Creditors push Tough Mudder towards bankruptcy and sale to rival Spartan

With creditors of USA-based endurance race giant Tough Mudder Inc. attempting to push the endurance race giant into bankruptcy, the company’s majority shareholder, Will Dean, and its board of directors have consented to proceedings for the company, prompting a likely sale to rival mass participation business Spartan Race.

Founded in 2009 and staging its first event in 2010, Tough Mudder was a key innovator of the endurance and obstacle race movement, hosting team-based races that require participants to clear obstacles such as ice water pits, trenches and tightropes around the world.

However, following a claim for US$855,000 from USA business that have provided general contractor or building services for the company, court papers have revealed that, since 2013, Tough Mudder has lost money every year except for 2015.

Earlier this month it emerged that the three companies, had filed an involuntary petition for Chapter

11 bankruptcy in the United States Bankruptcy Court of Delaware.

With Chief Executive Kyle McLaughlin departing the company in December, according to his LinkedIn profile, the company’s main website says ticket sales have been suspended.

In addition, Dean had been in dispute with Tough Mudder’s co-founder, Guy Livingstone, who left the business in 2013, and the company’s largest lender Active Networks over the sale of the company.

According to documents filed in a pending breach of contract lawsuit from Livingstone, Tough Mudder has been propped up with US$18 million advanced by event software company Active Network. Livingstone’s suit also alleges that in 2017 and 2018, Active funnelled the money to Tough Mudder by pre-buying tickets to future races and that once both companies realised Tough Mudder couldn’t repay the debt, they tried unsuccessfully to find a buyer for the race organiser.

The suit also alleges that when that failed, Active and Dean signed agreements to guarantee Dean payments of at least $900,000, while Livingstone claims in his suit that Tough Mudder owes him more than $3 million.

While this case is at least several months away from a trial in a US Federal Court, Dean and Livingstone have accused of ‘a game of brinkmanship’ and of ignoring the best interests of these creditors in holding out for US$44 million to sanction the sale to Spartan.

However, in a statement submitted to the bankruptcy court on 9th January, Spartan complained that Tough Mudder was incapable of continuing operations and risked damaging the value of the business.

Spartan filed a statement in support of an emergency motion of petitioning creditors to appoint a Chapter 11 trustee, advising “Spartan is frustrated that Tough Mudder abruptly stopped negotiations towards a sale transaction consistent with the LOI, and is very concerned that the value of the Alleged Debtors’ global business is quickly evaporating. While Spartan is also concerned about the negative impact on value that may result from a contested involuntary chapter 11 petition, it appears there may be no alternative for Tough Mudder. Notwithstanding these significant concerns, Spartan remains interested in certain Tough Mudder assets, and would be willing to consummate a transaction through a bankruptcy court proceeding, subject to limited diligence, reaching definitive agreements, and entry of an acceptable sale order to consummate the transaction. At this juncture, it appears that the best alternative for Tough Mudder is the appointment of a chapter 11 trustee as it will allow Tough Mudder to maximize value for the benefit of all stakeholders through an immediate sale of the Alleged Debtors’ assets.”

With it being reported that Spartan has made a ‘seven-figure offer’ for Tough Mudder which includes provisions to write off the liabilities to the three creditors as well as its debts to Active Network, it appears that the sale will now go through.

Dean and Livingstone reportedly stand to make around $1.5 million from the deal.

In its nine years of operations, Tough Mudder events have attracted a significant following with more than five million people participating and, according to its website, more than 20,000 people having Tough Mudder tattoos.

Tough Mudder has also developed additional events for women, dubbed Mudderella, and Mini-Mudders for children along with a new format called Urban Mudder designed for shorter urban tracks, and new obstacles.

Tough Mudder’s websites for Australia and the United Arab Emirates remain active and are still accepting race bookings.

Images: Tough Mudder co-founder Will Dean (top), the USA-based Tough Mudder international website as of 9am, 21st January 2020 (middle) and Tough Mudder participants (below).