Chris Stolzman has spent the last 20 years of his life being involved in the gym business. What first started out as a personal training job in California turned into a profitable business as the owner of the most successful chain of kickboxing/mma gyms in Georgia.

He opened up his first LA Boxing in Sandy Springs in November 1999 and within a few years opened up a second gym in Kennesaw then his third gym in Midtown. At the height of Stolzman’s business he was the CEO of 8 gyms in Georgia plus had licensed several more in other states. The name of the gym had changed several times with it most recently called Knuckle Up Fitness.

Unfortunately the economic recession took its toll on the Knuckle Up chain of gyms as it has on nearly every other business in America. The recession and some other unfortunate mishaps led Stolzman to declare bankruptcy in late 2008 and ultimately lose his gyms in July 2009.

While the consumer name of the gyms is Knuckle Up Fitness, the overall chain of gyms was operated under the name Atlanta Fight Clubs (AFC).

While many other kickboxing and martial arts gyms have opened up in recent years in Atlanta, nearly every gym owner and manager has gotten his or her start and learned the ropes under the tutelage of Stolzman.

Despite all of the recent activities, Chris Stolzman was kind enough to take some time to answer questions for GeorgiaFighters.com. We hope this sheds some light on the facts and helps eliminate some rumors.

GeorgiaFighters.com: Only two years ago Atlanta Fight Clubs was extremely successful and you were looking to expand from 4 gyms to more than a dozen gyms. You also had your father helping to run the books and help the expansion. Describe what went wrong between your father’s heart attack, the recession and the relationship with Duvera Financial.
Chris Stolzman: In mid October 2008 my father had a heart attack and had an emergency quad bypass. His doctors instructed him not to return to work.

He had been managing the back office and financial legal and accounting relationships for AFC since 2006 when we set out to grow from 4 locations to 12 locations.

Due to a number of issues associated with construction going over budget and running late as well as sales at the new locations falling a bit short of our initial projections we got into a factoring arrangement with Duvera Financial.

Duvera Financial would buy our contracts or 60 cents on the dollar up front + 10 cents on the dollar when the agreements were paid off by members.

Unfortunately there were two things in the agreement that we didn’t fully understand or prepare for and that was that Duvera had structured the balance owed by members as a loan to the business and issued a UCC lien on the entire business to collateralize their outstanding balance.

Duvera also had a protection in there where if a client whose contract they bought defaulted (canceled or didn’t pay) they would be able to make us replace it with a new contract. It also allowed them to keep or push out payment of the 10 cents per dollar on the back end as the agreements were paid off.

By the middle of 2008 as the economy started to slow down and falter we had a tremendous amount of defaults and the week I took over the back office after my dad’s heart attack I was asked by Duvera to send 100 percent of October’s contracts as replacements for bad contrasts.

I’m not an accountant but I immediately knew this would kill the business if it continued.

I had my cousin who is a high level financial analyst come in and we spent late

October through mid December trying to renegotiate with Duvera but we were unsuccessful in coming up with a deal that all parties could agree to. We explored every legal option available to us and the Chapter 11 we learned would allow us to reject the factoring agreement and compel Duvera to allow us to stop factoring new agreements and pay them back over time.

After the filing, the company began to stabilize and business had been going relatively well until June. We were able to adjust to our monthly dues payments declining by almost 50% over the first 5 months of the year due to tons of defaults associated with the bad economy.  We were able to pay all of our landlords rent January through June and Duvera was paid more than $65,000 during the first 5 months of the year.

GF: With CJ Wilson the new owner of the Sandy Springs clubs and the Alpharetta clubs and the recession still ongoing…do you think he can maintain the clubs and keep them open or do you think the recession will knock out those two gyms?
Stolzman: Cj is one of the best operators I have ever seen and has a work ethic that is second to none.  Cj Started out as an assistant to the training department which basically means he cleaned equipment and set appointments for trainers.  He did so well at appointment setting that Dave Mullikin,  our VP of Sales and Operations, picked him to go through our Management Training program.  He did great and within six months was managing the Sandy Springs Club.  Cj managed to almost double the membership at Sandy Springs when he was there and when we had a huge challenge getting Alpharetta to perform as we expected we sent him there to run it.  He did an amazing job at Alpharetta.  I’m confident without the added complexity that we had associated with the Duvera Factoring agreement and the fallout it created he will be able to enjoy some huge success at both of those clubs.

GF: What about the rest of the Atlanta kickboxing/mma gyms? Many of their owners and managers have learned under you and most the gyms are marketed and ran the same as you have done in the past. Do you think any of them are in trouble of going out of business in the near future?
Stolzman: Well thank you for the comments. That’s true a lot of the other gym owners in the Metro Area got their start at Knuckleup either as Members or employees and as far as I know most of them are doing very well.  Many of them are using the core fundamentals of our model and have added some of their own stuff that also works for them.

I think the guys at X3 have done a good job, they have a good team and their members speak well about their clubs. Unit 2 has a good program and was founded by some of or former trainers and members and they also have the benefit of having one of the best Jiu Jitsu players around as their head coach. Ascension, Junior’s current club was started by he and some of our members and I know they are doing pretty well and Mateo and Sherri have done well in Kennesaw, the way they have used social networking to market their programs has been pretty impressive.  As far as I know no one is in danger of going out of business and had we not have been locked into the factoring agreement we would have still been owning and operating clubs.  All that said the Team Cj has put together for Sandy Springs and Alpharetta is amazing and I think they will be unstoppable.

GF: If I understand it correctly, you originally brought Duvera Financial in to assist Atlanta Fight Clubs in its bankruptcy. Did that end up hurting you in the long run?
Stolzman:  Actually as I mentioned in question 1, Duvera was brought in back in 2006 when we started to go over budget on our expansion projects

GF: After declaring bankruptcy in 2008, you actually got your gyms back on the straight and narrow and were doing well to repay the gym’s debt. Where did things go wrong?
Stolzman: The clubs were actually performing great in 2009 up until Duvera filed to foreclose.  The thing that made them attempt to foreclose was they felt their collateral (which was the value of the outstanding balances on member contracts) was deteriorating.  Basically, due to the economy slowing down, people losing their jobs and homes there was a much higher percentage of members who couldn’t pay their bill.  I think what they did was very short sighted and had we all worked together to weather the economic downturn we all would have come out on top but….. Spilled milk at this point.

GF: During all of the court proceedings, you had the opportunity to back out and actually get a sizeable amount of money and walk away free and clear. But it would mean shutting down all of the Atlanta Fight Club gyms, laying off all of the employees, not paying them back money owed for a week or two of work and leaving all of the gym members with nowhere to go. But instead you turned down the money and found a way to transfer the gyms to a new owner and keep jobs alive for many salespeople and employees, get everyone paid and keep it so many members still had a place to work out. This costs you a lot of money. Do you regret your decision?
Stolzman:  Honestly…. No I would have done it exactly the same way.  When Duvera decided to foreclose they offered me a pretty significant employment contract. This would have displaced almost all of our members from the clubs they had signed up at and cost everyone their job not to mention completely destroy the brand we spent over a decade building.  I’d rather be broke then profit from screwing all of our employees, contractors, vendors and landlords that helped us build the company.  This way, the brand lives on.

The two clubs with the most members were not inconvenienced and get to continue training where they signed up. In most cases with the instructor they signed up with due to Cj or LA Boxing offering jobs to most of our former employees.

I also at the last minute was able to get Duvera to agree to pay all of our employees and contractors what they were owed effective the day we shut down as severance check in 2 equal installments on the 1^st of August and the 15^th of August on our behalf so I feel pretty good about that.

Myself and Dave Mullikin gave up any severance or consulting fee etc…… we wanted to make it clear to everyone that we couldn’t be bought and wouldn’t sacrifice our integrity just because our backs were up against the wall.

GF: For your gyms that closed down, you worked out a deal with other gyms that your members could go there? Did you do that to benefit the members of your gym that were left without a gym to workout at?
Stolzman: Yes, both the members and the employees…… with AFC not operating clubs anymore there were several people who had paid for their membership in advance that would have been out, there were also a lot of members who had very close relationships with their instructors so I attempted to secure positions for both the trainers to have jobs and the members to have a convenient place to train.

GF: Where is all of the equipment from the gyms that shut down and what are your plans to do with it?
Stolzman: You wouldn’t believe how many calls I’ve gotten about that.  We moved most of the equipment that wasn’t leased to Sandy Springs or Alpharetta or locked it up in storage for safe keeping.  A few days after we shut down Gwinnett someone came and stole the ring and about 10 heavy bags before we could move it to be stored.  A lot of the fixtures like bag racks, etc were permanent. Some are probably still there……  We intend to either lease, rent or sell the equipment however we are waiting for the courts approval for that.

GF: What are some of the rumors that you have heard? I’ve been told that you are not allowed to own a gym in Atlanta for 3 years or 5 years. Is there any truth to that?
Stolzman:   I think this rumor got started around the employment and or consulting arrangement that Duvera had offered me.  It’s true that there was a non-compete in there however I didn’t accept any offer they made so I am able to do pretty much whatever I want professionally.

GF: When you think back on the gyms that you’ve owned in Atlanta and the success that you had with them, but then you see where you’re at right now that you don’t own what you built on your own, what is the worst thing that is going through your head?
Stolzman:  You always tend to second guess every decision you made.  I just wish I would have slowed down and not tried to grow so fast, enjoyed some of the success we had instead of constantly pushing to be bigger, aside from that I’m looking at this as a new beginning.

GF: If you could change anything, what would it be?
Stolzman: Definitely wish I never would have signed that factoring agreement with Duvera.

GF: What do you plan on doing next?
Stolzman: I really feel like I know this business very well, I know what works, I know what doesn’t and I definitely can recognize things that can wreak havoc on a business so I’d like to work as a consultant to others in this business and help them realize some of the same successes we have and avoid some of the same pitfalls.

GF: For the Knuckle Up members and employees that you have not spoken to, what would you like to say to them?
Stolzman:  I’d like to thank everyone for all the hard work and sacrifice we all made over the past several years.  I want them to know that I went to bat for them and worked absolutely as hard as I could to limit any negative impact this would have on them and that I wish everyone the best in whatever the future holds for them.