Opportunities in contract management are boom ing for IHRSA club own ers. From hotels to corporations, to residential buildings to community centers, to real estate developers --more and more organizations are turning to health-and-fitness industry experts to manage their facilities. If you're among the growing number of owners who have been thinking about their revenues by taking over the man agement of someone else's fitness center, you'll want to hear what Bill Horton, the CEO of one of the top firms in this field, has to say about what's required to successfully sell and service manage ment contracts.

There are very few man agement companies in the health-club industry that can claim a 95% client retention rate. There are even fewer that can say they've been in business for nearly 20 years, growing an average of 15%-20% each year. And there's only one that can boast that it's suc cessfully managed the fitness operations of nearly 200 Fortune 1,000 companies-winning the respect of some of the top CEOs in the country and grossing $10 million this year, in the process. That is a claim that can be made only by Bill Horton, the CEO of Fitness Systems, Inc., of Los Angeles Horton, 55, has amassed a client list that includes such giants as The Times Mirror Company, Rockwell International, Kraft General Foods, Martin Marietta Aerospace, Campbell Soup Company, Citicorp, and General Electric. With its staff of 200 fitness professionals, marketers, analysts, administrators, and managers, Fitness Systems provides its current roster of 70 clients with services rang ing from facility and program plan-rung to ongoing management and evaluation.

Part of the reason for Horton's suc cess is his solid familiarity with both business and government. He not only speaks the language of management and finance, but also understands how changes in the economy or political climate --such as healthcare reform -- can effect the fitness industry. Having earned an MBA with dis tinction from the Harvard Graduate School of Business Administration in 1966, he joined the well-known management firm of McKinsey & Company, Inc. as an associate in the company's Los Angeles office and, in 1972, took a leave of absence to serve as executive assistant to the Secretary of Health, Education and Welfare. Later, he moved to the White House as a staff assistant to the President.

Horton has an equally impeccable background in fitness. Named a Healthy American Fitness Leader by the U.S. Junior Chamber of Commerce in 1993, Horton has been active in the leadership of the Association for Worksite Health Promotion (AWHP), co-authoring the AWHP's book Guidelines for Employee Health Promotion, and has actively supported the President's Council on Physical Fitness and Sports.

But the main reason for Horton's remarkable success at getting and keeping corporate customers is the detailed system he's set up to analyze the needs of new clients, design high ly individualized programs and facil ities to meet those needs, and provide a high level of ongoing evaluation and management to produce results.

CBI Executive Editor Suzanne Hildreth spoke with Horton in his Los Angeles headquarters to get his thoughts on corporate fitness, health-care reform and, most importantly, what IHRSA club owners should do if they're anxious to capitalize on the trend toward contract management.

Club Business International : All of your contracts are for corporate fitness centers -- rather than for hotel or commer cial clubs, for instance. Can you discuss how you see the corporate market for wellness and fitness services developing over the next several years? Do you expect it to continue growing?

Bill Horton: I think it has tremendous potential, for a couple of reasons. One is that, if you take a look at the num ber of companies with 500 or more employees that have high-quality worksite fitness programs, you'll dis cover they represent a relatively small share of the market. I believe there are approximately 17,000 companies with 500 or more employees, but only about 1,000 that have supervised quality fitness or wellness programs. Yet many more have some sort of a facility or are providing some educa tional information -- even if it's not the best quality program, they're making an attempt. That means that there's a readiness on the part of many companies to either start a program or upgrade an existing one. The other factor is health care. The threat that healthcare reform (as originally proposed by the Clinton administration) poses to corporate fitness is def initely receding, an inadvertent consequence of that original plan would have been to undermine worksite health and fitness. I don't believe that will be the case with future proposals.

CBI: Could you go into a little more detail about that?

BH: Certainly. In the original pro posal, all companies with 5,000 or fewer employees would have been required to obtain insurance through community-rated health alliances. Under the community-rat ing system, a company wouldn't derive any benefits from a health-care cost reduction due to a health and fitness program. Since the prime motivation for many companies to set up such programs is to reduce healthcare costs, that would have eliminated an important incentive. There are other incentives, of course, but healthcare cost management is a major one. In three out of four bills coming out of Congress now, the threshold level for being subject to the community-rating system has been lowered to between 100 and 200 employees. A big part of the credit for this change has to go to all of the fitness organizations that banded together and took their protests to Congress. A group called the Worksite Health Promotion Alliance, of which Fitness Systems is a part, worked especially hard to get the message across. As a result, three of the four bills now have explicit language incorporating incentives for worksite health and wellness programs.

CBI: Do you foresee any other trends that you think will encourage more corpora tions to turn to the fitness industry for help in implementing worksite wellness programs?

BH: Well, there is a trend in American business today toward out-sourcing. A lot of companies have decided to nar row their focus to their core competen cies and to out-source peripheral ser vices. Certainly, the management of health and fitness programs is not one of the core competencies of most busi nesses. Another trend we should also be aware of is the one toward greater demand management in health care. Increasingly, managed healthcare pro grams are looking for ways to control the demand for medical services, and certainly corporate health and fitness is one way to help do that.

CBI: Is there anything that might undermine the corporate fitness market? For instance, over the past several years, companies have been downsizing and cutting costs wherever possible. Hasn't that a detrimental impact on employee benefits, particularly fitness programs?

BH: Employee benefits cover a wide spectrum. Certainly, benefits plans are being restructured to enhance productivity. Changes in healthcare benefits are being made to deter employees from abusing the medical system, for instance. But companies also have an interest in investing in the health and productivity of their employees. So it's a balance. Of course, anyone interested in provid ing corporate fitness services should keep in mind that, just as companies expect higher productivity from fewer employees, they also expect their suppliers to provide more ser vice for less money. So there's con stant pressure on management com panies to produce more results with fewer resources. By way of illustra tion, we've increased the number of programs we manage by about 50% over the past several years, but we haven't added to overhead costs.

CBI: When approaching a prospective client, do you have any special techniques for making the sale?

BH: We try not to come to a point where we're forcing a person to say no. We'll offer them some more infor mation, and try to get an idea of what sort of time frame they're consider ing. This is an eminently postponable decision. There's always something else that will take priority. So the key is to be patient and persistent, but never pushy. Another thing to keep in mind is that many executives view the various fitness providers as being pretty much the same. Those of us in the business see ourselves as being very distinctive, and we are -- no question about it. But from the prospect's point of view, we look very similar in terms of programs and technology. The way they distinguish between fitness companies is by the professionalism of their representatives. The client is always wondering, "Is this the kind of individual I want interacting with my employees?"

CBI: What are the various steps involved in negotiating a contract?

BH: Since we have 70 programs, we have a great deal of data about how much time it will take for us to start up and supervise a program, and we use a highly analytical process to determine our fees. We also expect to lose money in the first year-simply because we invest much more time in the first year than in subsequent years; the first month is the most cost ly, then it tapers down, and, by the second year, we're making money.

CBI: Would you describe your typical fee structure?

BH: Our basic cost is the compensa tion for our health and fitness profes sionals. To give you some background, we have two types of con tracts: One is a cost-plus contract, where we bill the client for salaries and other costs, and add a manage ment fee. The other is a single, fixed fee-that's for the client who doesn't want to be bothered with a break down of expenditures. But whether it's cost-plus or a fixed fee, the principle's the same; we need to recover the full amount of the compensation and benefits for our fitness professionals, and to charge a fee that covers our direct supervisory and regional man agement costs, our headquarters administrative costs, and all the costs that need to be allocated to program development, financial management, human resources management, etc.

CBl: But you don't expect to turn a profit it in the first year?

BH: No, we don't. At the end of the first year, we will have a negative contribution at the regional level, which is to say, based upon the hours spent, we're investing more hours then we're being paid for.

CBl: Why? Why not raise your first- year rates to guarantee a profit or, at least, a break-even situation?

BH: There are a couple of reasons for that. One is that we want to establish a long-term relationship with the com pany, so, as a mark of good faith, we're willing to absorb the extra, first-year costs of setting up the program. The second reason is that the market really doesn't allow us to raise our rates to cover first-year costs. Our pricing is at the high end of the spectrum to begin with, so, if we tried to double our man agement fee to make up for the excess hours, we'd probably become non-competitive in terms of price. Our regional staff devotes a lot of time to recruiting and training new people.

CBI: What characteristics do you look for in a prospect?

BH: Probably not the same things a typical health club owner would look for. The typical commercial gym operator would, first and foremost, look for prospects in his immediate our staff, with all the rest of the employees being on the client's pay roll, but that, unfortunately, isn't how it generally works out."

Legalities: "One way that CCA pro tects itself from things like employee lawsuits is by incorporating each management contract as a separate management group; the employees are working for the subsidiary, not CCA. If you don't do that, you're increasing your exposure in all sorts of different areas. Also, make sure you have a system which involves both you and the owner showing evi dence of professional and general liability insurance; each party should be named as a co-insured on the other's policy. And you need to have indem nification statements in which both parties indemnify each other --that protects you against frivolous law suits."

Benefits of contract management: "It's a new source of revenue, a way to provide a career path for your employees, and an opportunity to expand your services. For instance, you might be able to offer some type of joint membership privileges between the clubs; it opens up brand new marketing opportunities."

Advice to first-timers: "It's a lot easi er if you start locally, with a small hotel or residential center, or a small commercial club. You have to take your time and establish a reputation. Remember that your problems become magnified when you go from owning one club to managing a second; you've got to have good systems in place and be able to delegate." area. That way, one of the club's employees might be able to split their time between several companies. If you get too far out of your geograph ic region, however, it becomes diffi cult for a club owner to maintain con trol over everything. Our prospects are generally large firms, with 500 or more employees, and with a good reason for investing in the health and productivity of their people. We look for those that have already exhibited the desire to invest in corporate fitness through some past action. We want companies that are willing to make a commitment to worksite health and fitness. because if we go in and run a program for three to six months, and they pull out, we're going to take a bath. So we seek out clients we believe are willing to make such a commitment.

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