Expensive strategy led sports nutrition brand BioSteel to bankruptcy, but new owner has a different strategy

BioSteel's eight-year agreement with the NHL and NHLPA lasted less than two years.Getty Images

In July 2022, Canadian sports nutrition brand BioSteel signed an eight-year deal worth approximately $14 million annually to become the official sports drink of the NHL and NHLPA. This was the company's largest sports marketing investment to date in a portfolio that already included deals with Patrick Mahomes, the Los Angeles Lakers and U.S. Soccer.

But just such aggressive spending turned out to be a key factor in BioSteel's sudden demise. Ontario-based cannabis company Canopy Growth bought a 72% stake in the brand for $37 million in 2019, but BioSteel declared bankruptcy last September. The company was eventually acquired by Canadian entrepreneur Dan Crosby, who believes it is well positioned to grow in its second life.

“What the previous owners achieved was great brand recognition,” said Crosby, whose brand is now owned by Coachwood Group of Companies. “They put a lot of money into it. When this came up, it was almost a no-brainer.”

BioSteel was founded in 2009 by entrepreneur John Celenza and former NHL player Mike Cammalleri and quickly rose to prominence in the hockey world with products formulated by renowned hockey trainer Matt Nichol. Throughout the 2010s, BioSteel built a roster of athlete supporters, including top NHL and NBA draft picks Connor McDavid and Andrew Wiggins. BioSteel has also been active in team deals, purchasing the naming rights to the Toronto Raptors' training facility in 2015 for an undisclosed amount.

The brand seemed poised to break out when it was taken over by Canopy Growth in 2019, which noted the potential for CBD integration into some BioSteel products. Constellation Brands, a major beverage distributor and Canopy investor, had planned to give BioSteel a broad presence in the U.S. Goldman Sachs named the brand in the “sports drinks category” in a 2021 report. “The Emerging Disruptor in the World'' and said it was “reminiscent of its early stages.'' body armor. ”

However, red flags began to appear during Brand's first season in the NHL. Canopy's core cannabis business was already in trouble, and the company forced Cereza out of BioSteel along with 20 other employees in March 2023. Two months later, the publicly traded company revealed it was the subject of an SEC investigation after it self-reported “material misstatements” in recent filings regarding BioSteel's earnings. The company's investigation revealed that it had overstated BioSteel's 2022 revenue by $7.3 million. The company subsequently determined that it had significantly overvalued the brand and recognized a $41.8 million goodwill impairment charge.

Last September, Canopy stopped funding BioSteel and sought bankruptcy protection for the brand, saying this would have a “material impact on Canopy Growth's profitability and cash flow.” Fiscal year 2023 revenue doubled to $69.6 million, and Canadian market share tripled to 12%, a significant increase, showing that the NHL deal is having an impact north of the border. It shows. However, the brand burned through $15 million in cash every month, failed to regain momentum in the US (where it had less than 1% market share), and expenses exceeded revenue by $40.6 million.

“Canada has been a good business,” Celenza said. “In the U.S., we took all the accounts based on relationships, the effectiveness of the product, the fact that the product is fundamentally different, and the athletes that were associated with the product, but the sales growth in the U.S. was clearly it took time. “

The NHL topped the list of BioSteel's unsecured creditors, with a balance of $6.4 million. Other clubs include the Lakers ($1.9 million), Miami Heat ($697,000), US Soccer ($494,000), Andrew Wiggins Enterprises ($494,000), Brooklyn Nets and Barclays Center (45 Listed include Blue Jays owner Rogers Media ($313,000) and Philadelphia ($313,000). 76ers ($217,000) and USA Hockey ($144,000).

When BioSteel went up for sale under court supervision, Crosby wasn't the only one to take notice. According to multiple sources, the NHL expressed interest in potentially buying the company out of bankruptcy, but ultimately no bid was made. His girlfriend Celenza, who was his longtime CEO at BioSteel, also led the group that submitted the bid.

“Our bid was very competitive and it was a group of all the people who really cared about the brand and wanted it to be close to where it was before the acquisition,” Cereza said. “I’m not going to lie, I was really shocked when we lost.”

Proceeds from Canopy's two sales, in which Crosby's Coachwood Group of Companies acquired the BioSteel brand and another group bought its U.S. manufacturing facilities, totaled $22.4 million, one person said. He suggested that the brand is likely to account for about one-third of that amount.

Crosby had the option of maintaining some of BioSteel's existing sponsorship agreements, including the NHL contract, after acquiring the brand, but due to uncertainty surrounding BioSteel's revenue situation at the time, he decided not to do so. I felt that I needed to give up.

“There was no guarantee that any particular retailer would be able to maintain shelf space for BioSteel,” Crosby said. “So it was very difficult to assume these fixed costs without really knowing who was going to sell the product.”

Biosteel was a common sight in the Toronto Blue Jays' dugout, in addition to other sports partnerships.Getty Images

BioSteel's bankruptcy created a rift among athletes and corporate sponsors. Coca-Cola's Body Armor brand quickly acquired McDavid as part of its expansion into the Canadian market earlier this year, replacing Biosteel in U.S. soccer. Mahomes, the Raptors and Lakers partnered with Prime Hydration, a company founded by boxer/influencer Logan Paul and KSI that has gained significant market share. And the Blue Jays began the new MLB season with a PepsiCo-owned Gatorade product in their dugout.

When the NHL returned to the market for new sports drink partners earlier this year, it held discussions with six brands. BioSteel, which is currently under Crosby's ownership, has made an offer to retain the sponsorship, which people said included a small but undisclosed guarantee fee and a share in sales revenue. . The league preferred contracts that guaranteed more income.

That's possible thanks to BodyArmor, which was announced last month as the league and players association's new sports drink partner as part of a deal that begins during the playoffs and runs through the 2028-29 season. His contract term is shorter than his deal with BioSteel, but the annual value is about the same as that approximately $14 million per year contract.

In the months since taking over, Mr. Crosby has successfully restarted production of key biosteel products and re-established key retail relationships with Canadian Tire, Costco and others. Although he ultimately wants to take his production in-house, Crosby has signed a three-year contract worth at least $19 million to have manufacturer Flow Beverages produce the biosteel. .

In fact, the recovery was so fast that Crosby now says that if BioSteel's previous owners had known they would end up keeping many major retailers, the company signed deals with the NHL and NHLPA. He now says he could afford to keep his contract.

“If you go back four months from this point; [kept the previous NHL deal] “Because we've been able to keep Costco, Sobeys, Loblaws, SportChek, Canadian Tire, Pro Hockey Life, 7-Eleven, Sports Expert and Pure Hockey in the U.S.,” Crosby said. “We ended up retaining pretty much all of the major retailers that we really needed to keep the brand relevant.”

With BioSteel back in major retail and big sponsorship deals gone, Crosby will now focus on fostering brand loyalty primarily in Canada through youth sports, grassroots activities and influencer marketing. Crosby said 80 to 90 percent of its sales come from Canada, and the company plans to focus its U.S. sales in hockey-centric markets where the brand is well-known, primarily in the Northeast and Midwest.

Last month, the company partnered with Powertech Hockey Training to take over a prep school hockey program in Windsor, Ont., now called BioSteel Sports Academy. Crosby expects to add more sports to the academy's offerings, including baseball, basketball and golf.

“We're going to document their journey to become elite athletes and incorporate some of the elite athletes that we have access to through our camps and academies,” Crosby said. “The styles of content creation, marketing, and advertising that we can create become easier.”

The company is also partnering with smaller organizations in Canada, such as the Ontario Minor Hockey Association, to promote so-called nano-influencers and micro-influencers, from a six-year-old hockey prodigy with 15,000 Instagram followers to a former professional baseball player. I've built relationships with Enthusiasts. Daniel “Diamond Hands” Amesbury is a minor league hockey enforcer turned podcaster.

It's a far cry from the expensive strategy that built the BioSteel brand, but Crosby believes it will allow him to build a sustainable business with a loyal following.

“You're going to see us come back as a stronger brand,” Crosby said. “It may not be as expensive as the house we're building, but at least it won't be a tower on the sand.”