Photo: Peloton/Youtube
Last month, it became obvious that Peloton’s survival as a company, in anything like its current form, was coming into question. At the time, reports were emerging that private-equity firms were thinking about taking it over. It had already lost two CEOs and downsized its expansion plans. Despite these changes, the stock kept falling and was down 97 percent from its all-time high in December 2020. Peloton looked increasingly like a fluke, a business that could work only during a global pandemic that caused gyms to close and governments to send out free money to enough people that a $2,000 stationary bike with a monthly subscription became a no-brainer purchase for millions. By 2024, none of the company’s efforts to firm up its fragile financial situation seemed to satisfy Wall Street. Even an attempt to reduce its outstanding debts sent the stock plunging by another 25 percent before recovering a little bit.
Peloton has been aggressive about slashing its costs, but until now, it has spared its expensive superstar instructors. These are the runners, cyclists, and yoga teachers who are the faces of Peloton’s videos and the personalities that keep millions of users coming back. But now, some of those big-name personalities are leaving. Earlier this month, Peloton announced that three popular instructors — Kristin McGee, Kendall Toole, and Ross Rayburn — were parting ways with the company. McGee, who was probably the biggest name of the three, posted on her Instagram that she “decided to spend time to focus on my family and move on from Peloton.” Toole and Rayburn made other similar video announcements. The seemingly coordinated timing signaled that Peloton is entering a new, austere era as it is increasingly desperate for cash. It also shows the company’s management is making a riskier gamble than they have before — that it may be worth dispensing with some of its stars even if that results in the loss of some of its paying customers.
Peloton is a mishmash of a company. It’s partly an expensive equipment manufacturer like Bowflex. It’s also a subscription-based streaming service like Netflix. But what differentiates it is the part of the business that acts like a talent agency. According to the company’s own tally, there are 61 instructors —including the three who are now leaving. But McGree, Toole, and Rayburn are not among Peloton’s true A-List stars.
Its most recognizable names appear to be staying put. Cody Rigsby, Robin Arzon, and Ally Love are the kind of Lycra-clad stars who have their own deals hawking clothes or vitamins or what have you. Each has their own niche — Rigsby is a chaotic and profane former Dancing With the Stars contestant; Arzon (who is also a vice-president of Peloton’s programming) is a former litigator turned wellness girlboss; Love tries to embody the positivity of her name. But there is a gulf between its most popular stars and everyone else. For whatever it’s worth, Rigsby, Arzon, and Love collectively have more than 3 million followers on Instagram —which is not much lower than Peloton’s total paid subscriber base, according to its last quarterly filing.
The benefit for instructors — especially the most popular ones — is obvious: a built-in audience of potentially millions of people and a chance to grow a personal brand with licensing deals. But the downside risk is also palpable. Neil Cybart, a former analyst at investment bank Keefe, Bruyette, and Woods, has noted that Peloton’s tanking reputation is already causing problems for the talent side of its business. The upshot is that as less-established instructors consider their own personal brands, they may be more inclined to take their chances elsewhere, rather than be associated with a company that may cease to exist in a few years.
Peloton doesn’t say exactly how much it pays its instructors, but Bloomberg has reported that its biggest names made as much as $500,000 a year before brand deals. In a newsletter, McGee said that “certain circ*mstances just didn’t make it possible to stay with Peloton,” but didn’t offer any more details. When I reached out for comment, thecompany did acknowledge that it’s in the midst of contract negotiations. “As with all businesses who work with professional athletes, Instructor contracts are a normal and ongoing part of the Peloton process. During our most recent round of contract discussions, three of our beloved Instructors have chosen to leave to explore new opportunities,” the company said in a statement, which also hinted that it may hire new instructors to replace them at some point. This may have been why Rigsby, at one point in May, removed his affiliation with Peloton from his Instagram profile. (At the time, the company didn’t return a request for comment about it. Four days later, Rigsby posted an Instagram video confirming he signed a new contract.) It has all come across as weirdly bloodless. “I’m so sad to see my teammates go. I love them deeply, but in the same way I’m not concerned that they’re not in my life anymore,” Jess King, another instructor, told “Page Six.” (King, a former “So You Think You Can Dance” contestant, recently announced that she has re-upped her contract).
The reality, though, is that Peloton is still an expensive business to run, even if it negotiates the pay of its instructors down. Last year, it spent $113 million on music-licensing rights, which are integral to its core product: fun videos filled with familiar music that people exercise along to. The arcane rules around music rights made Peloton the best-paying streaming-music player, at one point paying out 3.1 cents a stream while the likes of Spotify pay a small fraction of a penny for the same song. For now, these costs are baked in, with a $50 million guaranteed payment for music next year alone, though actual payouts might be much higher.
All these costly problems point to a bigger question: Who can actually fix these core business problems? Peloton’s financial issues are arguably not going to get any easier soon. This year, it took out$350 million in new debts that pay bondholders 5.5 percent a year. That will cost Peloton at least $19 million a year in interest until 2029 —and could convert into an equity stake that’s equivalent to17 percent stake in its outstanding shares. These debts, called convertible bonds, make it look as though the company is desperate for a short lifeline in the hopes that it will figure out its longer-term problems.
One imperfect way to see if a company is doing well is to see if its executives are buying more shares of the company and hoping that their internal corporate efforts are rewarded by investors. That is not happening at all. During the last three months, executives — including Peloton’s chief financial officer, Elizabeth Coddington — have instead been selling off their shares, according to securities filings. Coddington, who joined just two years ago, appears to be dumping her stake in the company as the shares vest, or become available for sale. At one point in May, she held more than 1 million restricted stock units, or RSUs — a form of unvested shares — but by mid-June, she had whittled her holdings down to 174,000 RSUs. (Peloton didn’t return a request for comment on Coddington’s holdings.)
Now, executives sell shares of their companies all the time, for any number of reasons, and Coddington’s sales don’t indicate she has done anything wrong — or tell anything like the full story of what’s going on at Peloton. Still, the filings show that she sold stock at an average price of about $3.68 — just a bit off its all-time low of $2.99 a share on May 28, and a far cry from its $162 peak. At this point, it wouldn’t be a surprise if there were more of an exodus from the C-suite than from the instructor roster. This points at another problem for the company: While Peloton may be able to find another fit, attractivebike instructor or yogi to do an exercise class on its platform, it will probably have a much harder time finding talented new executives to save a company that Wall Street is leaving for dead.
Tags:
- the money game
- peloton
- wall street
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