On Sept. 15, 2020, Flywheel Sports Inc. and its affiliates filed chapter 7 petitions with the U.S. Bankruptcy Court for the Southern District of New York. Flywheel’s filing continues the trend of gym and personal fitness companies, including venerable national chains Gold’s Gym and 24 Hour Fitness, seeking bankruptcy protection during the COVID-19 pandemic. But while many of its peers are, at least presently, pursuing chapter 11 restructuring plans, Flywheel has ceased its operations entirely and anticipates liquidating its assets. Notably, this decision to liquidate, as opposed to restructure, appears partially to be the consequence of Flywheel’s dubious effort to enter the “internet-linked” or “fitness-streaming” space.
Founded in 2010, Flywheel operated indoor cycling — or “spinning” — studios. Flywheel’s classes and instructors were popular for their competitive environment and the camaraderie developed among participants. By 2020, Flywheel had garnered a cult-like following in more than 40 studios across the country. Despite this passion, Flywheel faced stiff competition, both from traditional brick-and-mortar spinning studio operators like Equinox Group’s SoulCycle and growing in-home fitness platforms like Peloton, which offers a market-leading internet-linked spinning bike and fitness-metric tracking platform. In response, Flywheel sought to grow its brand through the development of its own in-home “connected fitness” device, which it released in 2017.
Despite its caché as a leading cycling studio, Flywheel’s Home Bike product struggled to compete with the hard and soft fitness and streaming technologies offered by Peloton and other in-home competitors such as Echelon and NordickTrack. Then, in 2018, Peloton sued Flywheel for patent infringement relating to certain metric-tracking technologies included in Flywheel’s streaming platform, which Peloton alleged was stolen from its similar “leaderboard.”
In January 2020, before the COVID-19 pandemic took off in the U.S., Flywheel agreed to settle the Peloton patent-infringement case. As part of the settlement, Flywheel acknowledged that it had copied Peloton’s leaderboard technology and agreed to cease its in-home streaming operations. Customers were given the option of swapping their Flywheel Home Bike with a Peloton product. Following this settlement, Flywheel announced it had agreed to sell substantially all of its assets to Town Sports International Holdings, Inc., the operator of New York Sports Clubs. Less than two months later, nearly every Flywheel studio was forced to close as governments and businesses struggled to respond to the exploding COVID-19 pandemic.
Having abandoned its in-home platform, Flywheel was dependent on its remaining studio operations. Yet many of Flywheel’s studios have been unable to reopen. And even for those locations that have, operations and attendance are limited. By April 2020, Town Sports terminated its acquisition of Flywheel’s assets (and then itself sought bankruptcy protection in September 2020). Faced with an inability to operate, the loss of its acquisition partner, and no meaningful ability to pursue an expansion into in-home markets, Flywheel announced that it would lay off its more than 1,200 employees and close its studios for good.
As of its petition date, Flywheel reported assets of less than $50,000 and liabilities exceeding $10 million. At the same time, Peloton’s stock price has nearly doubled, and the company boasts that it added over a million subscriptions for its in-home streaming platform in the past year. Clearly, market demand for “connected” in-home fitness platforms is strong and will only increase as the uncertainty and fallout of the COVID-19 pandemic continue. It is less clear, however, whether on-location fitness outlets — be it traditional gyms, modern spinning auditoriums or other interactive studios — will be able to effectively compete in a post-pandemic market without at least some form of “connected” platform. As the demise of Flywheel portends, even for established brands and sophisticated operators, the answer may be no.