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Strategies & Market Trends : BFT: Will the tulip craze ever break down? -- Ignore unavailable to you. Want to Upgrade?

To: Kip518 who wrote (152)	3/24/1998 6:36:00 PM
From: David Leith	Read Replies (2) \| Respond to of 650

Pancho et al. I have found your argumentation very convincing, but I suspect the reason why the stock has not fallen (so far) is something like this: Most of us have had the experience to visit and join local health clubs (maybe not chains). The barriers to entry are not high (a few large rooms, $75,000 in exercise equipment if it is bought used, two showers, changing and toilet facilities. $100,000 can get you in business in a small town, or less if you take over a club that couldn't make it before. After the initial investment is made, the cash flow should be overwhelmingly positive. People pay in advance, operating costs are low (utilities and minimum wage staff). Marketing is overwhelmingly local, and usually cheap or word of mouth. Maintenance of machines is fairly straightforward in most cases. The only real question is what sort of return on investment will the initial cash outlay receive? A gym's success is measured by retention rate, and its ability to max out its capacity (and measuring capacity is simple for a user -- are the machines available, or the classes full, during peak periods). So, in essence, it is a simple business, one in which service and friendliness and atmosphere count, and quality instruction and/or personal trainers. In thinking this over -- Bally hasn't managed to fulfill on any of these, and as stated before, the barriers to entry are low, and competitors are everywhere. What sort of advantages could a BFIT bring as a large operator or consolidator? To visit gyms anywhere in the country (if you travel, you know you can pay to visit once, or get into a gym through your hotel, etc). Back office savings (maybe a little, but management and staff typically have plenty of down time in slow periods to take care of paperwork). Purchasing? Most small operators purchase a significant part of their equipment used. BFIT may get discounts from large vendors, but is it significant? Real estate or leaseholds? BFIT will get into more exclusive or high priced leaseholds, but they will also have to guarantee it -- small guys can walk away from bad locations with a local corporate bankruptcy. The only real advantage BFIT has is in financing -- but that brings us back to leverage. The thing that amazes me about this company, and I have not crunched the numbers, is that on an operating basis (excluding capital expenditures and debt service) that it is not strongly cash flow positive. How is it that they can't fill their gyms to the point that they reach break even? Are they that expensive to operate? It does not take too much of an imagination to imagine an operating turn-around of this company, unless there is something so fundamentally flawed with their leaseholds and structure...it should be so simple. Another way to think of it is -- are there no advantages to a "mega-gym". Or is smaller and personal simply better. I know of many gyms that operate successfully in smaller communities with between 300 - 500 members. Am I not thinking straight here? It is true I see no synergies, no advantage to being big, only management problems and impersonal service. Lots of competition, with better local management and pricing and lower overheads. The thing is, with the leverage they have, the borrowing, if the cash flow ever goes positive than watch out, it could be ballistic upwards. Admittedly, it looks a lot more like the Titanic from here, ballasting to stern. I'll be watching this one going forward.

To: Kip518 who wrote (152)	3/25/1998 6:34:00 PM
From: Pancho Villa	Respond to of 650

Kip and all! Great contribution from the BFIT thread at YHOO! messages.yahoo.com@m2.yahoo.com Hopefully before I leave for Coasta Rica next week I will find the time to post what I know about these dirty crooks on your new SI discussion group. My information comes from former employees and my own experience dealing with BFIT, a company with a sorted history. In topics I will cover include: 1) Sales Force Training in the art of abusing the customer. BFIT is second to none in training its Sales Dept., when it comes to verbal, physical, and financial harassment. 2) Connections to organized crime. The company has always been the shadiest of operators in a shady industy. 3) Ruthless collection tactics, BFIT is top dog when it comes to collecting mis-represented contracts. In fact they have paid fines in this area and in the early nineties and were subsequently forced (either trough settlement or court order) to create a entire off site department to deal with unresolved bogus collection activities on what must be tens of thousands of irate customers. In short, watch for a break, I assure you again Pancho that you are doing an honorable deed in taking this lousy company to task. Be on the look out however, you are in battle with skilled operators who specialize in fraud and mis-representation. I have read this entire thread and it was about what I expected- It does not take long when dealing with BFIT to sense disgruntaled customers does it? To those of you who are long at $4 a share- good for youm however, you should not wait for this stock to return to $4 before you sell. It is being pumped by the Mutual Fund Holders IMO who are operating on the new model for Junk Stocks. The exit strategy as I see it is to drive the price well past realistic valutions, thus attracting short interest who you then force (a portion of) to cover their position at a substantial loss which produces a buyer. Ask yourself who else would buy? Only a short who is forced to cover or an idiot. Granted plenty of idiots do exist as this thread can attest but not enough on its own to hold the price. Although I have read on this thread tonight that in honor of April Fools 10% of BFIT employee pay will be used to hold or drive this dog higher. No stunt is past the villans who are behind this cow and shorts shold watch out- use an option play hold your position if you are in from the low 20's until it tops out if you must, I know you are a skilled investor Pancho. New shorts should start small and add as if it goes higher. I cannot believe this dog has travelled this far.