Feb 1, 2008 12:00 PM

For-profit club owners say they cannot compete with city rec centers, whose managers say they just want what is best for the community.

Target Goals, Target Audiences

The Centennial Recreation Center in Morgan Hill, CA, opened in October 2006. The price tag of the facility was $27.6 million, and that money came from redevelopment dollars, says recreation manager Chris Ghione. The financial goal for the center was to have a full cost recovery by the third year of operation. Centennial is closing in on that goal in only its second year, Ghione says.

The goal of the Firstenburg center also is 100 percent cost recovery, and Miletich says Firstenburg was close to 100 percent in 2007. Mamuyac of ELS Architecture says it is unusual for a city to recover 100 percent of its operating costs.

“Anything above 70 percent is good,” Mamuyac says. “If it's in the 80s, that's really good, and if it's in the 90s, that's fantastic.”

Centennial has 2,400 membership packages, or between 8,000 and 9,000 members, with a majority of them belonging to families. The fact that Centennial offers free centers for teenagers and senior citizens sets it apart from for-profit clubs, Ghione says.

“It's a different market,” he says. “The family market is real big for us. And the experience is a little different than a fitness club. We want to offer a community facility.”

That's why Ghione does not view Centennial as a direct competitor to for-profit clubs.

“We really haven't heard too much criticism from the private sector at all,” he says. “It doesn't mean they're not upset. I'd have to look at their numbers. We may have found a different market.”

Like Centennial, Firstenburg's target demographics include families and seniors, Miletich says.

“The city's objective is to get more people in Vancouver and Clark County involved in fitness,” Miletich says. “A lot of health clubs don't have as large a percentage of family users.”

Examining Costs

Vancouver generates revenue at Firstenburg through swim lessons, classes, sports leagues, wedding receptions and other events. Any surplus, Miletich says, covers the center's free programs and goes into a facility repair fund. A third outlet for the surplus would be for a major capital repair fund, but Firstenburg is not at the stage to use that, Miletich says.

The Monterey Sports Center spent $3.9 million and took in $3.4 million, and had a payroll of $2.9 million, according to its 2006-2007 budget. The Sports Center has no rent or mortgage payments.

Lamarque says his operational costs for his two for-profit clubs are about $1.6 million per year. Lamarque says rent is $31,000 per month at one of his clubs, plus he has to pay $17,000 per month for his Small Business Association loan. Improvement costs affect Lamarque's budget more than it does for the Sports Center, he says.

Ghione says the Morgan Hill Centennial Recreation Center is operated by the city and pays no rent for the building. Centennial's annual budget is $2.4 million, he says.

The Centennial budget is similar to that of most for-profit clubs, Ghione says, in that its budget includes expenditures for operations, maintenance and payroll. The main difference for his center compared to for-profit facilities is that it takes direction from the city council as to how to use the center's budget. One disadvantage Centennial has, Ghione says, is that its free programs and scholarships for disadvantaged children come from operational costs.

Centennial has a partnership with a local YMCA association, and its business model is similar to a Y's, Ghione says. Centennial takes payments a year in advance or drafts money out of members' bank accounts every month, and that's a big reason why Centennial can get close to cost recovery annually, he says.

“A lot of municipalities don't follow that model, which is not necessarily a bad thing,” Ghione says.

David vs. Goliath?

Not all clubs in Vancouver were greatly affected by Firstenburg, which won a Facilities of Merit award at last year's Athletic Business Conference and Expo in Orlando. Trey Friauf's club, Oxford Athletic Club, was not affected by Firstenburg's opening because of its distance from Firstenburg, Friauf says. Even though Oxford is only 3 ½ miles from Firstenburg, it takes up to 25 minutes to get from one location to the other due to traffic, Friauf says.

“We've learned how to cope and compete with them,” Friauf says. “It's kind of a weird deal. I support fitness for everybody. I'm not sure why the city wanted to run a fitness club. We've been around for 48 years. It's bad any time any local business is closed down. It takes away jobs. It takes away tax dollars.”

As for Olson, who ran the Exclusively for Women club in Vancouver, she had a case of “If you can't beat 'em, join 'em.” Olson now teaches cardio classes at Firstenburg twice a week.

“I do feel like a traitor, but progress is progress,” Olson says. “You can't win against the city. It's too big of a giant to fight.”

City-run Facility Healthy in Chattanooga

Unlike city rec centers, which serve the community, some city-run facilities are open only to city employees.

Take the city employee fitness facility in Chattanooga, TN, for example. The center, which opened last May, is available only to the 2,500 city employees, their dependents and city retirees, bringing the number of eligible users to 8,000. Employees need to gain clearance from a medical provider to use the facility. So far, about 300 people have done just that, says Karen McMahon, Chattanooga project manager.

The fitness facility was a result of the city's wellness program, which includes two on-site medical clinics that provide primary health care to its employees and their dependents. The clinics include health-risk assessments that gauge smoking and body mass index risks, and offer cash award incentives ranging from $100 to $300.

“We had people say, ‘You're going to provide me incentives for getting healthier, but I don't have a place to work out,’” McMahon says. “[The fitness center] was the next logical step.”

Chattanooga's police department, which has 800 employees, has its own fitness facility, so many of the users at the city-run facility are office staff and maintenance staff, McMahon says.

Unlike some city-run facilities that have the latest bells and whistles, Chattanooga's facility is fairly basic, McMahon says. The facility has 18 pieces of cardio equipment as well as strength equipment. There's also a multipurpose room and three plasma TVs.

“It's not a really elaborate fitness center,” she says. “The people who are already fit and go to local health clubs, they have a lot more services. We're trying to create an environment for someone who has never exercised before. One of the arguments from a for-profit club might be, ‘If the city government opens a fitness center, that's going to be cutting into my business.’ I don't think it has hurt them at all.”

Initially, some Chattanoogans expressed concern that the city was spending too much of the taxpayers' money on a fitness facility. However, McMahon says that the city did not have to cut services to taxpayers to build the facility.

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