It isn't always a crappy balance sheet and earnings restatements that demonstrate why a company like Bally Total Fitness (NYSE:BFT) is in big trouble. In Bally's case, its rep is so rotten that a Google (NASDAQ:GOOG) search under the company's name turns up multiple pages of unflattering commentary.
Bally allegedly has offered free memberships with hidden clauses that trigger three-year commitments at exorbitant prices, lied to prospective members about their option to cancel memberships, and misled people who opted to quit by acknowledging their cancellation, then dogging them to insist they keep paying for their membership. The specifics of this last complaint are that Bally continues to bill credit cards or debit bank accounts, and when the consumer tries to halt this practice, the company employs collection agencies to pursue the consumer relentlessly and damage his or her credit.
This behavior has reputedly been going on for years. Some states, including Oregon, have pursued legal action against Bally, but the fitness company continued to use the same tactics. Somewhat ironically, management said its 2004 goal was to increase gross committed revenue! What was the plan? Send out hit squads to loot the homes of duped clients? Throw napalm-laced Nike (NYSE:NKE) shoes at them?
Bally's behavior makes sense (if you ignore the ethical and legal issues) because it has a negative book value and is sinking under $700 million of debt. The company needs cash badly!How did people get snookered into Bally's web of deceit? They may have ignored the primary consumer rules:
- Read the Contract. Don't believe a salesman. Read the contract.
- NEVER provide your social security number to the unwashed masses. SSNs were designed to remain among you, your employer, and Uncle Sam -- not to be used as ID numbers for doctors' offices, gyms, schools, insurance companies, and the like.
- Do not allow any business to copy your driver's license.
- Never let a business automatically debit your bank account or credit card.
- Know your rights as a consumer.
The good news is that Bally reaps what it sows. One can only hope it will be sold to more ethical managers. Until then, I'd advise putting your investment and membership dollars to work elsewhere, lest you suffer through a brutal workout to rescue yourself from a bad situation.
Fool contributor Lawrence Meyers will go after unethical companies that target consumers, so evildoers beware. He definitely does not own shares of Bally or any other company mentioned here.
