By Scott Humphrey
Unlikely as it may sound, surety bonds are the new big thing in the fitness industry. This is the inevitable result of two of the most worrying recent societal trends – the growth in obesity and the slowing down of the economy, both of which have been trending in such parallel fashion that it often appears as though the two were inextricably linked. But despite the increased demand for these facilities, fitness clubs are not immune to the down economy and can be just as prone to failure as any other business. However, what complicates the matter is that there are often large fees paid by the club members, and thanks to this rapid growth in the fitness industry, tighter regulations are now being enforced with surety bonds at the very heart of the process.
How do surety bonds work?
If you have ever bought a property or managed your own business, the chances are that you have come across surety bonds at some point in your career. Usually purchased through a qualified surety bond insurance agent, they help guarantee that money will be paid or services will be provided, as agreed between a vendor and a customer. A bond provides the customer with the assurance that they won’t lose out, while it helps give the vendor a stamp of authority and legitimacy. Because of their mutual benefit to both customers and vendors, surety bonds have been experiencing a renewed level of attention in this down economy - vendors must stick out of the crowd of others competing for the same work, and customers need extra assurance that a deal won’t go sour. But though surety bonds are nothing new, their introduction into the worlds of health clubs is a relatively new development.
Health clubs are no exception
It is estimated that 40 million people across the United States belong to over 26,000 health clubs of all shapes and sizes. It is an industry worth around a hefty $14 billion dollars. And with the United States brimming with a high rate of obesity, there is every reason to think that the mega money fitness industry is here to stay.
With such large sums at stake, it is perhaps no surprise that gyms and health clubs have been clamoring to open their doors, hoping for an easy way to make money, while their members lose weight. This has created an influx of these facilities in nearly every community around the country, from sports centers to country clubs. Most use the same financial model of collecting pre-paid membership fees, which very often come out to totaling large sums of money. But what happens when the same gyms and health clubs close their doors due to poor financial management or fraud? Should members simply be expected to write off all of their prepaid fees?
In order to combat these all too frequent situations, the authorities have been compelled to introduce new regulations governing fitness club management. Central to this strategy is the requirement of fitness clubs to post a surety bond with the state attorney general, guaranteeing pre-paid membership fees. This ensures that when a fitness facility does go belly up, the customers aren’t the ones who are held responsible for having trusted the gym with their money.
The specific requirements for surety bonds vary from state to state, but in general they obligate any health organization which offers a prepaid membership scheme to obtain a bond. These include the following categories:
· General fitness clubs
· Racquetball/ tennis clubs
· Weight loss centers
· Self-defense schools
· Bodybuilding clubs
· Personal athletic trainers who use their own facility
It is also important to note that the surety bond requirement is usually equally applicable for both independent and franchised fitness facilities. Obtaining the bond itself is fairly straightforward. Its value depends on a number of factors, which typically include the length and type of membership. For example, in New York a health club posts a $50,000 bond if it offers twelve month memberships, a $100,000 bond for offering memberships of up to two years and a $150,000 bond covering up to three years of pre-paid membership. Of course, obtaining a surety bond costs money. It is worth shopping around for the best deal available, but any health facility can expect to pay an annual premium of between 1-4% of the bond amount.
With health club regulation very much in fashion, whether purchasing a bond becomes a legal necessity across the board or not, it seems likely that members will increasingly regard it as a prerequisite for joining health and fitness clubs - especially as they become more discerning with their finances. Fitness facilities will then be left with the choice of bending to consumer power or overhauling their payment model to post billing in place of pre-paid membership. Either way, surety bonds are here to stay and the fitness industry is being forced to get in shape.
Photo Credit Moment Matters Blog
Scott is a freelance writer on a variety of topics, including surety bonds. When he is not writing he is hiking in the mountains of upstate New York.