The deal that was cut ( or attempted) was that the customers’ contracts that were transfered to another club would be split evenly with the new club and Diversified Health and Fitness. The monthly drafts would continue to be billed by Diversified’s biller, National Fitness. By doing this, it would seem that Diversified actually makes more money by the acquired club going out of business and Diversified selling off the current members’ contracts. Instead of getting 5-8% royalties, they get 50% – what a deal!

Another windfall is that Diversified seems to be very slow in having the billings turned off for those members that choose to discontinue their membership, since they had originally signed up with a women’s only club and the new club is co-ed. The members have to call or e-mail in their cancellation request. If they do not notify Diversified then they can count on getting billed for another couple of months by Diversified’s biller, National Fitness – at least that is what happened at our location.

Another thing that happened when Diversified bought out the previous ShapeXpress franchisor is that all member billings were transfered over to Diversified’s biller of choice, National Fitness. National Fitness considers Diversified as their client and does whatever Diversified tells them to do as far as withholding franchisees deposits for royalties or whatever other fees that Diversified wants witheld from the franchisees deposits. I always wondered if this is standard practice – for the franchisor to receive the monthly drafts and tell the franchisee when and how much of the revenue they were going to get.

Anyway – do you think there is actually a strategy here to buy up struggling chains and have your way with the franshisees and their membership in order to pad a greedy pocket?