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Nonprofit Fitness Facilities Cutting Costs as Recession Nears

Nonprofit Fitness Facilities Cutting Costs as Recession Nears

<b>Out of Reach: Management at nonprofit fitness facilities may have to reach for funds in new places as the economy slows, utility costs rise and competition over limited fundraising dollars increases. </b>

Although the government isn't saying the “R” word yet, many economists are predicting that the United States is close to entering a recession. Nonprofit fitness facilities, which heavily rely on a steady membership and donations to support their operations and programming, are starting to feel the pinch as donors — and dollars — are harder to reach.

With a slowing economy, high utility costs and more competition in the not-for-profit sector, many nonprofit fitness facilities are cutting costs and bracing for lean times in their fundraising efforts.

Earlier this year, management of the Charleston Family YMCA in Charleston, WV, increased its membership fees by 7 percent and cut two positions from its staff, says John Giroir, Charleston Family Y interim president.

“This was in direct response to rising costs and revenue not keeping up with it,” he says. “It's difficult to make these kinds of decisions, but for the Y, it's choosing the lesser of two evils because you have to pay the bills.”

The Charleston Family Y's water bill recently increased by 15 percent, equating to an extra $1,000 a month for the 120,000-square-foot facility, and its electric bill increased 10 percent. By laying off the youth sports director and financial development director, the Y will save $70,000 a year, Giroir says.

The Charleston Family Y's situation echoes a nationwide trend. The government reported that energy costs were up 0.7 percent in January with gasoline costs rising by 1.2 percent.

Many economic analysts, who are concerned with rising energy costs and the nation's troubled housing market, are closely watching the situation. Congress recently passed a $168 billion economic stimulus package to provide tax rebates to more than 130 million American families to address the issue.

A weakening economy is the No. 1 issue nonprofit fitness facilities face today, says Michael Nilsen, director of public affairs for the Association of Fundraising Professionals. The majority of nonprofit fitness facilities use their membership dues to help cover operating costs, to fund fitness membership or programming scholarships, and to fund other services, such as child care, domestic abuse shelters or other social services for those who can't afford it. The remainder of nonprofits' expenses is covered through donations and monies from fundraising events.

Nonprofits are also facing greater competition for their fundraising dollars. In 1996, the National Center for Charitable Statistics identified 600,000 501(c)(3)s. In 2006, that number rose to just more than 1 million. Nilsen estimates that today that number is closer to 1.1 million.

“Competition is out there across the board, and it's definitely a factor,” Nilsen says. “Donors are getting all kinds of solicitations, and trying to create a connection with donors is one of the biggest challenges nonprofits face.”

When times are the toughest and more money is needed to provide services and scholarships for lower-income members, it's more difficult to raise funds.

“As the economy worsens, you lose paying memberships, gain more scholarship members and demand for your social services gets higher, and you might not have the resources to fund those,” Giroir says. “It's a tricky little system.”

Increased Need

Nonprofits raise money for their operations — both fitness and social services — in a variety of ways. Funding for most fitness facility operations, including equipment, rent and utilities, come from membership dues. Fitness- or wellness-related programming and many fitness center membership scholarships are supported by special events or an annual campaign, although this can vary from organization to organization. Capital campaigns raise funds for a renovation or new facility.

Jewish Community Centers operate a little differently than most Ys and YWs. Many JCCs have separate agencies that focus solely on raising funds for their associated facility. Typically, the only time a JCC's fitness center gets involved with fundraising is to raise money for a renovation or new fitness facility. Most JCC capital campaigns last three to five years, making the economy's effect on this type of fundraising difficult to immediately see, says Fani Magnus Monson, vice president of development for the JCC Association in New York.

“Hopefully by the end of the year [the economy] will have an upswing, but at this moment I can't say we're seeing a significant decrease in giving,” Magnus Monson says. “It's too soon to know.”

After two years of construction and the help of more than 300 individual and corporate donors (many of which gave seven-figure contributions), the JCC Rockland in West Nyack, NY, opened its new facility last December. Through the first phase of its capital campaign, the JCC built a 44,000-square-foot fitness and recreation facility. The JCC is currently in its second phase of the campaign, which will continue the facility's expansion, allowing for more social services and indoor pools.

So far, the second phase of the campaign hasn't been affected by the economy, but the JCC is always looking for more donors, says Wayne Brown, marketing and membership director for the JCC.

“If people believe in our mission, they will find the means to give, whether in a good or weakened economy,” he says.

The same can be said about YWCAs, says Karen Schwarzwalder, YWCA Great Lakes Alliance regional coordinator. In fact, previous economic downturns have actually helped fundraising efforts, she says.

“I've been with the YWCA for 25 years, and I've seen these things come and go,” Schwarzwalder says. “Quite often, the YW is providing a service that's critical in times of recession or when the economy is a little unstable. Consequently, they are often more successful in fundraising when it comes to supportive services for low-income populations because in a downturn, those things are very necessary.”

However, fitness may not directly benefit from those fundraising efforts, as it's the social service programs that need the support in a downturn, not always fitness. In some cases, YWs have closed their fitness centers' doors because they were too expensive to operate. That was the case for the YW in Racine, WI. Management there closed its fitness center in December after facing financial troubles and rising costs. In 2000, the Racine YW had 1,157 members. In 2007, that number was 400.

“The thought is, if a health and fitness program is operated and it can be aligned with the vision of empowering women and eliminating racism and if it can be operated without a loss, then they go forward with the program,” Schwarzwalder says. “But, if we start losing money, then a lot of organizations will make the decision to close the pool or the center rather than a program that is directly related to our mission.”

According to the YWCA USA's most recent statistics, 30 percent of visitors at YW locations across the country partake in health and wellness, fitness and aquatics programming. In total, YWs bring in almost $550 million a year with 44 percent coming from government grants, 28 percent from public support and membership fees, and 18 percent from program service fees, says Andrea Zentz, spokesperson for YWCA USA.

Jeffrey Collen, CEO of the Racine Family Y, says fundraising in Racine, WI, isn't easy. A number of large manufacturing corporations have left the Racine area or closed completely, leaving a great need for nonprofits to fill. This year, the Racine Family Y's annual campaign, Strong Kids/Strong Communities, has a goal to raise $125,000.

“There are people who see the needs and are trying to find ways to help meet those needs, so we end up getting more and more nonprofits,” he says. “It does become much more competitive for the shrinking dollars in this community.”

Nationwide Effect

Even nonprofits located in affluent communities are closely watching the economy and cutting costs when they can. The Frank G. Berlin Sr. Branch Y in Sarasota, FL, has about 13,000 members, 80,000 square feet of space, a six-year-old facility and a $7.5 million yearly operating budget.

“The [Sarasota Family Y] is probably a $96 million association, and our fitness centers probably make up $15 million to $20 million of that,” says Patrick Chapin, executive director of the Frank G. Berlin Sr. Branch. “Our four branches are unique in that they have a separate nonprofit foundation that has been in place for 20 years that do the bulk of our major fundraising.”

However, each branch of the Sarasota Family Y also does its own fundraising. Each May, the Frank G. Berlin Sr. Branch holds an annual black-tie gala that typically raises $500,000. Each February, the branch holds a Caring Campaign to build support for the facility and raise awareness of the Y's efforts in the community. While the May event is formal, the Caring Campaign in February is themed around Valentine's Day and takes more of a grassroots approach with events such as a raffle, a dance-a-thon and a bake sale.

“No one wants to ask for money, and it's kind of tough to do, so we try to create a series of events and fun activities that break down the walls,” Chapin says. “It creates a natural conversation where staff members can tell members about our goal, and how we support families and children in need.”

The Frank G. Berlin Sr. Branch had a surplus of funds in 2007. However, it isn't immune to economic concerns. For 2008, membership revenue is down and January membership wasn't as productive as last year, he says.

“We're feeling the crunch,” Chapin says. “I see it every day. People I recognize at the branch will come to us, and we'll have to put them on a scholarship for the first time. We help them with this bump in the road.”

David Kisselback, CEO of the Family YMCA of the Glens Falls Area in Glens Falls, NY, is also seeing a higher need for scholarships than a year ago. Each year, the Glens Falls Family Y uses more than $400,000 to provide more than 2,500 scholarships for the facility's programming, including fitness, to children, families, adults and seniors. To help fund the rising need for scholarships, Kisselback is looking at the Y's general operations to see where money can be saved. He's also waiting to hire new staff members.

“We're watching everything from cutting utility expenses to waiting on supplies,” Kisselback says. “Waiting on computer systems is OK, but we'll never turn anyone away for their inability to pay.”

Focused Approach

Many nonprofits are cutting costs by being more cost-effective in their fundraising, especially when it comes to special events. In the past, the Racine Family Y sponsored a golf shootout, in which 25 people shot for a hole-in-one. Although the event was creative and fun, it didn't bring in nearly enough money to cover the staff time that went into planning it, Collen says.

Instead of holding big events, many nonprofits could be more effective by simply doing a better job of supporting their annual campaigns, he says.

“Because of the competition in fundraising and the reduction of people and corporations available to help, we have to make sure that the events that we do are cost effective,” he says. “So many times these events look like they've made a lot of money, but they're so time and staff intensive that there really isn't a good payoff.”

However, not all events are strictly about bringing in funds, he says. With more than 3,000 runners, the Racine Family Y's annual Lighthouse Run brought in close to $60,000 last year, but it cost the Y nearly $55,000 in expenses to run. Despite that, Collen says it's an important event that they'll continue to do.

“It's a nice event that gets us publicity and partnerships with corporations,” he says. “It's one of those good-feeling events that are so crucial because when we go back to corporations and individuals and ask them for money during our annual support campaign, they remember that event.”

During times of economic uncertainty and increased competition, it's important for nonprofits to create their unique voice and create a connection with donors instead of just an event, Nilsen says. All nonprofits should also have a Web site with the capability for online donations and a summary of their mission, he says.

Perhaps the most prudent advice for fundraising is for nonprofits to treat their donors like their fitness facility members and keep their rate of retention high. Like members, it's easy to attract new donors, he says, but it's more cost effective to keep the ones you already have.

Through cost-effective and smart fundraising, most nonprofit fitness facilities are confident in their ability to withstand whatever challenges the economy throws at them, even if that means increasing membership prices and reorganizing staff.

“As a society, [nonprofits are] facing challenges in being able to afford to provide services that are needed to the community,” Giroir says about the future. “Whether you're a nonprofit, government or for-profit business, I believe in the American spirit and that we'll all make it through. It's going to be a challenge, though.”

Five Tips to Help Nonprofits Prepare For an Economic Downturn

1. Avoid strong, silent behavior and sustained spending

“We are entering a period of financial crisis, and we can't afford to fake it until we make it,” says Clara Miller, president and CEO of the Nonprofit Finance Fund. “This heroic type of behavior does no one any good in the long run. Nonprofits need to share worries with boards and funders, and enlist their support in getting ready for a possible recession. Organizations need to try to get by on decreased revenue and programmatic spending for a year or two in light of new financial indicators before moving forward with challenging expenses.”

2. Engage with board members and funders in contingency planning

“The end clients are especially important and face the greatest risk,” Miller says. “Many of the populations served by nonprofits are fragile, needy people, whose need increases in times of financial stress. The goal of surviving a recession or economic recession is not to stay afloat for the sake of staying in business but rather to make sure you're around to keep serving the public, particularly in times of increased demand for services. It's important to get board members and funders to go public with that message — that the organization's survival is important because of the clients it serves.”

3. Avoid large investments in fixed assets and infrastructure

If nonprofits are already in the process of growing, they should work with funders and their board to build a cushion to allow flexibility and course corrections, Miller says. “As economist Peter Bernstein put it, ‘Risk means not having cash when you need it.’ And that is particularly true for nonprofits, which often have liquidity problems in the best of times. Liquidity becomes even more of an issue during a downturn, when there is a temptation to maintain or increase services, and hence expenses, even if revenue is declining.”

4. Get a firm handle now on revenue patterns

“Organizations can examine revenue cycles to see if they're contra-economy or not,” Miller says. “In some cases, the revenues of nonprofits actually rise during a recession. If that's true, nonprofits can build growth funding to allow rapid expansion to meet needs. If the opposite is true, nonprofits can take actions in step with cushion-developing approaches.”

5. Don't be afraid to approach the government

If nonprofits offer services (e.g., job retraining, food kitchens and housing services) that will lessen the negative impact of an economic downturn, nonprofits should approach government funders more aggressively, Miller says. “Nonprofits should propose revenue-neutral changes if the government can assist it with expansion during a recession or improving its practice within the context of its mission,” she says. “Nonprofits can also band together around quality-adequate pricing and consider shared-platform investigations, using already-scaled ones available.”
Source: Nonprofit Finance Fund

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