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Tough Mudder Potential Bankruptcy

Bloomberg reported that Tough Mudder creditors are trying to put the company in bankruptcy.

“Signs of distress have been hovering, with CEO Kyle McLaughlin departing the company. The company’s website says ticket sales have been suspended. Creditors are attempting to push the organizer into bankruptcy over $855,000 they say the company owes them.”

Bloomberg

OCR Media has also covered this story in depth. And MudRunGuide has reported on Spartan’s support for the bankruptcy filing.

This is sad in many ways. A number of their vendors (for example the ones suing for nearly $1M) are clearly not being paid for their products and services, leaving a downstream negative impact now and in the future. It is sad for Tough Mudder fans (like the 20,000 who have a Tough Mudder Tattoo). And obviously the employees. Spartan and Rugged Maniac may pick up some of the slack with some increased participation and new venues that Tough Mudder abandoned. But clearly, this is a negative for the industry. And possibly a warning sign for others.

Are there lessons to take away from this?

Scaling is Difficult

Scaling races is difficult. We have seen that with other race aggregators in the past like Competitor Group with their Rock & Roll Series. As we discussed in our Wanda/WTC going public blog, one of the keys is having multiple revenue channels beyond registration fees including sponsorship, add-ons, tv rights, etc. The challenge is always finding affordable help that is high quality. Much of the endurance market does not have the luxury of sizable alternate revenue channels and they make up for that with passionate local volunteers.

Financing

In the case of Tough Mudder, it appears that they were having cash flow issues. Any race can have cash flow issues with the timing of when payments are due and when money is collected. Renting a venue may require up front payments before anyone has signed up for example. In this case, the reporting says that Active pre-bought $18M of tickets – certainly more than just a month of cash flow.

Some registration and ticketing companies will do this financing. They feel comfortable loaning money since they will be collecting it directly. However, there is a risk of the race operator not being able to put on their events, and then the registration/ticket vendor risks credit card chargebacks/refunds to customers. Fortunately, Tough Mudder completed their events in 2019.

RunSignup does not pre-buy tickets. Our belief is that if there is a normal cash flow need, then banks provides lines of credit that can fund those seasonal needs. We feel banks are in a better position to evaluate risk, and loaning money is not really our business. We figure that races can leverage our low processing fees in combination with a bank line of credit as a much lower cost way of doing business. We remember a couple of potential new customers who insisted on us making a large up front payment, and we politely declined as it is a sign of financial risk if they can not get better rates from a bank.

In summary, other race aggregators need to have caution about their pace of expansion and their ability to manage the operations and marketing of a large number of events. There are several race aggregators out there – WTC, Lifetime Fitness, Gatehouse/Rugged Maniac, Spartan, and Motiv to name a few. While none of them are more than 2% market share of the overall endurance market. With news like Tough Mudder, the financers behind these race aggregators are probably spending a little more time evaluating their cash flow and investment plans and options.

It will be interesting to see if Tough Mudder and Competitor are trends or if one or more of these companies will get to any sizable market share in the coming years.

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