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In Memoriam

Polly Kawalek, ’78

Kawalek's Staying Power

W hen Lee S. Hillman, ’79, joined Bally Total Fitness in 1991, the company was a long way from fiscally fit. The nation’s largest fitness chain faced an increasingly severe cash flow problem and was running toward bankruptcy.

“The day I started with the health clubs, they had a $6.5 million payroll coming up in five days, with about $300,000 in the bank,” Hillman said. “You learn how to manage stressful situations.”

Serving first as CFO and since 1996 as CEO, Hillman led a turnaround that pumped up the firm’s sagging bottom line. Under his leadership, Bally’s market capitalization has increased from $40 million to well over $500 million and the stock price has surged from $4 to the mid-$20s a share. The chain now boasts 31 percent of all commercial fitness center members in the United States and has more than 380 centers across North America.

Hillman’s regimen for Bally has been simple: “The challenge of this industry is to recognize that what we provide is a service to our customers,” he said. “It’s more than helping them lift weights. It’s helping them achieve their fitness goals and providing a wide range of fitness services to a broad population. The overriding objective is to keep the experience safe, fun, friendly, and clean. That’s what we’re all about.”

Before joining Bally, Hillman spent a decade in accounting. After leaving the GSB, he worked for Arthur Young, rising to partner of the merged Ernst & Young in 1989.

Hillman joined Bally Total Fitness as CFO in April 1991, taking on the additional role as CFO of Bally Manufacturing Corporation later that year. “Bally had been a client of mine,” Hillman recalled. “It was a company in dire trouble, for all intents and purposes going bankrupt. Newly appointed chairman and CEO Arthur Goldberg was trying to turn the company around. He offered me a challenge I couldn’t turn down—the chance to be the number two person in a corporate turnaround.”

Though the company’s overall fortunes slowly improved, the future of Bally Total Fitness still looked less than promising in 1996. That was the year Bally Entertainment, the new name for Bally Manufacturing, was sold to Hilton Hotels.

Bally Total Fitness was spun off as a separate company later that year. That’s when Hillman was installed as CEO of the fitness company and launched a three-pronged attack on the company’s problems.

First, he alleviated the firm’s cash crunch. Bally’s chronic cash flow problems were forcing it to sell deeply discounted memberships for immediate cash. Realizing that the company’s future depended on selling higher-margin memberships, Hillman set out to raise money to finance the receivables. Some $90 million was netted through a stock issue in 1997, and an additional $80 million through a second stock offering the following year. At about the same time, he restructured the company’s long-term debt to reduce interest payments.

Second, Hillman set out to identify a more profitable “store model” that could be replicated throughout the chain. Such a model, he realized, would be less expensive to both build and operate. In the new model, he deemphasized pools and racquetball courts, in the process adding about 40 percent to the traffic capacity of the clubs. Last, he added new products and services to increase value to the membership and add incremental revenue streams to the company.

The result? By early 1999, Bally had returned to a positive cash flow position. Despite Bally’s renewed health, Hillman isn’t standing still to allow the “fragmented, undisciplined, but growing” competition catch up. The company is striving to provide more services to consumers and has begun offering health care–related services through partnerships with institutions that provide physical therapy; a 1998 joint venture agreement will allow Bally to offer rehabilitation services in as many as 100 centers over the next three years.

The company also is expanding personal training services, adding convenience stores to its centers, offering private-label vitamin and nutritional supplements, widening group fitness programs to reach a broader range of members, and renovating centers. “We’re continually branching out to provide a wider range of services to the fitness-conscious adult,” Hillman said.—Jeffrey Steele
Vital statistics: Lee Hillman, ’79

1979 Campus Program graduate

CEO, Bally Total Fitness

Career path:
1979 Joined Arthur Young

1989 Named partner of the newly merged Ernst & Young

1991 Became CFO of Bally Total Fitness in April; took on the additional role of CFO of Bally Manufacturing Corporation later that year.

1996 Became CEO of Bally Total Fitness

Free weights:
In 1997, Hillman personally launched the Bally Total Fitness Stronger Communities Program, which has donated more than 7,000 pieces of exercise equipment worth more than $12 million to inner-city boys and girls clubs and other organizations.

Giving back: Hillman sits on several local boards, including Heartland Alliance for Human Needs and Human Rights, Chicagoland Chamber of Commerce, and Young Presidents’ Organization. He’s also active in the Juvenile Diabetes Foundation and the Challenged Athletes Foundation.

Workout philosophy: Hillman does 60 to 90 minutes of exercise daily. “I exercise to maintain and improve my health. I have asthma, and my fitness program has had a dramatic and positive impact on my health.”
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