Town Sports Subject Of Formal SEC Investigation

SAN FRANCISCO (AP) — Town Sports International Holdings Inc., owner of the New York Sports Club chain, said it is the target of a Securities and Exchange Commission investigation of its accounting practices.

Town Sports' shares fell 21 cents, or 7.5 percent, to $2.59 in Friday afternoon trading.

The company said in a regulatory filing on Thursday that the SEC was looking into the how long the company took to amortize certain payroll costs as an expense and some initiation fees as revenue.

The SEC first said it was investigating the gym chain on Sept. 14. An informal investigation has been ongoing since May 2008.

Prior to that, the company had changed the estimated term of its average club membership to 28 months from 30 months, and this affected the accounting results, Stifel Nicolaus & Co. analyst Thomas Shaw told investors in a research report.

Shaw said commissions that staffers earn for signing up new members are amortized over the same period as the initiation fees they collect, so as initiation fees fell with recession-driven discounts, club owners saw expenses rise in recent quarters.

Town Sports International is based in New York. It operated 166 sports clubs in New York, Boston, Philadelphia and Washington, D.C. as of the end of 2008, according to CapitalIQ.