CrossFit’s Business Model Isn’t Pulling Its Weight

Remy Merritt |

CrossFit, high-intensity training, golds gym, bikram yoga,CEO Greg Glassman

It is rare to genuinely want to go to the gym. Generally, members enter to pump out a predetermined number of reps, judge the fitness of those on the machines around them, and stare at themselves in the walls of mirrors as they run in place on treadmills. CrossFit, however, has discovered a way to foster an international fitness community bonded by a sweat-inducing ideology of high-intensity training. Ingeniously, the company has taken individualized personal training to the level of a franchise.

However, recent scrutiny is showing gaps in its business model and skeptics are exposing that the CrossFit craze is little more than a fad.

Warming Up: How Does CrossFit Operate?

The two primary sources of CrossFit’s profits are education and licensing fees. Locations across the country hold training workshops for individuals who want to start their own CrossFit gym, known in the community as a ‘box,’ and earn affiliation with the household workout name. Admission to a weekend workshop is $1,000, and CrossFit conducts about 15 seminars each weekend. Once a trainer is licensed through CrossFit, they are free to open their personal CrossFit business while the company collects an annual licensing fee of $3,000. There are currently more than 4,500 national CrossFit locations, with 10,000 global affiliates.

These gyms are not the sparkling, full-service centers one might expect from a 24-Hour Fitness or Crunch location. The FAQ section for starting up as a CrossFit affiliate suggests that the recommended equipment is “whatever you can muster. A pull-up bar, some rings, and dumbbells can get you very far.” In fact, what CrossFit supports is indicative of a trend in do-it-yourself business. IKEA has customers build their own furniture at home to both save them the cost of labor and to keep prices low. CrossFit has its affiliated trainers set up their own gyms with the capital they can put into the business, from workout equipment to marketing and accounting.

With such high fees to maintain an affiliation, why would anyone want to be a personal trainer with CrossFit? In the short run, starting a CrossFit gym is much easier than opening a similar franchise such as Gold’s Gym or Crunch. Gold’s Gym requires capital of $1 million just to open, while CrossFit trainers must only invest $1,000 into their own training and the yearly licensing fee. In addition, CrossFit’s focus on the individual experience discourages a franchise mentality, which gives personal trainers the freedom to conduct their training with their own personality and preference.

Lawsuits Fly as Fitness Fanatics Butt Heads

The CrossFit craze follows the rise of pop-culture yoga (which no doubt still lives on today), in which participants focus on low-impact poses that encourage deep breath and introspection. However, like all fads, the various versions of yoga from Bikram to Vinyasa suffered from claims of injury, overly simplified certification processes and resultantly undertrained yogis. Yoga, however, has a leg up on CrossFit — high-intensity training increases the risk of injury, and is thus prone to scrutiny by the National Strength and Conditioning Association (NSCA).

Its highly encouraged autonomy is what is causing CrossFit’s recent legal challenges, and widespread scrutiny is exposing that the fitness company may be plateauing. In November 2013, a group of scientists from Ohio State published a study of 54 CrossFit participants in Franklin County, Ohio who had signed up for a 10-week training period at an affiliate gym. The study claims that of the 54 participants, 11 dropped out, with nine of the dropouts claiming “overuse or injury for failing to complete the program.”

Interestingly enough, there is no government regulation on becoming a physical trainer, though it fully involves the physical and mental health of participants. Various states have attempted to introduce legislature that would require trainers to be legally licensed, but no national requirements have been instated.

With CrossFit corporate as his backbone, the affiliated Ohio trainer slapped a lawsuit against the scientists involved with the study as well as the NCSA, claiming its allegations were “sloppy and scientifically unreliable.” CrossFit’s reaction may seem overblown, but the fitness company has been under scrutiny as of late, with more people questioning whether the high-intensity training is truly beneficial or simply a fad. Considering the strong community sentiment that flows through the CrossFit crowd, it is unsurprising they are defending the legitimacy of the company’s practices. CrossFit boasts competitions that crown “The Fittest Man and Woman on Earth,” and like a cult leader, CEO Greg Glassman is credited on the CrossFit website for being the first person in history to define fitness in a meaningful, measurable way” (never mind the Greeks, who invented the Olympics almost 3,000 years ago).

This isn’t the first scandal CrossFit has had to deal with this past year. Around the same time as the Ohio v. NCSA case, transgender athlete Chloie Jonnson filed a $2.5 million lawsuit in California against CrossFit Inc., claiming the fitness fanatics refused to allow her to compete in the women’s division of the CrossFit Games, which named its 2014 World’s Fittest Man and Woman on July 27. And with just as much sass as it launched in its letter to the Ohio scientists, CrossFit asserted that its decision to bar Chloie from the women’s division “has to do with a very real understanding of the human genome, of fundamental biology, that you [Chloie] are either intentionally ignoring or missed in high school."

What Is CrossFit Worth, and Where Is It Headed?

CrossFit is a private company, and as such keeps its earnings data out of the public eye. During a very public 2012 divorce between the Glassmans, it was revealed that Lauren Jenai’s 50% of the company was worth $20 million for a total company valuation of $40 million, a number that has certainly increased in the past two years. Its simple business model suggests CrossFit brings home the (very paleo-friendly) bacon through weekend seminars and affiliate licensing fees, plus a modest bonus from brand recognition through a partnership with Reebok, which sells CrossFit apparel to those looking for paraphernalia. However, that is as far as Glassman plans to go. He calls his approach the ‘least-rent model,’ rather than the more commonly practiced rent-seeking behavior in which a business spends money on a wide range of services in order to earn more profit.

Glassman prefers it that way, and thinks inside the ‘box.’ He doesn’t have any plans to expand into the supplement or equipment market, claiming it will dilute the brand and detract from CrossFit’s primary focus on fitness.

CrossFit’s appeal is its creation of a community, something that many gym-goers didn’t realize they were seeking. For whatever reason, sweating with a group is addictive, and the fitness company harnessed the power of the modern startup culture to enable everyday fitness junkies to open their own CrossFit boxes. Its simplicity and support of the individual, no matter the equipment or funds, is what fostered a strong sense of CrossFit community. Participants bonded simply by the addicting challenge of physical exertion.

While these allegations will not bring the CrossFit giant down, they do expose a level of scrutiny that the company had not yet faced. There is no doubt it will try to bulk up against the negativity, but spreading skepticism is a powerful force. The more CrossFit is parodied and inspected, the leaner its customer base will become, until those competing in CrossFit events and shelling out membership fees are only those for whom it is an identity.

 

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