Town Sports International, Inc. - Company Profile, Information, Business Description, History, Background Information on Town Sports International, Inc.



888 Seventh Avenue
New York, New York 10106
U.S.A.

Company Perspectives:

The company's successful growth over the years has been a result of many things, including its innovative fitness programs, well-trained staff, dedication to quality and service, and continual facility improvement. But foremost, TSI's success has been earned by placing member satisfaction above all else. Members at TSI clubs are satisfied because they get results from their fitness programs.

History of Town Sports International, Inc.

Town Sports International, Inc. runs a network of over 120 health and fitness clubs from its Manhattan headquarters. The company has experienced rapid growth since the late 1990s, becoming one of the largest health club chains in the United States, with more than 250,000 members. The primary focus of TSI is the Northeast corridor that runs from Boston to Washington, D.C. TSI clubs operate under four brand names: New York Sports Clubs, Washington Sports Clubs, Boston Sports Clubs, and Philadelphia Sports Clubs. Augmenting its locations in the boroughs of New York City, New York City Sports Clubs has a strong presence in the suburbs of Westchester County, New Jersey, and Connecticut. Philadelphia Sports Clubs has one Southern New Jersey location. In addition to the District of Columbia, Washington Sports Clubs has units in Maryland and Virginia. Boston Sports Clubs has locations in outlying areas of Boston, as well as one club in Nashua, New Hampshire. Moreover, TSI operates three Swiss Sports Clubs, with two units in Basel, Switzerland, and one in Zurich. Since its origin, TSI has been in the forefront of the health club industry, creating a sound business model that has provided strong profits and allowed the company to build new clubs and acquire many underperforming mom-and-pop operations.

Original Company Formed in 1973

TSI grew out of the commercial squash club business created by Harry Saint in the early 1970s. Saint grew up in Pennsylvania, graduated from Haverford College, and did some graduate work in philosophy studies in Germany. Saint's intention was to become a writer, and in fact he sold a short story to Esquire before his father died, and he returned home to Pennsylvania to look after his family's real estate interests. Saint was also an avid squash player of admittedly modest ability. After tennis enjoyed a boom in the late 1960s and early 1970s, squash appeared to be the next racket sport ready to gain broad popularity. To that time, the sport in America had been generally limited to private clubs and Ivy League colleges. Squash had several characteristics that made it seem even more commercially attractive than the tennis business. Because a squash court was only one-tenth the size of a tennis court, it cost in the neighborhood of $50,000 to build, as opposed to $150,000 for an indoor tennis court. Because there were more courts available in a similar size facility, a squash center could charge significantly less per hour than tennis. It was also felt that squash was the perfect urban sport, because the game was fast paced and customers could receive a good workout in a short period of time.

After the first commercial squash facility in North America was opened in Toronto, Saint looked to bring commercial squash to the New York City market. He created St. John Squash Racket Inc. in 1973, raising $300,000 from private investors, including his wife Gerarda, who came from a prominent European family with royal lineage. Saint also recruited a team that included attorney Michael Johnston and architect John Copelin, who went on to enjoy a significant career designing sports facilities. In October 1973, Saint was looking for someone to manage the club he was opening in New York. An assistant introduced him to her brother, Marc Tascher, who had recently graduated from college. Tascher would become the first employee of the club and eventually succeed Saint as the head of the company.

Like Saint, Tascher wanted to be a writer, although he had also been a subscriber and avid reader of the Wall Street Journal since his early teens when he dreamed of attending the Wharton School of Business and forging a career on Wall Street. Instead the Long Island native became an English major and after graduating from SUNY in Binghamton, New York, had no definite plans for a job. According to Tascher, the main reason Saint hired him to run his squash club was precisely because he had no experience and, therefore, no preconceived notions about how the business should operate. It was that spirit of trailblazing that the company would maintain even after Saint departed.

Squash Enjoys a Boom in the Mid-1970s

The Fifth Avenue Squash Club, located at the intersection of 37th Street in Manhattan, opened early in 1974. It is uncertain whether it or the Berwyn Squash Club located outside of Philadelphia deserves the honor of being the first commercial squash club in the United States. Regardless, Fifth Avenue was an immediate success. According to Tascher, it was cash flow positive in its first month, and in its second year generated revenues of $375,000 with a $150,000 profit. The squash boom was on, and Saint and Tascher from their New York location quickly became key figures in the promotion of the sport. They helped get publicity and were instrumental in making squash a trendy activity, bringing women to the game and supporting a nascent professional tour. For the next decade, they were the major promoters of professional squash in the United States.

Saint opened new clubs and changed the name of the company to Town Squash Inc. His wife's family also became the majority shareholders as the company raised money for expansion. In 1975, the site for a second club was purchased on 86th Street in Manhattan. Four floors were added to a one-story building, and a slice of the first floor was taken over to create a street level entrance. In exchange, the first-floor tenant received a mezzanine. The facility, Uptown Racket Club, opened on October 1976 and included a restaurant and sporting goods store. It was a combination of businesses that was many years ahead of its time. In 1977 Town Squash opened a third club in a Manhattan hotel, the Doral Inns Squash Club.

Although Town Squash was successful, it became apparent in the late 1970s that squash was not the gold mine it had once appeared to be. The enthusiasm for squash had waned, surpassed in popularity by racket ball. Squash was difficult for beginners, particularly because the ball required long rallies in order to heat its rubber to give it bounce. Many beginners simply became frustrated and quit playing the game. Squash clubs were no longer creating new players as much as they were cannibalizing each other's members. More troubling to the squash business was the underlying economic fact that time was the actual commodity. If court times were not sold, inventory was lost forever. When the Fifth Avenue Squash Club was the only commercial facility on the island of Manhattan, demand for the space far outpaced available time, so as a result the club had no difficulty selling its inventory. When the squash boom brought competition, however, the economics changed radically.

Town Squash, saddled with high debt from its recent expansion, began to adapt to these business realities in two major ways. As early as 1979, Nautilus equipment and exercise classes were introduced. Not only did Town Squash take advantage of the growing interest in fitness, it was able to generate revenue to lower the burden on squash. The company also began to sell monthly memberships (as opposed to charging nominal yearly dues and per use rentals) that permitted unlimited use of the club. In effect, the time burden was transferred to the members. If they failed to use the facilities, it was their loss and not the club's.



Briefly in the 1970s, Saint took on some partners to develop two Manhattan locations as well as one in Washington, D.C. After a falling out, the partners retained the Manhattan facilities (which would eventually become part of TSI several years later), and Town Squash became the sole operators of what would become the company's first venture outside of New York, Capital Hill Squash Club, which opened in 1980. Also in 1980 Town Squash became one of the first health clubs to use electronic fund transfer, after Tascher learned of a New Jersey club that was using it. Electronic transfers soon became the backbone of the industry, lessening the need for collection and eventually providing 90 percent of TSI's monthly revenues.

In 1981, Town Squash advertised for a new manager to run the Fifth Avenue club. One of the applicants was Robert Giardina, who had recently moved to the city from Florida, where he had worked for European Health Spa, which at the time was the nation's largest health chain. Giardina was disillusioned with the business, believing that there was too much emphasis on selling memberships and not enough on backend service. Instead of the manager's position, however, Giardina was offered a job as the Town Squash sales manager. According to Giardina, the main reason he accepted the position was because he recognized that the company had an upscale clientele that might provide good networking possibilities for getting into another line of work. When Saint left the company a short time, however, Giardina became an increasingly more important partner for Tascher, who now took over as the chief executive.

By 1981 Saint was divorced and found it difficult to run a company that was owned by his ex-wife's family. Moreover, he still wanted to pursue his dream of writing. He cashed in his share of Town Squash and five years later sold a novel, Memoirs of an Invisible Man, that created a stir when it became the object of a heated Hollywood bidding war for the movie rights. Giardina encouraged Tascher to focus on the health club side of the business. The company began to position its facilities as "racket and fitness" clubs. Doral received the first retrofit, then Town Squash applied the concept to a new facility on 62nd Street. In 1985, it became partners in a Brooklyn club, Cobble Hill Racket & Fitness.

Town Squash Inc. Becomes Town Sports Inc. in Mid-1980s

Squash was undergoing a fundamental change in the mid-1980s that would also make it an even less attractive business. Interest shifted from the American game with its hard ball and narrow courts to the European game with its softer ball and wider courts. Squash courts had to be rebuilt to keep up with customers' tastes, resulting in fewer courts and less revenue. The company's involvement with squash culminated in a major tournament it organized at Manhattan's Hunter College in 1986. Also in that year, Town Squash partnered with some doctors to open a combination medical facility and health club on 34th Street and Second Avenue in Manhattan. The TSI Fitness Training Facility was not only the company's first club that did not feature squash courts, it was the first time that the initials TSI were used. In short order, it would stand for Town Sports International, rather than Town Squash Inc. For Giardina, responsible for overseeing print ads, it was becoming increasingly difficult to maintain continuity, with each club having an individual name. Moreover, the "racket and fitness" tag proved cumbersome. The company was also developing plans for more aggressive growth and the requirements for simplicity would eventually lead to the New York Sports Club concept, which would be shortened further to NYSC and eventually applied to operations in other cities.

TSI expanded to Switzerland in 1987. Saint's ex-wife Gerarda had tried to transfer the company's model to Europe and opened health clubs in Basel and Zurich. After traveling to Switzerland to meet with her, Tascher and Giardina convinced her to let them take over the clubs, installing their own managers. Her family then extended a financial commitment to TSI to make further growth possible. In 1990, the company added four new clubs, three in New York and one in Washington, D.C. While three were acquisitions of existing businesses, a Manhattan facility located at 151 Reede Street was a greenfield operation that would serve as a model for future clubs.

Long before this time, Tascher began to see the possibilities of creating a major brand out of New York Sports Clubs. He built a management team, bringing in people from other fields, and developed a long-term plan. The company became especially aggressive in taking over the management of underperforming clubs, but always as partners. Eventually TSI would acquire the interests of its partners. By 1995, the company operated 26 fitness clubs with 56,000 members, and Tascher presented a long-term plan to be the family that continued to be majority shareholders but, in fact, were not as personally committed to the business as Tascher and the rest of management. Initially, the family's representative agreed to his plan to raise institutional capital in order to add 20 new clubs in a five year period. The family then changed its representation and rescinded its approval, putting Tascher in what he felt was an untenable position with both his management team and the investment community.

Although Tascher quit as the company's chief executive, he remained the second largest shareholder and retained a seat on the board. Behind the scenes he worked to interest potential buyers in TSI, resulting in two offers. It was in this environment that the TSI management team went to the investment firm of Bruckmann, Rosser, Sherrill & Co. to finance a leveraged buyout offer that was eventually accepted by the majority shareholders. Tascher was not a part of this team and went on to open several New York area health clubs on his own. Giardina, on the other hand, remained at TSI, becoming president and chief operating officer. Succeeding Tascher as chief executive officer was Mark Smith, a former professional squash player who had joined the company in 1985 and had been responsible for the operation of the Swiss clubs. Essentially, TSI would carry out the plan that Tascher had presented to previous ownership and expanded upon it as the company grew at a tremendous pace in the late 1990s.

TSI began to expand north of New York City into Westchester in October 1995, when it took over an All Pro Fitness Center located in a Scarsdale shopping center. A year later it acquired the Soundview Fitness Center in Mamaroneck and in 1997 acquired a Club Fit's location in White Plains. Late in 1997 TSI moved into the Connecticut market with a club in Stamford. Four more New York Sports Clubs would open in Connecticut over the next two years. A major attraction to building clubs in communities surrounding New York City was the ability to attract members, many of whom were employed in Manhattan, by allowing them to use TSI facilities that were close to both home and work. Although the first New Jersey club dated back to 1990, it wasn't until 1997 and 1998 that TSI moved aggressively into that market, fueled in large part by the acquisition of four Ovox Fitness Clubs and five Lifestyle Fitness Clubs. TSI also bought existing clubs and opened greenfield operations on Long Island, adding five locations by 2000.

TSI grew its Washington Sports Clubs franchise, not only adding clubs to the District of Columbia, but also opening facilities in North Bethesda and Germantown, Maryland. It opened six clubs in nearby Virginia communities. Moreover, TSI entered entirely new markets. In September 1999 it gained a toehold in Philadelphia by acquiring the well established Society Hill Health Club. In the next year, TSI added four more clubs in the city, as well as the nearby communities of Chalfont, Pennsylvania, and Cherry Hill, New Jersey. A club in Bryn Mawr, Pennsylvania, opened in 2001 and a facility in Philadelphia's Rittenhouse Square was scheduled to open in 2003. The Boston area was entered in November 1996, followed by the opening of five more area clubs by May 1999. The 2000 acquisition of Health Development Corp. added 11 new clubs to the Boston Sports Club brand, making it the second largest TSI brand. In addition, TSI expanded its Swiss operation in 2001, opening a second club in Basel as part of a soccer stadium.

For 2000 TSI generated sales of $225 million and posted a profit of $4.8 million. Because the company had incurred a good deal of debt during its rapid expansion, a more accurate indicator of TSI's financial picture was its cash flow before debt service, which produced a robust 30 percent margin. Clearly TSI had found a viable model for the fitness business, which had seen a large number of casualties over the years. The industry remained highly fragmented, offering numerous takeover opportunities for TSI in its continued effort to grow into a super-regional concern and the possibility of gaining a national foothold. Moreover, the market for fitness clubs was growing as aging baby boomers turned to exercise and insurers worked with businesses to provide employees with club memberships in order to save medical costs by improving health through exercise. The outlook for TSI appeared bright for some time to come.

Principal Divisions: Boston Sports Clubs; New York Sports Clubs; Philadelphia Sports Clubs; Swiss Sports Clubs; Washington Sports Clubs.

Principal Competitors: Bally Total Fitness Holding Corporation; Gold's Gym Enterprises Inc.; The Sports Club Company Inc.

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