The Times They Are A-Changin’—Bob Dylan

dyaln_640x400Though Bob Dylan sang the lyrics to The Times They Are A-Changin’ in 1964 to reflect the social unrest of the time he could have been singing about the golf equipment business today.

The trials and tribulations of golf equipment manufacturers and retailers have been well reported with Dicks Sporting Goods (NYSE:DKS) purchasing Golfsmith out of bankruptcy and Nike’s (NYSE:NKE) decision to withdraw from the club market receiving the most attention. At the same time two of the largest club makers are undergoing major changes.

Potentially the sale to the public of Acushnet, makers of the number one ball brand Titleist and the number one golf shoe FootJoy, will have an impact that could be more far reaching.

Owners Fila Korea Ltd. and an investment group led by Mirae Asset Private Funding purchased Acushnet from Fortune Brands in 2011 for $1.23 billion and will not relinquish their entire ownership in the initial public offering only selling roughly one-third of their shares. The prospectus also states the proceeds from the public stock sale will not be used by Acushnet to reduce debt or for product development but retained by Fila and the others.

Fila also has told Pulse News in Korea they have plans to purchase more shares, up to 50 percent, from other current shareholders to keep control of the company.

As a publically traded company Acushnet (NYSE:GOLF) will be making decisions differently than when privately owned. The pressure from investors will place them in the same position as every other public company. Quarterly results will be closely scrutinized and management decisions will be made in light of that attention.

In other publicly-held corporations long-term strategy may be compromised for the sake of short term profits. One of the most obvious areas of change could be the balance of profits retained by the company to fuel growth and the amount distributed to stockholders. It wouldn’t be the first time short term decision making overrode long term product development.

TaylorMade Golf owned by adidas is for sale and after six months no deal has been signed leading some to ask why. Adams Golf and Ashworth brands will likely be included in any deal. Adidas CEO Herbert Hainer said in May, when the possibility of a sale was being investigated, they wanted to concentrate on other divisions of the company with better prospects for growth. A reason essentially the same as that given by Nike in August when they decided to leave the club business.

It may or may not be significant but TMaG has not announced any new models for the 2017 season even though during late summer and fall all the other makers are introducing their latest. TMaG has the leading driver on the PGA Tour and has the largest selling iron model, the M2, on the market so it would be expected new clubs would be introduced at this time or at least an announcement there would not be new club models for 2017.

One interesting possibility is, if the Acushnet IPO is popular with investors, TaylorMade could be seen as a more attractive acquisition.

The Dick’s/Golfsmith deal for a reported $70 million remains to be finalized and as yet unresolved is how many of the Golfsmith stores will remain open and if Dick’s other specialty retailer Golf Galaxy will assume Golfsmith locations. Dick’s bought another competitor, Sports Authority, also in bankruptcy earlier this year.

Stay tuned. The Acushnet IPO is Friday the 28th, more news about TaylorMade’s fate will surely be coming and Dick’s decisions about Golfsmith will to a large degree set the pattern for big box retailers.

Tiger’s In – Nike’s Out

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He hasn’t put his game on display for over a year and his last PGA Tour win was in August of 2013 but the soon to be 41-year old has created lots of attention by saying he will play in a charity event October 10-11 followed by the Safeway Open October 13-16.

And the company whose clubs he has played since 2002 is getting out, out of the club, bag and ball business to concentrate on shoes and apparel.

Tiger Woods and Nike, inseparable in the minds of many, have had an amazing run together. Woods currently has 79 Tour wins with 14 majors (not all using Nike equipment) ranking second all-time in both categories. Nike though, was never able to come up with a category-defining club in spite of having on the payroll Tom Stites, one of the most respected club designers in the business. What they did however, with Woods under the most lucrative contract in golf, was become the number one golf apparel brand.

It’s no wonder, with the equipment business having at best a minimal-growth future, the decision to leave that arena was made.

Woods and other staff members, most notably Rory McIlroy and Michelle Wie, will continue to wear Nike Swoosh apparel so they will still have a huge presence in the minds of consumers. Golfers just won’t be able to purchase Nike clubs.

The effect the Nike withdrawal from selling equipment is uncertain but a good estimate is it probably won’t be very large. The golf division never had more than $800 million (last year $706 million) in sales but since the breakdown between hard goods and soft goods was not reported, actual club sales are unknown. They never approached a 10% market share in hard goods.

Some in the media are saying Nike’s problems are because Woods hasn’t been playing and that’s incorrect. Nike didn’t have market leadership or even contend for leadership when Woods was at his best, winning multiple times in a season. His presence on Tour alone never could generate the amount of business Nike wanted to dominant the golf hard goods sector but did help push soft goods to the number one spot.

Golf for Nike was a tiny part of their overall business, less than two percent, and several factors virtually preordained their decision. The small market share plus an industry where product lifecycles are measured often in months with relatively large development costs meant staying just didn’t make sense. It was obvious golf equipment had to go.

With Nike paying more attention to golf performance and lifestyle soft goods, the biggest impact could be seen by competing shoe and apparel brands Acushnet’s FootJoy, adidas and Under Armour. Adidas is also leaving equipment and selling its golf brands TaylorMade Golf and Adams. The other major player Acushnet, owner of Titleist, is in the process of going public which typically can create uncertainly in corporate decision making.

This could mean Callaway picks up the major portion of Nike club sales however large it was and undeniably Callaway has been on an upwards trend since Chip Brewer took over as CEO. Privately-owned Ping and others potentially could see a bump in sales as well.

With all that in mind, which clubs will Woods switch to now that he plans to compete and again chase Nicklaus’ record of 18 majors?

Well, it’s not clear he will switch at all and for sure not right away though Woods has said companies are sending lots of clubs to try out. He hasn’t played a Tour event since August 2015 and it’s unlikely he will make a club change soon. Additionally any equipment company paying the amount of money Woods can demand will want their logo prominently display on his cap and shirt so there’s an immediate conflict with his Nike apparel contract. Nike is worth several millions each year to Woods and the contract doesn’t renew until the end of 2018 so he’s not going to put it in jeopardy.

One thing is for sure, fan interest will continue as will the speculation about Woods as he tries to get back to being top of the Tour.

One Less Slice to the Pie

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The golf equipment industry is evaluating the potential effects of Nike Golf announcing Aug. 3 it would getting out of the club, ball and bag business to concentrate on its golf apparel lines including ones under the Tiger Woods, Rory McIlroy and Michelle Wie brand names. Club manufacturers have spent the last several years trying to find ways to increase sales and now the slice of the pie that belonged to Nike is up for grabs.

The question is what the remaining club companies will do to take over Nike’s share of the market and if the strategy involves reduction in the prices of clubs to attract sales the golf consumer could benefit.

Nike is the smallest of the big four by a significant margin with sales of $706 million this past fiscal year trailing Callaway Golf ($844 million sales in 2015), TaylorMade-adidas Golf ($989 million) and Acushnet ($1.5 billion).

However the scrum for the sales that had been going to Nike will take place in a muddy field.

There is uncertainty surrounding the two largest companies. Acushnet, the parent of Titleist and FootJoy, has registered with the Security and Exchange Commission to make an offering of stock to the public. Adidas has put its TaylorMade Golf division with the Adams Golf and Ashworth brands up for sale though details of any potential deal are unknown.

Smaller companies are also making moves that add to the list of possible outcomes such as Srixon’s Cleveland brand changing focus to wedges and putters while Srixon and their upscale XXIO lines market woods and irons. Tour Edge Golf has increased efforts to further penetrate the market for irons with well received new models.

Undecided for now is the fate of Tour players who endorse the Swoosh clubs and the list starts with Tiger Woods, Rory McIlroy and Michelle Wie but also includes veteran Paul Casey and rising stars Tony Finau and Bruce Koepka. Woods has said he is actively looking for a new relationship with a club company with the mostly likely candidate could be Acushnet-Titleist since longtime rival Phil Mickelson is the chief spokesman for Callaway and the question marks surrounding the sale of TaylorMade.

Jordan Spieth endorses Titleist clubs and golf balls but is contracted with Under Armour for apparel.

Additionally, money paid to endorse a given club line has been put under close scrutiny by every manufacturer as profits have shrunk. The huge sums Nike has paid in the past for marquee stars are most likely not part of the equation. It has been reported Woods earns $50 million annually from Upper Deck, Rolex and Nike endorsements even though he has not played a single event in the past year. Woods’ Nike deal includes both equipment and apparel.

Three years ago McIlroy signed a 10-year deal for between $200 and $250 million according to published stories including apparel as well as equipment.