Golf Industry Looks to Hit More Green in ’15 (Jan 22)

January 22, 2015 – Is golf stuck in the rough, or is it just a bad lie? That’s the quandary executives in the $70 billion golf industry must address this week as they gather at the PGA Merchandise Show in Orlando, Fla. seeking to get the much-maligned game back into growth mode.

2014’s gloomy golf headlines focused on fewer people playing less often and more courses closing than opening. At face value it sounds dire, but there are clearly business opportunities in a cyclical sport that just two years prior was flying high with some industry players carding sales records.

But forget the “good walk spoiled” quote often attributed (though disputed) to Mark Twain, as beneath those doomsday headlines last year a look at the game’s scorecard tees up another acerbic quote from Twain: “The reports of golf’s death have been greatly exaggerated.”

Equipment makers such as TaylorMade-adidas Golf (the world’s largest) and their retail partners routinely blamed profit shortfalls in 2014 on a slowdown in golf gear sales. True, all of these companies, and especially the publicly traded ones, face the challenge of fighting for market share in a cyclical business with stalled growth. A closer examination of the sport, however, shows the game of golf itself is actually just a few strokes off par.

The mainstream media over the past year has run with the theme proclaiming golf is in the deep rough if not outright dead, but those scribes have largely ignored another outdoor sport that Dick’s Sporting Goods’ (DKS) cited, along with golf, for weak sales last year–hunting.

“Golf is a magnet for negative articles in the media,” notes Greg Nathan, vice president of the National Golf Foundation (NGF), adding, “Where are the dozens of dramatic gloom and doom article headlines about hunting?”

Industry executives say golf is a popular press whipping boy because it is perceived as an elitist sport due to the relatively high entry cost of buying or renting clubs and balls plus paying green fees to play. But golf industry executives also point out that guns and ammunition are not inexpensive, plus a license and other fees can be required to hunt.

Golf officials also point to the game’s economic effects with incalculable business deals and contacts made from tee to green. Furthermore, the golf industry employs two million Americans and chips in $4 billion in charitable impact, according to the World Golf Foundation.

Paying Public Price

Golf observers say it’s important to separate the publicly traded golf equipment industry, which must satisfy insatiable shareholder demands for growth, from the golf course development and management businesses, as well as the technology and travel segments.

And there’s the entertainment side of the golf industry–which is quietly booming with record broadcast rights deals and lucrative on-site sponsorships for the pro tours, the various governing bodies and their marquee tournaments.

Pure-play Callaway Golf (ELY) has not returned to pre-recession revenue levels although the company recently raised its 4Q profit outlook and forecasts an improving golf environment for 2015.

For its part, TaylorMade’s new CEO Ben Sharpe tells FOX Business the company will return to growth whether the sport is expanding or not. He’s confident the company’s new clubs will boost sales and return the golf giant back to “where it was before, not where it’s been in 2014.” The unit of adidas (ADDYY) posted a record year in 2012.

Retail Bogeyman

Industry insiders point to last year’s double bogey by sports retail giant Dick’s that crimped revenue and margins industry-wide. Dick’s, which is reportedly in talks to go private, last summer fired more than 400 PGA professionals at its namesake stores (the sporting goods retailer also owns the Golf Galaxy chain) and slashed prices on golf equipment as there wasn’t enough demand to meet the supply stuffed into the market; lower prices obviously mean less overall revenue.

TaylorMade’s Sharpe is mindful of that oversupply as the company has released new equipment and he prepares for his first spring on the job. Sharpe says the company will be “more deliberate” in its distribution to avoid an inventory glut, “which causes deflation and compromises the launch of the next generation.”

This deflation is training consumers to hold off on new purchases and weighing on equipment sales, says Tom Stine, co-founder of Golf Datatech. “Overall golf sales are down, but that doesn’t mean they’re down because golf is going out of business,” Stine says. “Golfers are not going away, they’re more cautious in spending money and trying to get a better deal.”

Golf equipment sales on and off the course
Source: Golf Datatech

The dollar amount consumers are spending on golf equipment and apparel has fallen but is about where it was before the housing and financial crisis and still above the dot-com years.

Golfers played fewer rounds during the recession and have kept their clubs longer–analogous to car owners taking fewer road trips and now keeping vehicles longer.

Players took that pent-up demand to the tee in 2012, which is described in the industry as an “epic” weather year, carding a whopping 489 million rounds that year–not too far off the record 518 million complete games in 2000 when a young Tiger Woods was dominating the PGA Tour and raising the game’s profile for a wider audience.

Rounds played slipped in 2013; golf officials point to wetter weather and the polar vortex while detractors say it’s waning interest. 2014 figures are not yet available but are tracking about 2% below the prior year through November.

The NGF’s Nathan says the PGA PerformanceTrack has been reporting that rounds per playable day have been up…pointing to good course utilization when the weather cooperates.

18-Hole Rounds Carded

2000: 518 Mln.*

2010: 475 Mln.

2011: 463 Mln.

2012: 489 Mln.

2013: 465 Mln.

*Record Year

Source: National Golf Foundation

Meanwhile, the number of golf courses continues to contract, which may actually be healthy, according to insiders such as the NGF’s Nathan. There is excess being wrung out of that market as little-used or over-leveraged courses close (the NGF says more than 4,000 new facilities opened between 1986-2005). There were 16,057 tracks at the peak in ’04.

And even after the financial crisis and real estate bust the total number of U.S. courses remains at 15,450, as more courses have closed than opened the past few years. Observers say the net number may shrink further while the market seeks equilibrium.

Tee Times Easier to Get

Fewer golfers are teeing it up than in the heady early 2000s: 25 million Americans did so in 2013. That’s down from 2003’s peak of 30.6 million but appears to be holding steady at a level above participation in the 1980s and ’90s.

Fading Interest or Holding Par?

1995: 24.7 Mln.

2003: 30.6 Mln.

2007: 29.5 Mln.

2012: 25.0 Mln.

2013: 25.0 Mln.

Source: Golf Datatech

Golf’s stewards have taken note and are implementing initiatives to drive growth. It seems to be working on the youth level and the coveted 18-34 millennials currently make up more than a quarter of current golfers. The big question is whether the game can keep these players from dropping out or transform them, and others who express interest in playing golf, into lifers?

Fewer golfers can be good news for those who are still swinging since tee times may be more plentiful–and oftentimes, less expensive.

“There’s a lot of benefits to not being as busy as before. There’s no longer the five-and-a-half-hour rounds, the players that come out are enjoying it more and course conditions are the best in many years. The product is better,” says Bob Cavanagh, manager at the Balboa Course, part of the expansive L.A. Municipal Golf System that includes 13 layouts ranging from Par 3s to 18-hole championship courses.

Now the golf-related companies gathering in Orlando need to find a way to spread the word as they pitch easier and faster ways to lower scores, with new technology and golf travel in exotic locations, to die-hards and golf newcomers alike.

The NGF’s Nathan says the game does need to better promote itself to get and keep more people playing: “Golf needs to be sold and to innovate. It’s no different than any other business.

Steve Mona, the CEO of the World Golf Foundation, is sharing this message with the golf business industry in Orlando: “The obituaries were prematurely written….The core of golf is solid even without growth {but} no one in the industry wants to see it stagnate.

“Our growth will be predicated on our ability to address our own structural issues, making the game more inviting and easier to play, and to adapt to the way society’s moving generally, by offering a 3-, 6-, or 9-hole experience (instead of only 18-hole rounds) and incorporating that into our game. We have to have alternative experiences that fit in with people’s lifestyles.”


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