According to the Michigan Fitness Club Association, the state could lose 20% of its current fitness center facilities by 2022. The pandemic has taken a deep toll on the fitness industry, and clubs are struggling to keep their doors open. Currently, a fitness center can operate at 25% occupancy. Subscribers must wear masks while inside, and everyone must maintain a physical distance of 6 feet.
For the Health and Fitness Center at WCC, this is a “bigger picture” problem. First, WCC uses revenues it collects from user fees to pay the loan debt and maintenance costs of the building. We’re not dealing with small numbers, either. The 2021 bond payment on the HFC, which is due in April, is nearly $950,000. Next year, the bond is $985,000, and the year after that – $1.02M.
If you notice, the amount of the bond payment goes up each year. For a moment, set aside the pandemic. In 2019, the bond payment was $870,000. At that time, the HFC had about 7,000 paying members – 1,000 more than the building was designed to serve. It also had maintenance costs, which the membership fees were supposed to pay.
In 2019, the CFO stated that the College needed every bit of money that it collected from the Health and Fitness Center to stay ahead of the bond and maintenance payments. “Every bit of money” turned out to be $1.75M. That works out to be about $250/per member per year. If that is true, it also means that the bond payment and the maintenance costs were about equal.
One fitness center – hold the pandemic
Hypothetically, if the pandemic had never occurred, the bond payment would still need to be paid. Assume the maintenance costs still equal the bond payment, so now the HFC needs to generate $1,890,000 in revenue for WCC, just to cover the building’s bills.
Does the HFC get that money by increasing membership fees? Memberships are already at market rate, so increasing membership fees may cause them to lose members. Do they get that by recruiting more members? The facility is already oversubscribed by 1,000 users at this point, and it’s operating at full capacity. To get that extra $140,000 that WCC is committed to paying, WCC will need to come up with an additional 560 members in mythical, pandemic-free 2021. If that happens, the club will now be oversubscribed by 26%.
In pandemic-free 2022, the bond payment rises another 4.25%. Assume again that the maintenance cost on the building is the same. Now the building needs to generate $1.97M per year. The options for getting the money are still the same. Raise fees and lose subscribers, or keep the fees the same and recruit 320 more subscribers. The building will now be oversubscribed by more than 31%.
In pandemic-free 2023, the bond payment is now $1.02M. Assume the maintenance costs on the building are still equal to the bond payment. So, now the building must generate $2.04M. Raise rates and lose subscribers, or find more subscribers? If you want to go the subscriber route, you’ll need to come up with an additional 280 subscribers (and keep all the ones you have). If that happens, the building is oversubscribed by more than one-third.
The pandemic reality of the fitness center
So, you see where this is going. Every year, the bond payment rises, so the income must also rise. The building has physical limits. There are only so many people who can use the building. The more subscribers the building gets, the fewer times per month they can use it. But WCC has to keep adding subscribers to stay ahead of the bond payment.
Adding subscribers comes at a cost. The more subscribers you add, the higher your maintenance costs rise. The building is being overused, so the facility wears out faster. Skipping maintenance is not an option, because if the facility begins to look ratty, subscribrs will drop.
This describes how the stars would have needed to align. Even in the best circumstances, the math doesn’t work. So, let’s return to actual 2021. The HFC is not producing any income for the College, but the HFC still has a bond payment to make and maintenance bills. What it no longer has is 7,000 subscribers. It now has about 3,000 paying customers.
To stay ahead of the bond and maintenance payments – a combined $1.89M – each remaining subscriber will now have to generate $630. Recruiting new subscribers is a long shot at best. Raising subscription rates is not an option. Not doing maintenance on the building is not an option. Not paying the bond debt is not an option.
In 2022, the bond and maintenance debt rise to $1.97M. If you can hang onto 3,000 subscribers, they’ll need to bring in $657 each. And in 2023, they’ll each need to generate $680.
The best bet is not to gamble with the public’s money
In the best case, ritually oversubscribing the building through 2027 is not sustainable. In the worst case (which we might actually be in), there are literally no good options. Opening the doors guarantees a loss, but not opening the doors does not limit the loss. The only option is to take millions of dollars the taxpayers authorized for the operation of the COLLEGE and use it to prop up a failing gym.
It’s important for the Board of Trustees to understand – in no uncertain terms – that the public NEVER agreed to pay for the Health and Fitness Center. The Health and Fitness Center amounts to a risky bet using public funds, and we are now required to cover the Trustees’ gambling debts. We authorized the millage for the operation of the College, not for speculative business ventures.
Minimally, the Trustees – especially the two who initially voted for this cock-eyed plan – owe Washtenaw County an explanation of how they will extract the taxpayers from the multi-million-dollar mess they’ve created.
Photo Credit: Ralf Steinberger, via Flickr