Golf was just working its way out of the wilderness when the pandemic hit. After an initial shock last spring, the sport is poised for its best year since Tiger Woods was at the height of its popularity twenty years ago. There is still plenty of green space for investors to aim for.
US rounds were down 8.5% in March and a whopping 42% in April compared to a year earlier, according to the National Golf Foundation, as many courses were closed. But the sport’s socially detached nature sparked a furious recovery. Last month, rounds played were up 37% and up significantly throughout the year, even with the spring lockdowns. While other parts of their business, such as clubhouse dining, are still depressed, golf courses are in a much better financial condition than they were a few years ago.
In 2016, a quarter of the public golf courses surveyed by the NGF said they were in “bad” or “very bad” financial condition – slightly worse than in the wake of the 2008-2009 financial crisis. Last year, only 8% of public courses reported similar conditions. The proportion reporting they were in “good” or “good” shape had doubled.
Stock market investors have little or no opportunity to take advantage of the golf course fortune reversal directly, but there are other parts of the golf industry that depend on financially sound fairways.
The handful of stocks that give investors exposure to the sport have delivered strong returns after an initial pandemic shock. Manufacturer of equipment and clothing Acushnet Holdings,
Known for brands like Titleist and FootJoy, the S&P 500 surpassed the last year by 14 percentage points. Golf Galaxy owner Dick’s Sporting Goods beat the market by 32 percentage points. Seller of equipment Callaway Golf,
which lost three-quarters of its value in the early weeks of the Covid-19 bear market, rebounded, beating the market by 13 percentage points. Gradually, Callaway became even more familiar with the sport by merging with Driving Range operator Topgolf.
Sportswear and equipment giant Nike shocked many by leaving the golf business in 2016 and competitor Adidas sold a number of brands the following year. Retailer Golfsmith went bankrupt in 2016. Between 2003 and 2017, the number of US players on the court dropped from nearly 31 million to less than 24 million. Part of that was a “negative hangover” after the financial crisis that led to less corporate wave, said Randy Konik, an analyst at Jefferies.
But equipment sales began to recover shortly afterwards. In 2019, the number of US players reached 2.5 million for the first time, exceeding the previous record of 2.4 million in 2000, when Tiger Woods collected trophies and inspired young players. One reason is that more baby boomers are playing golf.
“People don’t think enough about how much of America is getting older,” says Mr. Konik. “Golf is the perfect sport for that segment of the population.”
A more recent boost to the sport comes from younger professionals now working remotely. Installing 18 holes on a weekday was once an expensive and time consuming way to build business connections. More flexible schedules make it easier to reach the links closer to home.
But the really important boost to the game may lie with younger, more casual players. While Topgolf’s most recent fall traffic figures were still lower than the same period last year – unsurprisingly given the less social distance from the facilities – executives see promising trends. Indoor series represent a lower barrier to entry. According to the NGF, there were only 5.4 million golfers off the course in 2014, but nearly 10 million in 2019. Just over half of Topgolf’s guests identify as non-golfers and 75% of those non-golfers said they were interested in playing a course.
A survey conducted by Golf Datatech found that it was the newbies who drove strong golf equipment sales in 2020. In fact, serious golfers’ expenditures fell, although overall equipment sales were up sharply. Among items that sold very well were so-called box sets containing the entire set of clubs in one package, which are usually inexpensive and a beginner’s favorite, noted Tom Stine, partner at Golf Datatech.
Callaway recorded the highest net sales and profit ever in the most recent reported quarter, with sales up 11.6% despite a difficult year of comparison. In the third quarter of 2019, Callaway saw sales growth of 62.3% from a year earlier, aided by the acquisition of European clothing company Jack Wolfskin. Acushnet saw sales growth of 26% in the US in the third quarter compared to a year earlier. Sales in Japan, the market that Acushnet said is still most affected by the Covid-19 restrictions, were down 24%.
What can make the recent resurgence of golf even better? The kind of excitement that Tiger Woods caused in the late 1990s could be rekindled by some of the young players on the scene now, like Dustin Johnson and Jon Rahm. Tiger himself shows flashes of his old brilliance.
Even without him making a comeback, golf is back with a roar.
Since golf courses are all over the country, the courses designed by Jack Nicklaus are largely doing well. WSJ’s Shelby Holliday talks to the golfing legend about adapting during his 50 years in the business.
Write to Jinjoo Lee at [email protected] and Spencer Jakab at [email protected]
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