MusclePharm Bleeding Money

Perhaps one of the most ambitious nutritional supplement companies to hit the market in the past few years is MusclePharm. Right out of the gates they signed Paul Dillett, Louis Simmons, and a bunch of MMA fighters to endorse the product line. Getting Paul was a huge coup because he is the president of a decent-sized bodybuilding federation (the World Bodybuilding & Fitness Federation, or WBFF), as was getting Louie Simmons, who is a legend in the powerlifting scene. They also signed some NFL players, and have Dr. Eric Serrano on the team. Paul and Louie are still huge in their respective fields, and the NFL and MMA guys in their stable are certainly up-and-comers (Xyience tried going the MMA-Sponsorship route a few years ago, and it didn’t seem to work – while EAS did the NFL-player thing and it worked extremely well).

MusclePharm also made the early decision to go public, meaning you can buy stock in the company (*a share is going for about a buck right now).

All of these early and aggressive moves have made them the Bodybuilding.com “New Company of the Year” for 2009, and the 18th best selling brand on the site, while their testosterone booster, Battle Fuel, is the 5th best selling product in that category. If we take a closer look at the testosterone booster category, however, we find that two of the top 5 products are different sizes of the same product…Optimum ZMA. I don’t think it’s really fair to put a $10 bottle of ZMA in the same category as $40 bottles of legit test boosters…so if we don’t consider the ZMA bottles, then what we’re actually seeing is a top 3 product in the category. That’s no joke.

But since they are a publicly traded company, their finances are a matter of public record. And here’s how they break down:

Three months ended 2010 ———–

(unaudited)

Sales of product, net of $61,867 and

$112,314 allowances and discounts for

March 31, 2010 and 2009, respectively $ 1,258,588

Cost of sales (873,632)

———–

Gross margin (loss) 384,956

Operating Expenses:

Advertising and promotion 1,195,696

Bad debt 1,890

Service charges and fees 9,882

Salaries and labor 226,139

Depreciation and amortization 3,065

Insurance 22,690

Information technology 28,629

Travel, meetings and entertainment 28,720

Occupancy, telephone and utilities 30,302

Office and warehouse supplies 4,307

Professional fees 1,084,583

Other 709

———–

Total Operating Expenses 2,636,612

———–

Operating (Loss) (2,251,656)

Interest (expense) (358,060)

———–

Net (Loss) $(2,609,716)

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Now, I’m not really great with numbers, but their losses are in the millions. Millions! Removing the professional fees (the cost of going public), they still would have lost a quarter million dollars. And if we look at their sales figures, their promotional costs (sponsorships, etc…) are roughly the same as their sales. They’re certainly being very aggressive with their sponsorships, promotions, and athlete signings, but I’m just not sure that this business model is sustainable in the long term.They’ve certainly seen some returns on their investments, as evidenced by their ranking on Bodybuilding.com, but is it enough to turn things around before they go bankrupt?

Time will tell.

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