MusclePharm, a publicly-traded company founded in Denver in 2008 by former NFL player Brad Pyatt, was once the meteoric growth story of the sports nutrition field. Pyatt built a brand on bold packaging using lots of high-visibility green and boosting sales with high profile endorsements. The company reported revenues of as much as $166 million in fiscal 2015, but it was a castle built on air, as the company lost more than $51 million that year, too. Pyatt, who was ousted as CEO in March 2016, had entered into a wide array of high-ticket endorsement and product development deals with athletes and celebrities such as Tiger Woods, NFL players Johnny Manziel and Colin Kaepernick and bodybuilding legend (and former California governor) Arnold Schwarzenegger. Unwinding those deals has cost the company significant amounts of capital.
Turnaround story
Pyatt was replaced as CEO and chairman on an interim basis by Ryan Drexler, who owns a significant share of the company's stock and holds $6 million of the company’s debt. Drexler is a former executive at Country Life Vitamins.
Pyatt’s practices as CEO were central to a suit filed against the company in 2015 by the Securities and Exchange Commission. The suit alleged that there were more than $500,000 of unreported perks for Pyatt and fellow executives. MusclePharm paid more than $700,000 in penalties to settle the suit.
MusclePharm also had to settle a legal wrangle with its primary contract manufacturer Capstone, that alleged that MusclePharm was not paying on production contracts nor meeting minimum volume requirements. MusclePharm, in a counter-suit, alleged that Capstone had not been been able to make good on production targets as it expanded its capacity. MusclePharm dropped its counter-suit and made an undisclosed payment to Capstone to settle the affair.
But Pyatt’s legacy is not one of unmitigated wreckage, Drexler said. The core brand remained strong, and is one of the things he can build on going forward, he said.
“I had been an investor in the company for about two years before I assumed the CEO position,” Drexler told NutraIngredients-USA. “The prior management had been very recognized by the power of the brand they built. But the endorsement contracts brought a lot of expense.”
Drexler said his goal was to save the baby and get rid of the bathwater. In addition to ending the lawsuits and extricating the company from the endorsements thicket, he had to clean up the product offerings. The power of the brand had been diluted by distributing it over too many products, as the company had fallen victim to the alluring goal of having one of everything.
“Brands the size of MusclePharm are few and far between,” Drexler said. “What I have done is to build a strong foundation. We had too many SKUs; I took that from 300 to 400 down to 112. But we also had to reduce headcount on the employee side; those were hard decisions.”
Drexler’s efforts have borne fruit: In its year end report for the year ended Dec. 31, 2016, the company reported $133 million in revenue, a drop of 21% from the year before. But net loss was pared to $3.5 million.
Focus on formulations
MusclePharm’s products were at one time based on proprietary blends that were somewhat in-transparent in terms of the ratios of constituents and the precise identity of ingredients. This left the brand open to the criticism that many lodge against glitzy sports nutrition brands, that being that what you’re paying for is the packaging and the endorsements and what’s inside the bottle receives the least attention. That attitude has changed, Drexler said.
For example, one of the company’s flagship products, its Re-Con post workout recovery protein powder, has been reformulated to include branded ingredients from Glanbia (GroPlex, an ingredient based on dairy peptides) and Futureceuticals VDF (VitaCherry, a tart cherry extract). The company has also recently launched a natural line based on organic ingredients.
“Instead of building endorsements, we are refocusing on the products themselves. The natural line is a big extension of the MusclePharm brand. The natural sector is such a growing segment of this business,”Drexler said.
In promoting the new MusclePharm, Drexler said he is not eschewing endorsements altogether. Rather, he intends to chose those that make sense both financially and in terms of the audience those endorsements reach. The first of the new breed is the recently announced deal with prominent mountaineer Garrett Madison. Drexler said Madison’s audience reaches into both the heavy duty sports training side as well as into a lifestyle positioning, which is is the wheelhouse of the new organic offerings.
“His clientele is more the triathletes, the weekend warriors. The old MusclePharm was more focused on bodybuilders, football players, and the UFC types,” Drexler said.
Growth in protein
But one thing won’t change; the brand will always be based on a foundation of protein. It’s the most prominent ingredient in the sports nutrition sphere, and the desire of everyday consumers–not just athletes–to add it to their diets means it is showing up in the most unlikely of venues, Drexler said. He sees only growth for protein in the foreseeable future.
“Mars just came out with protein. These mainstream people are trying to compete with us. I don’t think they can; it would be like me trying to compete with them in the candy category. But when you see people like this getting into the protein business we can see where the sector is going,” he said.