Last week Spartan CEO Joe De Sena issued a press release announcing that it has an option to purchase Tough Mudder’s international (i.e. non-US) operations, and that it is in negotiations to purchase the entire company. Joe spoke with ORM’s Matt B. Davis and Josh Chase about the plans, saying that he wanted to expand Spartan’s mission to rip people off their couches, but that he was not planning to change the fundamental look and feel of Tough Mudder events. Yesterday, Tough Mudder founders Will Dean and Guy Livingstone gave an interview with Matt B. Davis, contradicting some of what Joe said. On the surface, it would seem that either one side is telling the truth, or the other side is telling the truth. Or, to be less charitable, it would appear that someone must be lying. However, in circumstances like this, it’s worth taking a closer look to see what is really going on.
The key take-away, where both sides agree, is that Spartan is moving towards taking over Tough Mudder’s operations. While Joe and Will gave different indications about how far along that process has gone, the goal appears to be the same for both Spartan and Tough Mudder. Observers should keep in mind that this is a sizable business transaction, and negotiations are likely to be complicated. Both sides are going to make statements that prop up their status at the negotiating table, whether or not they are 100% true. Also, both sides are going to keep negotiating, using whatever means they have, in order to get the most money out of the transaction. This is the same whether the business deal is over obstacle course racing, real estate or airlines.
There were a couple of points where the two parties seemed to contradict each other. Will says that Spartan has no enforceable option to purchase the international operations at the moment, but that he hopes to work it out. Joe says not so: “After listening to this awesome podcast I thought maybe I’ve entered the Twilight Zone (a show I watched growing up). I was so confused that I had to check my own head by calling others involved in the matter, and they too are baffled. That said, I’m sure reality will reappear within a week or so.”
So, is all this just posturing between two companies involved in a take-over bid? Not quite. There are two major clouds on the horizon for Tough Mudder. First, if you’ve tried to buy a ticket for a Tough Mudder event for 2020, you may have noticed that ticket sales have been shut down for the past week. Why? This goes back to Tough Mudder’s original money woes, which you can read about here.
Tough Mudder’s creditor is Active, which is itself owned by the multi-billion dollar company, Global Payments. When you buy a ticket to a Tough Mudder event, your money goes to Active, which passes it along to Tough Mudder, presumably so that Active can make sure that Tough Mudder keeps paying Active back (note that Will characterizes the loan from Active as a “quasi-debt instrument”, but for the rest of us, it’s something that sounds a lot like a loan). According to Will, Active recently started withholding payments from ticket sales. Tough Mudder, in turn, turned off ticket sales to get leverage with Active.
We reached out to Active, whose spokeswoman replied: “Since late 2018, as a service provider to Tough Mudder, Active Network has supported its financial restructuring and turnaround efforts. Occasionally merchants like Tough Mudder are unsuccessful in turnarounds. Active Network has unfortunately been placed in the middle of disputes that have nothing to do with us. We remain steadfast in our commitment to the Active community of event participants, organizers and customers. This matter is immaterial to us.”
This is a little disingenuous. Stepping back again to treat this as a generic business transaction, there is a buyer (Spartan), a seller (Tough Mudder) and the seller’s creditor (Active). As with any such transaction, the creditor is going to be involved in aspects of the sale that will have an impact on the creditor’s financial interests. Will went to great lengths to emphasize that everything is going well at Tough Mudder and that the company’s financial future is bright.
Which leads us to the other dark cloud: there is, once again, the question of whether Tough Mudder is currently solvent. At least one vendor reached out to us, off the record, to inform ORM of large receivables due. There are rumors of additional vendors not being paid, and it is unclear whether the staff is getting paid. According to a source close to the situation, Kyle McLaughlin, Tough Mudder CEO, has stepped down from that position in frustration over his inability to get the board to provide the funding to keep the lights on and make payroll. In his interview, Will denied that Kyle has stepped down, and Kyle told us flatly “Unfortunately, I’m unable to comment at this time”.
Reading between the lines, it seems that Spartan, Will and Active are all in negotiations to keep Tough Mudder afloat long enough so that Spartan will have something to buy. Reaching a deal would benefit everyone. Joe has stated that he does not intend to change the product that is Tough Mudder (keyboard warriors: please stop saying that he’s going to make Tough Mudder participants do burpees. That’s not going to happen). The question remains whether or not Tough Mudder will be around in 2020, transitioning to ownership under Spartan or in some other format. Until all the parties come to an agreement, the situation is, unfortunately, dynamic. With any luck, the high-powered lawyers and savvy MBA’s on all sides will come together so that the rest of us can have fun running around in the mud next year.
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