Golf Companies Not As Popular As Players
Sunday June 19, 9:25 am ET
By Meg Richards, AP Business Writer
U.S. Open Puts Spotlight on Golf's Best Players, but Success More Elusive for Golf Companies
NEW YORK (AP) -- The U.S. Open is a hot topic in sports circles this week, but golf stocks are a bit less popular on Wall Street. Though stars like Phil Mickelson, Tiger Woods and Vijay Singh have earned millions from the game, publicly traded golf companies and their shareholders have had a much tougher time making a profit.
Like many industries, the business of golf has gone through a cycle over the last several years, surging through the 1990s and declining after the bubble burst. Many companies that were rushed to market over the last decade have been delisted from the major indexes, and with the number of core golfers flat and rounds played down, the survivors have faced hard times, as well.
"There's a lot of money going around and being spent in golf, but the investors in these companies are really not benefiting from that," said Brent M. Wilsey, president of Wilsey Asset Management in San Diego. "I'm always looking for companies with good revenues, low expenses, low debt, and that are increasing shareholder value by doing things like buying back shares ... and you won't see any golf stocks in our portfolios."
Eye-popping greens fees might make you think that real estate investment trusts would be a good way to make money in golf, but maintaining those beautifully manicured courses leads to substantial overhead costs. Golf Trust of America Inc., which once operated 47 courses, has been in liquidation mode since 2001. Its stock, which strode past $35 in 1998, now trades around $1.60 on the American Stock Exchange.
The options in equipment makers are more varied, but not necessarily more appealing. Adams Golf Inc. went public to great fanfare in 1998, and saw its stock price surge to nearly $20 before nearly going out of business; its shares now trade over the counter for about $1.20.
TaylorMade-adidas Golf, a producer of metal drivers and irons, putters and balls, is a subsidiary of Adidas-Salomon AG, which trades in Germany, and therefore might be hard for U.S. investors to buy. Nike Inc. is also making some inroads, but golf is not a huge part of its business.
The biggest player in golf equipment is Acushnet Co., a top maker of balls, clubs, gloves and shoes through the Titleist, Pinnacle, Cobra and FootJoy brands. Acushnet is but one division of the holding company Fortune Brands Inc., which produces everything from Jim Beam bourbon to Moen faucets and Master Lock padlocks.
One company focused exclusively on the fairway is top club-maker Callaway Golf Co., well known for its Big Bertha driver -- named for a German WWI cannon. It makes premium clubs and high-end golf balls and licenses its name for accessories and clothes. After going public in 1992, Callaway's share price soared to almost $40 in 1997, as golf enjoyed renewed popularity following Wood's stunning victory at the Masters in his first year as a professional player. Now, however, Callaway's share prices hovers around $13.40.
Callaway's arrival to the market energized the previously sleepy industry, but many golf insiders attribute the fast pace of growth during the late '90s to another factor: the "Tiger effect." Observers debate its power, but most agree the game's darling had a significant impact on golf's popularity.
Woods, now 30, shot to phenomenal stardom after winning the 1996 U.S. Amateur title, and tapped into a huge new base of fans: The following year, a million people picked up clubs for the first time. The number of golfers has remained flat since then, but golf audiences have continued to grow. But while this has filled the PGA Tour's coffers, it hasn't necessarily helped companies like Callaway or Adams, or local golf courses, said Mark Murphy, editor of Golf World Business, a Golf Digest publication, in Wilton, Conn.
"If there's one factor that you could say will determine the performance, as well as the psychology, of this industry, it's play," Murphy said. "If rounds are down, then people at golf courses are depressed. And the truth is, rounds have been down for five of the last six years, and they're down so far this year, as well."
Much as the success of retailers is calculated each month by what are called same-store sales, rounds played measures the profitability of golf courses. According to the National Golf Foundation, which collects data from nearly 1,300 U.S. courses, rounds played declined by 3.2 percent through April, compared to the same period last year.
Suffice it to say, the industry has not lived up to the vision that many had for it back in the late '90s. It's increasingly competitive, and far from growing, appears fairly mature, said John V. Moran, a research analyst at Ryan Beck & Co. who follows Callaway, among other leisure stocks. That adds up to a muted outlook for the short term, he said, but the longer-term forecast may be better.
"There's two big constraints on the growth of golf, one is disposable income, the second is free time," Moran said, "But we have 75 million baby boomers heading into retirement and semi-retirement in the next few decades, and leisure time and money are two things this cohort of folks are not going to lack. So maybe you get some incremental rise in play. I think that's a real possibility."
Moran rates Callaway as "outperform," essentially the equivalent of a buy. A management shakeup made for a difficult 2004, he said, but that may be more of an aberration than the norm. And a significant product launch this year, including new balls, putters and two new drivers may give the stock some momentum.
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