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Golf was just emerging from its predicament when the pandemic hit. After a first shock last spring, the sport is about to have its best year since Tiger Woods was at the height of its popularity two decades ago. There is still a lot of green for investors to aim for.
Rounds played in the United States fell 8.5% in March and 42% in April from 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 rebound. Last month, rounds played were 37% higher and up for the entire year, even with the spring locks. While other aspects of their business, such as clubhouse restaurants, remain depressed, golf courses are in a much better financial position than they were a few years ago.
In 2016, a quarter of public golf courses surveyed by the NGF said they were in a “poor” or “very bad” financial situation – somewhat worse than in the aftermath of the 2008-09 financial crisis. Last year, only 8% of public courses reported similar conditions. The proportion reporting being in “good” or “great” shape had doubled.
Equity investors have little or no opportunity to directly profit from the reversal of course fortunes, but there are other parts of the golf industry that depend on financially healthy fairways.
The handful of stocks that provide investors with exposure to the sport generated strong returns after an initial pandemic shock. Equipment and clothing manufacturer Acushnet Holdings,
known for brands like Titleist and FootJoy, edged the S&P 500 by 14 percentage points last year. Golf Galaxy owner Dick’s Sporting Goods topped 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, rebounded, beating the market by 13 percentage points. Along the way, Callaway gained even more exposure to the sport by merging with range operator Topgolf.
Apparel and sports equipment giant Nike shocked many when it left the golf business in 2016 and competitor Adidas sold some brands the following year. Retailer Golfsmith declared bankruptcy in 2016. Between 2003 and 2017, the number of American players on the course fell to less than 24 million, from nearly 31 million. Part of it was a “negative hangover” in the wake of the financial crisis that led to less golfing business, says Randy Konik, analyst at Jefferies.
But equipment sales started to rebound soon after. In 2019, the number of new American players reached 2.5 million, surpassing the previous high of 2.4 million in 2000 when Tiger Woods racked up trophies and inspired young players. One of the reasons is that more and more baby boomers have started to play golf.
“People don’t think enough about how America is aging,” says Konik. “Golf is the perfect sport for this segment of the population.”
A more recent boost to the sport comes from young professionals who are now working remotely. Setting up 18 holes on a weekday was once an expensive and time consuming way to cultivate business contacts. More flexible hours make it easier to access links closer to you.
But the really significant boost to the game could lie in younger, more casual players. While Topgolf’s most recent traffic figures were still lower in the fall compared to the previous year – not surprisingly given the less socially remote nature of its facilities – executives see promising trends . Indoor ranges have a lower barrier to entry. There were only 5.4 million off-course golfers in 2014 but nearly 10 million in 2019, according to the NGF. Just over half of Topgolf guests identify as non-golfers and 75% of these non-golfers said they were interested in playing on a course.
A study by Golf Datatech showed that it was the novices who drove strong sales of golf equipment in 2020. Spending by serious golfers actually declined, although total equipment sales increased. Among the items that sold very well were so-called sets that include all of the clubs in one package, which tend to be inexpensive and preferred by beginners, noted Tom Stine, Golf Datatech partner. .
Callaway posted its highest sales and net profits in its history in its most recent quarter, with sales up 11.6% despite a difficult comparison year. In the third quarter of 2019, Callaway reported 62.3% year-over-year sales growth, aided by its acquisition of European clothing company Jack Wolfskin. Acushnet saw sales growth in the United States of 26% in the third quarter compared to the previous year. Sales in Japan, the market Acushnet said is still the most affected by Covid-19 restrictions, were 24% lower.
What could make golf’s recent upturn even better? The kind of excitement Tiger Woods created in the late 1990s could be rekindled by some of the young players currently on the scene, such as Dustin Johnson and Jon Rahm. Tiger himself shows flashes of his former glow.
Even without making a comeback, golf is back with a full-throated roar.
As golf courses face a toll across the country, Jack Nicklaus-designed courses are largely flourishing. Shelby Holliday of the WSJ talks to the golf legend about his adaptation during his 50 years with the business.
Write to Jinjoo Lee at [email protected] and Spencer Jakab at [email protected]
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