Stories have been circulating for months that Tough Mudder is in tough financial straits: vendors and race winners had not been paid, and TMHQ recently announced that there would be no prize money for any races in 2019.  Last week reports emerged about a lawsuit against Tough Mudder by one of its co-founders, and the complaint pulls back the curtain on the company’s strained balance sheets.

Guy Livingstone co-founded Tough Mudder with his friend Will Dean, who became the face of the company. Anyone who read Dean’s book “It Takes a Tribe” will recognize the name, but the book doesn’t discuss much of Livingstone’s role in the company. While I had assumed this omission had to do with the vanity-project nature of Dean’s book, it now appears that it was a sign of the crumbling relationship between the company’s founders.

The complaint outlines the company’s financial history, from its heyday in 2012 when it made a profit of $10 million, to its current state, where it relied on $18 million in outside financing to keep the operation going. A caveat: this complaint is clearly Livingstone’s side of the story. We have not seen Tough Mudder’s response, nor have the underlying financial documents been revealed. Still, the details are juicy.

According to Livingstone, he pulled back his involvement in the company in 2013, at which point the company started to falter. Tough Mudder was eventually bailed out by Active Network LLC. You will recognize the name from your credit card statement if you have signed up for a local 5K, an Ironman, or any number of other athletic events.

Over the next few years, Tough Mudder went deeper and deeper into debt to Active. At the end of last year, Active tried to find a buyer for Tough Mudder, and when it failed, it moved on to a more aggressive plan: in exchange for its debt, it took control of the company and forced Dean to resign. The litigation stems in part from the terms of Dean’s severance package. Tough Mudder was owned by Dean and Livingstone, 60/40. According to the lawsuit, Dean negotiated his exit without Livingstone’s knowledge or consent, handing over his control to Active.

What does this mean for the average weekend racer? Ironically, all this bad news for two wealthy Englishmen could be good news for the rest of us. Unlike the original Tough Mudder, a scrappy startup with a stubborn leader, Active is a big company. Most of it was recently sold for $1.2 billion to Global Payments Inc., a multi-billion dollar payments conglomerate. This means that Tough Mudder is now controlled by a company with deep pockets owned by a bigger company with even deeper pockets. They have already made changes: a new president took over at TMHQ, Kyle McLaughlin.

Mr. McLaughlin appears to have a strong background in events management and doesn’t seem as interested in promoting himself the way Dean did. If he can right the ship, Tough Mudder could have a future. The flip side is that the company is now controlled by people at a greater distance from the product and who have no history in the sport of OCR. Should Tough Mudder fail to break even this year, even without handing out prize money, the new overlords might find it easier to pull the plug. They will also need to find a way to resolve what could be a very expensive judgment against the company in the form of Livingstone’s lawsuit.

We have scheduled an upcoming podcast breaking down this even further in the coming days.