Tough Mudder Creditors Try to Put Race Company in Bankruptcy

(Bloomberg) -- Tough Mudder Inc. creditors are attempting to push the organizer of extreme obstacle races into bankruptcy over $855,000 that they say the company owes them.

The firm is facing claims from Valley Builders LLC, Trademarc Associates Inc. and David Watkins Homes Inc., all of which provide general contractor or building services. The trio filed an involuntary petition for Chapter 11 in Delaware, court papers show.

Signs of distress have been hovering around the Brooklyn-based firm, with Chief Executive Officer Kyle McLaughlin departing the company in December, according to his LinkedIn profile. The company’s website says ticket sales have been suspended. The firm and its creditors didn’t immediately respond to requests for comment.

Tough Mudder was founded in 2009 by Guy Livingstone and William Dean, according to a pending breach of contract lawsuit filed by Livingstone. Since Livingstone left active involvement with the company in 2013, Tough Mudder has lost money every year except for 2015, according to the suit.

Grueling Races

The firm held its first event in 2010, hosting team-based races that require participants to clear obstacles such as ice water pits, trenches and tightropes, according to its website.

The events have earned a reputation and following on social media as a grueling alternative to traditional road races. More than 5 million people have participated and more than 20,000 Tough Mudder tattoos exist, according to its website.

The race attracted athletes eager to brave muddy hills and even electrical shock fields. Tough Mudder developed additional events for women, dubbed Mudderella, and Mini-Mudders for kids. A new format called Urban Mudder was designed for shorter urban tracks, and new obstacles, including a 15-yard crawl through a chamber filled with a tear-gas-like substance.

So challenging is the race that participants boast of surviving the “death waiver,” an irreverent reference to the mandatory indemnification contract that holds Tough Mudder harmless in the event of injury or death. At one point, even spectators had to sign a liability waiver.

It also attracted corporate sponsors, which in previous years included Chipotle Mexican Grill Inc., Fiat Chrysler Automobiles NV’s Jeep vehicles, Anheuser-Busch InBev NV and Under Armour Inc.

Spartan Race, a competing organizer of similar events, said in a blog post that it holds an option to acquire Tough Mudder’s U.K., Canadian and German events. Spartan is also working to “complete the acquisition and renewal of Tough Mudder’s U.S.-based events and operations,” according to the undated blog post.

“There is clearly uncertainty with any company in Chapter 11 proceedings and we are currently evaluating our options to continue with any acquisition,” Spartan said in an emailed statement.

$18 Million Advance

According to Livingstone’s lawsuit, Tough Mudder has been propped up with $18 million advanced by racing software company Active Network. In 2017 and 2018, Active funneled the money to Tough Mudder by pre-buying tickets to future races, Livingstone claimed in his suit. The arrangement required Tough Mudder to repay the money, according to the lawsuit.

Once both companies realized Tough Mudder couldn’t repay the debt, they tried unsuccessfully to find a buyer for the race organizer, according to the suit. When that failed, Active and Dean signed agreements to guarantee Dean payments of at least $900,000 the suit says. Dean agreed to exercise his right as co-owner to appoint people chosen by Active to fill three of Mudder’s five board of directors slots, the suit alleges. Dean then resigned as chief executive.

Active Network’s attorney in the lawsuit, Edward Marshall, referred questions to the company.

“Since late 2018, as a service provider and creditor to Tough Mudder, Active Network has supported its financial restructuring and turnaround efforts,” a company representative said in an emailed statement. “Occasionally merchants like Tough Mudder are unsuccessful in turnarounds. We remain steadfast in our commitment to the Active community of event participants, organizers and customers. This matter is immaterial to us.”

Livingstone claims in his suit that Tough Mudder owes him more than $3 million. Active Network declined to comment on the lawsuit.

The case is at least several months away from a trial in federal court in Brooklyn and could take even longer to conclude -- last month, Tough Mudder’s attorney asked the judge for permission to quit, saying “there has been a breakdown in communication” with the company.

The case is Alleged Debtor Tough Mudder Inc. 20-10036, U.S. Bankruptcy Court, District of Delaware (Wilmington)

--With assistance from Eliza Ronalds-Hannon and Christopher DeReza.

To contact the reporters on this story: Allison McNeely in New York at amcneely@bloomberg.net;Steven Church in Wilmington, Delaware at schurch3@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Dawn McCarty, Adam Cataldo

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