Editors' Note: This is the first in an ongoing series examining the family side of the fitness business where passionate fitness entrepreneurs have instilled the love of fitness to the next generation. This series is not about the achievements of these families (easily found via websites or a Google search). Rather, we present the human-interest story, which, after all, is about interesting humans. The series has been made possible by the generous sponsorship of Sports & Fitness Insurance Corp. and ABC Financial Services, Inc.
One hundred years ago when Louis Schwartz was earning a living washing windows in the Bronx, he likely had no idea that one day his grandson Alan and great-grandson Steven would own and run one of the largest and highest revenue-generating businesses in the fitness industry, TCA, which does business as Midtown Athletic Clubs and Midtown Health.
In fact, Louis likely had no inkling there would even be something called the fitness industry let alone Midtown Athletic Clubs or TCA. But his grandson and great-grandson today are at the helm of the company, which owns and manages fitness facilities, corporate fitness centers and employee wellness programs as well as licenses tennis products and teaching programs. In 2016, Midtown Athletic Clubs brought in $103 million, according to the Top 100 Clubs form submitted by company.
The family business started in the middle of the last century with Louis' son, Kevie (pronounced KEE-vee). Kevie had been an electrochemical engineer and the inventor of chromium plating, but he had three other passions that ultimately led him and his son Alan to create Midtown: building things, real estate development and playing tennis.
Kevie instilled in Alan the love of real estate and tennis. After Alan graduated from Yale (where he captained the tennis team) and then graduated with distinction from the Harvard Business School in 1954, he and Kevie became partners, first in the chromium business and then in an industrial real estate company.
Originally, it was a two-thirds, one-third ownership. Alan recalled with a smile what his father told him: “'We each have one vote. In the event of a tie, I vote twice.'”
In 1967 this father/son team decided they wanted to work together on something meaningful, something through which they could channel their shared passion. They said, “Let's build the world’s largest tennis club,” Alan recalled.
In 1967 work began on that tennis club: first the research, then the planning, then the building. Kevie and Alan were 50/50 partners on the project. And while “the biggest” was certainly a primary goal, it wasn’t a true differentiator. Instead, Midtown Tennis Club (as it was called then) opened in Chicago in October 1970 with an emphasis on the customer experience.
“We wanted something that would be special to tennis players, something that had never been done before,” Alan said.
The club had unique architectural differentiators, such as air conditioning from both ends of the building and cushioned courts. And the club had unique touch points such as tennis programming, tennis lessons and assistance finding tennis partners.
In 1972 during construction of a second club in Rochester, New York, Kevie passed away at age 72 on the court of the club, just as some might say he would have wanted it.
The Complications of a Family Business
Steven Schwartz, Alan's son, watched his father and grandfather work the tennis business and watched their relationship. Alan wanted Steven to join the family business, but instead, Steven pursued a career in the hotel business. He earned a bachelor's of science degree with distinction from Cornell University, graduating from the university's Hotel Administration School before going to work for the Hyatt Hotel Corp., serving as director of development.
As Steven's salary and reputation grew at Hyatt, his father decided to talk to him.
“I got the big ‘salary vs. equity’ speech,” Steven said with a grin, noting his dad shared that having a good salary might seem better in the short run, but equity in a business will far surpass salary in the long run. "What can I tell you? My father can be very persuasive.”
At the age of 28, Steven joined the family business, immersing himself in studying the dynamics of the business, interviewing people, doing research, hiring consultants. He brought fresh ideas and concepts from other industries and wanted to understand the philosophies inherent to that dynamic.
At that time, several other family members were involved in the business in one way or another because Kevie had left stock to family equally. Eventually, Alan and Steven bought out the other family members.
Now, however, a new generation of apples is falling close to the tree.
Steven told his children and nieces and nephews: “'You’ll always have a job in the company. We’ll always need people to fold towels and check people in. But if you want to be in management and want to make this a career, you’ve got to (a) finish college - I don’t care what you study, (b) work for someone else for some period of time – a couple of years at least, and (c) you’ve got to really want it.'”
Steven added: “A family business is always a complicated mix of emotions, economics and control. We worked hard on the process, and the hard work has paid off.”
Ceding Responsibility
Alan wanted to ensure that when it came time to cede the company to Steven, it went as seamlessly as it did when his father ceded the business to him. A key element for the Schwartzes—and the lesson for other family businesses—is the concept of respect. When father respects son and vice versa, the business can thrive. Without respect, the likelihood of a smooth transition is remote.
“We both respect each other although we often disagree on approach,” Steven said. "Dad gave me the same power of attorney rights he had been given by his father.”
Both have enough accolades to earn the respect of the other. In addition to his educational history, Alan is a former president of the U.S. Tennis Association (USTA) where he still serves on several committees. In the 1960s, he was a founder of the National Indoor Tennis Association (NITA), one of the predecessors of the International Health, Racquet & Sportsclub Association (IHRSA). In 2007, he received Club Industry's Lifetime Achievement Award.
In addition to his educational accomplishments, Steven is a former board member and treasurer of IHRSA, where he drove the creation of the fitness industry’s first "Uniform System of Accounts for the Health, Racquet and Sportsclub Industry," a force in pushing the industry toward greater professionalism for both consumers and investors.
“I have never felt restricted, not once, about who has the legal right to do anything," Steven said. “I couldn't give a hoot. Without him being able and willing to let me function this way, it would never work. I feel sorry for kids who go into a family business if that doesn’t exist.”
Still, some people might think that handing over your life's work and your family legacy to somebody else, even your son, would be a gut-wrenching decision.
“Giving up control to Steven was not a difficult thing for me,” Alan said. “He never actually asked me to do it. I just did it. He is the controlling shareholder. He’s CEO. He doesn’t need my vote.
“The secret for the father is to not feel his whole identity is tied up in the business. When that happens, there can be tremendous difficulty giving up control.”
Night and Day Difference in Professionalism
Steven's entrance into the fitness industry came at a time when various states had implemented consumer protections against health clubs for practices such as lifetime memberships, twist-your-arm sales tactics, dubious certifications and other practices.
The lack of professionalism wasn't just operational. It was also financial. Industry accounting standards did not exist in the fitness industry like they did in the real estate industry in which Steven had experience during his work with Hyatt.
"When I would see the financials of a club for sale, the accounting was laughable, downright immature,” Steven said.
Steven’s service as a member of the IHRSA board from 1994 to 1997 was driven by his desire to address the professionalism issue, he said, which resulted in the publishing of the first "Uniform System of Accounts for the Health, Racquet and Sportsclub Industry," which allowed for the creation of exit strategies and today's influx of funding from outside the industry.
“Lousy accounting only works until venture money gets involved, at which point that game is over,”Steven said.
Similarly, business practices have evolved during Steven's time in the business, he said, with higher professionalism today, even among lower priced health clubs.
“There are low-service models that are totally professional, and there’s a good place for them,” Steven said. “I like flying Southwest. I like Walmart.”
Alan also focused on professionalism from the start, in part through finance courses he set up through NITA in the 1970s at Michigan State University.
“Unquestionably, the fitness industry is way more professional now,” Steven said. "It’s night and day from when I started.”
Putting the Money Back into the Business
The fitness industry often is plagued by the growth-above-all syndrome. How many clubs do you have? How many members? According to the Schwartzes, this is an upside down model that has caused trouble for many operators.
Instead of adhering to that model, the Schwartz family set up the following path for the TCA/Midtown business:
- Financial soundness. Don’t take undue risks, have a strong balance sheet with plenty of cash and don’t take on too much debt operationally.
- Profitability. TCA has never been all about profit, according to Alan and Steve. They know the numbers and push them. Profit is oxygen; you need it, but it’s a means, not an end.
- Growth. If you have the first two in place, then you have the ability to grow. You can always tell when someone has different priorities.
Today, TCA has 30 clubs and manages another 22 clubs. It is completing a $75 million expansion on one of its Chicago clubs, expanding its tennis and fitness offerings plus adding a shopping center and boutique hotel in an urban setting. It never could have been done without the platform built by Kevie and Alan, and Steven’s acceptance of the fundamental principles, the two say.
“We take seriously making respectable returns,” Steven said. “It’s not so we can take the money out and go to Bermuda. It’s so we can put the money back in and build the next best thing. If there’s one thing my father has instilled in me, that’s it."
Rebirth of the Growth Cycle
Twenty-eight-year-old Alex Schwartz is the son of Steven, grandson of Alan, great-grandson of Kevie and great-great-grandson of Louis, the Bronx window washer. He also is an award-winning advertising executive in New York City who has done work for adidas and others.
He is already working with and for TCA in advertising, branding, website, digital marketing and communication strategies and tactics, but he is not yet working at the company.
“Alex is incredibly bright, he’s dynamite and we’re putting the heavy hand on him right now,” said Steve, grinning. “My dad would love him to join the company now. After all, he would make the fourth generation. I am judiciously taking a back seat.”
Yet, in the life cycles of companies, the time will come when Steven is in Alan’s place, with the company continuing to move forward. The pressure to build on the platform inherited will fall on the shoulders of a younger generation.
“The first risk was what my dad took in 1967," Steven said. "Now we’re taking the next biggest risk, a $75 million project. It’s going to be awesome. We couldn’t do it if we hadn’t built a solid base.
”Companies are born, they grow, they start to stagnate, and then they can either die or be reborn. The next generation gives you a resurgence of energy and ideas, and hopefully a rebirth of the growth cycle.”
Acknowledgement:
The author would like to acknowledge and thank Sports & Fitness Insurance Corp. and ABC Financial Services for their generous support of this and subsequent articles in this series. Both companies encourage the entrepreneurial spirit represented in investment in the fitness business.
Note to Readers:
If you know of a Next Generation Fitness Family with a unique story to tell, who you would like to see featured in this space, please let us know. The family can come from any segment of the industry (i.e., clubs, boutiques, suppliers, associations). Send a note to Chuck Leve at [email protected].
Author's Bio
Chuck Leve is a 45-year veteran of the fitness industry and developer of fitness industry associations. Currently, he serves as the executive vice president of business development for the Association of Fitness Studios (AFS). He was the founding employee of the International Health, Racquet & Sportsclub Association (IHRSA), where among his accomplishments was the creation and growth of the IHRSA trade show, the largest fitness expo in North America.