Let's get physical: The economic contribution of fitness centres in Australia

July 2009

Report by Access Economics Pty Limited for

Fitness Australia

FITNESS AUSTRALIA PROUDLY PRESENTS A REPORT ON THE ECONOMIC CONTRIBUTION OF FITNESS CENTRES IN AUSTRALIA There is a great deal of anecdotal evidence to support the notion that the fitness industry plays a key role in improving the health of the nation. However, what we have not known, until now, is how it contributes, in economic terms, to improving the health and fitness of Australians, reducing health care costs and improving workforce productivity. To find the answers to these, and other important questions, Fitness Australia commissioned Access Economics to undertake a study that quantified the economic contribution made by fitness centres to the Australian economy and the preventative health impacts of the fitness industry. Fitness Australia is proud to present this landmark economic study which forms part of our comprehensive fitness industry research program, designed to inform and guide the fitness industry into the future. This study will also be used to increase the profile of the fitness industry at all levels of government and to support Fitness Australias role as an advocate for the industry, particularly within the current preventative health agenda. The study was developed by Access Economics using information from the recent fitness industry profile report commissioned by Fitness Australia and supplemented by a range of other information sources including ABS data. This information was then subjected to economic modeling and scenario analysis to quantify direct economic impacts and wider economic implications, such as avoided health care costs. The results provide a wealth of valuable economic and statistical data that provides quantifiable evidence about the positive impact that the fitness industry has on the economic and social fabric of Australia. Access Economics is Australias premier economic consulting firm. They provide expert economic advice for business, government, industry groups and not for profit organisations. Their expertise in analysis, modeling and forecasting is unrivalled and they have developed an international reputation for integrity, quality and independence. I trust that you will find this report both informative and stimulating.

Lauretta Stace Chief Executive Officer Fitness Australia

FitnesscentresinAustralia

Contents
ExecutiveSummary.........................................................................................................................i 1 2 Introduction........................................................................................................................1 AneconomicprofileofthefitnesscentreindustryinAustralia.........................................3 2.1 Directeconomiccontribution................................................................................................6 2.2 Indirecteconomiccontribution.............................................................................................8 Broadereconomicimpactsofthefitnessindustry...........................................................10 3.1 ThenatureofAustraliashealth...........................................................................................10 3.2 Healthbenefitsoffitnesscentres........................................................................................16 Conclusionsandoutlook...................................................................................................26

References...................................................................................................................................28 AppendixA:Economiccontributionstudies...............................................................................30

Tables
Table1:Total,directandindirecteconomiccontribution,200708.............................................i i Table2:Preventativehealthbenefitsoffitnesscentres..............................................................iii Table3:HealthandfitnesscentresandgymnasiabyState,endJune2005................................3 Table4:Healthandfitnesscentresandgymnasia,endJune2008..............................................3 Table5:Revenuehealthandfitnesscentres,200708.................................................................4 Table6:FitnessindustryemploymentbyState,2006..................................................................5 Table7:FTEemployment,bybusinesssize,inhealthandfitnesscentres,200405and 200708............................................................................................................................6 Table8:Directeconomiccontributionandemployment,200708..............................................7 Table9:Fitnesscentrerevenue,200708.....................................................................................7 Table10:Fitnesscentrecosts,200708........................................................................................8 Table11:Fitnesscentremultipliers..............................................................................................8 Table12:Total,directandindirecteconomiccontribution.........................................................9 Table13:Proportionofdiseaseburdenattributedtodeterminantsofhealth,2003................14 Table14:Fitnessfactorscenarios...............................................................................................17 Table15:AvoidedhealthcarecostsCentralcase..................................................................20 Table16:AvoidedhealthcarecostsLowcase.......................................................................20 Table17:AvoidedhealthcarecostsHighcase ......................................................................20 . Table18:Increasesinworkforceparticipation...........................................................................21 Table19:Increasesinworkforceproductivity............................................................................22 Table20:Flowonmacroeconomicimpactsfromincreasedlaboursupply,200708................23 Table21:Economicbenefitsiffitnesscentreusagewas10percentofadultpopulation........24

While every effort has been made to ensure the accuracy of this document and any attachments, the uncertain nature of economic data, forecasting and analysis means that Access Economics Pty Limited is unable to make any warranties in relation to the information contained herein. Access Economics Pty Limited, its employees and agents disclaim liability for any loss or damage which may arise as a consequence of any person relying on the information contained in this document and any attachments to this document.

FitnesscentresinAustralia

Figures
Figure1:Frameworkfortheanalysis............................................................................................2 Figure2:Employmentinthefitnessindustry,endJune2005......................................................5 Figure3:Conceptualframeworkfordeterminantsofhealth.....................................................11 Figure4:Prevalenceofadultobesity(BodyMassIndexover30)..............................................13 . Figure5:Frameworkforevaluatingthehealthbenefitsoffitnesscentres ...............................16

FitnesscentresinAustralia

ExecutiveSummary
ThefitnessindustryisadynamicandimportantpartoftheAustralianeconomy.Theindustry hasexpandedsignificantlyoverthelastdecade,withseveralfitnesscentrechainssecuringa keymarketfootholdacrossthecountry.Around1.73millionAustraliansarenowestimatedto usefitnesscentreservices. Theimpactofthefitnessindustryextendsbeyonditsdirectcontributiontotheeconomy.The industry also plays a key role in improving the health and fitness of Australians. As such, it helpsdeliverarangeoflongertermsocialandeconomicbenefitsacrossthecommunity.

AneconomicprofileofAustraliasfitnesscentres
The fitness centre industry forms part of Australias broader services sector. There are relatively low barriers to entry for new businesses and the industry is dominated by a large numberofprivatesmalltomediumsizedbusinesses. Similar to the services sector as a whole, the fitness industry is characterised by a high proportionofparttimeemployment.Over80percentofstaffatfitnesscentresareemployed onacasualorparttimebasis. Over the last 10 years or so, there has been strong growth in the industry. Real industry growthisestimatedatapproximately7percentyearonyearbetween200405and200708. ThisishigherthantheoverallgrowthrateintheAustralianeconomyoverthesameperiod. Solidindustrygrowthhasalsobeenassociatedwithaconsiderableexpansioninthenumberof fitness centres. In 200708, it is estimated there were approximately 1570 fitness centres Australiawide.Thiscomparestoabout974fitnesscentresin200405. Theindustry,however,remainshighlyexposedtodomesticeconomicconditionsandthereare indicationsthatindustrygrowthhasmoderatedsomewhatoverthepast12months. Economiccontribution Australias fitness centres contributed a total of $872.9 million to the Australian economy in 200708. This comprises a direct value added contribution of $486.5 million, with $374.2million being paid in wages and $112.3 million returned to capital owners as operationalprofits.TheindustrysoveralleconomiccontributionisoutlinedinTable1. The indirect component of the industrys value added in 200708 was $386.4 million. This represents the additional economic activity generated by the fitness industry across the broadereconomy. The industrys total employment contribution in 200708 is estimated to be 17,081 on a full timeequivalencebasis.Thiscomprisesaround13,021directemployeesand4060inindirect employment.

FitnesscentresinAustralia Table1:Total,directandindirecteconomiccontribution,200708 Direct

Valueadded($million) Labourincome($million) Employment(FTE)
Source:AccessEconomicsestimates.

Indirect
386.4 209.6 4060

Total
872.9 583.7 17,081

486.5 374.2 13,021

ContributingtoahealthierAustralia
AkeybenefitoftheAustralianfitnessindustryisitscontributiontoimprovingthehealthofthe community. Bettercommunityhealthprovidesarangeofeconomicbenefits.Importantly,itcanprovide Australians with the opportunities and freedom to lead more active, healthy and productive lives.Improvementsincommunityhealthradiateouttotherestoftheeconomybyreducing health care costs, enhancing workforce productivity and increasing the amount of labour available(forexample,throughliftingthenumberofpeopleparticipatingintheworkforce). While the health of Australians is good by developed country standards, Australia still rates poorlyinsomehealthindicators.Forexample,Australiahasthefifthhighestadultobesityrate amongOECDcountries,witharound22percentofAustraliansconsideredobese. In200607,Australiastotalspending onhealthreached$94billion,equivalentto$4507per personandaccountingforaround9percentofGDP(AIHW2008b).Thisisanincreasefrom 7.7 per cent of GDP from 10 years earlier. Such expenditure underlines the potential for preventativehealthmeasuressuchastheservicesprovidedthroughAustraliasfitnesscentres toreducethedirectburdenofavoidableillness. Preventativehealthimpactsoffitnesscentres Access Economics has modelled three scenarios to measure the healthrelated economic benefitsprovidedbyAustraliasfitnesscentres. The modelling has accounted for the strong likelihood that not all people who currently use fitnesscentreswouldceaseexercisingaltogetherintheabsenceofthosecentres.Someusers wouldbeexpectedtoshifttoalternativeformsofexercisethatalsoprovidesufficienthealth benefits. However, this shifting effect from active to inactive is expected to be significantgiventheparticularnoteasilyreplicatedservicesprovidedbyfitnesscentresanda clearlyexpresseduserpreferenceforthoseservices. Underacentralcase,theproportionoffitnesscentrememberswhoarenotexpectedtotake upotherformsofexerciseatlevelssufficienttoimprovehealthistakentobe50percent.A low case of 25 per cent exercise dropout and a high case of 75 per cent dropout are also examined.AsummaryoftheeconomicimpactsunderthesescenariosisprovidedinTable2.

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FitnesscentresinAustralia Table2:Preventativehealthbenefitsoffitnesscentres
Avoidedhealthcarecosts($million) Workforceparticipation(FTEs) Workforceproductivity(FTEs)

Scenarios* Lowcase
36.0 331 127

Centralcase
71.9 662 255

Highcase
107.9 992 382

*Scenariosrelatetotheproportionoffitnesscentreuserswhoarenotexpectedtotakeupotherformsof sufficientlyintenseexercise.Thefollowingexercisedropoutratesareapplied:Lowcase(25%),Centralcase(50per centandHighcase(75%). Source:AccessEconomicsestimates.

In the central case, the estimated savings in direct health care costs from Australias fitness centres is $71.9 million. The industry also generates an estimated increase in Australias overall workforce of 916 full time equivalent employees (FTEs) through greater workforce participationandhigherproductivity. These labour supply impacts have further flowon effects across the economy and lead to additionaleconomicactivityandnationalincome.AustraliasGDPisestimatedtobearound $28.7milliongreaterin200708thanifthepreventativehealthbenefitsgeneratedbyfitness centreswerenotproduced. Thebenefitsfromimprovedhealtharesensitivetohowmanyfitnesscentreparticipantswould effectively dropout from regular exercise in the absence of fitness centres. Where exercise dropoutisespeciallyhigh(takentobe75percentunderthehighcase),healthcaresavings from fitness centres could be in the order of $107.9 million and around 1375 full time employeescouldbeaddedtotheeconomy. Effectofhigherfitnesscentreutilisation AccessEconomicshasmodelledthepotentialhealthrelatedimpactsifthenumberoffitness centre users increased to around 10 per cent of the Australian adult population. Under this achievable level of utilisation, the benefits flowing from health care savings, increased workforce participation and higher labour productivity would be considerably greater than those currently being generated by the fitness industry. For example, this uptake has the potential to deliver additional health care savings in the order of $204.8 million and lead to around 2609 extra full time employees in the workforce. The estimated workforce benefits couldalsoincreaseGDPbyapproximately$82.0millioninrealterms. Indeed, the results suggest that greater emphasis on preventative health care in which Australiasfitnesscentreswouldbeexpectedtoplayacriticalrolecouldyieldconsiderable economicandsocialbenefits. While a 10 per cent level of overall fitness centre utilisation across the community is consideredrealistic,givencurrentratesofparticipation,itisintendedtohighlightthebenefits thatcouldbeachievedinreachingapossiblefuturelevelofmarketpenetrationrelevanttothe industry. The level itself has not been determined on the basis of rigorous analysis and any prospectivegoalortargetshouldbesetaccordingtofirmindustrypriorities.

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FitnesscentresinAustralia It is important to note that the evaluation of the healthrelated economic impacts of fitness centreshasbeenundertakenatahighlevelandinastaticframework,andhasnotinvolved many of the detailed assessments typically adopted to measure the costs and efficacy of particularinterventions.Assuch,thehealthrelatedresultsofthisstudyshouldbeconsidered indicative and representing the scale of potential health benefits generated by Australias fitnessindustry.

Somechallengesahead
Immediateeconomicpressures Perhaps the most pressing challenge for the fitness industry concerns the current economic downturn. Australias significant momentum leading into the global recession has so far enabled it to avoid a technical recession. However and although the outlook remains morepositivethaninmanyothercountriesconditionsarestillweak.Thetimingofrecovery inAustraliasmajortradingpartnersparticularlyindevelopingAsiawillhelpdetermine themagnitudeofAustraliasdownturn. Whilestimuluspaymentstohouseholdsandcutsininterestrateshavehelpedtosupportretail spendingoverthelastsixmonths,AccessEconomicsexpectsconsumerspendingtofallfrom here,withhouseholdspullingpackonspendingfortheremainderof2009andthrough2010. Theseconditionsarelikelytopresentsignificantoperatingchallengesforthefitnessindustry overthenext12months. Longertermfactors There are several longer term socioeconomic and demographic factors that are likely to providesignificantopportunitiesforthefitnessindustry.Theseprincipallyrelatetotrendsin thepopulationincidenceofobesityandAustraliaschangingageprofile. Both an increased prevalence of obesity related health problems and Australias ageing population are expected to add considerable pressures on government finances, requiring substantial outlays for pensions and health related expenditure. Such pressures make preventativehealthmeasuressuchastheservicesprovidedthroughAustraliasfitnesscentres evenmoreimperative. Consistentwithsustainedgrowthintheindustryoverthelastdecade,itisexpectedthatthe industrywillcontinuetoplayanimportantroleinimprovingthehealthandwellbeingofthe AustraliancommunityandcontributingtoAustraliaslongertermgrowthprospects. AccessEconomics July2009

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FitnesscentresinAustralia

Introduction

AccessEconomicswascommissionedbyFitnessAustraliatoassesstheeconomiccontribution ofAustraliasfitnesscentres. The industry comprises a wide range of businesses, from small gyms and personal training studios to large, multinational fitness chains and franchises. The services offered by the industry are similarly diverse and include a broad range of exercise and physical activity servicesacrossagegroups,aswellasthemoretraditionalgymtypeactivities. In some sense, the increasing diversity can sometimes blur the lines between traditional fitnesscentresandfacilitiesofferingabroadersuiteofwellnessservices.

Recentindustrydevelopments
Therearerelativelylowbarrierstoentryfornewbusinessesandtheindustryisdominatedby a large number of private small to medium sized businesses. Over the last 10 years or so, therehasbeenstronggrowthintheindustryandaconsiderableexpansioninthenumberof fitnesscentres.Whileindustrygrowthhasremainedsolid,evidencesuggestsithasmoderated morerecentlyduelargelyperhapstodeepeningmarketpenetration.Therehasalsobeen some industry consolidation, mainly as a result of the expansion of fitness centre chains. A number of independent centres have been purchased by chains or have exited the industry duetoincreasedcompetition. SimilartoAustraliasbroaderservicessector,theindustryischaracterisedbyahighproportion ofcasualorparttimeemployment.Over80percentofstaffatfitnesscentresareemployed onacasualorparttimebasis. An increasing range of services are being offered by fitness centres. These include fitness related services such as boot camp, yoga and pilates, as well as nonfitness services like massageandalliedhealthservices.

Frameworkfortheanalysis
The approach taken in this study measures both the direct economic impacts of Australias fitness centres as well as the broader flowon benefits provided by the industry. The direct economicimpactsconcerneconomicmeasuressuchastheindustryssizeandemployment,its valueaddedandcontributiontonationalincome(GDP). Thebroadereconomiceffectsoftheindustryprimarilyconcernitsroleinimprovingthehealth and wellbeing of the community. The main channels in which these benefits operate is throughreducinghealthcarecostsandenhancingthepotentialofindividualstocontributeto workforceoutputthatis,greaterworkforceparticipationandhigherproductivity. ThisgeneralframeworkisshowninFigure1. In January 2009, Sweeney Research undertook a comprehensive survey of Australias fitness centresforFitnessAustralia(thesurveysamplewastakenfromFitnessAustraliasmembership base). These survey results have been used by Access Economics to garner information

FitnesscentresinAustralia regarding the services offered and commercial profile of the industry. They have also been supplementedbypublicallyavailableinformationandinhouseestimates. Figure1:Frameworkfortheanalysis

Direct economic impacts

Focus on direct economic and industry activity Industry size and employment Industry value added Multiplier effects on other industries

Wider economic implications

Focus on potential of individuals to contribute to workforce output Enhancing workforce participation Enhancing workforce productivity Avoided health care costs

FitnesscentresinAustralia

Aneconomicprofileofthefitnesscentreindustryin Australia

Inthissection,aneconomicprofileofAustraliasfitnesscentreindustryisprovided.Aspartof thisassessment,AccessEconomicshasdeterminedthedirectcontributionoffitnesscentresto the Australian economy by estimating the industrys direct value added. The indirect contribution of the industry is also measured by examining the nature and extent of its linkageswithsuppliers. Further detail on the approach used to measure the economic contribution of industries is providedinAppendixA.

Number,typeandlocationofcentres
At the end of June 2005, there were 824 businesses and organisations operating health and fitnesscentresandgymnasia(ABSCatno.8686).Smallbusinessesdominatethesector,with 76 per cent of fitness centres employing fewer than 20 people in 2005. Only 2 per cent of fitnesscentresemploygreaterthan100people. Table3showsthenumberoffitnesscentresacrossStatesandTerritoriesatJune2005. Table3:HealthandfitnesscentresandgymnasiabyState,endJune2005 NSWa Vic
306
a

Qld
185

SAa
54

WAa
63

Tasb
20

NTa
9

ACT
17

Australiaa,c
824

171

Estimatehasarelativestandarderrorbetween10and25percentandshouldbeusedwithcaution.bEstimatehas arelativestandarderrorbetween25and50percentandshouldbeusedwithcaution.cRowmaynotsumdueto rounding. Source:ABSCat.no.8686.

Table 4 outlines the business demographics of the health and fitness centres using Sweeney Researchsurveyinformationtoupdatethoseoutlinedabove.Thistableadjustsforbusinesses thatareoutofscopeoftheABSsurvey(businessesexcludedfromtheABSsurveyarethose whicharenonemployingandwithsmallrelativeturnover).Makingthisadjustmentincreases thenonemployingsectorfrom19to168businessesanincreaseof149businesses. Table4:Healthandfitnesscentresandgymnasia,endJune2008 Non employing units
200405 200708 168 389

019 persons
624 951

2049 persons
142 186

5099 persons
24 29

100 persons ormore

16 17

Total
974 1572

Source:AccessEconomicsestimates.

Intotal,thenumberoffitnesscentreshasincreasedfrom974in200405to1572in200708. Thehighestgrowthcameinthenonemployingcomponentofthefitnessindustrywithabout

FitnesscentresinAustralia 30percentyearonyeargrowth.Industrywidegrowthisbasedonayearonyearrealgrowth rateofabout7percent,assuggestedbySweeneyResearchsurveyresults.

Salesrevenue
In 200405, health and fitness centres and gymnasia generated a total income of $679.4million.Theprimarysourceofincomecomprisedmembershipandcompetitionfeesof $535.1million which represented 79 per cent of total income. Other key sources of income included:casualfees($46.4million);rent,leasingandhiringincome($16.5million);andfood sales($9million). Thetotalexpenditureforhealthandfitnesscentresandgymnasiawas$649.4millionduring 200405. Major expense items included labour costs ($270.5 million) and rent, leasing and hiring($110.6million)whichrepresented41.7percentand17percentrespectivelyoftotal expenditure(ABSCat.no.8686). Updated 200708 sales revenue is outlined in Table 5. The largest revenue source is membershipandotherfeesof$741.3million,followedbycasualfeesof$64.2million. Table5:Revenuehealthandfitnesscentres,200708 Revenue
Membershipandotherfees Casualplayingfees Rent,leasingandhiring Otherincome Totalrevenue
Source:AccessEconomics.

$million
741.3 64.2 22.8 111.5 939.8

EmploymentPersons
In2006,therewere18,869peopleemployedinthefitnesssector,eitherasinstructorsoras managers of fitness and sports centres (ABS Cat. no. 4156). This represents a 16 per cent increasefrom2001whenaround16,300peoplewhereemployedinthesector. Table6showsindustryemploymentin2006acrossStatesandTerritories.

FitnesscentresinAustralia Table6:FitnessindustryemploymentbyState,2006
Fitness centre manager Sports centre manager Fitness instructor Total
a

NSW
538

Vic
436

Qld
321

SA
116

WA
176

Tas
27

NT
8

ACT
43

Total
1665

974

905

631

220

499

74

38

64

3405

4329 5841

3780 5121

2792 3744

914 1250

1395 2070

193 294

67 113

326 433

13,799 18,869

TotalalsoincludesthreepeopleemployedinotherAustralianTerritories.

Source:ABSCat.no.4148.

A large proportion of sectoral employment is casual, with casual employees accounting for 67per cent of total employment in June 2005 (see Figure 2). The sector is also heavily representedbyfemaleemployees.In2005,around67.3percentofemploymentinthesector wasfemale(ABSCatno.8686). Figure2:Employmentinthefitnessindustry,endJune2005
Working proprietors and partners 2%

Permanent full time 18% Permanent part time 12%

Casual 68%

Source:ABSCat.no.8686.0.

EmploymentFulltimeequivalentemployees(FTEs)
Table7outlinesthefulltimeequivalentemployment(FTE)forhealthandfitnesscentres.The FTEmeasureofemploymentadjustsparttimeandcasualworkerstoafulltimeequivalent. Between200405and200708,FTEemploymentincreasedbyover30percentfrom9997FTEs in 200405 to 13,021 FTEs in 200708. This equates to over 21,000 people employed in the

FitnesscentresinAustralia sector under current levels of casual and part time employment. All employers (based on businesssize)experiencedgrowthovertheperiod. Table7:FTEemployment,bybusinesssize,inhealthandfitnesscentres, 200405and200708 Nonemploying businesses
200405 200708
Source:AccessEconomics.

019 persons
2881 4389

2049 persons
2491 3270

5099 persons
942 1129

100persons ormore
3515 3844

Total
9997 13,021

168 389

Thelargestoverallemployersacrosstheindustryin200405werebusinessesemploying100 personsormore,followedbybusinessesemployingbetween019persons.In200708,these sectorsremainedthetwolargestemployerswithbusinessesemployingbetween019people becomingthelargestemployingcategorycomprisingaround34percentofoverallindustry employment. The growth rates applied to the business sectors were attained from the Sweeney Research survey.Theseresultsindicatedparticularlystronggrowthinbusinessesemployingbetween0 to19peopleandslowerrelativegrowthforbusinessesemployinggreaterthan50people.

2.1 Directeconomiccontribution
Industryvalueadded
Valueadded(outputafterdeductingthevalueofintermediateinputs)isthemostappropriate measure of an industrys economic contribution to gross domestic product (GDP). Industry value added can be calculated directly by summing the returns to the primary factors of production, labour and capital (GOS), as well as production taxes less subsidies. The value added of each industry in the value chain can be added without the risk of double counting acrossindustries. The ABS estimate that, in 200405, value added for health and fitness centres and gymnasia wasaround$373.5million(ABSCatno.8686).

Grossoperatingsurplus(GOS)
GOSisameasureusedinthenationalaccountingframeworktoassessthereturnstocapital(a primaryfactorofproduction).Itessentiallyrepresentstheoperationalprofitsoftheindustry. The GOS is similar to profits but is not necessarily the same because profits encompass financial aspects of the firm or industry which are not included in measuring GOS. Typical financialcomponentsexcludedfromGOSare:interestearnedonloansprovidedbyabusiness anddepreciationofabusinessesassetbase. Inpractice,GOScanbemeasuredbyestimatingearningsbeforeincometax,depreciationand amortisation(EBITDA).

FitnesscentresinAustralia

Thedirecteconomiccontributionoftheindustry
The economic and employment contribution of fitness centres in 200708 is outlined in Table8. The contribution to GDP (value added) is $486.5 million, with $374.2 million being paid in wages and $112.3 million being returned to capital owners as the gross operating surplus (GOS). GOS is based on just under $937 million in operational revenue and around $824.5millioninoperationalcosts. Employmentin200708isestimatedtobe13,021fulltimeequivalentemployees. Table8:Directeconomiccontributionandemployment,200708 $million
GOS Operatingrevenue Operatingcosts Wages Valueadded Employment(FTE)
Source:AccessEconomics.

112.3 936.9 824.5 374.2 486.5 13,021

Table9outlinestheincomeearnedbyfitnesscentresfor200708.Thetableoutlinesboththe totalrevenue(usedforprofits)andtheoperatingrevenue(usedforGOS). Membership and other fees are the main component of income at $741.3 million, with the next largest component being casual fees at $64.2 million. Other income that includes commissions, sales from beverages and food totals $111.5 million. Operating revenue is $936.9 million, derived from netting out interest income of $2.9 million from the total revenue. Table9:Fitnesscentrerevenue,200708 Revenue
Membershipandotherfees Casualplayingfees Rent,leasingandhiring Otherincome Totalrevenue Interest Operatingrevenue
Sources:ABSCat.No.8686.0andAccessEconomicsestimates.

$million
741.3 64.2 22.8 111.5 939.8 2.9 936.9

Table10outlinestheoperationalcostsforfitnesscentres.Totalindustrycostsfor200708are $898.3million.Thetwohighestcostcomponentsarelabourcostsat$374.2millionandrent, leasing and hiring at $153.0 million. Other costs, that include repairs and maintenance, advertising,utilities,accountfor$250.9million.

FitnesscentresinAustralia Nonoperational costs are $73.7 million, and include interest expenses, depreciation and amortisation. Table10:Fitnesscentrecosts,200708 Costs
Labourcosts Purchases Rent,leasingandhiring Insurancepremiums Other Nonoperating Total Nonoperating Operatingcosts
Sources:ABSCat.No.8686.0andAccessEconomicsestimates.

$million
374.2 32.2 153.0 14.2 250.9 73.7 898.3 73.7 824.5

2.2 Indirecteconomiccontribution
Theindirectcontributionofthefitnessindustryisgeneratedbythedemandcreatedbyfitness centres in their commercial dealings with suppliers. For example, when a fitness centre undertakes repairs and maintenance, the business completing the work earns income, its employees earn wages and the inputs used generate income for further suppliers. The ABS NationalAccountsinputoutputtablesprovideaframeworktoassesstheindirectcontribution ofindustries. outlines various multipliers estimated within the inputoutput table framework. The first panel outlines the gross output multipliers, and the second outlines the ratio of the total to direct effect. The latter are used in this report because value added, labour income and employmentwereknown. (Note:Grossoutputisadefinitionaltermandisoftenreferredtoasoperatingrevenuelike inthisreportorturnover.) Table11:Fitnesscentremultipliers Grossoutputmultipliers
Grossoutput Valueadded Labourincome 1.92 0.93 0.62 1.92 1.79 1.56 1.31

Ratiooftotaltodirectcontribution
Grossoutput Valueadded Labourincome Employment
Sources:ABSCat.No.5209.0andAccessEconomicsestimates.

FitnesscentresinAustralia Thegrossoutputmultipliersusedirectgrossoutputtoestimatethetotalvalueadded,labour income and gross output (these concepts are discussed in Appendix A). For instance, if the directgrossoutputinthefitnessindustrywas$100,thetotalvalueaddedis$93withlabour incomebeing$62. Theratiooftotaltodirectcontributionusesaknowndirectvalueaddedquantitytoassessthe total industry contribution. For example, a total direct industry contribution of $100 gives a valueaddedof$179.Inthiscase,thedirectvalueaddedcontributionis$100andtheindirect value added is $79. In terms of employment, if there were 100 FTEs directly employed, the ratio suggests 31 indirect FTEs would be employed on the basis of the flow on demand generatedbythefitnessindustry. Table12outlinesthetotal,directandindirecteconomiccontributionoffitnesscentres.The totalfitnesscentrevalueaddedisestimatedat$872.9million,whichcomprises$486.5million indirectvalueaddedand$386.4millioninindirectvalueadded. Table12:Total,directandindirecteconomiccontribution Direct
Valueadded($million) Labourincome($million) Employment(FTE)
Source:AccessEconomicsestimates.

Indirect
386.4 209.6 4060

Total
872.9 583.7 17,081

486.5 374.2 13,021

The $872.9 million in value added generated by the fitness industry represents around 0.08percentofGDP(basedonGDPof$1.132trillionin200708). Total labour income is estimated at $583.7 million, with direct wages of $374.2 million and indirectwagesof$209.6million.TotalFTEemploymentis17,081with13,021directand4060 indirect FTE employees. As expected, these figures suggest higher average wages in the industriessupplyingfitnesscentresthaninthefitnessindustryitself.

FitnesscentresinAustralia

Broadereconomicimpactsofthefitnessindustry

ThissectionprovidesanassessmentofthebroadereconomicimpactsprovidedbyAustralias fitness centres. The primary channel for these impacts occurs through the industrys importantcontributioninimprovingthehealthofthecommunity. Bettercommunityhealthprovidesarangeofeconomicbenefits.Importantly,itcanprovide Australians with the opportunities and freedom to lead more active, healthy and productive lives. In200607,Australiastotalspending onhealthreached$94billion,equivalentto$4507per personandaccountingforaround9percentofGDP(AIHW2008b).Thisisanincreasefrom 7.7 per cent of GDP from 10 years earlier. Such expenditure underlines the potential for preventativehealthmeasuressuchastheservicesprovidedthroughAustraliasfitnesscentres toreducedirecttheburdenofavoidableillness. In addition to lowering direct health care costs, illness prevention and health promotion can alsohaveconsiderablebenefitstotheworkforcebyenhancingparticipationandproductivity. Theseimpactsarediscussedbelow.

3.1 ThenatureofAustraliashealth
Australiasbroadhealthoutcomescontinuetoimproveand,overall,comparefavourablywith other developed countries. For example, Australian life expectancy in 2006 was among the highestintheworldat81.4yearssecondonlytoJapanat82.6years(WHO2008). The level of community health and wellbeing is influenced by a range of determinants including socioeconomic, behavioural and biomedical factors. Many of these are highly interdependent. A conceptual framework for the key determinants of health is set out in Figure3. Importantly,someofthesedeterminantssuchaslifestylefactorslikesmoking,diet,alcohol consumption or level of physical activity can be readily modified. Others, such as genetic structure,ageandethnicityarenotmodifiable.

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FitnesscentresinAustralia Figure3:Conceptualframeworkfordeterminantsofhealth

Individual physical and psychological makeup (genetics, age)

Health and wellbeing

Biomedicalfactors Healthbehaviours
Tobacco use Physical activity Alcoholconsumption Illicitdruguse Diet Sexualbehaviour Vaccination Safety Bloodpressure Cholesterol Bodyweight Immunestatus Impairedglucose regulation

Socioeconomic characteristics
Education Employment Incomeandwealth Housing

Broadfeaturesof society
Resources Culture Socialcohesion Affluence Environmental

Source:AdaptedfromAIHW2008a.

At a general level, the health determinants shown in Figure 3 become more direct moving fromlefttoright.Theyalsointeractwitheachother.Forexample,peopleslevelofeducation and employment affects their health behaviours which can in turn influence key biomedical factorslikebloodpressureandbodyweight.Thefactorswithineachdeterminantcanalsobe closelyinterdependent. Notably, the general pattern of influence can also work in the opposite direction. That is, a personshealthcanaffecttheirlevelofphysicalactivityandemploymentprospects. Thecentralmessagefromthispictureisthatthereisacomplexinterplayoffactorsatworkin determining health outcomes and, accordingly, assessing the potential impact of health promotionisdifficult.

Prevalenceandtrendsinobesity
While the health of Australians is good by developed country standards, Australia still rates poorly in some health indicators. A particular health issue is the rate of obesity which representsasignificantriskfactorforpoorhealthandwellbeing(seeBox1).Therehasbeen someimprovementinAustraliasrankingforadultobesityratesoverthelasttwentyyearsbut AustraliaremainsinthebottomthirdofOECDcountriesonthismeasure(OECD2007). As shown in Figure 4, Australia has the fifth highest adult obesity rate (21.7%), behind the UnitedStates(32.2%),Mexico(30.2%),theUnitedKingdom(23.0%)andGreece(21.9%).

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FitnesscentresinAustralia

Box1:Measuringoverweightandobesity
Overweight and obesity are defined as excessive weight presenting health risks because of the high proportionofbodyfat.Themostcommonpopulationlevelmeasureofoverweightandobesityisthe bodymassindex(BMI),whichevaluatesanindividualsweightstatusinrelationtoheight.
BMI = weight (kg ) height m
2 2

( )

TheWorldHealthOrganizationusesthefollowingBMIclassifications:

UnderweightBMIlessthan18.5 NormalBMI18.5to25 OverweightBMI25to30 ObeseBMIgreaterthan30

TherearesomelimitationswiththeBMImeasure.Forinstance,thecurrentclassificationmaynotbe suitableforallethnicgroups,whomayhaveequivalentlevelsofriskatlowerBMI(forexample,Asians) or higher BMI (for example, Polynesians). Also, the thresholds for adults are also not suitable to measureoverweightandobesityamongchildren.BMImeasuresforchildrenarecalculatedinthesame wayasforadultsbutarecomparedtovaluesforotherchildrenofthesameage. Source:AIHW2004.

Obesity is a known risk factor for numerous health problems, including hypertension, high cholesterol,diabetes,cardiovasculardiseases,respiratoryproblems(asthma),musculoskeletal diseases(arthritis)andsomeformsofcancer.Becauseofthis,obesityislinkedtosignificant healthcarecosts. The OECD (2007) notes that a number of behavioural and environmental factors have contributed to the rise in overweight and obesity rates in industrialised countries, including fallingrealpricesoffoodandhigherlevelsofphysicallyinactivity.Thegreateruseofpassive entertainment like television and computers as well as lifestyle effects from increased urbanisationareconsideredtobesignificantfactorsleadingtolowerratesofphysicalactivity (AIHW2008a). Duetotheclearlinkagesbetweenphysicalinactivityandobesityrelatedhealthproblems,the promotion of exercise and active lifestyles can be an important primary intervention. The AIHW(2008a)notes: regular physical activity reduces cardiovascular risk in its own right, reduces cardiovascular risk factors such as overweight and high blood pressure, and improves the levels of HDL (the good cholesterol). Regular exercise also helps protect against Type 2 diabetes and some forms of cancer, and strengthens the musculoskeletal system, helping to reduce the likelihood of osteoporosis (low bonemineraldensity)andtheriskoffallsandfractures.(p.135)

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FitnesscentresinAustralia Figure4:Prevalenceofadultobesity(BodyMassIndexover30)
Japan Korea Switzerland Norway Austria France Italy Sweden Netherlands Denmark Turkey Iceland Poland Belgium Portugal Ireland Spain Germany Finland OECD SlovakRepublic CzechRepublic Canada Luxembourg Hungary NewZealand Australia Greece UnitedKingdom Mexico UnitedStates 0 3 3.5 7.7 9 9.1 9.5 9.9 10.7 10.7 11.4 12 12.4 12.5 12.7 12.8 13 13.1 13.6 14.1 14.6 15.4 17 18 18.6 18.8 20.9 21.7 21.9 23 30.2 32.2 5 10 15 20 25 30 35

Percentageofadultpopulation

Source:OECDHealthData2007.

Majorhealthdeterminants
The health impact of specific risk factors is dependant on their prevalence across the communityaswellastheirrelativeeffectincontributingtodiseaseanddeath.Theeffectsof healthdeterminantshowtheycontributetotheburdenofdiseasecanbemeasuredand comparedusingthedisabilityadjustedlifeyear(DALY)whichtreatsdisabilityanddeathonthe sameterms.OneDALYisequivalenttooneyearofhealthylifelost,includingbothfataland nonfataldisease. A key study by Begg et al (2007) on the attributable burden of disease for 14 risk factors in Australia concluded that overweight and obesity was the third highest cause of disease in 2003,andwasresponsibleforaround7.5percentofthetotaldiseaseburden(seeTable13). Physicalinactivitywasthefourthgreatestriskfactor,accountingforabout6.6percentofthe diseaseburden.Intermsofthehealthrisktheyrepresenttothecommunity,thesefactorsare comparabletotobaccosmoking. Itshouldbenotedthatthetotalcontributionoftheassesseddeterminantsisnotthesumof individual contributions. As noted above, there is a complex interaction between health

13

FitnesscentresinAustralia determinants and they can occur together in the same person and in various combinations. Thejointeffectsoftheriskfactorswerethereforeassessedanditwasestimatedthataround 32 per cent of the total burden of disease was due to the studied determinants (Begg et al 2007). Table13:Proportionofdiseaseburdenattributedtodeterminantsofhealth,2003 Determinant
Tobaccosmoking Highbloodpressure Overweight/obesity Physicalinactivity Highbloodcholesterol Alcohol Harmfuleffects Beneficialeffects Neteffects

Males
% 9.6 7.8 7.7 6.4 6.6 4.9 1.1 3.8 2.7 2.7 2.6 n.a. 0.3 0.7 0.5 <0.1 35.1

Females
% 5.8 7.3 7.3 6.8 5.8 1.6 0.9 0.7 1.5 1.2 1.3 2.3 1.5 0.7 0.7 0.3 29.1

Persons
% 7.8 7.6 7.5 6.6 6.2 3.3 1.0 2.3 2.1 2.0 2.0 1.1 0.9 0.7 0.6 0.2 32.2

Lowfruit/vegetable consumption Illicitdrugs Occupationalexposures Intimatepartnerviolence Childsexualabuse Urbanairpollution Unsafesex Osteoporosis Jointeffect
a b

n.a.Notavailable. Estimateforlongtermexposure;anadditional0.3percentisattributabletoshortterm b exposure. Estimateofthejointeffectofallstudieddeterminants,takingintoaccounttheoverlappingeffect amongdeterminantsoncausalpathways. Source:Beggetal2007.

Promotingbetterhealth
At a fundamental level, health promotion and disease prevention focus on modifying and reducingriskfactorsthatinfluencethedevelopmentorprogressionofchronicdisease.There are a number of different aspects to preventative measures (National Public Health Partnership2001):

PrimarypreventionEssentiallyaimsatpromotinghealthylifestylesandreducingthe key risk factors contributing to chronic disease (for example, public health awareness campaignsontherisksoftobaccosmokingorexcessivesunexposure). Secondary prevention Targets early detection and more effective precautionary treatment of chronic disease (for example, breast cancer screening). Secondary measuresmaylowertherateofestablishedcasesinthecommunity.

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FitnesscentresinAustralia

Tertiary prevention Focuses on treatment of established conditions to improve or maintainfunctionalstatusandminimisesuffering.

The services provided through Australias fitness centres chiefly deliver primary preventative health benefits. In this way, they contribute to a reduced incidence of chronic diseases attributabletophysicalinactivityandobesity.Thiseffectisdiscussedbelow.

Estimatingthehealthbenefitsoffitnesscentres
Access Economics has adopted the following key stages in evaluating the health benefits attributabletofitnesscentres:

Identifythemajordiseasesandconditionsrelatedtophysicalinactivity. Quantify the linkage between the prevalence of physical inactivity and associated risk factors and diseases. The parameters for the flowthrough effects are based on literature on populationattributable fractions (AFs) and burden of disease linkages estimatedbytheAustralianInstituteforHealthandWelfare(Beggetal2007). Identifythegroupsofpeopleatriskofdevelopingachronicdiseasetheprevalenceof relevantdiseasesamongtargetpopulations(forexample,workingageandnonworking agecohorts). Estimatethemajorimpactsofdiseaseprevalence: Health care costs Examine relevant health care costs of episodes of care for eachofthekeydiseases. Workforce participation Identify the impacts on workforce participation for eachofthekeydiseases. Productivity Identify the labour productivity impacts for each of the key diseases.

Apportiontheshareoftheaboveimpactsdirectlyattributedtophysicalinactivityusing AFs. Quantifythelinkbetweenlevelsoffitnesscentreusageandreducedphysicalinactivity inthecommunity.

Asensitivityanalysisisalsoundertakentoprovidearangeofpossibleoutcomesregardingthe linkagebetweenpatronageatfitnesscentresandreducedhealthrisksfromphysicalinactivity. A conservative and more optimistic value for this key parameter is examined along with a centralcase. TheassessmentframeworkisoutlinedinFigure5.

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FitnesscentresinAustralia Figure5:Frameworkforevaluatingthehealthbenefitsoffitnesscentres
Risk factors Obesity Physical inactivity Better health outcomes Attributable fractions Chronic diseases Type 2 diabetes Cardiovascular disease Osteoarthritis Cancers

Intervention Reduced prevalence of health risks

Impact of reduced disease prevalence

Fitness centres

Health care costs

Workforce participation

Productivity

3.2 Healthbenefitsoffitnesscentres
Fitnesscentrespromotemoreactivelifestylesbyprovidingthenecessaryfacilities,equipment and expertise to achieve greater levels of fitness. The exercise services provided through fitness centres provide preventative heath benefits to customers, essentially reducing the incidenceofchronicdiseasesattributabletophysicalinactivity. Approximately 1,732,000 Australians are now estimated to use fitness centre services, of whicharound77percentareestimatedtoberegularparticipants.Therearesomeindustry viewsofhigherratesofcommunityparticipationatfitnesscentres,withoverallestimatesof around2millionusers. While there is substantial research in the medical literature on the effectiveness of exercise interventionsonparticularchronicdiseases,thereislimitedempiricalevidenceontheimpact that use of exercise facilities such as fitness centres can have on general community health. However,thereisrecentliteraturethatsuggeststhatfitnesscentremembershipisassociated withincreasedhealthresponsibilityandbroaderhealthpromotingbehaviours.Forexample, Ready et al (2005) state that fitness centre members may constitute a large part of the population who are sufficiently active to achieve optimal health. Further, GilesCorti and Donovan (2002) assert that membership in a sports and recreation club increased the likelihoodofachievingtherecommendedlevelofactivityby2.5times. Asnotedabove,akeyaspectoftheanalysisisestimatingthequantifiablelinkbetweenfitness centre usage and reduced physical inactivity in the community. That is, how much of the current incidence of related chronic disease has been avoided by patronage at Australias fitnesscentres;andwhataretheimpactsofthis.Theseissuesarefarfromstraightforward. Withoutfitnesscentres,itisexpectedtherewouldbelowerlevelsofexerciseandhealthinthe community.Crucially,however,thiswouldnotequatetoallpeoplewhocurrentlyusefitness centres ceasing to exercise altogether. Some of these people would be expected to shift to alternativeformsofexercisethatalsoprovidesufficienthealthbenefits(forexample,jogging, swimmingorteamsports).

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FitnesscentresinAustralia That said, fitness centres provide services that are not readily replicated by other forms of exercise. For example, they typically provide exercise services that offer protection from weather and extreme climates, allow individual participation, flexible hours (including night and early morning) and a safe, supportive and instructional environment. Indeed, given the costs of fitness centre membership or participation, it can be concluded that clientele have expressedaclearpreferenceforthetypesofservicesprovidedbyfitnesscentreswellabove thoseprovidedbyalternative(oftenmuchcheaper)formsofexercise. Inthisregard,asubstantialsegmentoffitnesscentreclientelewould,intheabsenceofthose centres, be expected to reduce their exercise levels below that necessary to provide health benefits.

Determiningthefitnessfactor
Inordertoestimatethebroaderhealthbenefitsprovidedbyfitnesscentres,AccessEconomics hasassumedthatregularfitnesscentreparticipantsremovetherisksassociatedwithphysical inactivity. In a state of the world where fitness centres did not exist, these health benefits wouldalsodiminish.Threerelatedscenariosforthisvariablearemodelled(seeTable14). Under the central case, the proportion of fitness centre members who are not expected to takeupotherformsofexerciseatlevelssufficienttoimprovehealthistakentobe50percent. Alowcaseof25percentexercisedropoutandahighcaseof75percentdropoutarealso adopted. A sensitivity analysis is important for addressing the inherent uncertainty of this parameter. Such analysis is also imperative for framing the range of possible outcomes and highlighting anyparticularrisksassociatedwithestimatingtheparameter. Anumberofnecessarygeneralisationsunderpinthisvariable.Thekeyonesincludethatthe proportion of regular fitness centre patrons in the general population also applies over the workforce population, as well as for disease sufferers. In the context of this study, this is consideredanappropriateassumptionforindicatingthemagnitudeofpotentialhealthrelated benefits. Table14:Fitnessfactorscenarios
Scenario Proportionoffitness centreparticipantsthat ceaseregularexercise % 25 50 75

Lowcase Centralcase Highcase

3.2.1

Avoidedhealthcarecosts

Asnotedabove,therearearangeofchronicdiseasesthataredirectlyassociatedwithphysical inactivity and obesity. The key diseases include type 2 diabetes, cardiovascular disease, osteoarthritis and various types of cancer (such as colorectal, breast, uterine and kidney

17

FitnesscentresinAustralia cancer).Thesediseasestogetheraccountforthelargemajorityofthediseaseburdendirectly relatedtophysicalinactivity(seeBox2). Acertainamountofthesechronicdiseasescanbeavoidedthroughmodifiableriskfactorssuch as increasing levels of physical activity. The proportion of avoidable chronic disease varies acrossthefourmaindiseases. However,therearesomeimportantlimitations.Becauseofnonmodifiableriskcomponents likeage,sexandfamilyhistory,notallchronicdiseasecanbeavoided.Further,riskexposures earlier in life can have detrimental legacy effects for people. This essentially means that becoming sufficiently physically active in midlife can not eliminate all the health risks of leading a sedentary lifestyle until that time. This footprint effect reduces the scope for primarypreventativemeasurestolowertheprevalenceofchronicdiseasesinthecommunity andisespeciallypertinentwhenexaminingtheeffectontheworkingagepopulation. Reductions in the incidence of chronic disease will reduce future health care costs for the community,muchofwhichfallsonthepublichealthsystem.Chronicdiseasescurrentlyplace considerable costs on Australias health care system. For example, direct health care expenditureacrossthefourdiseasesmostassociatedwithphysicalinactivitywasestimatedat $14.6billionin200405(AIHW2008a).Thisrepresentedaround27.8percentoftotalhealth careexpendituresforchronicdiseasesduringthatyear. Thebenefitsfromavoidedhealthcarecostsderivedfromfitnesscentrescanbeestimatedby considering the average direct health care costs per patient for each of the key diseases. Potential gross savings can then be determined by estimating the reduced incidence of obesityrelatedchronicdisease.TheseavoidedcostsaredetailedinTables1517. In the central case, a counterfactual is taken that 50 per cent of regular fitness centre participants cease exercising at sufficient levels to remove the health risks associated with physicalinactivity.Theexistenceoffitnesscentresthereforesavesoravoidsthiscomponent ofdirecthealthcareexpenditure.

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FitnesscentresinAustralia

Box2:Keydiseasesassociatedwithphysicalinactivityandobesity

Type 2 diabetes Diabetes is the sixth leading cause of death in Australia. Type 2 diabetes accounts for 85 to 90 per cent of Australians diagnosed with diabetes. Diabetes can result in manysecondarylongtermhealthconditions,especiallyifitisundetectedorpoorlycontrolled. Aroundonethirdofpeoplewithdiabetesexperiencecomplicationssuchaseyeproblems,kidney damage, foot ulcers, heart attack, stroke and amputation. Overall, the disease burden attributabletodiabetesis8.3percent. CardiovasculardiseaseThisdiseaseisalsoknownascirculatorydiseaseorheart,strokeand vasculardiseaseandreferstoalldiseasesandconditionsoftheheartandbloodvessels.Itisone ofthemainsourcesofmortality(andmorbidity)duetoobesity,particularlyinthelongerterm. CardiovasculardiseaseisAustraliassecondleadingcauseofdiseaseburdenoverall(18%),mainly becauseofthedeathsitcauses.Itaccountedfor35percentofalldeathsinAustraliain2005 andheartdiseaseandstrokearethemostcommoncausesofsuddendeathinAustralia. Osteoarthritis One of the most preventable risk factors for osteoarthritis is obesity due to extraweightplacingpressureonjoints,particularlykneeandhipjoints.Osteoarthritisdoesnot account for manydeathsbut is a common cause of longterm disability. About32per cent of Australians aged 75 years or older had osteoarthritis in 2005. While arthritis has a higher prevalenceinolderagegroups,over52percentofallpeoplewithosteoarthritiswereofworking age. Cancers Obesity is associated with higher risk of four types of cancer colorectal, kidney, breast and uterine cancers. On an incidence basis, colorectal cancer (14%) and breast cancer (13%) are two of the most common cancers, while kidney cancer and uterine cancer make up 3percentand 4 per cent respectively ofnew cancer cases. Togetherthese account for about one third of all incident cancers. Overall, cancer is Australias leading cause of disease burden (19%)andisamajorcauseofdeath,accountingfor30percentofalldeathsin2005.

Source:AccessEconomics2006;AIHW2008a;Beggetal2007.

Under thisscenario,theestimatedsavingsindirecthealthcare costsfromAustraliasfitness centresis$71.9million.Thelargestcomponentofthissavingarisesfromtheavoidedcostsof cardiovasculardisease,whichprovidesasavingofaround$49.8million. The benefits from avoided health care are sensitiveto how many fitness centre users would effectively dropout from regular exercise in the absence of fitness centres. Where exercise dropoutisquitelow(takentobe25percentunderthelowcase),avoidedhealthcarecosts are$36.0million.However,whereexercisedropoutishigh(takentobe75percentunder the high case), health care savings from fitness centres are estimated to be approximately $107.9million.

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FitnesscentresinAustralia Table15:AvoidedhealthcarecostsCentralcase Disease Averagecost perpatient

$ 1242 1516 1162 6305

Attributable fractions(AFs)
% 23.7 23.7 6.6 5.6

Avoidedcases duetofitness centres

No. 11,150 32,880 5113 365

Grossavoided costs
$million 13.9 49.8 5.9 2.3 71.9

Type2diabetes Cardiovascular Osteoarthritis Cancer Total

Sources:AccessEconomics(2008)andestimates;AIHW(2008a);Beggetal(2007).

Table16:AvoidedhealthcarecostsLowcase Disease Averagecost perpatient

$ 1242 1516 1162 6305

Attributable fractions(AFs)
% 23.7 23.7 6.6 5.6

Avoidedcases duetofitness centres

No. 5575 16,440 2556 182

Grossavoided costs
$million 6.9 24.9 3.0 1.2 36.0

Type2diabetes Cardiovascular Osteoarthritis Cancer Total

Sources:AccessEconomics(2008)andestimates;AIHW(2008a);Beggetal(2007).

Table17:AvoidedhealthcarecostsHighcase Disease Averagecost perpatient

$ 1242 1516 1162 6305

Attributable fractions(AFs)
% 23.7 23.7 6.6 5.6

Avoidedcases duetofitness centres

No. 16,725 49,319 7669 547

Grossavoided costs
$million 20.8 74.8 8.9 3.5 107.9

Type2diabetes Cardiovascular Osteoarthritis Cancer Total

Sources:AccessEconomics(2008)andestimates;AIHW(2008a);Beggetal(2007).

3.2.2

Workforceparticipation

The link between better health outcomes from improved disease prevention and workforce participationismadethroughthepotentialforfitnesscentreservicestoreducetheincidence ofspecificdiseases.

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FitnesscentresinAustralia Peoplewithchronicillnessarelesslikelytoparticipateintheworkforcethanthepopulation generally. In terms of this, the various chronic diseases being examined also have different effectsonapersonsabilitytoparticipateintheworkforce. Participation losses attributable to the various obesityrelated chronic diseases can be determinedusingthedifferencesintheworkforceparticipationofpeoplesufferingfromthe diseasestothatofthegeneralpopulationandapplyingthistotheworkingagepopulation(15 64years)affectedbythevariousdiseases. It should be noted that this approach does not account for mortality rates associated with specific diseases. These can be important for certain chronic diseases like cardiovascular diseaseandcancerswhicharesignificantcausesofdeathinAustralia.Becausetheapproach focuses on the working age population, it does not factor in the potential benefits from increasedfutureworkforceparticipationfromimprovingthehealthofchildrenandmothers. ParticipationlossesforthevariousdiseasesareshowninTable18. Inthecentralcase,theestimatedeffectofincreasedlabourforceparticipationattributableto fitness centres is equivalent to 662 full time employees. The largest contributions to this benefitarisefromreducingtheincidenceoftype2diabetesandcardiovasculardiseasewhich bothhavesignificantnumbersofdiseasesufferersintheworkingagepopulation. Under the low and high scenarios, the increase in labour force participation from fitness centresisestimatedtobe331and992fulltimeemployeesrespectively. Table18:Increasesinworkforceparticipation Disease Participationrate a difference Attributable diseasesuffersin workingage population Fulltimeequivalentemployees (FTEs)duetofitnesscentres

Type2diabetes Cardiovascular Osteoarthritis Cancer Total

a

Central
% 5.0 2.8 5.1 6.6 No. 11,445 51,419 5940 468 201 343 106 11 662

Low

High
No.

101 172 53 5 331

302 515 160 16 992

DifferencesbetweenthosereportingaparticulardiseaseandthegeneralpopulationfromAccessEconomics (2005)andProductivityCommission(2006). Sources:AccessEconomics(2005,2008)andestimates;ProductivityCommission(2006).

3.2.3

Productivity

Chronicdiseaselowerstheproductivityofsufferswhoparticipateintheworkforce.Thereare two key factors that lower workforce productivity in this context increased employee absenteeismandpresenteeism.Theformerinvolvesemployeesnotactuallybeingatwork,

21

FitnesscentresinAustralia while the latter relates to reduced productivity associated with attending work while ill and lackingthemotivationorhealthtobefullyproductive. Once again, productivity losses can vary widely with types of disease. Estimates of the productivityimpactsforeachofthekeydiseasesandthenumberofemployedpeoplewiththe diseasesareshowninTable19. In the central case, the estimated effect of increased workforce productivity due to fitness centresisequivalentto255fulltimeemployees.Thelargestproductivityimpactcomesfrom lowering the incidence of cardiovascular disease and osteoarthritis which have the largest groupsofdiseasesufferersinemployment. Theestimatedproductivitybenefitunderthelowscenariois127fulltimeemployees.Under the high scenario, around 382 additional full time employees are effectively added to Australiasworkforce. Table19:Increasesinworkforceproductivity Disease Dayslostper monthper employedperson withdisease Diseasesuffersin employment Fulltimeequivalent employeesduetofitness centres

Type2diabetes Cardiovascular Osteoarthritis Cancer Total Days 0.1 0.2 1.6 5.7 No. 63,000 1,078,000 638,000 58,000

Central
14 90 118 33 255

Low
7 45 59 16 127

High
No. 21 135 178 49 382

Sources:AccessEconomics(2008)andestimates;ProductivityCommission(2006).

3.2.4

Macroeconomicimpactsfromincreasedlaboursupply

The productivity and participation impacts from the improvements in community health generated by Australias fitness centres have flowon effects across the economy. The increaseineffectivelaboursupplyleadstoadditionaleconomicactivityandnationalincome. Underthecentralcase,AustraliasGDPisaround$28.7milliongreaterin200708thanifthose preventative health benefits were not generated. Other key economic indicators are also expectedtoincreasebecauseoftheimpactoffitnesscentresonraisingthelaboursupply.For instance, employment is higher by around 367 full time employees and household consumptiongreaterbyapproximately$15.9million. TheflowoneconomicimpactsforthethreescenariosarepresentedinTable20. Thesesecondroundimpactsaccountfortheincreaseineffectivelaboursupplyonly.Theydo notincludethedirecthealthcaresavingsdiscussedaboveandshouldbeconsideredadditional tothosebenefits.

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FitnesscentresinAustralia Table20:Flowonmacroeconomicimpactsfromincreasedlaboursupply,200708
GDP($million) Realhouseholdconsumption($million) Employment(FTE)
Source:AccessEconomicsestimates.

Low
14.2 7.9 183.6

Central
28.7 15.9 367.2

High
43.1 23.9 551.7

Whiletheseflowoneconomicbenefitsaresomewhatlimited,theyarenotimmaterial.They should be viewed in the context of the size of the economic shock being examined. The directlabourforceimpactofAustraliasfitnesscentresencompassingbothproductivityand participationeffectsisanadditional916fulltimeemployeesunderthecentralcase.This represents around 1/100 of 1 per cent of Australias 9.23 million full time equivalent employeesinJune2008.

3.2.5

Effectofhigherfitnesscentreutilisation

The evaluation of the broader health benefits of fitness centres focused on three scenarios representingpossibleratesofexercisedropoutfromcurrentusersoffitnesscentres.These dropout scenarios were based on the current population of regular fitness centres participants, which was estimated to be around 1,334,000. This represents around 7.0 per centofAustraliastotaladultpopulation(takentobe15yrsandolder). Asanadditionalwhatifscenario,AccessEconomicshasmodelledthepotentialhealthrelated impactsifthenumberoffitnesscentreusersincreasedtoaround10percentoftheAustralian adult population. Under this achievable level of utilisation, the benefits flowing from health care savings, increased workforce participation and higher labour productivity would be considerably greater than those currently being generated by the fitness industry. For example,thisuptakehasthepotentialtodeliveradditionalhealthcaresavingsintheorderof $204.8 million and lead to around 2609 extra full time employees in the workforce. The estimated workforce benefits could also increase GDP by approximately $82 million in real terms. Indeed, the results suggest that greater emphasis on preventative health care in which Australiasfitnesscentreswouldbeexpectedtoplayacriticalrolecouldyieldconsiderable economicandsocialbenefits.

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FitnesscentresinAustralia Table21:Economicbenefitsiffitnesscentreusagewas10percentofadultpopulation Disease Grossavoidedhealth carecosts

$million 39.4 141.9 16.9 6.5 204.8

Workforce participation
FTEs 572 977 303 31 1884

Workforce productivity
FTEs 41 256 337 93 726

Type2diabetes Cardiovascular Osteoarthritis Cancer Total

Source:AccessEconomicsestimates.

While a 10per cent level of overall fitness centre utilisation across the community is consideredrealistic,givencurrentratesofparticipation,itisintendedtohighlightthebenefits thatcouldbeachievedinreachingapossiblefuturelevelofmarketpenetrationrelevanttothe industry. The level itself has not been determined on the basis of rigorous analysis and any prospectivegoalortargetshouldbesetaccordingtofirmindustrypriorities. It should also be noted that these projections are subject to similar uncertainties and limitationsastheotherpartsofthebroadereconomicassessment(seediscussionbelow).In this regard, they should be considered as representing the scale of potential benefits that could be derived from increasing overall rates of regular fitness centre participation in the community.

3.2.6

Limitationsandchallenges

Assessing the broader benefits that fitness centres provide through helping to improve the healthofthecommunityisfarfromstraightforward.Manyoftheattendantchallengesrelate to quantifying the precise linkages between health outcomes and specific initiatives to promotehealthandwellbeing. Theevaluationofthehealthrelatedeconomicimpactsoffitnesscentreshasbeenundertaken at a high level and has not involved many of the detailed assessments typically adopted to measure the costs and efficacy of particular interventions. These can involve, for example, consideration of a greater range of factors such as the age, gender and demographic characteristics of fitness centre members, as well as a substantial longitudinal analysis. The healthrelatedresultsofthisstudyshouldthereforebeconsideredindicativeandrepresenting thescaleofpotentialhealthbenefitsgeneratedbyAustraliasfitnessindustry. Someofthekeylimitationsandchallengesarenotedbelow.

Linking behavioural changes and health outcomes. The relationship between risk factorsandhealthoutcomesisoftennotstraightforward.Inmanycasestheymaybe nonlinear and often interdependent. A particular complication of estimating these linkages is that counterfactual estimates of the behaviour that would have occurred withoutaparticularintervention(suchasfitnesscentres)arerequired. In terms of this study, there is relatively limited information on the role that specific exercise programs or fitness centre activities can play in improving health outcomes

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FitnesscentresinAustralia broadly. This study has accordingly relied on relatively conservative estimates in apportioningtherolefitnesscentresplayinincreasingthelevelofphysicalactivityinthe community.Asensitivityanalysishasalsobeenconductedtotesttheseestimatesand theiroverallimpacts.

Some health impacts are excluded. While the major disease impacts from physical inactivity are covered in the analysis, some forms of health savings are not included. These include links to improved mental health and a reduced incidence in falls among the elderly. The assessment also excludes both the cost of formal and informal care providedbycarers. Conversely,theanalysisdoesnotaccountforsomeofthedirecthealthcostsoffitness activities.Theseincludetheincreasedincidenceofmusculoskeletalsportsinjuriessuch assprains.However,thesecostsarecommonlyconsideredtobeminorcomparedwith thecostsofinactivity.

Astaticapproachisadopted.Thestudyexaminesthehealthimpactinasingleyearand doesnotaccountforthedynamicaspectofinterventionsandhealthcostsavings.There areoftenconsiderablelagsbetweenhealthpromotionactivities,changesinbehaviours and subsequent health outcomes. The assessments static approach also ignores any shifting effect where the offset of health costs through primary prevention initiatives can shift expenditure through time. People who would have incurred costs due to specificillnesswilloftenincurnew(andpossiblygreater)costsinfutureyearsduetoold age. Disease severity. The analysis does not account for differences in the severity of particulardiseases.Thesecanoftenbehighlyvariableandhavealargebearingoncost andworkforceimpacts. Estimatesoftheavoidedhealthburdenshouldalsoideallytakeintoaccountchangesin theprevalenceofspecificdiseasesovertime.

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FitnesscentresinAustralia

Conclusionsandoutlook

AustraliasfitnesscentresareanimportantpartoftheAustralianeconomy.Inadditiontothe industrys direct economic impacts and level of employment, substantial benefits are also derivedfromitscontributiontoimprovedhealthandproductivityinthecommunity. There are, however, a number of challenges facing the industry. Perhaps the most pressing relatestothecurrenteconomicconditions,whichareweakandcoulddeterioratefurtherover the next 12months. That said, there are several longer term influences that could present substantialopportunitiesfortheindustry.Theseissuesareoutlinedbelow. Immediateeconomicchallenges The global financial shock and subsequent economic slowdown is having a notable effect on the Australian economy. Australias significant momentum leading into the global recession has so far enabled it to avoid a technical recession. However and although the outlook remainsmorepositivethaninmanyothercountriesconditionsarestillweak. Theoutlookfortheglobaleconomyremainsuncertain,thoughsignsofimprovementinrecent monthssuggestthatmostmajoreconomieswillreturntoeconomicgrowthinearly2010.The timingofrecoveryinAustraliasmajortradingpartnersparticularlyindevelopingAsiawill helpdeterminethemagnitudeofAustraliasdownturn. TheAustralianretailsectorhasenduredtoughtradingconditionsthroughout2008and2009. During 2008, the high interest rate environment which preceded the Global Financial Crisis curtailed household disposable income. Since September, falling asset prices and a weaker economic outlook has seen consumer confidence fall away, while unemployment has also liftedsharply. Despite those tough conditions, retail trade has performed surprising well in recent months. RetailtradejumpedinMay,risingby1percentandbuildingongainsseensinceNovember. Retailsalesarenowupahealthy5.8percentoverthesixmonthstoMay.Theliftislikelyto beadirectresultofstimuluspaymentstohouseholdsalongwiththenotablefallsininterest ratesseenoverrecentmonths.Thatsuggeststhatthespendingboostmaynotbemaintained goingforwardoncetheeffectsofstimuluspaymentssubside. Indeed, Access Economics expects consumer spending to fall from here. Although interest rateswillremainlow,unemploymentwillcontinuetoclimbandconsumerconfidenceremains weak,dampeningtheretailsalesoutlook. Households are likely to pull back on their spending for the remainder of 2009 and through 2010.Astrongretailrecoverymaythenemergein2011astheunemploymentratepeaksand startstoturndown,interestratesremainrelativelylowandahousingrecoveryemerges.

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FitnesscentresinAustralia

Healthanddemographicfactors
Looking ahead of the current weak economic circumstances, there are several longer term socioeconomicanddemographicfactorsthatarelikelytoprovidesignificantopportunitiesfor thefitnessindustry.Theseprincipallyrelatetotrendsinthepopulationincidenceofobesity andAustraliaschangingageprofile. Anincreasedprevalenceofobesityrelatedhealthproblemsisexpectedtoplaceconsiderable demands on Australias health system in future years (AIHW 2008a). Australias ageing population will also add to fiscal pressures, requiring substantial outlays for pensions and healthrelatedexpenditure.Indeed,theIntergenerationalReport2007notes: Demographic and other factors are projected to place significant pressure on governmentfinancesoverthelongertermandresultinanunsustainablepathfor netdebttowardstheendoftheprojectionperiod. Australian Government spending is projected, in the absence of policy adjustments, to rise by around 4 per cent of GDP by 204647. By that time, a fiscalgapofaround3percentofGDPisprojectedtodevelop.(p.xii) Such pressures make preventative health measures such as the services provided through Australias fitness centres even more imperative. Consistent with sustained growth in the industry over the last decade, it is expected that the industry will continue to play an important role in improving the health and wellbeing of the Australian community and contributingtoAustraliaslongertermgrowthprospects.

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FitnesscentresinAustralia

References
ABS2008,AustralianNationalAccounts:InputOutputTables200405,Cat.no.5209.0, Canberra ABS2008,EmploymentinSportandRecreation,Australia,August2006,Cat.no.4148.0, Canberra. ABS2008,SportsandPhysicalRecreation:AStatisticalOverview,Australia,2008(Edition2), Cat.no.4156.0,Canberra. ABS2007,ParticipationinSportsandPhysicalRecreation,200506,Cat.no.4177.0,Canberra. ABS2006,SportsandPhysicalRecreationServices,Australia,200405,Cat.no.8686.0, Canberra. ABS2006.NationalHealthSurvey:Summaryofresults,Australia200405.ABScat.no.4364.0, Canberra. AccessEconomics2005,ArthritistheBottomLine:TheEconomicImpactofArthritisin Australia,ReportforArthritisAustralia,Canberra. AccessEconomics2006,TheEconomicCostsofObesity,ReportforDiabetesAustralia, Canberra. AccessEconomics2008,TheGrowingCostofObesityin2008:ThreeYearsOn,Reportfor DiabetesAustralia,Canberra. AustralianInstituteofHealthandWelfare2004,AustraliasHealth2004,Cat.no.AUS44, Canberra. AustralianInstituteofHealthandWelfare2008a,AustraliasHealth2008,Cat.no.AUS99, Canberra. AustralianInstituteofHealthandWelfare2008b,HealthexpenditureAustralia200607,Cat. no.HWE42,Canberra. AustralianGovernment2007,IntergenerationalReport2007,Canberra. BeggS,VosT,BarkerB,StevensonC,StanleyLandLopezAD2007,TheBurdenofDiseaseand InjuryinAustralia2003,AIHWCat.no.PHE82,Canberra. DepartmentofHealthandAgeing2003,ReturnsonInvestmentinPublicHealth:An EpidemiologicalandEconomicAnalysis,Canberra. GilesCortiBandDonovanRJ2002,Therelativeinfluenceofindividual,socialandphysical environmentdeterminantsofphysicalactivity,SocialScience&Medicine,Vol54,No12, pp.1793812. NPHP(NationalPublicHealthPartnership)2001,PreventingChronicDisease:AStrategic Framework,NPHP,Melbourne.

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FitnesscentresinAustralia OECD2007,Healthataglance2007,OECDindicators,Paris. ProductivityCommission2006,PotentialBenefitsoftheNationalReformAgenda,Reportto theCouncilofAustralianGovernments,Canberra. ReadyAE,NaimarkBJ,TateRandBorseskieSL2005,FitnessCentreMembershipisRelated toHealthyBehaviours,JournalofSportsMedicineandPhysicalFitness,Vol45,No.2, pp.199207. StephensonJ,BaumanA,ArmstrongT,SmithBandBellowB2000,TheCostsofIllness AttributabletoPhysicalInactivityinAustralia:APreliminaryStudy,Commonwealth DepartmentofHealthandAgedCareandtheAustralianSportsCommission,Canberra. WorldHealthOrganization2007,WHOstatisticalinformationsystem.LifetablesforWHO memberstates,Geneva.Viewed10January2009,<www.who.int/whosis/en>.

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AppendixA: Economiccontributionstudies
Economic contribution studies are intended to quantify measures such as value added, exports, imports and employment associated with a given industry or firm, in a historical referenceyear.Theeconomiccontributionisameasureofthevalueofproductionbyafirm orindustry. Value added (the difference between the value of services or goods sold and the cost of inputs)isthemostappropriatemeasureofanindustrys/companyseconomiccontributionto gross domestic product (GDP) at the national level, or gross state product (GSP) at the state level. Thevalueaddedofeachindustryinthevaluechaincanbeaddedwithouttheriskofdouble countingacrossindustries.Itcanbecalculateddirectlybysummingthereturnstotheprimary factorsofproduction,labourandcapital(thegrossoperatingsurplus,GOS,orprofit),aswell asproductiontaxeslesssubsidies. Measures such as total revenue or total exports double count that is, overstate the contributionofanindustry/companytoeconomicactivityastheyincludethevalueadded of other industries. For example fitness centres sales revenue includes the value added of externalfirmssupplyinginputstofitnesscentres. Whiledescribingthegeographicoriginofproductioninputsmaybeaguidetoafirmslinkages with the local economy, it should be recognised that these are the type of normal industry linkagesthatcharacterisealleconomicactivities. Unlessthereissignificantunusedcapacityintheeconomy(suchasunemployedlabour)there is only a weak relationship between a firms economic contribution as measured by value added (or other static aggregates) and the welfare or living standard. Indeed, the use of labourandcapitalinproductionisacosttotheeconomy.Insimpleterms,economicresources (land,labour,capital)arenotforexclusiveusebyfitnesscentres(oranyotherbusiness).That is,activityrelatedtofitnesscentreproductioncomesatanopportunitycostasitmayreduce theamountofresourcesavailabletospendonother(possiblymoreworthwhile)activitiesthan providingfitnesscentrefacilities. Thisisnottosaythattheeconomiccontributionoffitnesscentres,includingemployment,is notimportant.TheProductivityCommission(1999)notes:1 valueadded, trade and job creation arguments need to be considered in the context of the economy as a whole. Income from trade uses real resources, which could have been employed to generate benefits elsewhere. These arguments do not mean that jobs, trade and activity are unimportant in an economy.Tothecontrary,theyarecriticaltopeopleswellbeing.However,any particularindustryscontributiontothesebenefitsismuchsmallerthanmightat first be thought, because substitute industries could produce similar, though not equal,gains.(p.4.19)
1

ProductivityCommission1999,AustraliasGamblingIndustries,ReportNo.10,Canberra.

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FitnesscentresinAustralia In a fundamental sense, economic contribution studies are simply historical accounting exercises. No whatif, or counterfactual inferences, such as what would happen to living standardsiftheindustryorfirmdisappearedshouldbedrawnfromthem.

Measuringtheeconomiccontribution
There are several commonly used measures of economic activity, each of which describes a differentaspectofanindustryseconomiccontribution:

Valueadded measures the value of output (ie goods and services) generated by the entitysfactorsofproduction(ielabourandcapital)asmeasuredintheincometothose factorsofproduction.Thesumofvalueaddedacrossallentitiesintheeconomyequals grossdomesticproduct.GiventherelationshiptoGDP,thevalueaddedmeasurecanbe thoughtofastheincreasedcontributiontowelfare. Valueaddedisthesumof: Grossoperatingsurplus(GOS).GOSrepresentsthevalueofincomegeneratedby the entitys direct capital inputs, generally measured as the earnings before interest,tax,depreciationandamortisation(EBITDA). Tax on production less subsidy provided for production. This generally includes company taxes and taxes on employment. Note: given the returns to capital before tax (EBITDA) are calculated, company tax is not included or this would doublecountthattax. Labour income is a subcomponent of value added. It represents the value of outputgeneratedbytheentitysdirectlabourinputs,asmeasuredbytheincome tolabour.

Grossoutputmeasuresthetotalvalueofthegoodsandservicessuppliedbytheentity. This is a broader measure than valueadded because it in addition to the valueadded generated by the entity, it also includes the value of intermediate inputs used by the entitythatflowfromvalueaddedgeneratedbyotherentities. Employment is a fundamentally different measure of activity to those above. It measuresthenumberofworkersthatareemployedbytheentity,ratherthanthevalue oftheworkersoutput.

FigureA.1showstheaccountingframeworkusedtoevaluateeconomicactivity,alongwiththe componentsthatmakeupgrossoutput.Grossoutputisthesumofvalueaddedandthevalue ofintermediateinputs.Valueaddedcanbecalculateddirectlybysummingthepaymentsto the primary factors of production, labour (iesalaries) and capital (ie gross operating surplus, GOS,orprofit),aswellasproductiontaxeslesssubsidies.Thevalueofintermediateinputs canalsobecalculateddirectlybysummingupexpensesrelatedtononprimaryfactorinputs.

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FitnesscentresinAustralia FigureA.1:Economicactivityaccountingframework

Intermediate inputs (sourced from other industries)

Output (total revenue)

Labour Value added (output less intermediate inputs)

Gross operating surplus Production taxes less subsidies

Source:AccessEconomics.

Economicimpactstudies
In contrast to economic contribution studies, the ultimate aim of economic impact studies (suchasGEmodelling)istogaugethenetbenefitofaneconomicstimulusorcontraction whether living standards will increase and by how much, not how much expenditure is incurred. Staticanalysislikecontributionstudies,whileusefultogaugethesizeoffirmsorindustriesin theeconomy,areapoorguidetolivingstandardstheydonottakeintoaccountdynamic displacementorcrowdingouteffectsonothersectorsoftheeconomy,suchasincreasesin wages. The economic contribution of the fitness centre operations as measured by value added indicatesthevalueofactivityintermsofproductionundertakeninAustralia.Thecontribution ofthefitnesscentreoperationstoAustraliasincomeislessthanthevalueofproduction.

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