There has been a controversy brewing for a number of years between commercial fitness and non-profits, especially when it comes to YMCAs.
On the one hand, many commercial health club owners believe that as more YMCAs begin to set up health and fitness facilities, especially in upscale communities, the private club owners are at a competitive disadvantage, given the tax exemptions enjoyed by the YMCAs, plus their ability to raise charitable funds.
YMCAs, on the other hand, claim that they are community centers that build healthy minds, spirits and bodies and that they serve people of all incomes.
IHRSA has been providing assistance to member clubs who feel they are victims of this perceived unfair competition. IHRSA suggests that because many of the YMCAs are focusing on affluent communities rather than impoverished areas, that they have strayed from their original mission. It believes that although YMCAs still do have a charitable mission, it has become secondary to a new primary mission of offering fitness facilities to the general public.
“I first want to emphasize that we are not against YMCAs,” says Kevin Buckley, government relations manager for IHRSA. “We fully support those that have remained true to their charitable missions. Unfortunately, what we're seeing is a national trend of a growing number of Ys abandoning their original mission and starting to operate health club businesses. They, along with many hospitals and park and rec agencies, have discovered that by utilizing their tax exempt status, fitness facilities can be very lucrative ventures.”
Buckley notes that there are a few JCCs that occasionally stray from their mission, but by far the most aggressive competitors are the YMCAs. “The YMCA generated $4.1 billion in revenue in 2001,” he reports. “If you took away their tax-exempt status, that revenue would put them in the top 30 of the Fortune 500 companies.”
But, Kenneth L. Gladish, Ph.D., national executive director of the YMCA of the USA located in Chicago says that many of the claims against the organization are unfounded and limited to a small number of clubs.
“The only people who have raised the issue of the work that YMCAs have been doing for the last 150 years have been a limited number of IHRSA members,” says.
Gladish. “We think they have a fundamental misunderstanding of what the primary mission of the YMCA is and has been. In fact, it has been our experience that not all IHRSA members or even all IHRSA leadership is of one mind and voice on this question. There are thousands of communities where there is no conflict at all between the YMCAs and the for-profit health clubs.”
But while there may be no conflict, there is definitely competition amongst the Y and private clubs for the same members in many circumstances. In fact, research done by American Sports Data shows that 63 percent of people working out at YMCA facilities have household incomes over $50,000, and 87 percent have household incomes over $25,000, almost mirroring that of membership in private facilities.
IHRSA has never asked YMCAs, parks and recs or hospitals to get out of the fitness business only to play on a level playing field, according to Buckley.
“All we ask is that if they act like a business, they should paytaxes like a business,” Buckley says. “For example, if the Salvation Army opened up a shop on Fifth Avenue in New York and started selling Armani suits to high-income professionals, no one would consider this a charitable service. They would have their tax-exempt status revoked immediately. Yet, many YMCAs are opening $15 million facilities catering to affluent clientele.”
According to Gladish, The YMCA serves everyone across all ranges of financial capability and economic class.
“We are present in all types of communities — geographically, socio-economically and size of the community. The YMCA of the USA never goes in and creates a YMCA in any community,” emphasizes Gladish. “YMCAs are created by the communities themselves, and we can hardly keep up with the demand from local communities for YMCAs, whether or not they have for-profit health clubs in their communities.”
One club owner who has seen the situation from both sides is Mike Shannon, general manager of the Cathedral Hill Plaza Athletic Club in San Francisco. Before opening his own club, Shannon worked for some YMCAs in the Western states between 1984 to 1995.
Shannon believes that as the fitness boom grew in the 1980s, and as YMCAs were able to generate more capital, fitness became a means by which they could have a physical presence in a community and also have a lot of cash flow.
“A lot of YMCAs do good work, but some of them have lost track of their mission,” He says. “They lost track of the need to work with the lower income communities where the needs are greater.”
Shannon doesn't think the YMCA should stop offering health and fitness activities, because they do serve a purpose. “However, it's another issue as to whether they should receive a tax exempt status for those activities,” he concludes.
BIG BUSINESS
The YMCA is the nation's largest charity in terms of earned income, the second largest by contributed income. Each YMCA operates as a charitable not-for-profit organization under Section 501(c)(3) of the U.S. Tax Code.
In 2001, the YMCA reported total revenues of $4.1 billion. Of this, 63 percent came from membership dues and fees paid by people to take part in YMCA programs. Meanwhile, 31 percent came from charitable contributions, government contracts and grants. The remaining came from fees for YMCA rooms, resident camping and more.
These figures add up to IHRSA feeling as if it is battling a giant.
“We are really the little guys, trying to take on a $4.1 billion empire that has incredible built-in advantages,” Buckley laments.
One “David” who tried to go up against “Goliath” was David J. Cohan, owner of the Sports Club located in Woodlyn, PA. A year after a local YMCA expanded its fitness center in 1997, Cohan filed an unfair competition using the state's new Purely Public Charity Law.
The new law repealed a former law governing non-profits. Part of this involved repealing the promotion of health as a tax exempt activity in Pennsylvania. It replaced this by saying that tax exempt status would be conferred on organizations that were involved in the prevention and treatment of injury and disease, narrowing it to what hospitals do, rather than the broad promotion of health.
In fact, Cohan says he was able to obtain copies of YMCA meeting minutes via a court-ordered discovery that included scouting reports of local health clubs by the YMCA to determine levels of competition, as well as discussions of how to wean out members who weren't bringing in sufficient revenue and selling new memberships.
“We also located documents showing that they had, on average for the five previous years, raised approximately $500,000 in donations and government funding for the capital campaign,” claims Cohan. “However, their annual budget to help the needy was only about $20,000 a year. I could do business that way, too.”
Despite his evidence, Cohan lost his case. He then took it to superior court, where he also lost in a 2-1 decision. “We argued that the YMCA's charter rested on the ‘promotion of health’ being a charitable activity and, as such, they should not be considered tax exempt,” states Cohan. “However, the court said that since the YMCA does a lot of good things, the legislature erred when it struck the promotion of health as being a charitable activity.”
FIT HISTORY
Fitness is nothing new for the YMCA. In fact, it's been available for more than 100 years. Y literature notes that: “In 1881, Boston YMCA staffer Robert J. Roberts coined the term ‘body building’ and developed exercise classes that anticipated today's fitness workouts.”
Gladish says that fitness is still a part of the YMCA's mission.
“The range of activities of the YMCA has always included health and fitness as part of our charitable mission,” he says. “This assertion has been confirmed over and over again by local courts, local taxation agencies, state legislatures, the IRS, the U.S. Congress and donors. In fact, only about one-third of our total activities are related to health, fitness and wellness.”
Furthermore, according to Gladish, the YMCA will continue to argue that health, fitness and wellness programs, as it offers them, are worthy of its charitable status.
In the end, though, Gladish believes that the two sides can co-exist, and in fact, may help each other survive and thrive.
“We believe that the pursuit of private enterprise, the wealth it creates and the opportunities it creates for people in local communities are great things, and we wish the sports club industry well. We would also expect that they would wish us well, given our history of service. If the health club industry is genuinely interested in the mission of improving the physical health of its community members, which is a mission that transcends the individual economic success of the club owners, then they should join with us to help meet the tremendous challenges that we face. There is more than enough good work to do together.”
As should be obvious by now, both sides believe in the rightness of their claims and have a large number of reasons designed to support their beliefs. As such, it will likely be up to the courts, one by one, jurisdiction by jurisdiction, to ultimately make those decisions as to who will prevail.