because it was a price point that was low enough that nobody bothered to quit. This was their entire strategy to sell a gym for people who had never been to one and would rarely go instead of selling to the enthusiasts who show up every day and demand more every year.
By the early 2010s, Planet Fitness had over 600 locations, and Wall Street took notice. A PE fund bought Planet Fitness for nearly a billion dollars, and it ran the same play that had been run on 24-hour Fitness. a decade earlier. It paid for half of the acquisition out of its own pocket, and the rest was borrowed by Planet Fitness from a bank. The gym effectively paid for part of its own sales, and the two brothers walked away with $400 million in cash. But if we look closer at what the bank was actually lending against at 24-hour Fitness, the loan was against the monthly consumer memberships. At Planet Fitness, the loan was against the franchisees royalties. Private equity had bought the most profitable chain in
the industry and the only one that had nothing to lose. Its new PE owners ran the same three-step playbook to turn the regional chain into something the rest of Wall Street would lend against. They sold their territory to big operators, many of whom were private equity firms themselves and replace their local franchises with corporations that could build, borrow, and scale faster than any mom and pop ever could. Franchises were also now required to pay a share of its gross sales into a national ad fund. And the company spent $100 million all year round to be both the cheapest and loudest gym in the entire country. In less than 3 years, Planet Fitness had scaled from 600 gyms to over a thousand,
and every single one was built for and paid by a franchisee. Then came The Harvest. Almost every company in this story got blindsided by its own numbers. Every chain kept building more locations and selling franchises even though their customer base was already cooling. And by the time the decline showed up in the sales, the customers were long gone. That gap between what's going on in a business and what the people running it can see is the part of AI that actually matters. It's changing the questions a business asks, the decisions it makes, and the routine work it can handle. That's the idea behind Netswuite. Next, the next generation of the business management suite, trusted by over 44,000
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Agentic Era. How AI is changing everyday work. And right now, it's completely free. It walks through how AI could reshape work across your organization and how you can prosper and come out ahead of it. The link is in the description. At Modern MBA, we take great pride in our accuracy and originality. We don't use AI to write scripts, do research, analyze data, and we certainly don't trust them to handle our accounting, finances, and payroll. But Netswuite Next is completely different. It's AI built from the ground up by businesses for businesses that are serious about getting to the next level.
Once we scale to that 7 figure milestone, we plan to adopt Netswuite next ourselves. If your revenues are at least in the seven figures, go to netswuite.com/modernba. Get your free guide at netswuite.com/modernba. That's netsweet.com/modern mbba. Thank you to Netswuite for supporting Modern MBA and making this episode possible. Instead of simply selling the monthly payments the way that Bali had, the fund kept them and borrowed against them repeatedly. In 2014, Planet Fitness borrowed $390 million and kicked up nearly half of that cash straight to its
owners as a dividend. The next year it borrowed 120 and kicked up 140. That same year, Planet Fitness went public and the $136 million raised from the IPO went straight to buying back the funds shares, which is the same exact pocket getting stuffed a third way. The year after, it borrowed another $230 million and paid out a whopping $271 million as a quote unquote special dividend to its PE owner. That's three separate owner payouts of nearly $600 million in under three years. Not a single dollar of that money had been earned by the business. All of it had been borrowed from lenders or raised by investors just to line the pockets of its owners. So if we line these up, Bali sold its members payments
to investors. 24 hours owners kept the payments and borrowed against them. But they still had to cover every lease and every paycheck on top of that. And so the last owner ended up losing everything. Planet Fitness's owner found a third way. It never sold off the payments and it barely had to sign a lease or run a gym because the franchises did almost all of that. The company borrowed to pay for its own sale and then the PE owners had to borrow against the franchisee payments three more times and pocketed the cash. They then sold the whole company to the public for more than what they had paid and walked away.
We've all heard the classic saying, robbing Peter to pay Paul. But this was Paul robbing Peter to pay himself and then leaving Peter's name on the bill. Private equity didn't make Planet Fitness a better gym or a healthier business. If anything, it just left the company with more debt. And the fund never had to wait for the money to come in. They simply borrowed against the future, took the cash up front, and walked away with $1.6 billion, which is more money than what Planet Fitness had ever earned in its entire existence. Lifetime and Equinox look like the opposite of all this as hightouch high-end gyms at the tip of the market,
but it's still the same private equity money running a different version of the same trick. Since the 2000s, Lifetime has built gyms like resorts with 100,000 square ft of pools, courts, and climbing walls in the most expensive zip codes in the country. It prices every location at the highest possible monthly rate, limits the numbers of members at each club, and raises the membership on the people inside once the club hits capacity. But every club has to top the last one. In 2004, a single lifetime cost about $20 million to build. By the early 2010s, that cost had more than doubled, and the company was still the one paying for it. A nicer gym doesn't necessarily make for a better business,
just a bigger, riskier one, and you need big money to acquire and defend whatever market share you get. In 2015, two private equity funds bought Lifetime for $3.9 billion, and the company once again paid for most of its own sale. It borrowed $1.7 billion against its own members, but it also had an asset no other chain had. Lifetime had spent 20 years buying land in the most expensive markets in the country, and that real estate was worth hundreds of millions. So, it sold the land and buildings under 29 of its clubs for another $900 million. And on the day the deal closed, it became a tenant on all of them. The funds only had to pay a third of the price out of their own pocket. Six years
later, the PE funds took Lifetime public again, and over the next 5 years, they sold their shares to the public, turning their $1.1 billion out of pocket into 3.2 billion. None of that was money the gym earned. The lenders and landlords came up with the money for the acquisition, and the public paid for the exit. The members became the collateral for the loan, and the ones paying a landlord for buildings their gym used to own. Equinox is the same deal. It's been private equity owned since 2000. It expanded by leasing and operating every club itself, and it owns none of its buildings. So, when COVID hit, the gyms had nothing to sell and nothing to borrow against. The chain has defaulted
twice, fallen behind on rent, and has survived to date on a $ 1.8 billion loan from private lenders. So, their harvest can only come from one place, the member. Prices at Equinox keep going up, and New York State fined it last year for making its memberships too hard to cancel. There's no good word to describe what private equity is doing here. We've been calling this harvesting, but that's actually too generous. You can only harvest something you planted, and none of these owners planted anything. If we go back to the car wash example, private equity wasn't borrowing money to build a better car wash. It borrowed against the customers who were already coming in, paid itself with that money, and then
sold the car wash to the next buyer, who borrowed against the same customers all over again. Each buyer put in as little of its own money as it could. The loan never really got paid down and in the end it was the customers who paid for all of it month after month for a car wash that never got any better. This is what happened at 24hour Planet Fitness and Lifetime. In every era, the founders got paid and the funds got paid with money borrowed against payments that hadn't come in yet and the debt stayed on the gym. But by the 2010s, private equity was running out of legacy chains. And when it couldn't find the next big gym to buy, it went out and built its own. Orange Theory, Berries, SoulCycle,
and Solid Core. Each of these brands were a reaction to a market that Wall Street had created where you either went to a big box that gave you everything and left you alone, or you went to a $10 small box that didn't care if you came at all. The boutique fitness studio was the opposite. You booked a spot, a coach knew your name, and you paid per class. For the first time, a gym only really made money if you actually showed up. Private equity still loved it anyways because every studio had the unit economics of a Planet Fitness with the prices of an Equinox. A studio could fit into a strip mall or a street corner at only a couple hundred square ft, cost
less than a million dollars to open, and charge consumers several times more than what a gym ever could. And the best could be franchised like Planet Fitness so that the buildout and the lease would fall on the franchisee instead of the company. But most importantly, the studios came with something that no legacy gym chain ever had, which was a true growth story. A gym chain was only ever worth as much as it could collect a month in membership. But these studios could be sold like startups, and its owners could sell for greater multiples on the basis of future growth instead of just present-day earnings. Each one of these brands was built on a single workout like spin, yoga, pilates,
boxing, or highintensity training. and every category produced multiple leaders and private equity went out to buy one of each. Indoor cycling was the first to break out and SoulCycle and Flywheel were the poster children. Riders biked for 45 minutes in a dark room with music blaring like a nightclub. Every instructor had their own playlist routine and following, and SoulCycle treated them like rock stars. By 2014, the average Soul Cycle was grossing $3 million out of 2,500 square feet, which was astonishing in an industry that had always needed size to make money. The private equity fund behind Equinox bought Control in 2011 and 4 years after that bought out all the founders. Like
every single gym chain before it, SoulCycle as a company borrowed the money to make its own sale happen. The founders got their golden parachute, the startup got the debt, and the owners paid for the acquisition with someone else's money. The money that SoulCycle borrowed to sell itself was more than the company had ever earned and would have taken 7 years of profit just to pay back. But no one cared. The founders left rich and the new PE owners filed to take Soul Cycle public, proclaiming that the country would have at least 250 locations by 2020. Flywheel was the number two, and it offered the exact same experience with leaderboards instead of candles. Bankrolled by private equity, it hit 25 studios in
under 5 years, all corporateowned and all in rich zip codes. But when Pelaton rolled out the exact same ride in your living room for just $39 a month, it killed the entire growth story and sucked all the air out of the room. The startup skyrocketed to a $4 billion unicorn valuation and destroyed any investor appetite for Soul Cycle and Flywheel. When COVID hit, Flywheel went bankrupt and SoulCycle quietly withdrew its IPO plan and today continues to shut down locations and lose franchises year after year. Highintensity interval training was the category that scaled the furthest. Orange Theory combined treadmill, rowing, weights, and heart rate science into a single 60-minute
workout, projected every single member on a screen for immersion, and proved that the format could thrive with 40-year-old moms in suburbs just as much as 20somes in cities. It charged monthly fees like a conventional gym and the growth was fueled by franchises paying for buildout while the franchise fees themselves paid for the next studio. In 2016, the PE fund that owned Anytime Fitness took a stake in Orange Theory and supercharged the chain to over a thousand locations and a billion dollars in sales within 3 years. Yet, the business has been on a downward slide since co the average studio earnings began to crash as new locations cannibalize members from existing ones.
By 2024, the average studio was down to grossing just $850,000. The largest franchisee had collapsed, and the number of locations continues to shrink every year. The PE firm had spent a decade buying into gyms, but by 2024, it had owned two chains that had both stopped growing. Anytime Fitness was a legacy cheap smallbox that was even more barebones than Planet Fitness. It grew to 2,300 clubs and thousands more worldwide by selling franchises on cheap flat fees and the dream of a passive income absentee owner side business. The only requirement was that franchises had to buy their machines from approved vendors and those vendors sent a cut of every sale to the company. So, the
company ended up making as much on rebates as it did on royalties. But by the 2020s, Anytime Fitness had the same problem as Orange Theory. It charged twice as much as a Planet Fitness for a quarter of the space and the average location grows to fifth as much. With today's rising interest rates, the juice is no longer worth the squeeze as every Anytime Fitness franchisee who renews must remodel their locations with new carpet and new machines. Like what happened with Gold's Gym a decade earlier, most franchises have started to walk, and the number of locations in the US has shrunk for three consecutive years. In response, the PE firm has simply chosen to harvest. They merged
these two declining chains, pulled all their royalties together, and then borrowed against the greater combined stream. Between 2021 and 2026, the two chains combined borrowed about $1.7 billion against their monthly royalties and kicked up $600 million of that upfront cash straight to their PE owners. All this debt has been dumped on the two chains, which are still bleeding locations, franchises, and members. The third category was yoga. CorePower repackaged the entire practice into a studio and called itself the Starbucks of yoga with 60-minute classes, heated rooms, free weights, and monthly memberships. By 2013, Private Equity had
invested more than $und00 million to supercharged the brand from 95 to 200 locations. But by the time it was ready to flip 5 years later, Yoga Works had killed the entire market. It was a legacy chain from the 80s that private equity had bought in 2014, borrowed money to expand, and then rushed to IPO. Yet, their business was shrinking and not growing, and the stock fell below a dollar within 14 months, got delisted in under two, and the company went bankrupt the year after. No other yoga chain has dared to IPO since. This left private equity as the only realistic buyer for Core Power, and in 2019, the chain got a new owner, and it was the same PE fund that had just cashed out of Planet
Fitness. Ultimately, no studio was immune to fads or private equity. One P fund tried to beat the cycle by holding multiple irons in the fire under the idea that if one category fell, the others would carry it. It rolled up 11 brands, took the bundle public in 2021, and within four years of IPO had sold or shut down six of them. Rumble and Cyclebar were dumped for $7 million. The problem with this aggregation approach was that there were no economies of scale. The brands and studios shared nothing between themselves and so nothing got cheaper by having the same owner. The holding company only made money whenever a franchisee signed up rather than when a studio sold a membership. So it was always one step
behind demand and one degree removed from the actual end consumer. Thus, the holding company kept selling franchises into categories that were already losing steam. And by the time every brand showed their decline, those customers were long gone. Today, the stock is just a third of what it was 3 years ago. The company is up for sale and its largest shareholder is arguing that its Pilates brand is worth more than the rest of the company. Beyond all the financial engineering, the real interesting angle here is why did the studios fail so quickly? The ugly truth behind the gym business is that most people pay every month and either show up or don't show up enough to get their money's worth.
Your gym payment goes out like your rent whether you went or not. And that kind of predictability is exactly what a lender wants to lend against. The studio is the complete opposite because the whole product is a class. It only works if you actually show up. And showing up is the one thing that people reliably stop doing. The growth of all these brands was never truly organic. At their peaks, each one feels like a movement where there's dozens of locations popping up nationwide. The ads hit you from every direction and your friends drag you to a class. None of that happens organically. It only happens when someone spends hundreds of millions of dollars. Soul Cycle, Rumble, Orange
Theory, and now Solid Core. All of these concepts were manufactured as much as they were discovered. The demand for exercise never changes. What changes is the packaging that people will pay for, and that comes down to things that have nothing to do with fitness itself. The first is money. A trend only lasts as long as someone is willing to fund it, build it, and market it. And the second is boredom. Most people don't actually like to exercise, but they're willing to do it when it's exciting, when it's what everyone else is doing, and when it says something about them. Every generation has had its fads, whether it was aerobics in the 80s, table in the '90s, or these studios in the 2010s. And like
fashion, the trend always moves on. The fitness industry revolves around novelty, and the studio sold it better than anyone with their own machines, rooms, instructors, and experiences. But once everyone's doing the same workout at the same chain, it loses its shine. People stop showing up, and they go looking for the next thing. That's the trap. A studio is built around one workout. And when that workout goes out of style, you can't convert a spin room into something else without ripping everything out and starting over. So, a studio only lasts as long as its workout stays popular. And no workout stays popular forever. A regular gym never gets this kind of hype, publicity, or
virality, but it also never needs it. It's built for every workout. So, when one fades, its members still stick around. When the big boxes went bankrupt, it was their debt that killed them, not boredom. A gym is boring, and that's exactly why it lasts. This is why the studios all ended up as the most volatile business in the entire industry. The P funds ran the same place with all their investments, but the trends faded before they could exit and the customer and capital all moved on. So, the lesson that private equity took from the 2010s was the exact opposite that I had taken from the 2000s. You don't hold a studio and harvest them over time using borrowed money like
legacy gyms. You instead hype them, get them to their peak, and then sell them at the highest possible valuation you can get. All of this brings us to Pilates, which is the hottest workout of the past 3 years. Club Pilates was a local chain in San Diego that got taken over by private equity in 2015, who rebuilt it as a mass market national franchise. By 2018, it was the fastest growing fitness franchise in the country. And by 2025, it had surpassed 1,400 studios and a billion dollars in sales. But the playbook is wearing thin. Sales at existing studios have turned negative, and the company is being shopped around for a buyer. Solid Core is the other flashy leader and has
followed Barry's model as a high-end chain where corporate runs every single location. Its own rise has been bankrolled by three separate private equity funds in 4 years. The founder sold her stake for $88 million and you can be sure that every penny of that was borrowed. Solid Core has never earned $88 million in profit at any point in its lifetime. The latest owner behind Solid Core is the same PE fund that backed Flywheel and Core Power on their way up. Even Planet Fitness is showing signs of being squeezed dry. The $10 price that had been frozen since the 90s has now jumped to $15, and franchises have stopped signing up to open more locations. For 10 years, most of Planet
Fitness's growth has come from adding more and more members. But by 26, the member count has stopped growing, and every dollar of new revenue is coming exclusively from charging more from the people who are already inside. So, if we step back and ask who really owns your gym, the answer is private equity. It's the same handful of firms since the '90s, passing the same chains back and forth. And along the way, they pushed the entire industry towards two extremes they could borrow against. $10 a month for the masses at the bottom or $300 a month for the few at the top, leaving a sea of independence in a middle that keeps getting squeezed. A PE fund borrows against your monthly payments to
buy the chain, and the loan goes in the gym's name instead of its own. It borrows again to open more locations, borrows a third time to pay itself, and then sells the whole thing to the next fund before the bill ever comes due. And when private equity started running out of chains to buy, it went and built the studios, sold them as the future of fitness, and borrowed against those, too. This is why it's so hard to cancel your membership. Your monthly payment is not really revenue to these companies. It's collateral. It's the thing that the banks are loaning against, and that loan doesn't care whether you actually showed up to the gym or not. This means that the only honest gym left in America is
your local independent down the street, where it can't compete with Wall Street on price, marketing, or real estate. And that's exactly why it's the one gym that no bank will ever lend against. Your membership there is just a membership.
