That’s the post today, announcing the takeover of CrossFit in, what can only be called, a huge sense of relief for CrossFit affiliates.
There are reasons to be cheerful:
Roza is an actual businessman, and has run a corporation, seen it through an acquisition by one of the world’s largest tech companies, been a senior executive there and so, he should bring professionalism and management to CrossFit, the organization
Roza’s time at Datalogix, the company sold to Oracle, where he was CEO, has probably given him a deep understanding of the value of reach and data, the two things that CrossFit should have plenty of, if nothing else
Roza isn’t going to rock any boats or be controversial in any way and is probably disciplined enough to avoid the minefields of a high profile position like this, at a time of crisis. Dear lord, it’s like they replaced the manicure station at your local nail salon with a CNC machine tool when it comes to level of sophistication
Roza has staunched the bleeding and handed out enough morphine to get everyone mellowed out for a while
Why Be Phlegmatic?
So, here’s why we should all reserve judgement: we don’t know what the deal is and that is a big deal. You have to assume that CrossFit was, and still is, making a lot of money. It should be a cash machine. Assume that the number of affiliates is all BS and that there are only really 5,000.
5,000 affiliates could mean $20 million in revenue a year before you factor in sponsorships, and certification fees outside of the affiliates, and event monies
You know there are not that many people employed at CrossFit. You know that it spends little to no money on marketing. You know that the biggest uncompensated expense for CrossFit, outside of wages, is the website.
So, whoever owns CrossFit could be making $10 million a year. Let’s $5 million. That’s a simple 25% net, and it is pretty certain that most of the payments CrossFit receive are upfront and it probably has no debt.
So, to make $5 million a year, without working for it, which is what you would want to sell CrossFit, you would have to receive about $100 million in cash for your ownership.
That’s a lot. Even if you believe the BS about CrossFit being worth a billion dollars, which it isn’t for good reasons we will get into later, anyone with a $100 million in cash has to have the ability to lose that cash without feeling the pain or can see a way to get it back very, very quickly. $100 million would be a 20x multiple of the profit, which is very high, granted, but it’s only 5x revenues so, that’s not bad because, you can imagine that the company wasn’t run very efficiently and could probably throw off more cash than it already does with better management.
That all sounds great in that wonderful hypothetical manner that these things do. The real issue is, what is Roza buying? Yeah, we get it, the brand. But, there is no obligation on the part of any affiliate to pay their fees. So, without them, how can you justify paying anything for CrossFit? Then, there’s the issue of how much will it cost to rebuild and invest in CrossFit so that it not only pays you back your $100 million but gives you three, four, ten times that amount?
So, does Roza have the money to pay Glassman? Does he have the money to invest? Has he done his due diligence because that’s what a big deal this is? How the heck does he guarantee the business model when there are no contracts or long-term agreements and no barriers to competition? In other words, if CrossFit can be salvaged by someone other than Glassman then, why do CrossFit when you can take a $100 million and build a newer, better model that will grow over the next decade? Just move on. CrossFit is old. Fitness likes new stuff.
Buying CrossFit ain’t that simple and it would only be that simple if you had someone with millions and millions of dollars to throw around. And people who have that kind of money don’t usually part with it that easily because that’s how they got that kind of money.
How to Buy CrossFit
It doesn’t really matter, ultimately, what it costs Roza or his plans. He seems like he is a smart guy so, he probably has a plan. And, we will probably not know the details. Good luck to him.
However, what if you were Glassman and were ready to sell but not let go? Could you do it?
Sure, it isn’t that difficult. I mean, you need lawyers and accountants, and someone who has done big, complicated deals before.
You hope that someone comes along, someone who you believe has the chops to run the business. You then hope that they can do it without you and that they have the resources to invest time and money to make the transition work for everyone. And it has to be quick.
So, you have someone who can keep the cash flowing through CrossFit, create efficiencies and profits, and then grow it. And, they have enough credibility that they can stop the pain of all the pesky non-racist, non-misogynistic people in the world who won’t just thank you and leave you be.
Well, you can sell a corporation. It’s a bunch of shares. Maybe some assets. The money to buy the corporation? That’s the ante, the money to play the game and get dealt into the business. It’s not a $100 million. Then, the real game starts. The corporation can license the name CrossFit because, the corporation doesn’t own it or the URL. Maybe they belong to some offshore entity that has the licensing deal. Now, you have CrossFit, Inc. You own it, you are the CEO. You pay for the rights to use the name CrossFit. It’s a private deal. It’s a private company. No one will ever know, if they don’t have to know.
The corporation can now keep the cash flowing, and it keeps paying for the license to use the CrossFit name and ultimately, if it succeeds, it may have a provision to buy the name outright for a one-off, and very large, payment.
You don’t care that this sweetheart deal seems like the public outcry made a difference. You’re still getting what was coming to you, what you were used to getting.
The buyer is getting a shot at something bigger without having to figure out how to pony up a $100 million, and if the affiliates stick around, and the business grows then, they can borrow a lot more against it, and make everyone whole.
CrossFits affiliates should be careful what they wish for because, essentially, no matter how you choose to see it, any deal where CrossFit is bought is going to have to pay for itself and quickly. That means change is a coming. CrossFit worked because of its simplicity and ineptness. There was a rotten spiritual core to the whole thing but, as a gym affiliation, it worked when it worked, and when it didn’t, people would shrug and move on to the next box a block away.
The bleeding has been stopped but the patient is still in the ICU.