Are Pickleball Clubs the New Fad or the Next Fitness Empire?

0:00Welcome back, everybody, to another episode of Acquisitions Anonymous, the Internet's number one podcast for small business business M &A. We have an awesome deal today. We're joined by Travis with Capital Pad and we have all four co-hosts. And we talk about a pickleball complex in Houston that is pretty interesting. It's relatively new. It's only been in business for about a year, but has pretty meaningful margins. We talk about pickleball as a market. We learned the term pickleheads, which is what I guess pickleball fans are called. But we talk about the dynamics of leasehold improvements, the real estate-centric nature of this business.

0:39If you're into pickleball, which how could you not? Are you living under a rock? Pickleball is all the rage. I think you'll enjoy this episode. Stick around after a quick word from our sponsors.

0:59Hey, everyone. It's Bill. And I want to tell you about maybe the most exciting sponsor we've had in a long time on the pod. It's called Capital Pad and it is the thing that I wish existed when I started my journey of operating and investing in small businesses. So Capital Pad is a marketplace for acquisition entrepreneurs, that is people who want to buy a business and need capital to list their deals and solicit capital from other people who want to invest in acquisition deals. So if you want to back somebody buying a small business, CapitalPad is the place to do it. And if you want to buy a business and need capital, you can go on CapitalPad to be introduced to investors.

1:43So the really great thing too from the investor side is that CapitalPad takes care of all of the details that can get hairy with small business acquisitions. They handle standardized terms, standardized governance, standardized distributions, all up front in black and white. Basically, Capital Pad professionalizes investing in small businesses and the returns can be really, really good. I'm so stoked they exist. It's founded by my friend Travis, who is a phenomenal entrepreneur in his own right. So if this sounds like something that's appealing to you, if you want to buy a small business and need capital, or if you want to invest in small businesses, go check out CapitalPad.com and tell them that Acquisitions Anonymous sent you.

2:26All right. We've got a fun episode of Actors News and Anonymous today. We have Travis Jameson from Capital Pad with us, and we did a classic Actors News and Anonymous thing where we were talking pre-record, and Girdley goes, quick, hit record, hit record, hit record, because Travis was telling us that he got back from a really interesting conference. So, what conference was it, Travis? Yeah, so it was the McGuire Woods Independent Sponsor Conference in Dallas. It is probably one of the most intense conferences I've ever been to, like in a very good way. So it's a very, it's a gated conference.

3:00So only independent sponsors, which if you don't know, it's like kind of the in-between between like traditional private equity and searchers. So independent sponsors and capital providers can go. And the first entire day are back to back to back 20 minute one-on-ones between a capital provider and an independent sponsor, basically trying to just make deals happen. So the independent sponsors, a lot of them have deals that they're looking to raise for right then or trying to make the relationship with different investors. And investors like myself, we were just looking to meet anyone who has something really appealing to us along the way.

3:38It was amazing. There was a lot of money and a lot of interesting people in that, not even that room. It's like a whole hotel. It takes multiple rooms to make this thing happen. So is it like a matchmaking situation? Yes, but they don't match you up. When you sign up, you get access to this fairly horrible software program that you can download it and start doing all kinds of filtering, which again, is very difficult in this program, but you essentially find people that are a good match. So there are people doing $100 million,$200 million deals at this conference that like CapitalPad, we're not a good fit for that.

4:10We can't deploy enough capital. But so you can sort through it and find the people doing you know, 10 to$30 million deals, you know, one to$5 million EBITDA deals, um, kind of sync up with those. And then you just do outreach so they can outreach to you. You can outreach to them. And they have this, you have your entire calendar synced up and just like send an automated date and then match you up and you go sit down and just one-on-one with it. Have any of y 'all ever done the ACG deal crawls, the association for corporate growth? it's kind of like the PE investment banking industry group, but they do a deal crawl.

4:44It's kind of like that. Whereas like, you know, the private equity firms are going, you know, booth to booth and the investment bankers are like, what do you like? You know, we have some of those, we have some of this, you know, and I think it can be really efficient just to meet a ton of people in a very short amount of time. Well, so the second day they do have the first half of the day is like traditional conference programming stage type stuff. but for i think most people when they go to conferences the real gold happens outside of the conference it's on the fringes the discussions you have and so i think mcguire woods has figured out like let's just skip most of that stuff and go straight to the good um and i think it really worked i think it really works but it's very exhausting that's a it's a lot of mental taxing you can't just kind of chill in the back on your phone or your laptop like you've actually got to engage a lot but really good stuff i met a ton of really interesting talented people uh probably some deals will come out of it.

5:33Several of the deals were really in our sweet spot. A lot of them were not, but that's how it goes when you're trying to find one. It was great. I look forward to investing in some of the deals you found. Exactly what I like to hear. Thanks for the pitch. I like the easy pitch in there, Bill. Appreciate it. Will you give us an update on CapitalPad? The last time I logged in, there was a fascinating deal. I don't know if I'm supposed to say that much about it. Due to some regulations, we can't go into specifics of live deals. We can talk about the platform and probably pass stuff. That's fine. Will you give us just kind of an update on how it's going?

6:08Like deal flow, users, like, is it tracking the way that you thought it would? Yeah, it's actually doing really well. You know, with every, I guess, startup, you could say, things always take what, three times as long or three times as hard. And this is the case with CapitalPad as well. But we're really making a lot of moves. So the current deal, I think we're deploying at least 1.6, but probably up to 2 million in it, which is, you know, a fairly legitimate amount. We're really pleased with that. The deals that we're getting, I think I'm really, really pleased with the quality of them as well.

6:42Again, we're heavily, heavily curating these. So, you know, just maybe like 2 % of the deals kind of make it through. But the ones that are like, I'm really happy in them. I'm investing in them. I think our user bases as well. And like we're growing every single day. That's the cool thing, both with like searchers and sponsors and with investors, like every single day we get new people. So a lot of it's come from word of mouth, which is a really good sign too. Um, people hear it on the pod, people hear it everywhere. So it's been really, really happy with it. That's great. Yeah. I was psyched.

7:12We did a, I can mention, I think the one, the one we did, which was a rehab center. Yeah. So I forget where, is it Ohio? Somewhere in the Midwest, I think it's Ohio. Somewhere in the Midwest. Just the financial profile was really attractive. The sponsor was really experienced. A very savvy guy. Had done a lot of deals before. And just the economics seemed great. So I was excited to invest in that one. I think they unlocked material EBITDA within 30 days of closing. Literally, yeah. That was a pretty special situation. That was great. And you didn't call me. I'm upset. No. you can you too Heather can register for Capital Cat and invest in these deals I'm going to if it had been a circuit deal we'd have sent it your way yeah there was no SBA loan involved I don't think can I pitch you guys on this pickleball club oh yes yeah alright I originally had brought the TV production deal that I'd run across but I pivoted when this just showed up in my email so it it showed up in my biz buy sell exactly 35 seconds ago.

8:17So it's hot off the presses. So it is a Houston pickleball club. They have a picture of, it looks like a pickleball. Would that be technically accurate right there, Mills? Yeah. It looked like a tennis ball to me at first, but that shows you how much I know about pickleball. It is a pickleball on a pickleball court and nothing else. So it's very artistic. It's like the Museum of Modern Art listing for business. The asking price is$1.9 million. Cash flow is$400 ,000. And gross revenues,$1.1 million. They don't disclose rent or EBITDA. And it was established, Heather, I know this is sad, 2024. So it's been open for about a year.

9:08All right. So the listing appears to be an owner listing. Hello, they write. Thank you for your interest. Since this business is still in early stages, it will not qualify for SBA or other traditional financing options. This is a strong opportunity, but requires self-funding. Also, owner financing options are available. If you'd like to proceed, I'll give you a mutual NDA. Please note that proof of available funds will be required before sharing any financial details or further information about the business. The business is already flourishing, profitable from day one with an impeccable location, the best designed court layout, and the largest number of championship-size indoor courts in Houston.

9:48The key highlights and features of this Pickleball Club is the largest indoor facility in Houston, engineered to professional standards. They have state-of-the-art LED lighting systems designed to eliminate glare and shadows, ensuring the most comfortable play experience in the city. They have a 15-year gross lease with rent significantly below market, saving approximately$15 ,000 per month in savings compared to comparable facilities. The landlord also reimburses HVAC expenses, adding further value and protection to operating margins. It opened profitable from day one with multiple recurring revenue streams, including membership, court reservations, and open play programs.

10:25It is powered by a proprietary software system for tournaments, leagues, rankings, and future AI video analytics integration. And the club is already recognized as a name in the Houston pickleball community with a strong brand identity, loyal membership base, and active local partnerships. The facility, business systems, and brands are built for replication and franchising. The platform and operational model makes scaling straightforward and high margin. Fully climate controlled, professional-grade services, robust play culture, excellent demographics, and location access. us. To prepare the NDA, please send your full name, address, and phone number.

10:57We will then email you the NDA for your signature. Once signed, kindly return it along with proof of funds so we can move forward. If this doesn't suit you, we can talk on the phone first. No, information will be limited until the requirements are met. It's in Houston, Texas, leased through 2039, 51 ,000 square feet, has 18 employees, two are full-time, and 16 part-time. And the reason for selling is personal. they will share with buyers with showing evidence. So, yeah. I kind of like the seller knows the game a little bit. They're mentioning platform out of the gate. Yeah. Yeah, this is well written.

11:34To level set, do we know exactly what this business is? Bill, how do you read it? Yeah. So as I sit here, I have pickle elbow in my right elbow from overusing and playing pickleball. that's what tennis elbow is now called I'm just coining that so yes I do play pickleball occasionally I play in the park by our house but there are a number of these facilities in Charlotte where I live so not having been to this one but the ones in Charlotte are opening up they've got maybe six or eight indoor courts they've got a bar food you pay by the hour to rent the court to play pickleball and then of course you buy food and drinks so it's like a gathering place it's a night out go with your friends, have food, drink, and play pickleball.

12:20So it's fun. Very, very on trend right now. I mean, these are opening up kind of everywhere. All the hip areas of Charlotte are getting one, and I'm sure lots of other places too. Nobody owns pickleball. It was started 50 years ago. Because I was thinking like, surely it's only 10 years old, but like everything, it's like 50 years to an overnight success. But there is a website called Pickleheads that will show you in your area where all the courts are. This is all the pickleball courts in Houston. Like tons of data. Like I think I want to own Pickleheads, the website, because this is like really cool.

12:57But this is in the Houston area. But there's some stats that I found that Pickleheads database now includes 68 ,000 courts in the U.S. and 18 ,000 were added in 2024. forward. Just in terms of echoing what you're saying, Bill, like dramatic rise in growth. And I would think by extension, incredibly competitive. Yeah. This, this is, well, being competitive, but like this is blue ocean a little bit. Like everybody's rushing in, the market is expanding, like pickleball is on trend, which is funny because it's 50 years old, but it's very, very on trend right now. So I, as you were reading this listing, I was just going, why is this guy selling it?

13:40There's got to be a reason. Like, what's wrong with it? And then finally at the end, he goes, there's a personal reason I will divulge it to qualified buyers. Now that is music to my ears, right? Because he knows, like, this is maybe a forced seller. This is something out of the ordinary. This is how you get a good deal in small business acquisition, typically, right? Somebody's got to sell for a forced reason. So how do we think these guys make money? Travis, what's your feeling on that? They didn't mention food or drinks, right? I don't think so. They didn't mention it, which is surprising. Yeah, because I would assume that's like the main business model.

14:16Like, ah, the courts themselves are kind of the loss leader, and you make it up with selling beers. That's what I would think. At least that's what happens in Asheville, but Asheville really likes beers. All the money's in tater tots, just so you guys know. They're all loss leaders for tater tots. I mean, maybe this is more serious, more than you might think, like$100 an hour for the court. Almost actually. Wow. Yeah, like I said, more than you might think. So that's why we go to the park. A lot of these are like membership driven too, right? So pay a monthly subscription to be a member and then also rent the court or like you go to the park and you're outside, but you don't have a reserved spot and you might show up and the courts are taken.

15:00It does say loyal membership base. So it sounds like you do have some recurring revenue on a membership level. And that's really, it's almost like a health club, you know, a gym, you know, I would look at it that way as like, what's the turnover? You know, how many new folks do you have to bring in every month to stay at even? And are you at capacity? You know, are the courts always used? I think we are at sort of peak pickleball, you know, right at the moment. So you would hope so. You would hope the courts are like, while they're open, they're always being used. Which also then, if that's true, it means you don't really have any growth options other than what they mentioned, which was, you know, franchising, which is not easy.

15:45Heather, I know we're not at peak pickleball. Oh, we're not? I know when we'll know. Okay. When you start playing. And I didn't mention that I play. So that's true. There's still room for one more. I haven't gone out there. So I've personally wondered about the fad state of pickleball a little bit. Just just curious. I have no claims on it. I just looked it up in Google Trends. It's it kept peaking for a long time and it's back to like late 2022 interest levels. But maybe everybody knows what it is by now. Maybe that it's not relevant. It kind of seemed like a little bit of a fad thing, but I don't know.

16:23Is it here to stay? like my community's pickleball court is like booked all the time yeah pickleball seemed to hit like the boomer community really early like 10 or 15 years ago because i remember going to hang out with my in-laws in florida and they're in one of those kind of retirement communities it's not a retirement home jerry it's a retirement community and like they were all into it like people talking trash on the court level and then it seems like that has started hit like like gen X now, all of my Gen X friends are like, hey, what are you doing Friday? Guess what's happening tonight?

16:54There's a pickleball thing. Believe it or not, everybody's like, we're going to play pickleball and drink Miller Lights. So, it seems like we're catching waves where it's hitting younger generations. I still think the 2030s and 40-somethings are like, this is a sport for old people. That doesn't seem to be changing. But I think it is, Michael. I mean, this is actually why I like pickleball, is it's tennis for out-of-shade people. right? Like, have you all ever played tennis? Tennis is brutally difficult. There is so much running in tennis. It is seriously hard. But pickleball takes like everything that's fun about tennis and scales it down so you don't need to be in awesome shape to play.

17:35And so you can be, you know, you can be a weekend warrior and drink some other lights and do it. I think it's correct. I'm going to butcher this, but isn't pickleball, I don't know, like one of the top forms of injury for people over 60 right now or something crazy like that? Yes, I've heard that as well, Travis. Yeah, because people coming off the couch playing pickleball. And it is still somewhat athletic. You are moving here. It's not ping pong. But that's kind of why I'm bullish on it as just completely eating tennis as lunch because our society is just not as athletic as it was when tennis was popular.

18:08Yeah, exactly. People want to try less hard and drink more beer, I think. And this really checks the box. I remember it as a pool and three tennis courts, and I think they converted two of the three tennis courts to pickleball. Tennis players hate pickleball with a passion. Because there's been no one on their tennis courts for 30 years, and now people are using their tennis courts. So what are my moats if I own this business? Okay, so they're throwing off$400K in cash flow. They're asking, it looks like 4.75 times that. like what what how do i know that's going to continue or do i not know maybe the two things would be location if it's the premium location and it's hard for someone else to get one around there um the second might be like the community aspect it's probably a lot of the people might be you know they're building a social circle not just a place to play and so that might create a little bit of a sticky moat.

19:10How much of one? That's the question. The location is what I was thinking too. And they, they say they have a 15 year lease, which could be, and it's an under market lease rate, which could be amazing, or it could be terrible. Like if you're locked into a 15 year lease and the business starts to decline, you as the buyer are now stuck with that liability. If the business continues to grow and there's, you know, growth potential, you know, in that area, you know maybe maybe it's a huge advantage but it they say it's indoor but we don't really know like are there you know affinity items around it like do they have a sauna do they have like really nice restrooms is there food and beverage on site like we don't know any of that that i would i would really are you ready to take the leap into business ownership but you don't know where to start well look no further than acquisition lab the premier resource for entrepreneurs seeking to buy their dream business.

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20:36And when you do, be sure to tell them the Acquisitions Anonymous podcast sent you. I question whether the lease improvements, leasehold improvements were funded through the lease. So you kind of need to know what the rent amount is. It may be because I questioned when they said profitable from day one. Well, wait a minute. You have to spend a lot of money to open up an indoor pickleball facility, let alone the largest one in Houston. so there's that capital expenditure sometimes people are able to finance that through the lease and when he says 15 year lease it makes kind of a hint maybe that's how they did it so you've got a maybe a pretty hefty rent payment so mills you mentioned scaling and personally when i invest in most businesses i like to see businesses that the amount that you invest or allocate is is somewhat fixed and finite but the upside is somewhat infinite or at least marginally so um this one seems very capped right like you can only have as many pickleball courts as you can in this one facility um i don't know how much they're being utilized maybe they're like 20 and this is what they get but if they're at like 90 then i don't know where you go from there which might be why the seller mentioned platform and franchising and expansion that way instead but to your point you're probably having to sink you know hundreds of thousands of dollars into each new location, either to Heather's point, you know, cash out of pocket or an increased rent with a tenant improvement allowance that's being amortized over, you know, several years of the lease.

22:08Yeah. I'd love to see the time to break even with the investments here. Yeah. And how much CapEx has gone in to build it. I mean, that's the other mode here is the CapEx mode, right? Like maybe they've got a pickleball palace here that just is not economic to build, right? And maybe you can come in and buy it. this guy's going to take a bath on his CapEx because of a personal situation. And now you've got a CapEx mode because you've got 50 % off building it, basically. What do you think of the landlord reimbursing the HVAC expenses? That seems kind of weird. Oh yeah, if you're the tenant, you like it.

22:43All I know if that happens, we're going to be at 60 degrees every day in Houston, people are going to be wearing parkas. That's going to be my big draw. So for what it's worth, I actually think what this means is the landlord is insuring the tenant against HVAC breakdown. So this is a gross lease, right? And so I think what they're highlighting here, and this is how my lease was, if you're a commercial tenant, you are signing a lease, very typically you will be responsible to maintain the systems of the building. That would be closer to like a net lease, right? Like a ground lease. You are massively exposed.

23:19one of the big expenses in a building is the HVAC. And so if you got a 15-year lease here, 15 years can be the useful life of HVAC, right? So if you're leasing a building that the HVAC's already got 10 years on it and you sign a 15-year lease, you are going to be on the hook for new HVAC. And this is a big building and big HVAC. Yeah. Like probably, yeah, print on units on the roof. Okay. Yeah, I mean, this is a six-figure expense for sure to replace this HVAC. So I think what this probably means, and this is how our lease was structured because I negotiated for it, which is fair because it's not your HVAC, right?

23:56You're vacating. Which is that so long as we paid, like it was like$1 ,000 or$2 ,000 a year for an HVAC maintenance contract, which is they come out every quarter and check it and make sure it's in good working order, that the landlord will reimburse any big items, any expenses over a deductible, like$2 ,000 a year or something. and that was really valuable. So that might be what we're talking about here, which is kind of landlord insurance on the HVAC. That makes sense. How many employees did they say they had, Michael? Two full-time, 16 part-time. Okay. 18 seems like a lot, but I guess there's got to be like a check-in desk to make sure that people don't walk in off the street.

24:38But what are all the other employees doing? I mean, cleaning, sweeping the floors, but it makes me wonder if there is some other stuff. Or two shifts a day because you want to be open early and all the way till late, I guess. Yeah. I think you probably got college kids picking up, you know, 10 hours a week, et cetera, to sit at the front desk. It's probably that type of thing because, you know, it's not really skilled labor. It's babysitting. They probably have, like, a washer dryer on site to, like, wash towels and, like, refill the water jugs and stuff like that. So, Heather, the financing aspect of this, they're very upfront about it.

25:15Yeah, they were realistic about it. It's not even maybe a full year in business at this point. It could be less than a year or just right around there. And no lender is going to want to step in with that short of a history and finance that. So yeah, no SBA loan here. What's a realistic deal scenario look like? The problem here, I think it ultimately comes down to, are we at peak pickleball? Because this is a, you put in a bunch of capex. This is not, the situation you're in is not too different from the guy who built it, right? You're only, this is a new facility. He put a bunch of capex in the ground.

25:51You're about to put a bunch of capex in the ground by buying it, right? Functionally the same thing. And then it's just, is there a return on that? You know, over time, does pickleball demand hold up for you to get your capex back out of the ground and make a profit. It's as simple as that. And that scares me because of the fad aspect. I would want some risk sharing a little bit. You can't get an SBA loan. There's no dirt here because it's leased. Like, basically no assets. You got to come out of pocket on equity. So, like, I'm pushing for really heavy seller financing here. Probably one turn of equity at most, I would think.

26:29You know, and maybe the remainder is seller finance with some kind of hedge in place because you really don't have that much performance, you know, history to go off of. We don't know, like, is, you know, have they been in business just one year, 12 months? 1.1 million would be, I think, pretty impressive to kind of go from zero to 1.1 in 12 months. But Travis, to your point, like, what's the run rate and how much capacity utilization do they have? That would be a very, very important early question to figure out. Like, I mean, this thing could have capacity to do$3 million in revenue, and it's already on that trajectory, and you just need to not mess it up.