Fitness Chain ‘Crunched’ by Recession

Crunch clubs file for Chapter 11 bankruptcy protection with hope that one of its biggest investors will rescue it.

The fitness industry is feeling the burn. Fitness chain Crunch filed for Chapter 11 bankruptcy protection Wednesday. The company cited assets between $100 million and $500 million, and liabilities of the same amount.

Crunch, which was founded in New York two decades ago, owes money to more than 50,000 creditors. The majority of the 30 largest unsecured claims belong to landlords such as B. Brothers Broadway Realty on Pine Street in New York, and 25 Broadway Office Properties. Crunch owes them $323,582 and $226,036, respectively.

Crunch says it will close only one of its 25 currently operating locations—the 25 Broadway spot in Manhattan, owned by 25 Broadway Office Properties. Late last week, the company’s West 43rd Street and 11th Avenue site at the Riverbank West building, which offered a discounted rate for building residents, closed unexpectedly, according to members. Crunch currently has about 10 locations in Manhattan and Brooklyn.

Crunch hopes to be acquired by its senior secured lenders, New York-based Angelo Gordon & Co. and California-based New Evolution Fitness Co. New Evolution was founded by Mark Mastrov, the founder of the growing 24 Hour Fitness chain, which partnered last year with Yankee star Derek Jeter for its midtown Manhattan location. The sale, during which other companies can also bid for Crunch, will close within 60 days. Lawyers from Dechert are expected in court Wednesday afternoon to begin bankruptcy proceedings.

“This process of reorganization, along with the ongoing involvement of NEFC, will allow Crunch to emerge as a strong player focused on what we have become famous for: being the place where entertainment meets fitness,” said Crunch Chief Executive Tim Miller, in a statement.

Despite the health and fitness boom over the last few years, gyms have not been immune to the current economic climate as some Americans choose to forego expensive club memberships. Bally Total Fitness sought bankruptcy protection late last year—its second filing in two years.

In order to retain members, many clubs have recently discounted initiation fees and reduced monthly membership dues, but this has caused revenues to slip, according to industry experts. Meanwhile, low-priced clubs such as Planet Fitness, which don’t have to worry about costs associated with extra amenities such as group exercise, pools or child care, are doing well.

“Most mid-priced club models just can’t survive on lower dues revenue per member and decreased initiation fees,” said Pamela Kufahl, editor of Club Industry’s Fitness Business Pro magazine. She ranks Crunch in the mid-priced range. On the magazine’s most recent Top 100 Clubs list, Crunch ranked No. 7 with $133 million in 2007 revenue; 24 Hour Fitness was No. 1 with $1,300 in revenue for the year. Crunch has yet to submit 2008 estimates.