Callaway & Top Golf - short marriage

[GullLakeMi]

From March 2021:  The combined enterprise creates an unrivaled tech-enabled golf company...

Callaway Golf Company Completes Merger with Topgolf, Creating an Unrivaled Global Leader in the Game of Golf

 

From September 2024:  "Today's announcement is the result of a thorough strategic review conducted by the Board of Directors and the management team," said John Lundgren, chairman of the board of directors of Topgolf Callaway Brands. "The creation of two independent companies, each with a distinct focus and proven business model, is intended to drive continued momentum in both businesses and deliver value to all our shareholders."

 

That didn't take long.

[RoyalMustang]

I'm surprised there hasn't been more talk of this split around the growth of the game vs entertainment that could just as well be, say, bowling or go-karting at Andretti.  

 

The assumption was that TopGolf would bring more people into the game, enhancing Callaway's business. But I wonder if marketing surveys show this is actully happening. Golf is very different from TG and who knows if it's actually a driver for the sport. Maybe Callaway does and that's why they are splitting. It could be that they are 2 unrelated businesses at this point. 

 

I've always thought that TG turning people into golfers was a bit far fetched. How many people do a birthday party at one of the fun "adult' bowling centers and then join a bowling league? Also, the crossover for golfers going to a TG vs. a normal range may be overstated. The balls are differnet, don't carry as well, and the mats can honestly suck. Plus it's expensive and low return on your time invested to rent a bay vs head to the range for a $12 large bucket and then spend an hour working on your short game. 

[bcjim]

My wild guess? TG a drag or forecast to become a drag on the business. So split to protect Callaway.

[Rbsiedsc]

or Callaway did it just to get the data for their Ai system and then said, thanks, buh-bye

[Warrior42111]

Makes sense for the split in my mind. I get what Callaway was trying to do but 2 completely different business types here.

 

Callaway - A product to consumer base, revenue generated through goods and repeat customers.

 

Top Golf - an entertainment business where food and Bev are probably the revenue generators, and repeat customers are further down the list.

 

Also, I read somewhere that TG was making profits on new locations but losing on older ones. Long term that's not a recipe for success after you build everywhere you can and the honeymoon phase ends. 

[J3H]

Didn't they just release a TG exclusive driver together?

[RoyalMustang]

4 minutes ago, Warrior42111 said:

Makes sense for the split in my mind. I get what Callaway was trying to do but 2 completely different business types here.

 

Callaway - A product to consumer base, revenue generated through goods and repeat customers.

 

Top Golf - an entertainment business where food and Bev are probably the revenue generators, and repeat customers are further down the list.

 

Also, I read somewhere that TG was making profits on new locations but losing on older ones. Long term that's not a recipe for success after you build everywhere you can and the honeymoon phase ends. 

 

yeah-that strategy might get by a junior analyst on the call "hey everyone, top line revenue is up" but anyone with half a brain will say give me year over year sales for established location trends, and also revenue per location. Can't look at these sites in aggregate as each market and neighborhood is different. 

[golfortennis]

1 hour ago, RoyalMustang said:

I'm surprised there hasn't been more talk of this split around the growth of the game vs entertainment that could just as well be, say, bowling or go-karting at Andretti.  

 

The assumption was that TopGolf would bring more people into the game, enhancing Callaway's business. But I wonder if marketing surveys show this is actully happening. Golf is very different from TG and who knows if it's actually a driver for the sport. Maybe Callaway does and that's why they are splitting. It could be that they are 2 unrelated businesses at this point. 

 

I've always thought that TG turning people into golfers was a bit far fetched. How many people do a birthday party at one of the fun "adult' bowling centers and then join a bowling league? Also, the crossover for golfers going to a TG vs. a normal range may be overstated. The balls are differnet, don't carry as well, and the mats can honestly suck. Plus it's expensive and low return on your time invested to rent a bay vs head to the range for a $12 large bucket and then spend an hour working on your short game. 

 

This.  I am always amazed at how much people will justify something in the name of "growing the game."  There's a thread elsewhere about one of those "influencers" and people are saying "they're growing the game." No, they're growing their own pocketbook.

 

TopGolf is a fine product in its own lane, but thinking that gets people on golf courses is really stretching, in an attempt to either justify an investment, or to try to align one's self with what is "cool."

 

[bcflyguy1]

TopGolf is great in that you can take avid players and rank beginners there together and everybody will still enjoy themselves. Take that same group to play real golf and it's a bloody nightmare for all involved.

You can blame much of TG's woes on the economic context; a bit too expensive for the amount of disposable income that many people now find themselves with, if any. However, ID'ing that as a contributing factor isn't enough to stop the rot.

Edited September 5, 2024 by bcflyguy1

[AThompson_3]

Surprised that it hasn't been discussed more, but the issue with TopGolf I believe was oversaturation of the market. Now every major city has one and a lot simply don't have the population to support it. Couple that with TopTracer ranges at basically every stand alone range facility, indoor simulator facilities, etc. there all kinds of ways for people to get a similar "golf alternative" than just going to TopGolf. When I can go to an indoor simulator facility or a TopTracer range (most of them have a bar and food as well) for probably half the cost why would I choose TopGolf?

[J3H]

Something interesting from reading the MGS article about this is that "The new Callaway will include the Golf Equipment and Active Lifestyle units, along with Toptracer, which was part of Topgolf at the time of the merger." So will Top Golf have to lease out the use of their(former) core software?  I'm not sure how much, if any, money TopTracer makes but it's a fairly large part of golf; so it seems rather odd that Callaway will be keeping it.  Although it does make more sense that a Golf equipment company would own it as opposed to what's now an entertainment company.

 

 

Probably should finish reading the article before I post but TopTracer's revenues were 46 million, in what I would assume is last year.

Edited September 5, 2024 by J3H
Addendums

[me05501]

2 hours ago, bcjim said:

My wild guess? TG a drag or forecast to become a drag on the business. So split to protect Callaway.

 

It's become a massive drag. They'd very much like to find a buyer for it and this might make that easier or more palatable to Callaway's board. 

 

There was never really any attempt to integrate the brands. I was surprised when I went to Top Golf after the merger because I expected to find familiar Callaway clubs in the racks instead of the cheap garbage they actually supply.

 

I always feel like a dork carrying my bag in there but the alternative is much worse. 

 

[ColbyLang]

They built a smaller TG here in my home town. The day it opened it was for sale. A smooth 31.4 million. It was slammed for months until folks realized what it cost, the service sucked and food was just OK. Bowling is a much cheaper time suck

[PedronNiall]

8 hours ago, AThompson_3 said:

Surprised that it hasn't been discussed more, but the issue with TopGolf I believe was oversaturation of the market. Now every major city has one and a lot simply don't have the population to support it. Couple that with TopTracer ranges at basically every stand alone range facility, indoor simulator facilities, etc. there all kinds of ways for people to get a similar "golf alternative" than just going to TopGolf. When I can go to an indoor simulator facility or a TopTracer range (most of them have a bar and food as well) for probably half the cost why would I choose TopGolf?

 

Indeed. Pretty hard to justify the cost when in many places you can get a full day of range time if a flat rate is offered, and far more balls/dollar when it isn't, along with better TopTracer pricing without all the black light mini golf feel of TopGolf. Also not unusual to find all of that plus grass ranges most months of the year with other setups.

 

Their rates are also pretty outrageous compared to any of the family fun centers that already exist in most decent sized cities that tend to offer ranges, mini golf, go-karts, and other fare in a single location, and sometimes for a flat price for unlimited use of everything. TG is about $30/half hour during off hours IIRC and only gets worse from there. Membership is just a flat fee that gets you a discount each time you go.

 

Pretty sure TG spread too far and too quickly, to the tune of having multiple locations in the same city in some cases. I'd guess that's why Tiger's golf & food venue is only in bigger destinations and the one DeChambeau is partnered with also includes a lot more in the way of swing analysis tools along with fitness centers so that it can drive itself around people who will maintain memberships at a few grand a year for guaranteed revenue.

 

Does make me wonder how a company as big as Callaway couldn't see a path to making it a long-running, profitable exterior arm of their business, though. They don't even have to pay for advertising with all the YouTube crews giving them free highlight reels every week. Even a lot of non-golf influencers visit them.

[Louis_Posture]

A few years ago Callaway over paid to acquire TopGolf, causing the company to take on too much financial debt.

The plan has been to use real estate investment trust partners (REIT)to buy land and construct the Top Golf facilities. For example, a new location costs $20 million of which the partner contributes $15 million and Callaway $5 million. Once the facility is ready for business TopGolf signs a long term lease. 

The TopGolf stores have strong first year business because everybody in the area visits to check it out, but after visiting once customers do not return because they've already had the experience and don't feel the need to do it again. For example, in the most recent Quarterly results TopGolf store year-over-year same store sales declined about 7%.

At this point Callaway-TopGolf $4 billion annual revenues are approximately 50% Callaway and 50% TopGolf. The Callaway equipment business (Callaway clubs-balls, soft goods brands Travis Matthew-Jack Wolfskin-Ogio) is doing fine and is profitable, but the TopGolf business is losing money.