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FDD Talk 2016: The Orangetheory Fitness Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

by Franchise Chatter on October 25, 2016

in FDD Talk 2017: Fitness Franchises, Fitness Franchises, Franchise Earnings

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Orangetheory Fitness Photo

In this FDD Talk 2016 post, you’ll learn the following:

  • Section I – Background information on the Orangetheory Fitness franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for an Orangetheory Fitness franchise, based on Item 7 of the company’s 2016 FDD
  • Section III – Presentation and analysis of Orangetheory Fitness’s financial performance representations, based on Item 19 of the company’s 2016 FDD, including information on the:
  • 2015 average gross revenue and average number of active members for the 3 affiliate-owned and 57 franchised Orangetheory Fitness Studios that were open at least 24 months as of December 31, 2015
  • 2015 average gross revenue and average number of active members for the 3 affiliate-owned and 89 franchised Orangetheory Fitness Studios that were open more than 12 months but less than 24 months as of December 31, 2015

Section I – Background Information

From the Ultimate Workout to a Fitness Empire

Orangetheory Fitness started out as a single fitness club location in Fort Lauderdale, Florida. It was founded by Ellen Latham, a physiologist, in 2009 and grew from the development of an exercise regimen she dubbed “The Ultimate Workout.”

Soon after starting the first location, Latham brought on Dave Long and Jerome Kern to help her expand the business. They began franchising in 2010 and by 2012, Orangetheory had 26 locations. Today, they have over 400 locations throughout the U.S. and the world.

Long and Kern played an integral role in the growth Massage Envy in New York and Florida. After forming Ultimate Fitness Group, which franchises Orangetheory studios, they took European Wax Center from five to 200 locations and sold out the entire U.S. for area development.

Using Science to Help Clients Lose Weight

As a physiologist and the Director and Vice President of Fitness for Orangetheory, Latham developed a workout program based on something called Excess Post-Exercise Oxygen Consumption (EPOC). Orangetheory offers group personal training and the 60-minute sessions are broken into intervals of cardiovascular and strength training. The program is designed to get 100% of their clients’ bodies moving for the hour.

All club members are given a heart monitor which helps Orangetheory develop a more effective program. The heart rate monitors help clients reach the “orange zone” which is 84% to 85% of a person’s maximum heart rate. Entering the orange zone is what produces the EPOC effect or afterburn, which helps people burn more calories. Orangetheory claims that their clients burn between 500 to 1,000 calories per session.

Rapid Growth

Though Orangetheory Fitness has only been franchising for six years, they already have over 400 locations. For a fitness franchise, this is explosive growth. In comparison, Gold’s Gym, which celebrated its 50th anniversary in 2015, only has about 540 locations. Although the year is almost over, Long hopes to have 500 locations open by the end of 2016.

In each of their mature markets in South Florida, Tampa Bay, Colorado, and Arizona, Orangetheory has about 30 to 40 locations. Their Houston market is rapidly growing and they expect it to follow suit. Their California and Chicago locations are continuing to grow; they currently have over 30 units in each location that are either in development or are already open. Orangetheory’s goal is to saturate the U.S. market with their fitness clubs. Orangetheory hopes to open an additional 250 U.S. locations in 2017.

In addition to their domestic success, Orangetheory Fitness has a flourishing international presence. They have over 40 international locations in places like Australia, Canada, Colombia, the Dominican Republic and the United Kingdom. In early 2016, Orangetheory Japan signed a deal to open 70 locations, with the first club opening later in the fall. For 2017, Orangetheory Fitness hopes to open 150 new international units.

Over the summer, Orangetheory moved their headquarters to a larger location. Their new headquarters cost $13.9 million and is located in Boca Raton, Florida. The larger location will house a full sized Orangetheory Fitness studio that will be used for franchisee training, product testing, and programing development.

Teaming Up With Professional Athletes

In October 2015, Orangetheory Fitness opened its 300th location in Lakeland, Tennessee. To celebrate the occasion, the company announced that three time Olympian Lolo Jones and Superbowl Champion Justin Tucker of the Baltimore Ravens were the new brand ambassadors for Orangetheory Fitness. Jones and Tucker are the first professional athletes to endorse the fitness company. Orangetheory hired the Tombras Group to launch a national ad campaign featuring Jones and Tucker.

In June of 2016, Orangetheory became the official fitness center sponsor of the New York Yankees. As part of the deal, Orangetheory will receive LED signage at Yankee Stadium. In addition, former and current members of the team will make promotional appearances at select Orangetheory Fitness locations in the tri-state area.

All of these deals with professional athletes are a natural fit for the company. According Scott Breault, Director of Marketing at Orangetheory Fitness, Orangetheory has been a long kept secret among professional athletes because of their scientific approach to exercise. Many of their members include Olympians, past and present, active athletes in all professional sports, including MMA and boxing, and athletes from amateur teams.

A Rising Star

Though Orangetheory Fitness has only been franchising for six years, they have quickly earned a spot on Entrepreneur’s Franchise 500 list. They began ranking on the annual list in 2014 and landed at spot No. 403. In 2015, they fell a little and were ranked No. 463 on Entrepreneur’s list. In 2016, they shot up to No. 255.

Section II – Estimated Costs

  • Please click here for detailed estimates of Orangetheory Fitness franchise costs, based on Item 7 of the company’s 2016 FDD (updated).

Section III – Financial Performance Representations (Item 19, 2016 FDD) and Analysis

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