Aussie fitness franchise F45 has had to overcome some significant hurdles in its rise to prominence and, more recently, its fight for survival. And that includes multimillion-dollar celebrity payouts brought in to turbocharge its now-abandoned global expansion plans.

Shares in US-listed F45 fell after a July 26 market update that said it had lost funding that supported its exclusive sales. The update also revealed the company’s plans to cut staff and lower revenue and earnings forecasts for this year.

Mark Wahlberg was on hand for the F45's Wall Street debut.

Mark Wahlberg was on hand for the F45’s Wall Street debut. Credit:AP

Just 12 days ago, on July 14, F45 celebrated the first anniversary of its debut on the New York Stock Exchange. That meant a $US5 million ($7.2 million) cash payment would be due to soccer star David Beckham, who was signed up as one of the company’s celebrity endorsers.

It would be Beckham’s second $5 million payout since Christmas as part of his promotional deal, which runs until 2025 and includes two free F45 studios.

The Beckham deal wasn’t the only lucrative contract that drained F45 of the cash it now desperately needs.

Mark Wahlberg, who recruited Beckham to the F45 cause, received an even more lucrative deal, along with other celebrities such as basketball player Magic Johnson, golfer Greg Norman and supermodel Cindy Crawford, who were considered crucial to the fitness group’s known by his name to fitness enthusiasts in the USA. .

“Influencer marketing is a key method through which we introduce F45 Training into popular culture,” F45 said of the deals in its prospectus ahead of the company’s $1.6 billion stock market debut last July.

“Our partnership with actor and entrepreneur Mark Wahlberg has accelerated our path to becoming a household name in the US market. Further, we have benefited from organic and paid social media promotion of the F45 Training brand from celebrities and professional athletes visiting our studios,” he added.

As his later accounts have shown, the cash was a better deal for those celebrities who took the money rather than waiting for stock deals that were tied to the F45’s market valuation, which began to shrink. immediately after its initial public offering.

Soccer star David Beckham was recruited to spray F45 on fitness enthusiasts.

Soccer star David Beckham was recruited to spray F45 on fitness enthusiasts.Credit:without

Johnson opted for a cash payment of $4 million instead of F45 shares, following the successful IPO. But he’s faring less well with the deal to receive $5 million in shares — based on future investment events — that were tied to the company’s market capitalization growth.

Former supermodel Crawford had a similar deal offering $5 million in stock – tied to a market cap increase. Greg Norman was to receive “annual compensation” which was not specified.

In connection with the IPO, F45 recognized $4.5 million in stock-based expense related to its agreements with Norman, Beckham, Johnson and Crawford. And recognized future liabilities of $4.5 million in share-based expense, as of December 31.

In its most recent accounts, these future liabilities had fallen in value to just $1.7 million.

This week, F45 revealed that 300 franchise sales have been canceled due to lack of funding and another 300 are in serious doubt.

In a conference call with analysts and investors on Tuesday, F45 interim chief executive Ben Coates made it clear that big growth plans for the company will not return, with the company’s focus shifting to preserving cash and earnings.

American model Cindy Crawford is another famous F45 endorser.

American model Cindy Crawford is another famous F45 endorser.Credit:EPA

“Our immediate focus on generating liquidity and cash flow is a focus on cost reduction and our core business. As we announced three weeks ago, we have made significant reductions in global headcount to align our cost structure with a more conservative growth outlook,” he said.

Cash-sapping celebrity deals, staff cuts and funds needed to buy gym equipment for which F45 no longer has buyers left the group with just $8.5 million in cash and $60.6 million in debt at the end of June .

The most lucrative celebrity endorsement deal belonged to Wahlberg, a fitness fanatic who owns several F45 studios and is a board member of the fitness group, as well as owning shares in the business.

He received 2.74 million stock rights that had been granted in the IPO at a valuation of just under $44 million. The downside for Wahlberg was that he didn’t get the stake until March of this year, when the stock had already begun its slide.

Greg Norman was on the right track to get

Greg Norman was on track to receive “annual compensation” from F45.Credit:AP

Wahlberg sold more than $10 million worth of stock in a series of trades, but stopped in April with 1.66 million shares left in his account.

Wahlberg was part of a group that invested $100 million in F45 in 2019. Wahlberg and his business partners sold $25 million in shares at $16 each ahead of F45’s public debut, but also dumped 3.2 million shares in the Australian fund manager L1 Capital in 2020.

“We are satisfied with our liquidity position.”

F45 Chief Financial Officer Chris Payne

Last month’s disastrous slide, which saw shares fall to a low of $1.35, has sparked interest from US law firms which have begun seeking investor interest in potential claims against F45.

“We are focused on investor losses and whether F45 misled investors about the scalability of its model and whether there was $250 million in real funding available to franchisees,” said Reed Kathrein, a partner with law firm Hagens Berman.

Others include Faruqi & Faruqi, LLP, and LA-based The Schall Law Firm, which also announced it is “investigating claims on behalf of F45 Training Holdings’ investors.”

NBA legend Magic Johnson opted for a $4 million cash payment instead of F45 stock following the successful IPO.  But he's faring less well with the deal to receive $5 million in shares — based on future investment events — that were tied to the company's market capitalization growth.

NBA legend Magic Johnson opted for a $4 million cash payment instead of F45 stock following the successful IPO. But he’s faring less well with the deal to receive $5 million in shares — based on future investment events — that were tied to the company’s market capitalization growth.Credit:AP

F45 would not comment on what impact a lawsuit might have on its financial viability, but it could be significant.

Legal costs were already high during the June quarter, rising more than 700 percent to $6.5 million due to “unspecified one-time legal costs, primarily related to litigation activities and legal settlements.”

Plans to generate $10 million in free cash flow by the December quarter will be even more critical if class action lawsuits add to those costs.

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“We are satisfied with our liquidity position,” F45 chief financial officer Chris Payne said this week.

Payne will receive a $2.4 million retainer from F45 on October 15 this year.

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