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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Serie: Bloomberg
- Sprache: Englisch
Go inside the trend that spawned a multi-billion dollar industry for the top five percent Sweat Equity goes inside the multibillion dollar trend toward endurance sports and fitness to discover who's driving it, who's paying for it, and who's profiting. Bloomberg's Jason Kelly, author of The New Tycoons, profiles the participants, entrepreneurs, and investors at the center of this movement, exploring this phenomenon in which a surge of people--led by the most affluent--are becoming increasingly obsessed with looking and feeling better. Through in-depth looks inside companies and events from New York Road Runners to Tough Mudder and Ironman, Kelly profiles the companies and people aiming to meet the demands of these consumers, and the traits and strategies that made them so successful. In a modern world filled with anxiety, pressure, and competition, people are spending more time and money than ever before to soothe their minds and tone their bodies, sometimes pushing themselves to the most extreme limits. Even as obesity rates hit an all-time high, the most financially successful among us are collectively spending billions each year on apparel, gear, and entry fees. Sweat Equity charts the rise of the movement, through the eyes of competitors and the companies that serve them. Through conversations with businesspeople, many driven by their own fitness obsessions, and first-hand accounts of the sports themselves, Kelly delves into how the movement is taking shape. * Understand the social science, physics, and economics of our desire to pursue activities like endurance sports and yoga * Get to know the endurance business's target demographics * Learn how distance running--once a fringe hobby--became a multibillion dollar enterprise fueled by private equity * Understand how different generations pursue fitness and how fast-growing companies sell to them The opportunity to run, swim, and crawl in the mud is resonating with more and more of us, as sports once considered extreme become mainstream. As Baby Boomers seek to stay fit and Millennials search for meaning in a hyperconnected world, the demand for the race bib is outstripping supply, even as the cost to participate escalates. Sweat Equity, through the stories of men and women inside the most influential races and companies, goes to the heart of the movement where mind, body, and big money collide.
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Veröffentlichungsjahr: 2016
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SWEAT EQUITY
Inside the New Economy of Mind and Body
Jason Kelly
Cover image: © konstantynov/iStockphoto Cover design: Wiley
Copyright © 2016 by Jason Kelly. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Names: Kelly, Jason, 1973- author. Title: Sweat equity : marathons, yoga, and the business of the modern, wealthy body / Jason Kelly. Description: Hoboken : Bloomberg Press, 2016. | Series: Bloomberg | Includes bibliographical references and index. Identifiers: LCCN 2016011018 (print) | LCCN 2016011198 (ebook) | ISBN 978-1-118-91459-5 (hardback) | ISBN 978-1-118-91461-8 (ePDF) | ISBN 978-1-118-91460-1 (ePub) Subjects: LCSH: Businesspeople. | Leadership. | Success in business. | BISAC: BUSINESS & ECONOMICS / Consumer Behavior. Classification: LCC HB615 .K3955 2016 (print) | LCC HB615 (ebook) | DDC 338.7/616130973—dc23 LC record available at http://lccn.loc.gov/2016011018
For Owen
Contents
Acknowledgments
Introduction: Take Your Gym to Work
Notes
Chapter 1 Money Moves
Notes
Chapter 2 On Location
Notes
Chapter 3 Barry and the Art of Boutique Fitness
Notes
Chapter 4 Mob Rules
Notes
Chapter 5 Dress the Part
Notes
Chapter 6 Looking for Meaning
Notes
Chapter 7 Charity Case
Notes
Chapter 8 Work and Working Out
Notes
Chapter 9 Mary’s Merry Marathons
Notes
Chapter 10 Money on the Run
Notes
Chapter 11 The Man Makes the Shoe
Notes
Chapter 12 The Money in Color
Notes
Chapter 13 The Guts
Notes
Conclusion
About the Author
Index
EULA
Guide
Cover
Table of Contents
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Acknowledgments
It’s a rare and wonderful thing when things you love collide in a single project and I’m deeply grateful to the many, many people who helped me along the way.
None of this would be possible without the support of Bloomberg, my journalistic home since 2002. Working there has provided me opportunities, challenges, and adventures I never imagined and I owe more than I can express to Bloomberg’s leadership, starting with Mike Bloomberg and Peter Grauer. I’ve been able to work for two amazing editors-in-chief, including Bloomberg News founder Matt Winkler, who hired me and has supported me for more than a dozen years. More recently, I’ve learned much from and been inspired by John Micklethwait.
John McCorry hired me almost 14 years ago and it’s an honor and pleasure to work closely with him these many years later. Reto Gregori has encouraged and challenged me, as has Chris Collins. Jennifer Sondag is my Bloomberg conscience and de facto life coach.
Evan Burton and Tula Batanchiev at Wiley understood the idea from the beginning, stuck with me, and helped me find the book in this big topic, adding their personal fitness experiences into the mix. James Belcher, a fellow endurance athlete, provided a burst of enthusiastic support that got me over this particular finish line.
Bob Bierman gave early encouragement and space to get this book going, and advice based on his triathlete adventures. Laura Chapman, work neighbor, friend, and yogi, endured the tortured final months of the manuscript. Kristi Huller, Tatiana Mishin, and Jay Hass all provided key introductions to characters in this book.
I’m grateful to friends and colleagues inside Bloomberg and beyond, especially those who, sometimes unwittingly, spurred me forward with a simple, “How’s that book coming along?” as well as insights from their own fitness lives. I’m indebted to Liz Hester, Duncan King, Allison Bennett, Laura Marcinek, Shelby Siegel, Katherine Sayers, Laura Zelenko, Karen Toulon, Tom Contiliano, Stephanie Ruhle, Erik Schatzker, David Westin, Kevin Sheekey, Meridith Webster, Lee Cochran, Ty Trippet, Jill Watanabe, Ashley Bahnken, Craig Gordon, Cory Johnson, Ken Karpay, Betty Liu, Kristen Hensley, Lisa Kassenaar, Barbara Morgan, Clyde Eltzroth, Holly Doran, Dennis O’Brien, Ashley Merryman, Stephanie Mehta, Stacy Kennedy, Adam Levy, Noam Neusner, Randy Whitestone, Chris Ullman, David Marchick, Deirdre Bolton, Mike Buteau, Rob Urban, Tallin Braun, Christine Ong, Robin Wood Sailer, Sally Armbruster, Suzanne Fleming, Jonathan Keehner, Derick Schaudies, Herbie and Ellen Calves, Jennifer Meyers, Beth and Steve Loffredo, Jim and Allie Baller, Denise and Bill Scaglione, Margaret and Dave Yawman, Burns and Ruth Patterson, and many others in Sleepy Hollow. I’m grateful for my association with the Hudson Valley Writers’ Center, whose work I deeply believe in.
Wendy Naugle is a brilliant editor and writer, and a dedicated, crazy-fast runner to boot, making her invaluable to me over the course of this project, on the trails, and on the road to races that appear throughout this book. She’s also among a group of diehard fun runners that show up to run through Rockefeller State Park every weekend. The day that my neighbor Todd Ruppel, the unofficial mayor of the group, invited me to join that merry band changed me as a runner and person. Ben Cheever taught me a lot about writing and life on those trails.
My modern life as a runner began in 1999, when I watched my friend Billy Robins run a marathon at Disney World. Within months, he’d hooked me into his gang of runners. Through hundreds of phone calls, e-mails, and texts, he encouraged and cajoled me through a dozen marathons. He’s a coach and role model beyond compare. His wife, Kendra, by virtue of her unyielding support, knows more about marathons than most people who run them.
As the years go by, I’m increasingly grateful to early influences that set me on a rewarding path, including my teachers at Christ the King School in Atlanta, as well as St. Michael’s Elementary School and St. Thomas High School in Houston. It was at the latter, as a member of the cross country team and editor of The Eagle newspaper, that I first fell in love with both running and writing. My time at Georgetown University not only introduced me to my future wife, but taught me that I might actually make a living as a journalist. I learned both in the classroom, from professor/practitioners like Ted Gup, and in the hothouse of a college newspaper—the Georgetown Voice—where I found through writing and editing (and, most important, being edited) that there is no greater place than a newsroom.
My parents, Dennis and Debby Kelly, have made me the son, father, and writer I am, along with my brothers Wynne and Sam, architects of a perpetual, sometimes multi-continental “brother chat.” I’m grateful to my in-laws, Alice and Jack Kane, for their constant, unwavering support (and for being devoted viewers of Bloomberg TV).
My sons, Henry, William, and Owen, are nothing short of my soul. My wife, Jen, has made countless sacrifices and concessions to my craziness as both exercise fanatic and neurotic writer. I remain in awe of her grace and intelligence.
—JK
Introduction:Take Your Gym to Work
Aarti Kapoor was an investment banking cliché in 2008. She was a study in stress, owing to the hours she was logging at Citigroup as the financial crisis deepened, along with a dash of existential crisis thrown in. She and her peers were scrambling to stay relevant and employed. Top executives at her bank and others were defending themselves to regulators, clients, and their own employees. The promise of a rewarding career on Wall Street seemed increasingly elusive.
Growing up in Princeton, New Jersey, Kapoor had been an especially active adolescent, wide-ranging in her extracurricular interests—ballet, voice and piano lessons, swimming, editor of the school newspaper, admissions tour guide. Tennis became her sport of choice and she ended up the captain of her high school varsity team. At Harvard, she stayed fit, then hit Wall Street, where an extra 10 pounds was practically guaranteed by the demands of a long-hours banking job, with ordered-in dinners and little sleep.
In a moment of quasi-panic about being out of shape, she joined the closest gym to the office, an Equinox gym in downtown Manhattan. She went all in, hell-bent on getting in shape. “I was militant about it,” she says. “And then I was addicted.” Exercise was a refuge and a release, a way to calm her mind while taking care of her body.
The exercise obsession followed her when she changed jobs after witnessing several rounds of job cuts at Citi. Landing at a boutique firm called Moelis & Co., she endured the same hours, but was generally happier, working for a firm a step removed from the aggressive anti-banking headlines.
With Equinox too far from her new office, she reluctantly gave up her membership there and joined a 24-Hour Fitness near Moelis, where she took full advantage of its always-open promise. Some nights she’d leave the office at 2 a.m., run on the treadmill for two hours, go home and sleep, and be back in the office by 9 a.m. “I didn’t like any days that didn’t have fitness in them,” she says, conceding she got addicted to the post-workout high. “I’d gotten out of shape once, and I didn’t want to be in that place again.”
Fully immersed, Kapoor reverted to her adolescent tendency to try lots of different things, an M.O. shared by many of her Millennial generation. Then a new concept landed in New York’s Flatiron district, a downtown hub of high-end apartments, technology start-ups, cool restaurants, and increasingly, fitness studios.
Flywheel, a then-new indoor cycling concept, opened its flagship location across the street from Kapoor’s apartment and, while intrigued, she balked at the price of $30 for a single, 45-minute class. “I thought, who in their right mind would spend that?” she says. Flywheel offered a promotion to building residents for their patience during construction of the studio. She showed up.
Flywheel was tailor-made for Kapoor. While indoor cycling isn’t new—Spinning was created in the early 1990s—Flywheel’s twist is to pump up the competitive element. In addition to the sinewy, barking instructor, Flywheel adds a way to keep score—called the TorqBoard—that ranks every member of the class, in real time. Riders watch while they pull ahead, or fall behind, their classmates. Members keep track of their progress.
As she had with the Equinox workouts, Kapoor went big. “Another class turned into a 5-pack of classes, then a 10-pack, then an unlimited monthly membership,” the last of which runs $375. Her weekday routine included a long run followed by a Flywheel class. Kapoor the banker watched Kapoor the consumer make radical changes to her spending. She asked her parents for Flywheel credits instead of handbags or shoes for Christmas.
At the studio each week, she watched classes fill up and waiting lists form. Over brunch with friends, she heard not just about Flywheel and Equinox, but SoulCycle, Pure Barre, Physique 57, as well as yoga, half marathons, marathons, and triathlons. At the Moelis office, she began to craft a pitch.
The first audience was her mentor, a senior banker named Roger Hoit who specializes in consumer and retail companies. The pitch included sending Hoit, an avid golfer, to a couple Flywheel workouts.
Hoit and his fellow Moelis senior managers gave Kapoor the go-ahead to test her thesis that health and fitness were bankable businesses—an industry comprising companies growing in a way that they’d be taking on investors, seeking investors, getting sold, and going public. In other words, all the things bankers earn money arranging and giving advice on.
Kapoor tacked it on to her regular job: “I did my normal work until 11 p.m. and then worked on my fitness research.” She cold-called companies to meet with their top executives, with Flywheel at the top of the list. It wasn’t long before Kapoor’s side project became her full-time gig. Within two years, she represented Flywheel in a sale of a majority stake, one in a series of companies drawing billions from PE, venture, and public investors. Kapoor now spends all her time banking health, wellness, and fitness companies; she is one of small handful of bankers making their living in the space. The happy collision of her banking and fitness lives included Kapoor’s ability to work out and call it work. “My diligence trips have gotten a lot more interesting,” she says.
Kapoor operates, personally and professionally, in a new sphere and a new economy—one revolving around the mind and body. She has a 94-page presentation (pitch book in banking parlance) stuffed with statistics and charts and graphs. Her bio within that book touts her fitness bona fides, including that she runs roughly 2,000 miles a year, is both gluten- and dairy-free, and is a “serial juicer.”
Her credibility resides not only in her informed view of the market dynamics but also from the fact that she’s the target audience for the companies she’s pitching to represent. Her age—30—is crucial to understanding the state of the fitness business and where it’s going. Like her peers, Kapoor lives in a place, geographically and demographically, where health and wellness are a given, where almost every choice throughout the day—when you get up, what you eat, what you wear, what you do, and who you hang out with—points back to that lifestyle.
That shift, from activity to lifestyle, makes Kapoor’s job possible. The breadth and depth of the need for products and services has created a new economy of mind and body, drawing investors to back the entrepreneurs and big, established companies clamoring to fill that need.
The market is massive. By one estimate, health and fitness—gyms and studios, clothes, and various equipment, comprise a market worth almost half a trillion dollars.1 Add in food you’re talking more than $1 trillion. Wellness overall —the spas, wellness tourism, workplace wellness, and the like—is pegged at $3.4 trillion.
How in the world did this happen?
To hear Kapoor and many others tell it, the birth of this economy came from a collision of elements including a multigenerational move to healthier living and an historical technology boom that enabled an entirely different lifestyle and changed our relationship to our family and our employers, as well as gave birth to an enormous swath of affluence. An increasing amount of that affluence is directed toward health and well-being.
Baby Boomers (born 1945 to 1964) helped kicked it off, becoming the first generation to favor sweating over smoking, opting for Jane Fonda workouts and Arnold Schwarzenegger movies. And while they held onto those habits into their retirement years, their influence on their children, and how those kids have lived those lessons, is what really accelerated the fitness boom. As Generation X came into the workforce, fitness manifested itself largely in the pursuit of slightly more extreme activities. A chunk of Generation X (born roughly between 1965 and 1979) took up running and cycling, pushing endurance sports from the fringe into popular culture. Marathons and triathlons especially have become a borderline-cliché badge of honor for forty- and fiftysomethings who came into adulthood in the 1990s.
Those generations especially helped propel running, which saw a surge in the past twenty years that moved running, notably in long-distance races, from the fringe to the mainstream. The number of people who finished races in 1990 quadrupled to more than 19 million in 2013. During that same period, the number of women increased more than nine-fold, to the point where there were about 30 percent more women finishers than men. Back in 1990, men had nearly a three-to-one advantage.2
What Baby Boomers created and Generation X accelerated, Millennials—especially Millennial women—have codified into their everyday work and social lives. This demographic, born in the two decades between 1980 and 2000, have pushed fitness into a defining personal characteristic, both through activities like running and especially in their enthusiasm for boutique fitness. And that’s where it gets really interesting for anyone who cares about business and economics. The massive social shift toward fitness has created a multifaceted, global, economic juggernaut, with entrepreneurs, investors, and the world’s biggest companies scrambling for a piece of the growing market worth hundreds of billions of dollars.
As both observer and participant (I’ve run more than a dozen marathons and numerous other races, and taken the odd yoga or fitness class along the way), I went in search of the people defining this new economy. I found entrepreneurs and investors who manage to make a living—and in some cases, millions or even billions of dollars—feeding our obsessions with races, classes, clothes, and equipment.
This book is a snapshot of sorts, a glimpse inside an ever-changing series of overlapping businesses. I emphasize “ever-changing” because some of these companies may flame out or slowly fade. Kapoor says she’s constantly on the lookout for what’s real and what’s fleeting, what will play for a few months among the maniacally fit cognoscenti in certain New York or Los Angeles neighborhoods, and what will translate into an actual business that can take root in places between the coasts, transcend a fad status, and be a sustainable activity for employees and consumers, and profitable.
Kapoor’s among those with a deep conviction that while the players are dynamic, the underlying fitness economy is solid, and growing. There’s a lot of money in sweat.
Notes
1
Alexandra Plessier, “Wellness Is Now a $3.4 Trillion Global Industry—Three Times Bigger Than the Worldwide Pharmaceutical Industry!”
http://blog.globalwellnesssummit.com/2014/10/wellness-is-now-a-3-4-trillion-global-industry-three-times-bigger-than-the-worldwide-pharmaceutical-industry.
2
Running Event Finishers, 1990–2013. Running USA,
www.runningusa.org/statistics.
CHAPTER 1Money Moves
Despite all the evidence for this new economy of mind and body—the races, the studios, the endless conversations at work and on weekends about someone’s latest and greatest workout or personal best triathlon—I wasn’t convinced it was real. Until I found the bankers.
Bankers and journalists, sometimes much to our mutual chagrin, pursue our jobs by similar means: We follow the money. And it’s clear that Aarti Kapoor, and her increasing number of competitors, are finding lots of it to chase. The money’s seemingly everywhere. It starts by leaving our wallets as disposable income, directed at fitness, and our bodies, as never before. We’re spending billions on race entries, memberships, and class fees, plus all the stuff it takes to get us outfitted.
And it’s not just our own dollars. Consumers’ money is often augmented, directly and indirectly, by employers, many of whom see a healthier workforce as happier, more productive, and cheaper. Those health initiatives often come from highly placed, high-octane fitness nuts who made it to the corner office, and want to push health down through the ranks.
What we’re buying has also changed. Technology, as always, acts as jet fuel for the most radical changes in how we live, work, and spend time and money. Technology is pushing our homes and offices ever closer to a Jetsons-like existence. Software programs, gadgets, and an Internet-connected world have all changed our perspective on our minds and bodies. We have unprecedented access to data about ourselves, our habits, and our lives.
Technology plays a dual role, connecting and alienating us at the same time. On the one hand, it enables us to run faster and work out smarter, with new machines and techniques and means to measure every calorie, watt, and step. It allows us to share our achievements in real time and congratulate and encourage each other. On the other hand, our broad technology addiction is pushing us to seek meaning away from the growing din of the information age. We’re drawn in that search for meaning to what the sociologist Ray Oldenburg called “third places”—the first two being home and work—where we socialize and connect. That reaction is adding another dimension to this economy and an opportunity—one that’s based on physical, not virtual, space.
All of these colliding elements draw money, and, in turn, the people in the business of moving money around—venture capital and private equity investors eager to capitalize on growth industries, entrepreneurs with a big idea, and savvy executives looking to reinvent their companies. From food purveyors to workout equipment manufacturers to fitness centers and race series, smart money is moving in. Now some of those investors are starting to reap financial rewards as companies like Lululemon, Fitbit, SoulCycle, and Mind Body pursue initial public offerings, a key milestone in creating an enduring enterprise—enterprises supported by consumers and businesses that, when successful, ultimately reward their creators and investors.
And where there’s money to be made, there will be investment bankers—the well-educated, well-heeled set who make their living connecting buyers and sellers. Yet given the relatively early nature of this economy, those bankers aren’t legion. They’re tucked into smaller investment banks, firms outside of Wall Street’s bulge-bracket banks like Goldman Sachs, Morgan Stanley, and JPMorgan Chase.
Piper Jaffray’s Brian Smith is one of them. He grew up in Northern California, and, armed with an economics degree from Claremont McKenna, he went to work for Bain & Co., the management consulting firm that a few decades ago begat private equity stalwart Bain Capital. After two years at Bain, he got an offer from a shop in Connecticut called North Castle Partners, which had a distinct focus on sports, health, and wellness. “They were doing some interesting investing,” he says. “They were investing in brands that I loved.” He was on staff there when the PE firm owned Equinox, the high-end gym operator.
After a stint in the nutritional supplements industry, he reunited with a North Castle partner, Brent Knudsen, who was opening a merchant bank—a type of firm that both arranges deals and raises money from investors for those transactions. It was 2006, and while fitness was coming on strong, it lacked anything cohesive in terms of financial advice. “There was no banker, no one working this segment of the market,” Smith says.
The new firm, Partnership Capital Growth, set up shop in San Francisco, drawn to the city’s long-standing commitment to a lifestyle steeped in health-consciousness. Smith, now married to a California girl, was back in his home state and the firm worked with companies like Anytime Fitness, KIND Healthy Snacks, and Muscle Milk, and managed $200 million in assets. At the end of 2013, Partnership Capital linked up with Piper Jaffray, creating a relationship with the 120-year-old Minneapolis-based bank. There, Smith has worked on the sale of Pure Barre to Catterton and the purchase of California Family Fitness by Perpetual Capital, as well as an investment in Orangetheory Fitness.
Down the coast in Los Angeles, Brian Wood at Imperial Capital is using a similar playbook. He’s been in the investment banking business longer than Kapoor and Smith, graduating from Notre Dame in the mid-1990s and earning an MBA from Georgetown at the start of his banking career.
His first job out of business school took him to Houston and a then- exciting opportunity at Enron. When the company imploded amid an accounting scandal a year and a half after he arrived, Wood headed back west and took a job in the investment banking group of The Seidler Companies, an L.A.-based investment firm. The private equity side of the business took a stake in LA Fitness, a successful chain of gyms. On the banking side, wellness deals were mostly focused on nutrition, healthy food, and natural products, a harbinger of the broader move to healthy living.
Now at Imperial, he says the past two years have seen his work shift hard to the fitness space, where competition is fierce and there’s a lot of business to be had. He and his colleagues make a practice of attending a class of the company in question the morning of the meeting, because understanding how it works is critical given that need for differentiation. And the consumer is voracious, and ever changing, in her appetite for these services. “You need to make sure you have the flexibility to move with the consumer,” Wood says.
Even outside of work, Wood’s not just poring over spreadsheets and balance sheets. He’s signing up for races and classes—when we talked for the first time, he was about to participate in a 24-hour relay race run by Ragnar—to understand the texture of this new economy. There was also a social component; his team comprised a dozen fellow parents from his neighborhood, aged 35 to 55, banding together to complete the 200-mile relay. Even with the personal interest, Wood and Kapoor’s respective bosses aren’t just indulging them so they can be fit and healthy. Investment banks exist only when there’s money moving, an ecosystem of investors—private and public pools of money—and companies for them to buy and sell.
The private pools have become especially important during the past two decades, and a critical accelerant for the fitness economy. Kapoor in her deck identified no less than 45 financial firms who’d already somehow participated in the fitness and wellness sector. The list comprises specialty firms, as well as brand-name investment shops like KKR, Apollo, Warburg Pincus, and TPG.
A note on private equity is relevant here, especially since it was a catalyst for me to undertake this project. I wrote a book in 2012 called The New Tycoons: Inside the Trillion Dollar Private Equity Industry that Owns Everything, the product of five years leading Bloomberg’s coverage in that area. The genesis of that book was the realization of private equity firms’ entrenchment in the global economy that was largely unnoticed but massive in its scope.
Kapoor’s work validated the anecdotal evidence I gathered, namely that private equity money was increasingly interested in this area from various angles—from the underlying technology, to apparel, to studios, to races. In some cases the investors’ pursuits are personal, just like for Kapoor and Wood—and me. Another catalyst for this project was consistently running across private equity executives I got to know in the course of my work who were spending early mornings and lunch hours training, and weekends racing.
This thread ties into another element—the overlap between high-achieving executives and participation in endurance sports. Bankers and investors have increasingly traded their fancy Rolexes for Timex Ironman and Garmin watches, in part as a not-so-subtle indicator that they spend their free time working out and staying fit. It’s only natural then that many of the men and women making deals would seek out companies in businesses they’re personally fond of, and in which they believe.
The evolution of the fitness industry has tracked the growth and expansion of private equity, which now accounts for more than $3 trillion in assets around the world, after existing as an industry for less than 30 years. Private equity firms in their early incarnation were known as leveraged buyout (LBO) firms, a nod to their reliance on debt, or leverage. Early profits came mostly from financial engineering—buying cheap, with lots of borrowed money, and selling quickly, without a lot of work on the company itself. Clever and lucrative, yes, but with little lasting impact.
The past decade has seen an evolution of private equity firms, who wisely shifted to that gentler nomenclature over the course of the 1990s and early 2000s. (Even private equity now feels outdated, given that KKR and Blackstone, to name just two, are publicly listed on the New York Stock Exchange). Buyout firms spent the first decade of this century chasing, and catching, ever-bigger targets. Fueled by available and inexpensive debt, firms by 2007 were spending $15 to $20 billion or more on the biggest deals, buying the likes of Hilton and Dunkin Donuts.
The financial crisis that began in 2008 chastened dealmakers and checked private equity ambitions. Purchase prices became more reasonable. More important, investors and companies became more demanding of their private equity partners, pressing for more details about their plans and strategy for targets. A still-competitive market, with a lot more firms chasing deals, also made it much more difficult to buy low and sell high, with little actual action in between. Firms started talking lots more about growth and operational improvement.
Doing that demands a higher level of expertise, well beyond analyzing balance sheets and income statements. The successful firms, especially those smaller than the giants like Blackstone, KKR, and Carlyle, began to tout specialties. A history of winning chemical, manufacturing, health care, or technology deals became much more attractive to both investors and targets.
That was good news for the handful of firms that quietly grew up focused on health and wellness, especially as those types of companies became more and more successful, and began looking for additional capital. These firms were by definition smaller, because the companies they’d bought stakes in weren’t very large, especially through the late 1990s and into the early 2000s. Most targets had well under $200 million in annual revenue, putting them outside the screens of big-cap PE firms.
Investing in wellness and fitness seems obvious now, but two decades ago—even around the turn of the century—it felt niche, probably too niche to make any real money. But the guys who were living it every day, outside the office, saw a huge opportunity. That’s what happened to Jesse Du Bey.
Du Bey grew up in Seattle watching his father run, and it came naturally to him, too. “I remember being able to run faster and further than other kids,” he says. “And I remember liking the suffering.”
At age 12, he ran a 5:30 mile, which placed him among the fastest in the nation, as measured by the Presidential Fitness Test. He voiced a sentiment I’d often heard, and felt—that running provided a chance to excel where other athletics didn’t. “I liked the feeling of it. I was unremarkable at the ‘main sports’ like basketball and football.”
Du Bey didn’t run track or cross country in college at the University of Washington, but did continue to work out and became more muscular. He arrived in New York in 1999 to work on Wall Street, putting in the 100 hours a week that’s common for a young analyst. He began his career advising companies and investing money for the late Bruce Wasserstein, a legendary dealmaker.
In 2005, a friend of his in the investment business, Fernando Vigil of Bain Capital Ventures, introduced Du Bey to an entrepreneur named Chris Hessler, who was already an accomplished triathlete. Hessler convinced the two investors to enter a triathlon. They rented mountain bikes and, Du Bey says, “swam for the first time since I was 8.” Even after finishing close to last, he found it “amazingly fun.”
He was hooked. Du Bey signed up for several more local triathlons. Something inside him changed. “I’d been a working drone on Wall Street for seven years, solely focused on work,” he says. “I think a lot of people throw themselves into careers and get numb, a kind of lack of inspiration and passion for life. Triathlon helped me find that; I think maybe it really changed my life.”
He identified the Ironman as the ultimate triathlon test and signed up for the Lake Placid version. He joined a team called Full Throttle Endurance at Chelsea Piers and discovered an entire subset of the population he wasn’t aware of. “It’s a whole world, all these Type A people who like to solve problems,” he says.
The Ironman stands as an extraordinary physical test, and essentially began as a Hawaiian daydream, part of an ongoing friendly debate about which of three local events—the Honolulu Marathon, the Waikiki Rough Water Swim, or the Around Oahu Bike Ride—was the most difficult, and thereby produced the best athlete. A U.S. Navy officer named John Collins and his wife Judy decided to combine the three as the ultimate endurance test. In 1978, 15 participants took on a 2.4 mile swim, followed by a 112-mile bike ride, capped with a marathon (26.2 miles).
The winner was to be called Ironman; Navy officer Gordon Haller was the first, crossing the finish line in 11 hours, 46 minutes, and 58 seconds. Eleven others completed the race, and Ironman entered the lexicon. Word spread, fueled in part by a Sports Illustrated writer who happened upon the race while in town to cover a golf tournament in 1979. His 10-page story drew interest, and more competitors. In 1980, ABC’s own icon—Wide World of Sports—televised parts of the race. Long before viral videos, most Americans had only a handful of channels to watch. The Ironman became must-see TV, especially when what became the championship moved from Collins’ original course to Kona, where the stark lava fields cyclists pedaled through added an element of visual drama.
The drama that helped cement the event’s reputation came in 1982, when 23-year-old Julie Moss, a graduate student competing to complete a thesis, led for much of the race and then collapsed yards from the finish line. Her minutes-long lead evaporated and she was passed by the eventual winner, Kathleen McCartney, also competing for the first time at the Ironman distance. Moss’ determination to finish—she literally crawled to the finish line—was broadcast on national television.
The world record, set in 2011, is 8 hours, 3 minutes, and 56 seconds. That’s more than three-and-a-half hours faster than Haller’s inaugural time. (Haller himself posted a 10:58 during the second Ironman, knocking 47 minutes off his first attempt.1)
His first time in the race, Du Bey posted a more-than-respectable 10 hours, 15 minutes. “As soon as I finished, I thought, ‘I’ve got to get faster,’” he says. “You’re in it like an addiction.”
Meanwhile, he’d gone to work for Providence Equity Partners, a Rhode Island–based private equity firm specializing in media and telecommunications deals. Its New York office sits in the iconic 9 West 57th building, also home to the buyout firms KKR and Apollo. Providence’s investments include Univision and Warner Music; the firm has assets under management in excess of $40 billion.
As Du Bey got deeper into the world of Ironman, he set different aspects of his daily life on a happy collision course. Du Bey rightly identified Ironman as an iconic brand, a modern marvel of branding, and, it turns out, intellectual property management. What other company inspires customers to tattoo themselves with its logo?
That logo is known as the M-Dot because it resembles an M (meant to resemble a body) and a circle representing the head. World Triathlon Corp., the parent company, trademarked the logo, the word Ironman, and even the combined mileage in an Ironman (140.6) and a half-Ironman (70.3). Both Ironman finishers, tattooed and otherwise, fiercely protect the brand. And so do WTC’s lawyers. That was part of the appeal for Jesse Du Bey, investor.
Du Bey was able to complement his investment pedigree with a stellar Ironman resume. He first qualified for the Ironman World Championships, held annually in Hawaii, in 2007. That race was, he says, “so difficult I was literally hallucinating, which is not uncommon.” He vowed to return to the island of Kona, which is a one-word Holy Grail, like “Boston” for marathon runners. He made it back in both 2008 and 2009, after training “like a professional,” dropping weight, and reducing his time. In 2009, he posted a 9:28, making him the seventh-fastest American Ironman and placing him in the top 100 overall, including professionals.
His initial approach toward buying Ironman was subtle; he knew it would be a long game. He flew to its headquarters in Tampa armed only with five PowerPoint slides laying out what he proposed to do, returning half a dozen times to bolster his internal pitch. His bosses at Providence “got it fast,” he says. “They all ride bikes and do competitive stuff.” Like Du Bey, the broader push toward competitive endurance sports wasn’t a theoretical trend to the other investors. They were living it themselves.
In 2008, Ironman was in an era of rapid growth, along with triathlons in general. From 1998 to 2014, membership in USA Triathlon, a requirement to participate in any sanctioned triathlon, grew more than fivefold, to 550,000 from 100,000.2 Du Bey discovered the popularity didn’t wane in the economic crisis, supporting the theory that tough financial times may actually bolster participation as we look beyond the stress of the office for satisfaction.
Triathlons also were reaping the rewards of a populace that had grown up running and trudging to the gym and was bored and dissatisfied. Cyclists, too, were hemmed in to some extent by the constant one-upsmanship of the latest and greatest bike. Cycling clubs can be cliquey.
By grabbing the public imagination, Ironman made the concept of swimming, biking, and running together appealing. As shorter distances became more popular and prevalent, people who might not otherwise have tried it took the chance, goaded by friends and family. Some raised money for charity, others just wanted to challenge themselves. There’s also a return-to-childhood element for many of us who grew up riding bikes around the neighborhood and spending summers at pools, lakes, or the beach. Add in running—among the most basic human pursuits—and it has a strong appeal.
Du Bey contends the triathlon’s appeal rests largely on a simple but not necessarily obvious element: No one is good at all three sports, certainly in the beginning, and even after a number of races. The need to ask for, and give, help lends an air of collegiality to the triathlon that doesn’t exist in large measure in the sports individually. The sum of the parts makes the triathlon an endeavor you simply can’t do alone, at least happily.
“Everyone needs to learn something because no one comes from a complete running, swimming, and biking background,” Du Bey says. “Even if they did, they need to learn training, nutrition, and transitions. This creates a culture of learning and sharing. The nicest vibe you’ll ever get in competitive sports is in the start corral at a triathlon. And the difficulty of the event and the primal thing about the suffering—it creates a tribal community. Respect is earned through the effort, the personal breakthroughs, the pain, the positivity. That’s what you need for a viral trend: real humanity.”
Providence aggressively expanded Ironman, from a handful of races to 200 annually, and growing its staff more than tenfold, to 250 from 21. Part of the expansion was in variety, specifically in the so-called 70.3 distance, half of the traditional Ironman across the swim, bike, and run. Seven years after its purchase, Providence entertained offers and the winning bid emerged from a country that had never staged an Ironman.
In August 2015, Providence sold World Triathlon Corp. to China’s Dalian Wanda Group for $650 million plus the assumption of debt, reportedly valuing the entire company at roughly $900 million.3 At that price, Providence quadrupled its money over seven years, according to published reports, a spectacular return even in the high-flying world of private equity.
The Wanda Group bought the company with an eye toward even more aggressive international expansion, especially in its home country. A Wanda executive said at the time of the purchase that only about 100 Chinese had ever participated in an Ironman to date.
Du Bey, as an investor, has remained focused on businesses that broadly have the same characteristics as World Triathlon. In 2013, he left Providence (but remained on the World Triathlon board) to start his own private equity firm, Orkila Capital. Orkila seeks out investments where experience and media can coexist and accelerate the other, a concept Du Bey saw play out vividly as an Ironman, and an Ironman investor. He watched the power of the brand manifest itself in actual people doing something physically together, and the business opportunities that come from that collective interest. He’s invested in the Webby Awards (the Oscars of the Internet) and music festivals, among other things—all of the assets focus on, Du Bey says, “investments focusing on experiences, content and products that inspire real passion and joy.”
Triathlons, and the Ironman deal, clearly changed Du Bey, deepening him, he says. He started the Du Bey Family Foundation, which supports sick children with money he raises through races. “I think this is true for lots of endurance athletes—the sport brings them to an emotional place where they want to be better and help others. This is a key cause marketing factor driving the industry.”
And in the wake of the World Triathlon sale, he’s introspective and nostalgic in a way that’s surprising in the world of deal making. “The best thing about identifying and leading the Ironman deal was that it felt important, like it might be the project of a lifetime,” he says. “That is also the worst thing about it—I don’t know how I’ll ever find a deal I care so deeply about again.”
Du Bey is part of a small but seemingly growing number of investors, even entire investment firms, aiming to capitalize on fitness and wellness. There’s Falconhead Capital, a New York-based firm that back in the 1990s decided to focus squarely on several aspects of health and wellness. Falconhead’s original thesis, and one that remains today, is that content plays a vital role in the sports and fitness economy, says founder David Moross. One of Falconhead’s first deals was for the European version of ESPN Classic Sports, a channel that shows games that have already happened, often years or decades earlier. It was a surprising success.
Falconhead’s perhaps best known for its investment in what became Competitor Group, creator of the Rock ‘n’ Roll series of marathons and half marathons. Moross saw a content play there, as well, given that Competitor’s connection to its customers was in part fueled and fed by niche publications for the participants in its running races and triathlons. (For more on Competitor, see Chapter 10.)
Moross, in partnership with the sports and talent management giant IMG, started what became Falconhead in 1998 under the name Sports Capital Partners. His initial pitch was met with skepticism, he says, because sports was seen as a closed, limited opportunity, in the form of teams and maybe some team equipment. What the doubters missed, Moross says, is that “sports” is just a name—“a term that describes activity and competition. It drives to a very profound thesis of passion,” he says.
Moross says the passion for sport—broadly defined to include not only your home team, but also what you do in and around your home for your own body—has only become more important culturally. He recalls a recent conversation where a fellow investor reminded him that passion for sports these days is more deeply and broadly felt than passion for religion: “You can make money by looking at what drives the passion, what allows it to be fueled on an ongoing basis.”
Another group that’s dedicated investments toward fitness and wellness for the better part of two decades is North Castle, the Connecticut-based private equity firm where Brian Smith worked as a young analyst. Like other investment firms that collect former CEOs and top executives for their manufacturing expertise, North Castle has a stable of fitness and wellness experts it uses for due diligence. The firm’s investors work the big industry trade shows, like the Natural Products Expo, to identify the nascent companies that may someday need a financial backer. Jon Canarick, a North Castle managing director, says the firm’s focus sets it apart, especially when courting would-be portfolio companies.
“You’ll never find a smokeless tobacco company or an unhealthy restaurant chain in our portfolio, which matters to some entrepreneurs,” he says. That extends to the firm’s executives, who need to walk the proverbial walk of a wellness-oriented investment shop: “It would be very hard to sell yourselves as the right partner for a boutique fitness company, walking into a meeting with the owners weighing 250 pounds and eating a bag of chips,” he says. “There’s a passion and involvement.”
The firm in 2015 bought a controlling stake in Barry’s Bootcamp at a reported valuation of more than $100 million. (For more on Barry’s, see Chapter 3.) The Barry’s deal came to North Castle in part because of its familiarity with the nuances of the gym and studio business. One of its most successful deals was what became a key player in the high-end gym business: Equinox. That chain, now owned by real estate giant Related Companies, sits amid a fiercely competitive set of gyms and studios slugging it out to be the favorite destination for the affluent and sweaty.
Those people are everywhere—from a small town in Boston on a rainy April morning to studios in strip malls and high rises. And lots of money is chasing them.
Notes
1
Blake Whitney, “Ironman’s First Champ, Gordon Haller, Looks Back 25 Years,”
Active
, October 20, 2003,
www.active.com/triathlon/articles/ironman-s-first-champ-gordon-haller-looks-back-25-years.
2
Kate Lewis, “Is Rapid Growth Endangering the Ironman and Endurance Sports?” Glideslope Runway Blog, October 14, 2014,
www.theglideslope.com/runway/is-rapid-growth-endangering-the-ironman-and-endurance-sports/.
3
Kevin Helliker, “Ironman to Be Acquired by China’s Dalian Wanda,”
Wall Street Journal
, August 27, 2015,
www.wsj.com/articles/ironman-to-be-acquired-by-chinas-dalian-wanda-1440642571.
CHAPTER 2On Location
If running is the basic unit of exercise, the gym is the fitness industry’s local headquarters. Walk a few blocks in any city, or drive a few miles in any suburb, and it’s virtually guaranteed you’ll see some sort of fitness chain nestled in a strip mall.
The ubiquity speaks to the gyms’ importance in this fitness economy—for us as consumers, and for those looking to make money in our space. Fitness is front and center, and unashamedly so. Gyms aren’t hidden from you. On the contrary, fitness centers are in the same complexes as supermarkets, shoe stores, dry cleaners, and pizza joints. They’re a key part of our consumer habits.
That’s what excites investors. Just as Moelis’s Kapoor found herself directing more of her discretionary income to her Flywheel habit, even average people are devoting an increasing slice of their cash to sweating. Have any doubts about the competition for that money? Check your mailbox—or email box.
Numbers are somewhat elusive, and largely estimated, given the fragmented nature of fitness clubs; there are so many of them, and few dominant companies to give a cohesive sense of the market. Kapoor estimates that in 2015, clubs will pull in about $27 billion in revenues, a figure that grows steadily these days at around 3 percent a year.
Then there’s the number of memberships, which she estimates at about 55 million, growing at about 2 percent a year. Putting the figures together, that would mean folks spending roughly $500 a year on memberships alone. This triangulates a bit with another oft-cited figure—the average monthly membership is about $55/month, or $660 a year—indicating we’re in the right ballpark.
The traditional gym business did not explode in this most recent boom around fitness and wellness. Many of the current trends and fads have their foundation in the fitness clubs of the previous decades. It’s a business that’s seen its share of booms and busts and constant competition for the consumer. Where it stands today is an emblem of both the fitness economy and the way modern businesses fight for identity and profits.
Kapoor and her fellow bankers watch the gym space closely because it’s, for lack of a better term, investable. The business is relatively simple to model in term of costs, margins, and profits, once the basic elements (geography, products and services, pricing) are established. The gym business in that sense isn’t so different from any other retail concern.
The birth of what we know as the modern gym is generally pegged to the early 1980s, driven in part by a few pop-culture moments. In addition to Jane Fonda’s videos, there was 10, the 1979 Bo Derek movie that inspired many women, and men, to get in shape.
By 1980, according to history compiled by Club Industry, about half the adult population claimed to exercise, up from about 24 percent in 1960.1 Tennis was popular, as was racquetball, and racquet clubs with both kinds of courts proliferated, especially in suburban areas. Over the early part of the 1980s, those clubs expanded their offerings, adding some equipment and classes to broaden their appeal and their membership. In 1981, there were about 5,000 fitness clubs across the United States; by 2012, that number swelled to more than 30,000.2
Clubs like Bally, one of the early stalwarts, advertised heavily, relying on some of the biggest stars of the late 1970s and 1980s, including singer Cher. The ads, available for grainy viewing on YouTube, are fun to watch. A very young Cher, in various combinations of leotards and wigs, strides through a busy fitness center, delivering a message meant to underscore that gyms aren’t just for meatheads anymore. In one ad, released around the holidays in 1985, she starts out saying, “Some people worry about getting muscles. I worry about getting fat. Dieting doesn’t keep me in shape. Exercise does.”
After Cher’s exhortations, the ad lays out the business model that Bally’s helped create and persists among its legion successors in some form today: the monthly plan. Back in 1985, Bally’s would sign you up for $18 a month, assuming you agreed to a two-year contract. That wasn’t exactly dirt cheap—it’s almost $40 in 2015 dollars. The subsequent years have seen all kinds of price
