- Company subject of bankruptcy proceedings in the US
- Insiders blame financial problems on ‘vanity projects’
- Spartan Race offers to buy business and pay off debts
There was a time when Tough Mudder was one of the stars of the mass participation sector. At the height of its powers, the obstacle racing company boasted a profile the envy of just about every event outside of the Wanda Sports Group’s Ironman series, while chief executive Will Dean was seldom far from a flattering profile in the business pages.
Dean and his co-founder Guy Livingstone had conceived of a lucrative concept, tailor-made for the emerging experience economy. They identified a consumer set prepared to pay £150 (€176/$195) to spend a weekend crawling through mud and helping others to overcome a series of elaborately sadistic obstacles – all in the name of a shared experience.
Where other events included a timed, competitive element, Tough Mudder was all about teamwork and camaraderie. The mud-caked images that legions of participants duly shared on social media denoted a certain type of generous, broad-minded adventurism and only served to market the events more aggressively.
In an interview with The Times around the 2017 launch of his memoirs, It Takes a Tribe, Dean estimated the company, of which he held a 50-per-cent share, was worth “north of $100m”. But details that emerged from a 2019 lawsuit and recent bankruptcy proceedings in a Delaware court indicate the extent of his delusion.
If, as expected, rival obstacle racing company Spartan manages to acquire the business through the bankruptcy courts, it will be for a lot less than $100m. Even more damagingly, legal documents reveal how a series of strategic missteps and an unedifying story of greed, hubris and ego led the company to the point where creditors have not been paid and its greatest rival is circling, looking to buy the firm in a fire sale.
Between the founding of Tough Mudder in 2010 and 2013, when it announced it had reached a million registrations, the company appeared to be on an unstoppable upward trajectory. At its zenith, in 2012, it is understood to have posted $10m in profits. But these sorts of figures dwindled as the company lost sight of its ethos.
Insiders at the firm’s US and European offices, who have not attended work or been paid since the turn of the year, identify the publication of Dean’s memoirs as one of a handful of ‘vanity projects’ that bled the firm’s core business and drove up the debts that caused the bankruptcy crisis.
They say a series of made-for TV, timed, ultra-athlete events like The World’s Toughest Mudder and Tough Mudder X might have succeeded in attracting media deals with the CBS Sports Network in the US and Sky in the UK, but ultimately proved to be a drag on revenues.
Sources say the company should never have introduced this sort of competitive element to its races – more the preserve of rivals like Spartan Race and Ironman – because they alienated its core audience of casual participants. Much of the proceeds from the televised events were funnelled back into prize money to attract the world’s leading obstacle racing athletes, while the distance between the new events and Tough Mudder’s core offering meant it failed to realise the marketing dividends from the TV coverage.
Equally, event licensing partnerships with IMG and Indonesian market entry specialist Seroja, designed to aid the brand’s expansion outside of its US and UK heartlands, failed to deliver the expected growth. Sources argue IMG lacked the relevant relationships to make a success of the venture in most countries and didn’t have the agility to operate on the tight margins associated with the obstacle racing sector. At the last count, the global agency continued to run just one Tough Mudder event in Australia while a Seroja-organised Tough Mudder in Bali was the company’s first and last licensed event in South East Asia.
The launch of a chain of Tough-Mudder-branded fitness boutiques in 2017 proved to be as cash-hungry as the company’s media undertakings and similarly failed to generate a return.
To balance the budgets, Tough Mudder stripped back the experience at its core events. Where once participants had run a ten-mile course, they would now run two laps of a five-mile circuit. Higher value obstacles were replaced with more basic features.
The firm’s misguided expansionism and paring back of the customer experience also coincided with saturation in the obstacle racing market and public interest tailing off. A study by industry-funded research group Running USA revealed the number of people finishing an obstacle course race in 2015 declined 30 per cent from the previous year. The theory was that obstacle racing was losing its novelty and organisers were struggling to overcome a ‘one-and-done’ culture among participants.
Reports began to circulate that Tough Mudder was in dire financial straits toward the end of 2018, with vendors and race winners complaining they had not been paid. Confirmation all was not well came in February 2019, when co-founder Livingstone filed a lawsuit against the company and its largest lender, Active Networks.
In the lawsuit, Livingstone alleged the company had posted a loss in every calendar year since 2013, save for a small profit in 2015. The filing also showed how Tough Mudder was increasingly dependent on lending from Active, an event registration company owned by card processing company Global Payments. The lawsuit claimed that Active had extended upwards of $18m to Tough Mudder through an unusual ‘active exchange’ agreement whereby it pre-purchased tickets for future events.
With debts accumulating, Livingstone claimed that Active demanded Dean resign as chief executive and as a board member in December 2018 and appoint independent board members, including a restructuring specialist, as a condition for continuing to lend money to the firm. The lawsuit alleged that in doing this, Active and Tough Mudder had violated contractual obligations to Livingstone and favoured Dean in the negotiations, causing him to sustain $4.3m in losses.
Back to basics
Following the restructure, Dean’s replacement as chief executive and president, Kyle McLaughlin, attempted to return Tough Mudder to its core business in 2019. He dramatically reduced the company’s overheads by shutting down the media operation, ending the media partnership with CBS and divesting the company of the gym business.
In the weeks immediately prior to his appointment, the company had released a statement announcing that it would remove prize money from all Tough Mudder events that year as part of “a conscious effort…to reinvest in the core business, which is delivering world-class mass participation events”.
The company simplified its product offering, cancelling events in niche verticals like Tough Mudder X, and then invested heavily in the front-end customer experience. McLaughlin ensured that Tough Mudder executives, including himself, were visible at Tough Mudder events and personally responded to customers on social media.
The changes resulted in 35-per-cent year-on-year growth in corporate and group sales and a 27-per-cent increase in customer satisfaction from 2018 to 2019.
But the reforms could only take the company so far. Parallel to this, McLaughlin and the new independent board began exploring options to sell the company after concluding that it was unlikely to be able to repay its debts to Active.
It was at this stage that long-time rival Spartan appeared on the scene and things began to get complicated.
Spartan is understood to have made a ‘seven-figure offer’ for Tough Mudder in November last year, that included a promise to pay off the company’s trade debt across all of its entities and pay Livingstone and Dean around $1.5m each for their shareholdings. On 23 December it also entered into an option agreement to acquire all of the Tough Mudder UK, German and Canadian affiliates.
But Spartan alleges that Dean moved at this stage to block the transaction, by appointing himself director of the UK company. Sources accused Dean and Livingstone of playing ‘a game of brinkmanship’ with Active and of ‘ignoring the interest of creditors’ in demanding the shared sum of $44m to sanction the sale to Spartan.
Active Networks took Dean’s appointment as director of the UK entity to be a breach of contract and called in its debts. In practice, this meant it began to withhold ticketing revenues for Tough Mudder events. The company responded by switching off registrations for these events. McLaughlin and Giles Chater, managing director for Tough Mudder Europe subsequently resigned, both declaring that the dispute made their positions untenable.
The state of paralysis threatened the sale to Spartan and also attracted the attentions of the company’s creditors. On 7 January this year, three vendors filed Chapter 11 bankruptcy proceedings in the US, demanding that the court appoint a trustee to prioritise their interests.
Spartan would later issue a filing in support of the creditors and argued that the infighting had rendered the company ‘incapable of continuing operations’ and had damaged the value of the business. Payroll was missed and staff did not turn up for work in January, traditionally the company’s busiest month for registrations.
An end to the dispute now looks in sight with the co-founders appearing to have climbed down in their demands. Sources suggest the negative publicity associated with the standoff encouraged the change of mind. On 15 January, Dean and the board of directors filed a motion to the Delaware bankruptcy court stating that they would neither stand in the way of a reorganisation of the company by its creditors nor in the way of a sale to Spartan.
The question is whether terminal damage has been done to the business during the dormant period in which event registrations have been suspended.
In its statement in support of the company’s creditors, Spartan said it continued to be interested in ‘certain Tough Mudder assets’ and signalled its willingness ‘to consummate a transaction through a bankruptcy court proceeding’ despite the damaging standoff. The thought is the buyer will now look to restructure its offer with less of its investment going to equity and more being allocated to customer retention, ticket guarantees and limiting the damage created by the infighting.
Insiders believe Spartan’s continued interest in Tough Mudder indicates the fundamentals of the underlying event business remain sound. For all its travails, brand recognition remains high and the company is said to boast a 30-per-cent customer retention rate, which is unusually high for the sector.
The company also has multi-year event licensing partnerships in 16 countries that have proven more successful than those with IMG and Seroja. Events in Dubai, Doha, Cape Town and Ireland all show that the licensing model can be made to work with the right partner.
In spite of its problems, the company has also proven itself to be particularly adept at attracting big-name sponsors. Last year, confectionery brand Snickers joined a roster that already included Brew Dog, Lucozade Sport and Soap & Glory.
McLaughlin and Chater are both in favour of the takeover and have indicated they would be willing to return to work under Spartan ownership. Spartan has indicated that it would respect the core Tough Mudder identity and continue to organise ‘teamwork-based, non-competitive festival events’ – and that the company would be operated by the same team under the same brand.
There is only a five-per-cent crossover between the client bases of the two companies, meaning Spartan would significantly expand its scale and reach through the deal. A takeover would also allow the two companies to coordinate event calendars and sell sponsorship deals across multiple events. Sources talk excitedly about creating a ‘customer lifecycle’ in which participants begin their obstacle racing journey with a Tough Mudder before graduating to a more competitive Spartan event.
With the infighting apparently at an end, there is genuine hope that the Tough Mudder brand can be saved and that new ownership can put the company on a less spectacular but infinitely more stable path.