Fila Sales Rebound with Rerelease of Disrupter II

Fila

Fila, Inc. has returned to prominence with the updated rerelease of the Disruptor II, a bulky sneaker that first debuted in 1996. With the rerelease, Fila has successfully capitalized on two current fashion trends, retro apparel and the stereotypical “dad shoe”; particularly popular amongst women. The Disruptor II’s affordable price point ($65-$70) and widespread availability (think: Urban Outfitters, Journeys) has also contributed to its success. Foot Locker CEO Dick Johnson labeled the Disruptor II one of his chain’s most popular styles.

Howie Long-Short: Fila U.S. (KRX: 081660) sales rose +21% during Q2 ‘18, with the Disruptor II heavily contributing to the record earnings period. The company’s “conversion from wholesale to retail” and a revised sales strategy (see: targeting younger demo) has also been effective. Fila grew sales +10.9% (to $687 million) and operating profit rose +24.1% (to $90.6 million) during the most recent quarter.

Fila, Inc. owns 53% of Acushnet (GOLF), the maker of Titleist golf equipment. For those who missed Monday’s piece on rising golf equipment salesGOLF grew Q2 sales +11.7% YoY (on a consolidated basis); Titleist clubs (718 Irons, Vokey SM7 Wedges) and Titleist golf ball sales were credited for driving the top line growth. GOLF shares are up +60% over the last 12 months; they’ll open at $27.51 on Wednesday.

Interestingly, Anta Sports (ANPDY) owns the rights to use the Fila brand in China (Fila controls 15% of the JV). Anta, China’s largest sportswear maker, reported H1 revenue increased +44% (to $1.5 billion); strong sales of the Fila brand contributed to the growth.

Fan Marino: For those old enough to remember the 90s, Fila was a major player in the footwear and apparel space; in 1997, the company generated $687 in U.S. sales. Grant Hill even signed an $80 million endorsement deal to serve as the brand. Remember these?

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Golf Viewership Directly Correlated to Woods’ Performance, Equipment Sales +8% YoY

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One can debate Tiger’s impact on equipment sales, but his impact on television viewership is undeniable. Tiger was in contention at 3 of the 4 majors this summer and final round viewership rose significantly for each; +14% YoY for The Masters (finished 32nd), +37% YoY for the British Open (finished 6th) and +69% YoY for the PGA Championship (finished 2nd) – when 8.5 million tuned in. The final round of the one major that Woods failed to make the cut for, June’s U.S. Open, posted the 3rd lowest television audience in tournament history.

Howie Long-Short: NPD Group reported that golf equipment sales rose +8% YoY (to $2.5 billion) for the 12-month period ending on June 30th. It was a welcomed return to black for an industry that saw notable manufacturers (think: Nike, Adidas) and retailers (see: Sports Authority, Golfsmith) exit the business over the last several years. Sales shouldn’t slow down anytime soon; 10,000 baby boomers retire each day and junior sales rose +31% YoY.

Callaway Golf (ELY) and Acushnet (GOLF) have both benefited from rising equipment sales. ELY’s Rogue line of woods/irons and new Chrome Soft balls drove a +30% YoY sales increase during the most recent quarter and company shares are up +72% over the trailing 12 months. ELY hit a 17-year high earlier this month ($23.60), closing on Friday at $22.52. As for GOLF, the company grew Q2 sales 11.7% YoY (on a consolidated basis) on the back of increased Titleist clubs (718 Irons, Vokey SM7 Wedges) and Titleist golf ball sales. GOLF shares are up +60% over the last 12 months; they’ll open at $27.00 on Monday 8.20.

It’s worth mentioning that while women’s equipment sales rose +7% YoY, TaylorMade has made no effort to land those golfers; at least not via sponsorship on the LPGA Tour. Golfweek reported that back in June the company told the LPGA Tour’s top golfer Inbee Park that only players who use their drivers are eligible for free products (she had asked for a few replacement clubs); an unusual response as it’s considered “professional courtesy” for the top players within the game. The company also hasn’t sent a rep out to a LPGA event yet this season and the tour’s equipment trailer no longer “carries a TaylorMade sign.”

Fan Marino: NBCUniversal Group has signed a 3-year pact to carry the PGA Tour’s live-streaming subscription service. Beginning in ’19, NBC Sports Gold subscribers will receive more than 360 hours of exclusive programming including Thursday and Friday morning coverage from all 28 tour events. Pricing has yet to be set, but expect it to be in-line with its other offerings ($49.99-$69.99).

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All 3 Winners of 2018 Men’s Majors Had Mixed Golf Bags as Equipment Sponsor Free Agents

Molinari

For the 3rd time in 2018, a USGA golfer won a men’s major without an equipment sponsorship. Francesco Molinari (British Open) joined Brooks Koepka (U.S. Open) and Patrick Reed (Masters) as tour members with Nike apparel/footwear deals, but without an exclusive equipment provider; enabling each to play the 14 clubs (and balls) best suited to their game. Francesco Molinari and Brooks Koepka have been playing as equipment free agents since Nike’s ’16 exit from the golf equipment space, while Patrick Reed left Callaway following the ’17 season after attributing his tour struggles to the equipment. Molinari won last weekend’s British Open playing with TaylorMade clubs and a Bettinardi putter (he does have a deal with them), Brooks Koepka won June’s U.S. Open with a mixed bag that included TaylorMade, Nike, Mizuno and Titleist clubs (including a Scotty Cameron putter), while Patrick Reed played Augusta with Ping, Nike, Titleist, Callaway sticks and an Odyssey (Callaway subsidiary) putter. All 3 players won their respective majors using Titleist Pro V1x balls.

Howie Long-Short: Several of the club manufacturers associated with this year’s major winners are publicly traded; including Nike (NKE), Mizuno (TYO: 8022), Titleist (GOLF) and Callaway (ELY).

Golf stocks are far outperforming the S&P YTD; Callaway Golf (ELY) is +37% YTD ($19.06), Acushnet (GOLF) is +13% YTD ($23.83) and the S&P is +5.5% YTD ($2,820.40). While it would be easy to attribute the sales growth to Tiger Woods’ return, both companies have been headed in the right direction for some time; ELY is +104% over the trailing 3 years, while GOLF is +32.75% since its ’16 IPO. The U.S. Golf Economy Report indicated that the industry’s strongest sales growth was coming from the equipment category, a far more logical reason for ELY & GOLF’s outperformance. Both ELY and GOLF are expected to report Q2 ’18 earnings next week (August 2nd).

For those wondering, Bettinardi and Ping have never been publicly traded. TaylorMade was acquired by KPS Capital Partners (P.E.) for $425 million in late ’17.

Fan Marino: Howie may not be willing to credit equipment sales to Tiger’s return, but there’s no doubt that Tiger contending for his first major championship in a decade was the catalyst for last weekend’s British Open drawing the tournament’s highest television rating since ’06 (5.0 overnight); the last time Woods won the claret jug. In fact, the only British Open to draw a larger audience was the 2000 tournament, which Woods also won; to complete the career grand slam. Interestingly, the highest rated tournament of year thus far has been the Masters (7.6 overnight); where Woods failed to make the cut.

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U.S. Golf Economy Report Indicates Sport is Trending Positively

Golf

GOLF 20/20 and TEConomy Partners released their latest U.S. Golf Economy Report indicating that the sport is trending positively. Direct economic impact derived from the game grew 22%, to $84.1 billion between 2011-2016. Golf facilities are generating more revenue (+15% to $34.4 billion), Topgolf has lifted the performance of alternative facilities (think: driving ranges, indoor facilities) and equipment, apparel and media sales have increased since ‘11 (up to $6 billion). Though the report paints a positive overall image of the industry, it must be noted that the number of golf facilities has declined (-737 to 15,014), new course construction is down (-59% to $210 million) and golf community development still trails ’05 levels ($7.2 billion, down from $11.6 billion).

Howie Long-Short: Golf stocks are far outperforming the S&P YTD; Callaway Golf (ELY) is +20% YTD (to $16.74), Acushnet (GOLF) is +13.75% YTD (to $23.98) and the S&P is -1.45% YTD. While it would be easy to attribute the sales growth to Tiger Woods’ return, both companies have been headed in the right direction for some time; ELY is +74% over the trailing 3 years, while GOLF is +35% since its ’16 IPO. The U.S. Golf Economy Report indicated that the industry’s strongest sales growth was coming from the equipment category, a far more logical reason for ELY & GOLF’s outperformance.

Fan Marino: Mets star Yoenis Cespedes, a career .270 hitter, is hitting below the Mendoza line (.195) in 2018; but, believes he’s identified the problem – a “golf deficiency”. Cespedes, who says he hasn’t hit the links since June, claims the sport helps him to “keep my hands inside and keep watching the ball in order to hit it well.” I’m not buying that excuse. If he hasn’t swung a club since last summer, how did he manage to hit .324 (in 20 games) in spring training? With that said, I do not believe one’s golf swing has any impact on his/her baseball swing.

Fun Fact: Today is National Golf Day. To celebrate, visit your local Topgolf location (Las Vegas excluded); they’re offering complimentary lessons.

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Patrick Reed Wins Masters with “Mixed Bag”, No Equipment Sponsor

Patrick Reed

Patrick Reed won the Masters Tournament on Sunday without an equipment sponsor, using “14 golf clubs and a golf ball that I feel are the perfect fit for me.” Reed, who played the previous 5 seasons under contract with Callaway Golf, carried a “mixed bag” containing Ping, Titleist and Callaway irons, Artisan Golf wedges and an Odyssey putter; he used Titleist’s Pro V1 balls. While Reed does not have an equipment sponsor, rare for a major winner, he was outfitted by Nike; though not in his traditional red (see Fan Marino below).

Howie Long-Short: Of the 5 brands that Reed had in his bag, Callaway (ELY), Titleist (GOLF) and Odyssey (ELY) are publicly traded. Ping is a privately held operation, run by the Solheim family; Karsten Solheim founded the company in 1959. Artison Golf is a newly formed company (late ’17), founded by a group of old Nike Golf clubmakers; including master clubmaker Mike Taylor.

Callaway Golf (ELY) had a strong FY17 fueled by the success of the company’s EPIC Woods & Irons line and the acquisitions of OGIO and Travis Mathew (+ $100 million in net sales). Sales increased 20% YoY (to $1.05 billion), net sales grew 20% (to $178 million), Adjusted EBITDA ballooned 72% (to $100 million) and gross margins were up 160 bps. Management is expecting sales and EPS (+100% to $.53 for FY17) to continue growing at a similar rate, in Q1 ’18.

Fan Marino: Despite being the leader going into Sunday’s final round, Nike would not allow Patrick Reed to wear the red shirt with black pants (and black hat) that he typically wears on Sundays. Reed, who wears red as an ode to his idol Tiger Woods, won his 6th tour championship while wearing a pink shirt. Nike maintains that the decision was not related to Woods presence (never in contention) and that there is a new policy to keep the brand’s golfers in “the same kind of storyline” (presumably for easier recognition); but, Woods showed up in his customary red on Sunday finishing T-32nd (+1). There is no word on if Woods was violating company policy or Nike maintains an exemption for Tiger.

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WSJ: Just 7 Ways to Publicly Invest in Sports, JWS: Not the Case

wsj-wallstreetjournal

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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DEPRESSED GOLF SALES DIRECTLY IMPACTING STARS’ POCKETS

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

CLUBCORP ACQUIRED BY P.E. FIRM FOR $1.1 BILLION

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.

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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.