The WSJ published a recent story asserting there are few ways to directly invest in sports, a notion we dispute. The article deemed just 7 publicly traded equities to be sports-related and based their conclusion, that fans are better off watching and playing sports than investing in them, on the performance of 2 exchange traded funds; one of which (FANZ) has beat the S&P since its July ’17 inception, which would seem to counter to their argument. The article cites Matt Hougan, the CEO of Inside ETFs, and his belief that most of the economic value within sports (ownership and player contracts) “comes in private transactions”, to support the author’s thesis; but fails to pay consideration to the revenue streams that support those contracts (and generate ownership profits). It’s worth noting that JohnWallStreet follows over 100 sports-related equities.
Howie Long-Short: Sports teams generate revenue from 4 sources; broadcast rights, ticket sales, sponsorships and merchandising. Several publicly traded equities use a similar business model; Churchill Downs (CHDN), International Speedway (ISCA), Dover Motorsports (DVD) and Speedway Motorsports (TRK), and thus should also be included on the list. Others, like Acushnet Holdings Corp. (GOLF) and Callaway Golf Company (ELY), are undeniably directly tied to sports; and no one would claim your basket was unfocused if companies like Nike (NKE), Lululemon (LULU) and Fitbit (FIT) were to be included. Oh, and don’t forget Activision Blizzard’s (ATVI) new esports league (Overwatch); their inaugural season starts today.
Fan Marino: The story names the New York Knicks, New York Rangers (MSG), Atlanta Braves (BATRK), Manchester United (MANU) and Borussia Dortmund (BORUF) as the teams you can purchase equity in. The Toronto Blue Jays, Toronto Maple Leafs (RCI), Juventus F.C. (JVTSF), A.S. Roma (ASRAF) and SS Lazio (BIT: SSL) are also all publicly traded.
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Topgolf Entertainment Group acquired the technology used to track the flight of a golf ball, display its path in video and analyze every shot in 2016 (then known as Protracer, since renamed Toptracer); but only recently has company begun licensing the technology to traditional golf ranges. Toptracer, which also powers select Topgolf centers and the television broadcasts of several major tournaments (see: U.S. Open and Ryder Cup), enables golfers to play virtual versions of the world’s premier golf courses from the convenience of their neighborhood range. The technology also gives golfers the chance to track stats on every shot and compete against one another in a variety of challenges/games. Nearly 30 ranges have licensed Toptracer technology to date, but Topgolf VP of Corporate Development Ani Mehta says the goal is for that number to be in the “hundreds or thousands”.
Howie Long-Short: The company recently hired Troy Warfield (formerly of British Airways, Avis), to expand its global footprint of Topgolf venues and ranges that license Toptracer technology. Topgolf is privately held, but Callaway Golf (ELY) owns 15% of the company. Dallas businessman Thomas Dundon invested in the company in 2011. You may recognize the name; he recently signed a purchase agreement to acquire the Carolina Hurricanes.
Fan Marino: Jordan Spieth, who finished ’17 number 2 in the world (Dustin Johnson finished 1st), was caught on video celebrating (as if he won the Masters, again) a hole-in-one on a Full Swing golf simulator (watch the video, here). Full Swing, which has been around since 1986, closed on a private equity round in May ‘17; Topgolf participated as an investor. Fun fact: Tiger Woods, Jason Day and Padraig Harrington also have Full Swing simulators in their homes.
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Depressed golf sales are beginning to have a direct financial impact on the PGA Tour’s biggest stars; as manufacturer volume dwindles, endorsement deals are decreasing in breath and value. With NKE and ADDYY out of the golf equipment space, it was expected that niche brands like Callaway (ELY), Titleist (GOLF) and Ping would sign “free-agent” players to all-encompassing endorsement contracts (hats/clothing/shoes/clubs/bags). That hasn’t been the case. The smaller players that remain have opted instead to sign players to less lucrative equipment-only contracts and in some cases, terminate relationships all-together. Sergio Garcia and TaylorMade announced they have mutually parted ways, effective immediately, ending Garcia’s 15-year endorsement of the company’s equipment. Rumors are circulating that he will sign a new, likely smaller deal with Callaway Golf (ELY).
Howie Long-Short: Tiger Woods couldn’t make golf equipment profitable for Nike, so from the manufacturer perspective, I have strong reservations as to the ROI on golf equipment endorsement deals. On the athlete side, the manufacturers that remain simply don’t have the same size marketing budgets. Instead of seeing massive all-encompassing deals, expect players to take an ala carte, sum of the parts approach to sponsorship dollars.
Fan Marino: Traditionally manufacturers have wanted tour players to maintain uniformity with their equipment and to wear the company logo on their hat; so that casual fans could identify the clubs a player is using. In what has become a fragmented marketplace, there are several companies still capable of offering all-encompassing endorsement deals; Acushnet (GOLF) with Cobra/Puma (i.e. Rickie Fowler) and Titleist/Footjoy and ELY are among them.
New Sergio Garcia equipment deal could be a sign of a new economy in golf
Drive Shack Inc. (DS) delivered Q2 earnings and reported just $7 million in profit for the quarter (down from $14 million in Q2 ’16). The company however is in the process of opening 3 interactive driving ranges (think Topgolf) within the next 18 months. The first two locations scheduled to open are Orlando, FL (Q1 ’18 open) and Richmond, VA (Q3 ’18 open). Raleigh, NC (H2 ’18) will follow.
Drive Shack Inc. Announces Second Quarter 2017 Results and Declares Third Quarter 2017 Preferred Stock Dividends
Howie Long-Short: Not interested in ELY? DS is another way to invest in the interactive driving range space. It is certainly worth noting that each Topgolf location earns +/-$20 million/year in revenue, roughly 50% coming from food/bar.
Fan Marino: Topgolf has 35+ locations in the U.S. but none in NY (there is one in Edison, NJ). Makes sense though, while the driving bays are heated, the range is open. December-March wouldn’t seem like an ideal time to spend a Saturday night outdoors.
Callaway Golf Company (ELY) has agreed on terms to acquire TravisMathew, LLC, a high-growth golf and lifestyle apparel company, for $125.5 million. The price of sale values the brand at +/-11.8x projected 2017 EBITDA. The company has projected net sales to be in the range of $55-60 million for 2017, $10-15 million of which will count towards Callaway’s H2 financials. TravisMathew currently has distribution at high-end country clubs, resorts, department stores and experiential retail locations.
Callaway Golf Company To Acquire TravisMathew For $125.5 Million
Fan Marino: TravisMathew is a more modern/casual take on Lacoste/Polo. I’m a fan of the brand and Callaway continuing to target a younger demo.
You’ve heard the doom and gloom. Phil Knight said, not even Tiger in his prime, could make Nike golf equipment profitable. Golf sales are down 20% for the year and earlier this month, the Women’s U.S. Open drew its lowest television audience ever. Topgolf, a high-tech driving range/lounge, may be changing the narrative. The millennial hotspot, which eliminates many of the obstacles young people associate with golf (time commitment, equipment costs, membership fees etc.), saw 10 million visitors in 2016 and has plans to grow from 30 to 40 U.S. locations this year. While the company is private, you can play the market via Callaway Golf (ELY), which purchased a 20% stake in the company in 2006.
Golf for millennials: Fast, arcade-style and boozy
Howie Long-Short opines: The technology is pretty cool, and I’ve heard the food is good. I found it a bit too gimmicky to want to come more than once though. Callaway (ELY) has done well with their minority investment.
Fan Marino says: Shocking to think millennials are into something that requires minimal time commitment, includes components of video game play and can be done while consuming alcohol beverages. Wild concept.
ClubCorp Holdings (MYCC), the owner/operator of over 200 private golf & country clubs, has been acquired for $1.1 Billion by Apollo Global Management, a P.E. firm. Apollo has agreed to pay $17.12 per share in cash, nearly a 31% premium over the July 7th closing price. The deal, expected to close in Q4 ’17, comes just 3 months after Longtime CEO Eric Affeldt announced his retirement and the firm stated it would not be seeking a sale, despite mounting debt and lagging memberships.
Dallas-based ClubCorp agrees to be bought by private equity giant for $1.1 billion
Howie Long-Short opines: Golf course roll-up strategy, really? Never bought this one. Less than fantastic return for any long-term MYCC shareholders participating in the $14 IPO in 2013. Fortunately for them, Apollo continues the trend of buying out companies flagged for questionable accounting or business models. Good luck.
Adam Dow-Jones comments: Oh boy what a saga this was, between activists on both long and short side. Hardly a great return for IPO shareholders but a nice opportunity for those able to value these hard assets, geared to experiential consumption.
Fan Marino says: If you believe Golf is on the upswing, Acushnet Holdings Corp (GOLF), the owner of Titleist, and Callaway Golf (ELY), both remain public.