Food52’s Recipe for Bankruptcy

Ah, all these patients complaining they can't get their medicines. Insurers in PBMs are often owned by the same giant company so middlemen, like me, decide what medicines you can get and how much you pay. But don't worry if your prescription gets denied, we know another one that works for us. I mean, you. Washington should stop PBMs and insurers from driving up drug costs. Learn more at phrma.org/insurercosts. Pay for by phrma. The houses are going to crumble. If you look in the media business, everyone is for sale, like all these business models are challenged. Nobody has the search traffic that they have, like, this is coming and there are things I wish I had known before I got into bankruptcy, but it is so intense. Hello friends and welcome back to the grill room. It is Tuesday, January 27th. I got a great one for you today. My guest is Erica Ayers-Baden, who is probably best known as the longtime CEO of Barstool Sports, which she helped grow and sort of regional blog for Dave Portnoy up into this massive national brand that it is today. After doing that, Erica left in 2024 and became the CEO of Food 52, which, as you may or may not have heard, just went through bankruptcy, and Erica, who now writes a great substack called work, wrote this very entertaining, delightful post about her experience over the holiday break, shepherding food 52 through bankruptcy, which, as she notes in our conversation, is probably a cautionary tale for a lot of other digital media companies that may or may not find themselves in similar circumstances as the industry undergoes its current transformation. So it seemed like a very opportune time to talk to Erica about the Food 52 business, about what went wrong, how it found itself from a $300 million valuation one day, and then all of a sudden being $25 million in debt. What the lessons of that are, what the lessons of the bankruptcy experience are, where food 52 goes from here, and then also where Erica goes from here. Her story at Barstool Sports is well known in the industry. Her experience at Food 52, I think, has certainly made her an even more interesting media executive. So I'm curious to know what her next chapter is. On top of all this, we're going to sort of assess where the digital media industry finds itself today, some of the valuations that are out there. We're going to talk about semaphore. We're going to talk about Barry, and CBS, and Free Press. We're going to talk about it all. With great conversation, it'll be very useful for everyone in the industry, very entertaining, for everyone curious about it. And without further ado, let's get started. Erica, welcome to the grill room. Thank you. It's like an intimidating title. Did you do that by design? We named it after the famous power lunch spot at the Four Seasons, but it does keynote a certain grilling, which I only reserve for those who are deserving of the grilling. Obviously. Otherwise, I just try to treat you to a nice lunch. So how was your break, and I ask because that, of course, is the title of one of the most enjoyable posts I've read on Substack in quite some time, which was how you explained your basically shepherding food 52, where you've been for the past, was it six months? 19 months, 18 months, basically shepherding it through bankruptcy, and I'll just tee this up for the folks who don't know this. But food 52 was about somewhere around $25 million in debt, is my understanding. And this came after, let's see, food 52 was launched, let's call it 2009, and then sold a majority stake to the churn and group, for around 83 million, 10 years later, and took on another 80 million two years after that, acquired some businesses that I will say from the sidelines over here, did not seem to make a ton of sense to me at the time, but acquired design and manufacturing business, schoolhouse, and then the Danish house where brand Dancek, and at its peak was valued at more than $300 million dollars. Help before we get into your experience going through bankruptcy, which I think was very eye opening for anyone running a media company to even count this idea, what happened here? How did food 52 go from $300 million to $25 million in debt? Yeah, so thank you for having me, look, there's like probably a lot of perspectives on how to go wrong, what happened, how food 52 get here, I think, it's hard to tell the story of food 52 without telling a story of COVID, quite honestly, where, you know, and also a little bit emblematic of startups at the, you know, when you look at startups in 2016, 2018, 2020, et cetera, where it was growth at all costs. It was grow big in the case of food 52, you know, started as a really beloved, beautiful blog and eventually became a small little shop that became a bigger shop that then wanted to become a competitor to William Sonoma and, you know, it was going to be a big player in the retail commerce space, COVID, you know, for, for everything that was terrible about COVID was such a boom in the home industry and in the food industry and in just in consumer spending. That kind of propelled all those visions that this was going to be the next big content to commerce company or whatever you call it or it's going to be the next big disruptor in the specialty retail space, COVID ends, the music stops, the world changes to profitable growth. And in that, you know, four or five year period, food 52 took on, you know, kind of to your point, acquired two companies, went through a whole bunch of executives, built a lot of homegrown tech, created five, six, seven different lines of business with different finance teams, different tech structures, different accounting systems, different marketing teams, different marketing spend, different customer service, like you name it, that it becomes very difficult to untangle something like that that has been growing, not wildly, but broadly for five or six years amidst a bunch of different executive regimes with increasing pressure on profitability, with increasing challenges in consumer growth. And you wake up in, I joined in 2024 and it was like, hey, clean this thing up, like get it on track, get it on a path to profitability, make the business make sense, re-engage and reinvest in the media business, which we did all those things, right? We, you know, it took 20 million dollars of cost out of the business, we brought back the media and content business in a way that's social first, creator led. But the reality is it's when you don't have a lot of capital and you have a lot of pressure in time and there are a lot of problems to fix and there's a lot of skeletons in the closet and there are a lot of competing priorities. You kind of find yourself at a point where the music either may stop or the music stops, which is what happened to us. Is there anything that, you have to forgive my ignorance here, but is there anything that could have gone differently? What was the, I guess what I wonder is, is this all attributable to COVID or was there some sort of original sin along the way that, that there were so many mistakes that could have been avoided? There wasn't, I don't think there was one mistake, I think there was 500 mistakes, you know what I mean? And myself included, like I made mistakes during my tenure as well. But if I were to say what I think the biggest, you know, the biggest missteps were is one, trying to grow so many differences, so many businesses simultaneously, you know, schoolhouse based in Portland, Oregon, food 52 based in Brooklyn, New York, very difficult, very different businesses. Schoolhouse was a manufactured lighting business, which if you come from media, manufactured lighting is an entirely different universe that requires entirely different skills and entirely different discipline, entirely different ways of thinking about spend and recouping that spend and making money and driving profit, like there were, so I think I'm kind of rambling, but I think one of the biggest ones were too many different businesses, too little oversight, not enough discipline around structured growth. That would be one, two is because there was a lot of change, there was a lot of errors of management, there was a lot of, you know, driving all over the road, which I think happens that that's not unique to food 52, but you have one CEO that wants one thing, then you bring in another co-CEO or president, they want to do another thing, you bring in a third one, you bring in a fourth one, you bring in a fifth one, that's a lot of regime change that is hard for a company to have a steady course. I think when I look into food 52, you can see, it's almost like geology where you see the layers and the earth of like, who was doing what and focused on which things at which time. I think the third was just not enough cost controls, not enough control around the spending. I think the fourth thing is not enough, you know, and I got to food 52 in 2024, the tech was from 2014, so there just wasn't the infrastructure was very, very difficult to work with, every time something had to be changed on any one of the websites, it had to be done manually and three times so you can just imagine how frustrating that is, so I don't think it's one sin, I think it's a lot of sins and I think I think food 52 in a lot of ways is a really good cautionary tale. I want to go back later on and talk about your experience at barstool and all that, but you look there and you were there for eight years, you helped shepherd that business from, you know, a small blog with it with a sort of outsized star into a big national digital media brand and grew revenue, you know, opened up new revenue lines, grew the business, sold it and then bought it back. When you get to the end of that eight year journey, what was compelling to you about the food 52 years, knowing where it was as a business? Yeah. I'm asking myself that very frequently these days, but I can tell you what I loved and what I was looking for. So barstool was such an exceptional experience, right? Like it was once in a lifetime, we had a crazy run. We worked exceptionally hard. We were on the right side of so many trends. And really when I looked at the year of 2023, selling the company to Penn National for $550 million, buying it back for Dave for $1, like there was nothing that was going to top 2023. Like that was, it was bananas, like there was nothing that was going to top that. And I felt like it would be a disservice to barstool to stay when I wasn't needed because we built a really good machine, like the machine underneath barstool sports is incredible. The data infrastructure, the content production infrastructure, the ability to make headlines out of next to nothing, the ability to monetize very diversely, the ability to grow multiple IP, you know, and grow personalities within that IP to secure talent, like all of it, I think super impressive. And I think Dave's done an awesome job continuing that. I felt that it would be very insulting to how much I gave and sacrificed for the nine years before to stay on when I wasn't really needed. And then the second piece was, I was interested in a new consumer, which in particular is women. I was very interested in, I'm like, I can mark it to an 18 to 24 year old guy with my eye shut at this point. I know how to sell high news. So I wanted a female consumer. And then I thought the content to commerce, true commerce, was an interesting extension. And I've always liked community led businesses and I felt that food 52 and I still believe this today has a really incredible community and had a lot of potential around that community. Wow. All these patients complaining they can't get their medicines, insurers and PBMs are often owned by the same giant company, so middlemen like me decide what medicines you can get and how much you pay. I mean you. Paid for by phrma. Listen to and follow undemesticated and Odyssey podcast, way more ever you get your podcasts. So speaking of which, let's get into the journey through bankruptcy, but you write about, I mean, I don't, a lot of this is above my pay grade, but like the concept of taking a business through bankruptcy seems incredibly daunting. If you write about, you say, you know, I've done an IPO, I've done three sales, I've done asset purchases, and you write, quote, the bankruptcy wins. It was the most elite, the hardest to come by and also demanded the highest performance of everyone involved. I will gain more skill from this experience than all the others combined. I want to know what you mean by that. And then I also am curious about when you talk about the value of the food 52 brand, you note in this piece that brands are very hard to build, they're very, one of the hardest thing to do is to build a brand. So do you still see value in food 52 despite, despite where it's at right now? So answering that question 100%, like just in going through this process and looking, looking at the companies who are looking at food 52, like they're, I say it all the time about barstile sports, there's never going to be another barstile sports. There's not going to be another food 52. In the same way, there's not going to be another Glossier, like there's, it was built in a moment in time when you could build community and community loyalty in a way that cannot be replicated today just by virtue of how much fragmentation there is. People will say it about puck, like there will not be another puck. You built puck at a time where it was a time. So I really, I think there's two things about food 52 that are exceptional. One is that it is the only platform I have seen where a consumer, an affluent inspired consumer has her credit card out and is also consuming content in the same experience and does not have any hesitation to consume content or use her credit card to buy something. That is very, very rare. Like when you look at media right now, everything is affiliate. You're sending off, nobody cares who owns the customer and nobody cares about a long-standing relationship, shopping and content consumption in a lot of ways are very similar. And food 52 does an exceptional job of that. So I think food 52 is super value. It's like a steal to be honest with you because I think that's very hard to build. And we should just for context here, we should say that America's test kitchen is sort of the stocking horse backer here with a purchase price of $6.5 million. For that plus the at the schoolhouse and dance gassets. Yeah. Yeah. So when you look at, hey, there's $200 million put into this thing and X, you know, 10 years plus. And then you could get it for $6.5 or whatever, like it's good deal. Which leads me to my next point, which is bankruptcy is fascinating. Like fascinating, fascinating, hated every second of it, but also like fucking loved it because one is media people, it's like catching a cold or like you're on the subway and you're like your hand comes off the rail and you're like, I know of germs and can I get them off me. Like I think media people feel like there's such a stigma around bankruptcy for probably very good reason. There's terrible awful parts of bankruptcy, including creditors and just the process itself. But it was the process is very illuminating because not all bankruptcy is created equal. And whether you're in a chapter or seven bankruptcy or you're in a chapter 11 bankruptcy or you're doing an ABC bankruptcy, like I would never have known the differences between one or the other to get, you know, in our case, we went from a Monday night at 8 PM Eastern, the bank taking every cent we had in the account, in our account to having an asset purchase agreement, a stocking horse and in chapter 11 within, you know, nine days, which was this lie titled it. So how was your break? Like my break. Absolutely. But. Well, and you did this all from like, what was it? You did this all from where were you and you were sharing a bedroom? Oh, sounds I'm like sharing a bedroom of my 13 year old who was like press on nails. There's 430 sweatshirts. It's like it was the worst. Like lighting was terrible. It was the worst. It was worse. But it was also so many things had to come together. Marquis had to come to the table. The lawyers, we had to create all of those documents for it. We had to get a judge to approve it. We had to go through the financial part of the process. Part of what's interesting to me now about bankruptcy, which I'm moderately obsessed with is that it's very closed. It's like I write about it in the sub-stack, which is like bankruptcy, bankruptcy people are like cops, where they are just amongst themselves. Like they don't venture out into the world. They don't talk actively or openly about what they do. But the time pressure, the financial pressure and the consequence of what they work on every day is so significant. We were going, there's a whole bunch of things that when a bank sweeps your account, which is kind of unheard of, but is apparently happening more and more often. But you can't employ anyone if you don't have enough money to cover their pay or their wages. So you have to calculate down to the hour, like, do I have enough money to pay everyone who's here through the end of day today. And literally that's how we spent the holiday break of like, do we have enough money? Can we keep these people? We can't keep these people. So it's just very, the precision in the process was, the precision was fascinating and intense. It's amazing when you, when you, having come out the other side of it, I don't know which executives at which media companies are fearing bankruptcy themselves. Well, there's going to be a lot though, Dylan, like, that's the whole thing. Like, this is coming, like that, sorry to interrupt you, but like, yeah, no, please. Like, I was watching a thing on Yahoo Finance yesterday about private equity and essentially like the house, the houses are going to crumble. Like, if you look in the media business, everyone is for sale. Like, all these business models are challenged. Nobody has the search traffic that they haven't, like, this is coming and there are things I wish I had known before I got into bankruptcy, but it is, it is so intense. It's the really the biggest thing I can say, but it also creates for brands, for people who like brands or like communities or who believe in in these assets. It's an incredible place to shop. So to, to, to the point of wishing you had known more, what would your advice be to those media companies that will inevitably have to go through this process? I mean, I think it's the same advice we had at Barstool, which is like, you know, that we were getting, when we sold Barstool to Penn Entertainment, everyone was like, no, wait, just, just wait. Like, you could have a billion dollar valuation. If you just hang on, you could, you know, just wait. And when I look at all these companies in the media business, the people that waited, it doesn't go well. So the first thing is like, if somebody comes and wants to buy you, like sell now, that's the first thing. And then the second thing is, you know, we found ourselves in a very extreme situation where we had, we were in a sale process. The bank swept the cash, the bank sweeping the cash, you know, created a huge amount of issue for the company, for the board, for everyone. If I had just had, you know, two weeks more, three weeks more in that sale process, it would have been a different outcome for food 52. So the other piece I wish I had, I wish I had been ahead of more as I would have been more aggressive on that sale process earlier. So when you think about the endurance of the food 52 brand, and you think about, you know, now someone can come in and buy it at a discount, who might those potential buyers be? I mean, I can't talk about that, but I think you could imagine who they might be, right? You could think about brands that want a commerce platform. You could think about brands that have strength in lighting and specialty retail. You could think about brands looking to find new ways to connect with consumers or new traffic sources. So I think you'll see, and it'll become public, I don't know when this comes out, but it'll become public soon enough, there's like, there's a good, there's a really good range of brands. Okay, and what about you? What's next, what's next for you? You had, so like you said, these eight or nine years at bar still, then you can't, you can come and you do this and get it through bankruptcy. You've got the sub-stack you're writing, which I now have fallen in love with, you're, you've got a book, which by the way, I will admit, I haven't read, I haven't read your book. The book is, nobody cares about your career, which is a very compelling title, especially right now. What's the gist? The book isn't really for you, it's like, the book is for people, because people care about my career. What's that? I see. Is it because people care about my career? Yeah, people do care about your career. The short answer is, I don't know, I'm, I'm trying to learn and like suck up as much as I can learn from this process. Last night in the middle of the night I woke up and almost hesitant to mention this, but there is this, I don't know if you would call it a media company, it's a sub-stack slash brand that follows bankruptcy called Petition 11. Have you ever heard of this? No. Okay. I am a person. By the way, you're sure paying me into the world of bankruptcy, so you're my guy. My next thing might be marketing bankruptcy, like I'm, I'm moderately obsessed right now. I think it's temporary, it's like a bad fashion trend where it's like in it, or like an old person when they have an injury and they like can't stop talking about it. I think I'm in that right now, but long story short, there's this brand called Petition 11, which reminds me so much of early bar stool just in the gifts and the names, but they cover bankruptcy in a way that is very smart, but very funny. So right now, I'm like, what are you all doing? Why wouldn't you go be a big financial media publication? But you want to, do you want to stay in media, I mean, you want to stay in this space? Yeah, I'll, I'll definitely want to do something in media. Yeah. I don't think I will continue to do something in, in, in manufacturer, for a term, manufacturing. Right. I'm good with that. Like that was a good tool. I think about your diagnosis for the industry at large. Like a lot of, like you just said, a lot of companies are going to have to go through this. The, the entire industry is facing, or poised to face really severe headwinds, but virtue of the way it's changing. Do you, how do you feel about the industry at large given that? I think, I have a lot of opinion about it. I think the future is community and really narrow communities. Like I built this thing called work like a girl, which is professional women. And it is very narrow, but it's very deep. It's a hive, right? It's women on slack all day long talking, talking, talking. So I think the world, you know, when you look at, when you look at what's happening, right, search traffic is going down, programmatic revenue continues to be like, uninspiring. Like there's just not the, the creator ecosystem has exploded, but it's very hard to sustain. It's hard to build. It's hard to scale. No one's really aggregated that. You're looking at a lot of brands who are trying to aggregate that under the auspice of like the new media companies. So I think media is more interesting than it's ever been and more uninteresting than it's ever been in the same breath, right, where there's, there's a lot of new things happening in culture and around community. There is a lot of, you know, pushing the, the, the deck chairs around on the Titanic at the same time. So I think, you know, and it's one thing I'm thinking about in seriousness is I think about what's next, which is like, I, I have spent 19 months in a turnaround versus eight years in something that we built, not from scratch, but we built systems from scratch and building from scratch and having to tear it down and redo it and rethink it and rework it is, in my opinion, really gratifying versus the like, how do you get people to think differently about a creator economy or how do you get people to think differently about content to commerce? And I think that's the challenge in media right now is like getting people to rethink and rewire and rework and find, you know, a reimagination of a cost basis for how you make content and distribute it and monetize it. I think that's going to be super hard. I do think that there's a chance that as there's more AI and more slop that like legacy brands are going to mean more and, you know, have the potential to be more, but it is going to take a very inspired, clear thinker to do that. You mentioned food 52 as a cautionary tale. Going back to barstool, do you, do you see positive lessons there for the media industry now and for anyone and what might those be? I mean, obviously, you look at what's happened to Port Noui. I mean, he's just, you know, his star has risen so high and the business from what I can tell is doing very well. How do you position another media brand for that sort of success? Yeah, I think, you know, Dave is achieving everything we aspire to but could never get to, right? Like, he's on Fox. They're all on Netflix. Like, you know, barstool's mainstreaming, actually, which is what's interesting about this phase of barstool, it's really, it's mainstreaming. We were always so counter to the mainstream and disruptive and now it's in the process of mainstreaming. Look, I think in the cautionary tale, you know, if you look at the two juxtaposed against one another, barstool, we, we were always profitable. So we, we kept cost so, so, so low and it forced us to, it forced us to get really creative. And you look at, you know, food 52 had a lot of money, you know, like TCG put a lot of money into into food 52. Now, there were just different aspects to the business, different sectors, different times, but the first piece is like making a lot out of a little, you know, more money, problems, bigger cash, bigger mistakes, like, so one is just don't take more money than you need and don't use more money than you have to. That to me is number one, a one, a two is I think one thing that was challenge, one thing that was great about barstool was we, I was very paranoid that we wouldn't have enough money. And so I always wanted to have multiple lines of revenue equally strong so that if we made the advertisers mad, we could lean on the commerce business. And if consumer spending was low, the ad people would come back. And one of the challenges, you know, looking past food 52 or looking into the history of food 52 was, it was very commerce forward and then it was very content forward and then it was very commerce for like it was like a, it was a little bit knee jerk and you want to build multiple revenue streams with durability and that are, you know, you're trying to get to 20, 30, 40% year over year growth with multiple revenue streams. So that to me is another cautionary tale. I think the third is it's very hard. I think, I think when startups are under pressure from investors and they are trying to make up growth and trying to prove and show growth. It is very easy to manage to the boardroom where you're like, look, we're trying these new things and look, we're doing all this and look what we're incubating and look what we're starting. One of the biggest things I found coming into food 52 was there was a ton of experimentation which was great. Nothing was killed like the experimentation just didn't scale, but hung on and then was just big enough where you didn't want to kill it because it would hurt the PNL. So I think that's a big cautionary tale of like if it's not working, you have to kill it and not killing things actually kills the company. And then the last piece is if you're going to get into acquisitions or tough, you know, like 90% of acquisitions fail for good reason. You know, Barstall and Tepen was a good example of an acquisition like utterly working and then totally failing. But you know, in the case of food 52 buying dance and buying schoolhouse, there were a lot of contracts made, there was a lot of investment there was, but there were not ever a lot of synergies recognized. And if you're going to acquire growth through acquisition, you've got to plug the pieces into one another, otherwise you're just competing with yourself. Like one of the biggest challenges I've had in the last year was if I have a dollar and I putting the dollar into buying component parts for lighting manufacturing or am I investing in a personality for media and the lighting manufacturing was like a 30% margin, but it would take eight months. But if you don't have it, you have nothing to sell. And the media business is an 80% margin, but you have to keep, you have to keep feeding both. So when you're competing with the dollar, every dollar is in competition. And somebody is left unfed. I think that's a cautionary tale of like you're into many businesses to to appropriately Sunday and grow them. Yeah. So with all this expertise, do you look at the current moment in me, obviously there's something happening in the digital media space right now that I think different bankers and analysts and industry insiders have different feelings about. But a few data points. One is very selling to Paramount, selling the free press to Paramount at 150 million. And then semaphore, the co-founders I had on recently selling or raising another 30 million at a $330 million valuation. When you look out across that landscape, what do you do those valuations seem right to you? Do they raise any red flags? What do you see going on in the digital media space? 330. And that's high. I told Ben and Justin, unless I don't understand something about semaphore. Like, that's a high valuation. I mean, most of all, we had 25 million consumers buying t-shirts, ads, coming to events, clicking on us, you know, 4,000 times a day. We had a 550 valuation. So like that seems to be very, there has to be something to either the database they're growing or the IP that they're creating. But that would seem high to me just at first blush. Like I read semaphore. I like semaphore, but I don't know, that's high. I think the free press was low quite honestly. Really? Why do you say that? Well, I mean, though you read so much about it, like did Ellison buy it to get Paramount and make Barry the most hated woman in media or, you know, like, why did he buy free press? But I think the free press had a very robust audience and was showing that they could grow the audience and they could monetize the audience diversely. And I think they were good starting to be really good at like creating IP and growing new forms of IP in and around the free press. So I don't know, I thought 150, you know, I don't know that it would eat, it would be 330 or 300 plus either. But I don't know, what do you think you could say? Yes, I think I go back to what you were saying earlier about what's happening in the industry and, you know, if just how many founders wait too long and sort of miss their moment and sort of your encouragement that if someone comes with a reasonable deal, you should take it. And I think about, I'm not, you know, without getting too close to home with puck or anything like that. But I look out across the landscape and I think about Punchbull, which I think TCG did talk to those guys about an investment. And I just wonder, is there, what is the argument for staying in the game when the valuations are this high? Yeah. I think it's a real question because I think, look, your company is worth what somebody's going to pay for it. Like at the end of the day, like that's valuation that that's really the, if you don't believe that somebody would pay X amount of hundreds of millions of dollars for the company, then like your valuation is probably like, inaccurate. I think the second piece of it is, I mean, it's what's hard about taking money, right? You know, you see a lot of people bootstrapping stuff now, which is when you take somebody else's money, you need to deliver them a return on the money. And that's what's tough. So the more you raise at the higher value, you just add to the, you just add to the pressure of that. And I tend to think that like the most interesting businesses right now are like the small super profitable ones. Yes. And that, like you can play with that. And then when you take money, it's to do something specific with a very specific outcome that you still retain, and you retain more value in it. Yes. Yes. That's right. Well, on that note, I look forward to whatever your next chapter may be in the media space, because it seems to me like between your successful bar stool and at least getting food 52 to the best possible outcome, I'm excited to see what's in store next. And I'm grateful to you for taking the time to come on and talk about all this stuff of this. Awesome. Thank you so much. Thanks, Erica. The grill room is a presentation of Odyssey in partnership with Puck. I'm Dylan Byers, and I want to thank today's guest, Erica Ayers-Baden. I also want to thank the show's executive producers, Puck co-founder John Kelly, executive editor Ben Landy, director of editorial operations, Gabi Grossman. This show is produced and edited by Molly Nugent, and a special thanks to the team at Odyssey, Charlie Turner and Bob Tabito.