Timing is key to The Alaska Club's growth

Ten years ago, Andrew Eker and Tom Behan had a dream: to build a statewide network of athletic clubs in Alaska. Through a series of mergers and acquisitions, the partners have grown from owning a single location in Anchorage to 12 in Anchorage, Fairbanks, Juneau, Eagle River and Wasilla.

The Alaska Club Network now has about 40,000 members and 800 full- and part-time employees. Eker projects total company revenues to exceed $24 million in 2002. The statewide network is now largely in place.

"We’re getting close to accomplishing that goal," Eker said.

But getting there wasn’t easy. On Feb. 10, 1986, a limited partnership formed by Eker and Behan, with 50 investors, purchased the Teamsters Recreation Center in Anchorage for $9 million in an owner-financed deal. That was right around the time oil prices collapsed and the Alaska economy went into a tailspin.

"We really scrambled the first couple of years to get it up to where it could pay the rent," Eker said. "There were no returns right away to our investors."

It was a trial by fire that taught Eker and Behan how to run a successful fitness club.

"You learn going up, but you learn a lot more going down," Eker said. Those lessons were never forgotten. "We’ve been in an expansion mode ever since."

Eker and Behan were uniquely suited to running fitness clubs. For one thing, they both are active in sports. Behan was a handball player, while Eker enjoys skiing, biking, tennis and golf.

Behan, as former president of Alaska Pacific Bank, understood financing. Eker was a real estate developer and was involved in construction and business management. Asked what he likes to do best, Eker’s eyes light up and he replies, "mergers and acquisitions."

And merge and acquire he has. Here’s the list:

1989: purchase of Anchorage Racquet Club Inc.;1994: purchase of the Anchorage Racquet & Fitness Club building;1995: purchase of the Fairbanks Athletic Club;1997: purchase of three Alaska Athletic Clubs, two in Anchorage and one in Fairbanks;1997: conversion of the former Alaska Builders Cache into The Alaska Club South;1998: purchase of World Gyms in Eagle River and West Anchorage; and1999: purchase of Valley Fitness Center in Wasilla.This year, the company leased a former Alaska Marketplace store in Anchorage and began converting it into a new home for The Alaska Club West, plus a new women-only facility. In October, the company announced the purchase of the two Juneau Racquet Clubs.Any business professor - and any observer of the dot-com debacle of the past year - will tell you that rapid growth, when not properly managed, can cause a company to collapse, usually for lack of cash. So how did The Alaska Club grow successfully? Eker cites a variety of reasons.Find talented peopleThe original partners, Eker and Behan, brought real estate, construction and financing skills to the table. Eker also cites two other key team members: John Marchetti, vice president of administration and finance, and Robert Brewster, vice president of operations.Those four key players have worked together to make the company grow, Eker said.Use creative financingFor each acquisition, Behan and Eker formed a limited partnership and sought investors. The original group of 50 investors now numbers about 150, most of them Alaskans; many have invested in more than one transaction, Eker said. The partnerships provide the cash needed to make a sale work.Another technique the company has used repeatedly is to offer equity in The Alaska Club to the owners of the firms they buy. This minimizes the amount of cash needed for each deal, Eker said. Owner financing has been used in several transactions as well, he said.Actual operation of the clubs is divided between two corporations: The Alaska Club Inc., which owns the Anchorage, Eagle River and Wasilla facilities; and Athletic Clubs Inc., which owns the Fairbanks and Juneau clubs. Eker is president of both.Timing is everything"If there’s anything I’ve found out in business, it’s that timing is the governing factor," Eker said. "Until the timing is right, nothing happens." He said it took five years to persuade the Teamsters to sell their Fairbanks facility; the Wasilla transaction took three years.Then there’s the timing of the fitness craze in the United States, which began about the time the partners bought their first club - and it has been growing ever since.Eker pointed out that fitness equipment generates far more revenue per square foot than tennis or racquetball. An 800-square-foot racquetball court provides exercise for four people. That same space, used for fitness, can accommodate 20 paying customers, he said.Location, location, locationWhat’s true for McDonald’s is true for fitness clubs: Location is vital."We’ve discovered that the distance people will travel for fitness is limited," Eker said. "Also, they will travel shorter distances for fitness than they will for tennis or racquetball."That explains the company’s drive for multiple locations in Alaska’s three largest cities. Eker said that opening a new location drops attendance at existing facilities at first, but in the long run it attracts people who were never customers before, for a net gain.Serve the customerEver since Day One, the company has invested heavily in upgrading the clubs it buys. In 1993, the Alaska Industrial Development and Export Authority backed an $8 million loan from National Bank of Alaska, now Wells Fargo Bank Alaska. The money was used to expand The Alaska Club’s original location, refinance existing loans and pay off the Teamsters Union, which had helped finance the original purchase."Buy it, then fix it up" could be a motto for the company because it has done so many times."Annually, we create a plan to update and upgrade," Eker said. "I think the membership appreciates it. We don’t want them to get bored. We rely on them coming back every month."Eker said he learned a lesson about the changing needs of his customers when he opened The Alaska Club South. "Parents wanted something for young people 8-14 to do," he said. "We missed the market," he freely admits. His response: Add things kids like - a rock climbing wall, a game room, a pool and a basketball court. Membership promptly took off and the club is now a success, he said.Eker said another important way he serves his customers is with what he calls "reciprocity." That means any person who signs up at any club in the state can use any other club in the network."We’re trying to create value through convenience," he said. "It’s really viewed as a value by our customers."Eker said reciprocity for Juneau will begin when the final paperwork is signed, which he expects to occur by Dec. 1.Eker pointed to the Wasilla facility as an example of how his company’s experience can turn things around."When we bought it, it had 600-800 members. It’s grown to almost 2,000 members in 18 months," Eker said. "The original owner created a nice facility and he had good intentions, but he didn’t understand the business."Eker said he’s focused now on completing the two clubs at the West Anchorage facility and is beginning the analysis of what will be required at the newly purchased Juneau clubs.And while he won’t disclose any other future plans, you can be sure he’s got more deals in the wings. He’s just waiting until the timing is right.
11/11/2001 - 8:00pm