I admit it. It was Dr. Phil (yes, of Oprah fame) who got me to buy Bally Total Fitness
There is a phrase on Wall Street for what my investment in Bally's has been -- dead money. My cold cash has been dying a slow death.
My investment in Bally's would probably be doing fine if Dr. Phil's message had worked. If only 0.01% of the 67% of Americans who are overweight had headed to Bally's, the company would have moved past the tipping point where losses turn into profits.
When I bought Bally's, I did not expect a gym fight. But that is what I got. In the first of two press releases today, the company announced the completion of an internal investigation into "various accounting issues." The press release starts with, "As previously disclosed, [the] investigation finds multiple accounting errors." Do I have a sign on my chest -- make that wallet -- that says, "Hit me"?
Hey, it gets better. The company terminated the controller and its treasurer for "improper conduct." And to think I own this soap opera!
It goes on to say the former CEO and CFO "engaged in improper conduct" and that severance payments have ceased because the company finds both "responsible for multiple accounting errors and for creating a culture of aggressive accounting."
The press release ends its bulleted introduction with this: The "company discloses material weaknesses in internal controls over financial reporting." Great; so what were the auditors doing way back when?
The second press release announces the hiring of a new controller. That's good when you consider the company has promised to restate results from January 2000 through the first quarter of 2004. Those results are due July 31, 2005 -- not exactly around the corner.
I knew when I purchased Bally's that it had a mountain of debt and a history of aggressive accounting. What I didn't count on was an ongoing gym brawl that still has many months to run -- and there is the added side show of the Blackstone Group's being hired to help the company with its turnaround strategy.
Dr. Phil, you led me astray, although I take full responsibility for my investment. This is one turkey I should have cleaved earlier when it was clear the only thing that was going to get slimmer here was the dollar value of this investment.