The gulf was just coming out when the pandemic hit. After an initial shock last spring, the sport is poised for the best year since Tiger Woods lived up to its popularity two decades ago. There is still a lot of green that investors need to target.
Rounds played in the US fell 8.5% in March and 42% in April, compared to a year earlier, according to the National Golf Foundation, as many courses were closed. But the socially distanced nature of the sport has led to a furious comeback. Until last month, the rounds played were 37% bigger and bigger for the whole year, even with the spring locks. Even though other parts of their business, such as the club restaurant, remain depressed, golf courses are in much better financial shape than they were a few years ago.
In 2016, a quarter of public golf courses surveyed by the NGF said they were in “poor” or “very poor” financial condition – slightly worse than in the 2008-09 financial crisis. Until last year, only 8% of public courses reported similar conditions. The proportion who report being in “good” or “great” shape has doubled.
Stock market investors have few, if any, opportunities to directly benefit from reversing course luck, but there are other parts of the golf business that depend on financially sound fairways.
The handful of shares that offer investors exposure to the sport have generated strong returns after an initial pandemic shock. Manufacturer of equipment and clothing Acushnet Holdings,
known for brands such as Titleist and FootJoy, it has raised the S&P 500 by 14 percentage points in the last year. Galaxy Galaxy owner Dick’s Sporting Goods beat the market by 32 percentage points. Callaway Golf Equipment Dealer,
which lost three-quarters of its value in the first weeks of the Covid-19 bear market, has returned, surpassing the market by 13 percentage points. Along the way, Callaway gained even more exposure to the sport by merging with the top operator Topgolf.
Clothing and sports equipment giant Nike shocked many out of golf in 2016, and competitor Adidas sold some brands the following year. Retailer Golfsmith filed for bankruptcy in 2016. Between 2003 and 2017, the number of American players on the field dropped to less than 24 million, from almost 31 million. Part of that was a “negative hangover” following the financial crisis that led to a reduction in the Gulf for business, says Randy Konik, an analyst at Jefferies.
But equipment sales soon returned. In 2019, the number of American players reached 2.5 million for the first time, surpassing the previous high of 2.4 million in 2000, when Tiger Woods collected trophies and inspired young players. One reason is that more baby boomers have started playing golf.
“People don’t think enough about how old America is,” says Mr. Konik. “Golf is the perfect sport for that part of the population.”
A more recent impetus for this sport comes from younger professionals who now work remotely. Framing 18 holes in one day of the week was once an expensive and time-consuming way to cultivate business contacts. More flexible programs make it easier to access connections closer to home.
But the really significant boost to the game could come from younger and more casual players. While the latest traffic figures from Topgolf were even lower in the autumn compared to the previous year – not surprising given the less socially distant nature of its facilities – managers see promising trends. The inner range has a lower barrier at the entrance. According to the NGF, there were only 5.4 million golfers without a course in 2014, but almost 10 million in 2019. Just over half of Topgolf guests identify as golfers and 75% of these golfers said they were interested in playing on a field.
A study by Golf Datatech showed that novices led strong sales of golf equipment in 2020. Expenses played by serious golfers fell, even though total equipment sales increased. Among the items that sold very well were the so-called sets of boxes that include the entire set of clubs in one package, which tend to be cheap and favored by beginners, said Tom Stine, partner at Golf Datatech.
Callaway posted the highest net sales and earnings in the last quarter, with sales up 11.6%, despite a difficult year of comparison. In the third quarter of 2019, Callaway recorded a 62.3% increase in sales compared to a year earlier, helped by the acquisition of the European clothing company Jack Wolfskin. Acushnet saw a 26% increase in US sales in the third quarter compared to the previous year. Sales in Japan, Acushnet said in the market, are still the most affected by Covid-19 restrictions, they were 24% lower.
What could further improve the recent rise of the Gulf? The kind of enthusiasm that Tiger Woods created in the late 1990s could be rekindled by some of the young players now on stage, such as Dustin Johnson and Jon Rahm. Tiger himself shows the glow of his old glow.
Even without him returning, the gulf returned with a sore throat.
As golf courses are facing a nationwide estimate, the courses designed by Jack Nicklaus are largely thriving. Shelby Holliday, from WSJ, talks to the golf legend about adapting in her 50 years of activity.
Write to Jinjoo Lee at [email protected] and Spencer Jakab at [email protected]
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