The M Den, the chain of retail stores marketing University of Michigan merchandise and apparel, was in a financial tailspin long before its operators filed for Chapter 11 bankruptcy.
As reported by the Detroit Free Press, Michigan athletic director Warde Manuel wrote a letter in February to one of the retailer's co-owners, detailing how the university's audit of the business's accounting records found The M Den to have been insolvent since as far back as December 2020.
According to Free Press reporter JC Reindl, the audit also found the retailer made cash distributions to its owners of over $1 million in 2022 and $790,000 for the year through November 2023 — even as the business owed millions in unpaid royalties to Michigan and millions more to merchandise vendors.
Then, and Jan. 31, the retailer "dropped" a $3.8 million check at a reception desk within the Michigan athletic department, according to Manuel's letter, but without alerting anyone that the envelope contained such a big check. Once the university tried to cash the check, it was twice rejected for insufficient funds.
At the time of the Feb. 7 letter, M-Den was still the "official" retailer of the athletic department with rights to operate "The M Den" name. Under terms of that agreement, Michigan could immediately cancel the deal if the retailer became insolvent for two months, Reindl reported>
"Your correspondence ... states an interest in preserving your relationship with the University of Michigan, but M-Den's conduct proves otherwise," Manuel wrote in the letter to The M Den co-owner Scott Hirth, which was shared in a recent bankruptcy court filing. "Despite M-Den's assurances, its conduct suggests that M-Den is wasting assets, bleeding cash out of the business rather than paying its vendors or paying down its obligation with the university."
The athletic director said in the February letter that by the end of 2020, The M Den's total liabilities exceeded its assets by nearly $2 million, putting it in "a cash overdraft position." As of last November, The M Den had a $389,758 bank balance and $14.7 million in liabilities — nearly half of which was money owed U-M, according to the letter.
Manuel told Hirth in the letter that the university was open to rescinding its potential termination of the official retailer deal if M-Den could immediately provide U-M with a $6.4 million bank check.
After granting The M Den multiple extensions, the athletic department terminated the "official" retailer deal last month and issuing a cease and desist on Aug. 15 over use of "The M Den" name. The following day, the retailer — now known as Heritage Collegiate Apparel — filed for reorganization bankruptcy.
Related: University of Michigan's Official Retailer 'The M Den' Files for Bankruptcy
Michigan subsequently granted "The M Den" name to private equity-backed Legends Global Merchandise, headquartered in New York.
Related: In Wake of M Den Collapse, Michigan Signs Online Merch Agreement With Legends
Meanwhile, Heritage Collegiate, which had held the rights to "The M Den" name in every year but one since the early 1990s, is looking to sell its inventory while the 2024 football season is still in play. The latest timeline for the sale process shows a Sept. 13 deadline for submitting bids and a Sept. 17 auction date, Reindl reported. The two known bidders so far are Legends and Lids Holdings, according to court documents.
Per Reindl's reporting, Lids' opening bid, known as the stalking horse bid, is 62% of the cost value of the retailer's inventory on hand at the time of the sale's closure date, estimated to equal about $4.25 million. Legends' bid would pay 64% of the inventory cost value, court documents say.
