20 years of leasing… Does expansion always mean growth?

Al-Andalus Sports Clubs signed a contract to lease land in Riyadh for SAR 55.7 million to establish and operate a new club under the Body Masters brand.

At first glance, the news looks like a typical expansion move: a new location means more customers and an opportunity to generate additional revenue. But what caught my attention from an accounting perspective is that the company did not simply decide to open another branch; it entered into a commitment spanning 20 years.

This raises the question: When does expansion shift from a growth opportunity to a commitment that takes years to prove its viability?

Revenue has not started yet… but the commitment has

The land covers 4,125 square meters. The paid lease term begins in February 2028 and runs through January 2048. This is preceded by 16 rent-free months allocated to planning, construction, and building works.

This rent-free period is important because it gives the company time to prepare the project before lease payments begin. However, the club itself will also require construction, fit-out, equipment, staffing, and operating costs before it starts generating revenue.

The company itself clarified that the project’s positive financial impact will not begin until construction and fit-out are completed, the necessary licenses are obtained, and operations commence.

In other words, there is a pre-revenue period during which the company must manage its capital and liquidity carefully.

SAR 55.7 million is not the only figure that matters

When looking at the project, it may be easy to focus solely on the lease value. But the club’s true economic cost will be higher than that.

There are also construction, fit-out, maintenance, payroll, equipment, facilities, and operating costs. At the same time, the project’s ability to generate returns will depend on the number of members, membership prices, customer retention rates, and the club’s ability to cover its fixed costs.

This makes the break-even point important: How many memberships does the club need for its revenue to cover its operating costs and commitments?

Expansion doubles the opportunity… but it also doubles the commitments

With the contract signed, the company now has 16 projects under development, including 9 under construction and 7 awaiting licenses.

This number reflects a clear expansion strategy, but it also makes me consider the other side of growth. Each new branch can add future revenue, but it initially requires capital, commitments, and costs before reaching the stage of generating returns.

Therefore, expansion cannot be measured by the number of branches alone, but by the ability of new branches to generate returns that exceed the cost of investing in them.

What does the accountant see?

A customer may see a new club, a larger location, and modern equipment, while an accountant sees a long-term lease commitment, setup costs, and cash outflows today in exchange for expected future revenue.

In my view, the decision to expand over a 20-year period reflects the company’s confidence in future demand for the fitness sector. At the same time, however, it makes investment efficiency even more important.

True success will not be evident when the club opens, but when the project begins generating sufficient cash flows to cover its costs and deliver an appropriate return.

So perhaps the question is not: How many new clubs can the company open? but rather: How many of these clubs can generate a return that justifies the long-term commitment?