Golf was just trying to get out of the hilly when the pandemic started. After an initial shock last spring, the sport is about to have its best year, as Tiger Woods was at the height of its popularity two decades ago. There is still a lot of green for investors to look for.
The rounds played in the United States fell 8.5% in March and an impressive 42% in April compared to the previous year, according to the National Golf Foundation, as many courses have been closed. But the socially distanced nature of the sport has led to a furious recovery. Last month, the rounds played were 37% higher and a generous increase throughout the year, even with the spring blocks. While other areas of its business, such as club restaurants, remain depressed, golf courses are in a much better financial position 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 aftermath of the 2008-09 financial crisis. Last year, only 8% of public courses reported similar conditions. The proportion of reports that were in “good” or “great” shape doubled.
Stock market investors have few opportunities, if any, to directly benefit from the reversal of course fortunes, but there are other parts of the golf business that depend on financially healthy fairways.
The handful of stocks that give investors exposure to the sport generated solid returns after an initial pandemic shock. Equipment and clothing manufacturer Acushnet Holdings,
known for brands like Titleist and FootJoy, it surpassed the S&P 500 by 14 percentage points last year. Golf Galaxy owner Dick’s Sporting Goods outperformed the market by 32 percentage points. Callaway Golf equipment seller,
which lost three quarters of its value in the first few weeks of the Covid-19 bear market, recovered, beating the market by 13 percentage points. Along the way, Callaway gained even more exposure to 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 few brands the following year. The retailer Golfsmith declared bankruptcy in 2016. Between 2003 and 2017, the number of players on the pitch in the U.S. dropped to less than 24 million, from almost 31 million. Part of that was a “negative hangover” after the financial crisis that resulted in less commercial golf, says Randy Konik, an analyst at Jefferies.
But equipment sales started to recover soon afterwards. In 2019, the number of new players in the United States reached 2.5 million, surpassing the previous record of 2.4 million in 2000, when Tiger Woods was accumulating trophies and inspiring young players. One reason is that more baby boomers have started playing golf.
“People are not thinking enough about how much the United States is aging,” says Mr. Konik. “Golf is the perfect sport for this part of the population.”
A more recent boost to the sport comes from younger professionals who now work remotely. Adjusting 18 holes on a weekday was once an expensive and time-consuming way to cultivate business contacts. More flexible schedules make it easier to access links closer to home.
But the really significant boost to the game may be in the younger, more casual players. While Topgolf’s most recent traffic numbers were still lower in the fall compared to the previous year’s period – which is not surprising, given the less socially distant nature of its facilities – executives see promising trends. The inner strips have a lower barrier to the entrance. There were only 5.4 million golfers off the course in 2014, but almost 10 million in 2019, according to the NGF. Just over half of Topgolf’s guests identified themselves as non-golfers and 75% of those non-golfers said they were interested in playing on a course.
A study conducted by Golf Datatech showed that it was the beginners who boosted golf equipment sales in 2020. Spending for experienced golfers has actually decreased, although total equipment sales have increased. Among the items that sold very well were the so-called box sets, which include the entire set of clubs in a package, which are usually cheap and preferred by beginners, noted Tom Stine, partner at Golf Datatech.
Callaway recorded the highest net sales and earnings ever in its reported last quarter, with sales growing 11.6%, despite a difficult year of comparison. In the third quarter of 2019, Callaway saw sales growth of 62.3% over the previous year, helped by the acquisition of European clothing company Jack Wolfskin. Acushnet saw a 26% growth in US sales in the third quarter compared to the previous year. Sales in Japan, a market that Acushnet said was still the most impacted by Covid-19 restrictions, were 24% lower.
What could make the recent rise of golf even better? The kind of excitement that Tiger Woods created in the late 1990s could be revived by some of the young players now on the scene, like Dustin Johnson and Jon Rahm. Tiger himself is showing flashes of his former brilliance.
Even without him making a comeback, golf is back with a thunderous roar.
While golf courses face a reckoning across the country, Jack Nicklaus-designed courses are thriving largely. WSJ’s Shelby Holliday talks to the golf legend about adapting during her 50 years in the business.
Write to Jinjoo Lee at [email protected] and Spencer Jakab at [email protected]
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