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Topgolf Callaway Brands
The Modern Golf Ecosystem
Other Recent writeups:
Analysis date: June 29, 2023.
Leader player in a resilient industry.
Secular revenues and strong growth.
Topgolf has changed the golf market entertainment, creating the “Modern Golf Ecosystem”.
Topgolf is a company that gives name to a business concept.
Excellent execution on the Topgolf segment.
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Topgolf Callaway Brands is a leading golf company that provides golf entertainment experiences, designs and manufactures golf equipment, and sells golf and active lifestyle apparel and other accessories through its family of brand names.
1982-The Company is incorporated in California under “Callaway Golf Company”, focused on the design, manufacture and sale of golf clubs and balls.
1992-The Company became a publicly-traded corporation on the NYSE under the ticker symbol “ELY”.
2017-The Company acquired OGIO, an active lifestyle apparel and accessories business.
2019-The Company acquired Jack Wolfskin.
2021-The Company completed a merger with Topgolf, a leading technology-enabled golf entertainment business. Topgolf operates entertainment venues and owns Toptracer ball-tracking technology.
2022-The Company changed its corporate name from Callaway Golf Company to Topgolf Callaway Brands Corp., and on September 7, 2022, changed its ticker symbol from “ELY” to “MODG.”
Originally, Callaway business was around clubs, balls, apparel and accessories.
With Topgolf acquisition Topgolf Callaway Brands Corp. operates a new and modern concept of playing golf, becoming one of the largest players in the sporting entertainment market.
Golf clubs and golf balls,
Lifestyle and outdoor apparel,
Apparel and accessories.
Royalty fees for licenses its trademarks and service marks to third parties
Product revenue represents 62% of total revenue.
Food and beverage sales.
Fees charged for gameplay.
Purchases of game credits and membership fees.
Every player must pay a $5 basic membership fee to play. Topgolf will then provide a membership card.
Company-owned and operated venues located within the United States and Company-operated and franchised venues located outside of the United States.
Topgolf operates 77 venues in the U.S, 4 in the U.K and five franchised venues in Australia, Mexico, the United Arab Emirates, Thailand and Germany.
Product revenue represents 38% of total revenue.
Product and services.
Woods (Drivers, fairway woods and hybrids).
Callaway sells Irons and woods under Big Bertha, Paradym, APEX and Rogue models.
Balls (Strata and Callaway).
Balls can be made on two-piece or multilayer technologies.
Golf Equipment represent around 38% of revenues in FY 2022.
Golf apparel, footwear, and a range of golf accessories such as golf bags, golf gloves, headwear and practice aids.
Premium footwear, belts, hats, facemasks, sunglasses, socks and underwear.
Backpacks, travel bags, duffle bags, golf bags and storage gear accessories.
line of outerwear, headwear and other accessories.
Jack Wolfskin brands.
Line of functional outdoor apparel for men, women and children, including jackets, trousers, dresses, skirts and tops, in addition to footwear and outdoor equipment, including packs and bags, travel bags, tents, sleeping bags and accessories.
Active Lifestyle sales represent around 27% of revenue in FY 2022.
Jon Rahm is a Spanish golfer winner of two major championship: U.S Open and Augusta Master. He became leader of PGA ranking and currently is in the second position after Scottie Scheffler.
Henrik Stenson is a Sweden golfer who won The British Open Championship at Royal Troon course in 2016.
Stenson was announced as European team captain for 2023 Ryder Cup but was stripped of his captaincy for joining Liv Tour.
Molinari won The British Open Championship in 2018.
Erik Van Rooyen
Anne Van Dam
Other Lines of Business
Toptracer consits on all-tracking technology to independent driving ranges, golf courses and for use in golf broadcasts.
Using a special camera, Toptracer is able to track the entire flight of a golf ball and then add a trace graphic to the screen.
Toptracer ball tracking technology actively tracks all ball flight paths across an entire field of vision, and its custom-built sensor provides shot analytics, such as ball speed, apex, curve, carry and more, in real time.
Topgolf’s digital media platform what comprises digital games such as the mobile golf game World Golf Tour (“WGT”) and other digital content creation.
Topgolf venues are golf driving ranges (Bays) with electronically tracked golfballs and automatically scored drives.
Players enjoy a global experience where golf is the core. The Topgolf venues offer food, drink and entertainment.
Depending to the location Topgolf offers to the users services like:
Private event spaces.
EV charging stations.
HDTV in each bay.
Arcade with new and retro games.
Music and events.
“We’re a sports entertainment complex that features an inclusive, high-tech golf game that everyone can enjoy. Paired with an outstanding food and beverage menu, climate-controlled hitting bays and music, every Topgolf has an energetic hum that you can feel right when you walk through the door”. [Topgolf]
The new golf experience
Golf was considered an elitist and rigid sport for a long time.
In fact, in some cases It is necessary to belong to a golf club and have a federation license to play golf . This is not only costly on an economic basis, but also requires extra dedication, effort, and time.
Golf courses demand etiquette rules and requirements that limit the target audience.
You may spend around four hours to complete a 18 hole golf round.
“At Topgolf, we're on a mission, as a brand we're on a mission to grow, evolve and expand access to player participation in the game of golf. Through creating a more fun, a more simple and easier ways to play this great game”.
The average age of a golfer in the U.S. is 45 years old [https://golfeducate.com/average-age-of-a-golfer/].
LIV Golf knows that circumstance and has changed the concept of golf competitions.
”LIV Golf is breathing excitement into an old, traditional game. Widening your sights is the right move if you want to draw more people to the green. Specifically, courses need to consider how they can target younger audiences, minority groups, and women to help build a larger pool of players”. [https://www.hio.com/americanhno-blog/golf-disruption-liv-vs-pga]
“Increased marketing, special golfing events (like a “Wine and 9”), and exciting prize packages are all ways courses can spark interest from different groups. Additionally, courses may consider how they can create social media photo opportunities to encourage players to spread the word”. [https://www.hio.com/americanhno-blog/golf-disruption-liv-vs-pga]
“According to new data from the Harris Poll published by Sports Illustrated, Norman’s fledgling LIV Golf Series could find traction with a younger audience”.
“Younger Americans — defined in the report as 45 or younger — are more “familiar with LIV” than the overall population (40% to 35%). And of those familiar with the Saudi-funded circuit, a larger swath of those polled from the key 18-34 demographic said they planned to watch a LIV event (71%) than other adults (55%)”. [https://clubhouse.swingu.com/tour/liv-golf-viewership-harris-poll/]
Topgolf is the modern golf ecosystem.
“The golf ecosystem is unique and defining, and changes everything”.
Topgolf is hi-tech.
Our patented technology allows you to track your golf ball and accurately score each shot based on the target it enters. Which also means we can’t get into the details of how it actually works. Topgolf venues are also adding Toptracer technology, allowing you to see a real-time trace of your ball's flight path as well as insights into speed, distance, angle and accuracy. Basically, everything you’d ever want to know about your shot. [Topgolf]
Topgolf is cheap
Prices depend on venue, and is by the bay per hour, not per person. That makes all the difference. Renting clubs is free.
Topgolf is funny and easy.
You can invite your regular golf foursome for a fun evening or your family for a party. Just know that our games require you to swing the club and hit the ball into the outﬁeld.
Alcohol and food is available in venues. There is not dress code or specific shoes policies.
”Fashion is a fun way of expressing yourself, and it wouldn’t be cool of us to hinder that. Just keep in mind, we’re still a public establishment”. [Topgolf]
“Topgolf is a game that anyone can play and enjoy, even if you’re getting more hole-in-nones than hole-in-ones”. [Topgolf]
Topgolf is for everyone
Topgolf is popular
In the United States is common to go to bowling establishments with the family or with a group of friends. TopGolf has the same characteristics: sport, food, drinks and entertainment. Topgolf become a entertainment for many people in U.S., and worldwide too.
Topgolf is trendy for beginners or casual golf players, and is a very popular in Instagram and TikTok.
Topgolf sales represent around 35% of revenue in FY 2022.
The Company sells its golf equipment products domestically and internationally, directly and through wholly-owned subsidiaries to:
Golf course pro shops,
Sporting goods retailers,
Third-party distributors, .
Websites and retail locations (Japan and Korea).
The Company sells its Callaway soft goods products to:
Golf retailers (including pro shops at golf courses and off course retailers).
Sporting goods retailers.
Online retailers, and third-party distributors.
Directly to consumers through the Callaway Golf website and various retail, outlet and store-in-store locations in Japan and Korea.
In exchange for a royalty fee, the Company also licenses its trademarks and service marks to third parties for use on certain Callaway apparel and golf accessories.
“TravisMathew is also sold to luxury department stores and lifestyle specialty stores, and directly to consumers through the TravisMathew website and various TravisMathew retail locations in the United States, Japan and the United Kingdom”. [Topgolf AR 2022]
“OGIO products are sold through the OGIO website in addition to the sales channels mentioned above”. [Topgolf AR 2022]
“Jack Wolfskin products directly and through its wholly-owned subsidiaries in Germany, China, the U.K., Switzerland and Japan to third-party distributors and retail stores, online retailers, department stores, mail order stores, as well as directly to consumers through its Company-owned retail locations and website”. [Topgolf AR 2022]
Topgolf sells its own technology to:
The Open Championship.
DP World Tour.
Golf ranges, academies and golf courses.
Topgolf venues provide food and beverage and game play for corporate and social groups. It includes meetings, team-building events, client entertainment, birthday parties, tournaments, fundraisers, etc.
Client of Topgolf is mainly a leisure and entertainment consumer. 51% of Topgolf customers are people who don’t play traditional golf.
Around 50% of Company’s golf club assembly is performed in regions outside of the United States such as China and Vietnam under third-parties agreements.
The golf club assembly process utilizes raw materials that are obtained from international and domestic suppliers.
Around 75% Company’s golf balls are manufactured in China and Taiwan under third-parties agreements.
The golf ball manufacturing process utilizes raw materials that are obtained from international and domestic suppliers.
Components used in the Toptracer business are sourced from suppliers located in Germany, Taiwan, the United Kingdom and the United States.
Topgolf has supply agreements with manufacturers in Taiwan and China to produce the radio-frequency identification (“RFID”)-enabled golf equipment.
Bay equipment within the Topgolf venues is custom built, primarily by domestic manufacturers.
External suppliers provide food and beverage to Topgolf in order to operate the restauration services in venues.
Topgolf Callaway employees join different areas of operating activities:
Golf balls manufacturing.
75% of construction costs (PP&E) are financed by Deemed Landlord Financing Liability and 25% cash outlay.
Land is under lease agreement.
Pre-Opening Expenses are related to costs associated with activities prior to the opening of new Company-operated. They occur within three months of the venue opening.
Pre-Opening Expenses supposed around 30.4 mm for FY 2022. It represents around 2.8 mm by venue.
Cost of Products: material and component costs, distribution and warehousing costs, overhead expenses as well as retail merchandise costs, which also includes products sold in retail shops within Topgolf venue facilities.
Cost of Services, Excluding Depreciation and Amortization: cost of food and beverage sold at Topgolf venues, as well as certain costs associated with licensing the Company’s Toptracer ball-flight tracking technology.
Other Venue Expense: depreciation and amortization, employee costs, rent, utilities, and other costs associated with Topgolf venues.
Research and Development Expense.
Venue Pre-Opening Costs: costs associated with activities prior to the opening of new Company-operated Topgolf venues, as well as other costs that are not considered in the evaluation of ongoing venue performance.
Selling, general and administrative expense.
Golf developed in Scotland from a game played on the eastern coast of Scotland, in an area close to the royal capital of Edinburgh.
He game found international popularity in the19th century.
Robert Forgan and Company and The Honorable Company of Edinburgh Golfers were the first to produce golf clubs for sale to the public.[https://myerscoughgolfclub.org.uk/what-companies-were-the-first-manufacturers-of-golf-clubs].
There are around 67 mm of golfers in the world, of which 1% are Professional, 63% men, 32% women , 4% youth, with 81% recreational golfers. . The COVID-19 pandemic has played a significant role in that increase since 2020.
Golf is a resilient industry that comprises:
Balls and equipment.
Golf & Entertainment.
“The Golf Equipment Market size is estimated at USD 11,104.36 million in 2023, and is expected to reach USD 13,647.10 million by 2028, growing at a CAGR of 4.21% during the forecast period (2023-2028)”. [https://www.mordorintelligence.com]
“Due to the COVID-19 pandemic, the global Golf Ball market size is estimated to be worth USD 971.4 million in 2021 and is forecast to a readjusted size of USD 930.9 million by 2028 with a CAGR of -0.6Percent during the forecast period 2022-2028”. [https://www.marketwatch.com]
Acushnet Holdings Inc.
Titleist (Clubs, balls and accessories).
Titleist ball is the most sold golf ball in the world (Around 37% of ball market). Pro V1 ball is the company's top seller.
Footjoy (Shoes, apparel and accessories).
Scotty Cameron . Maybe the best putter in the market.
Titleist professional golfers: Will Zalatoris, Danielle Kang, Lydia Ko, Justin Thomas, Rafa Cabrera Bello, Max Homa, Jessica Korda and others.
Acushnet Holdings metrics
Market cap 3.48 B
EV/EBITDA (TTM) 13.35x
Revenue 2,270 M FY2022
PING is an Arizona based company founded by Karsten Solheim in 1959.
Ping was also the first to offer factory fitting, via a variety of clubheads in different lies and offsets.
PING professional golfers: Tony Finau, Tyrrel Hatton, Joaquín Niemann, Bubba Watson and others.
Taylormade is a California based company founded in 1979. The company belonged to Adidas since 1997 until 2017 when was sold to KPS Capital Partners for USD 425 mm.
On May 11, 2021 Centroid Investment Partners a Korean private equity firm, signed a agreement to purchase Taylormade for USD 1.7 B.
Taylormade professional golfers: Tiger Woods, Rory McIlroy, Scottie Scheffler, Collin Morikawa, Nelly Korda or Dustin Johnson.
SRI Sports Limited
SRI Sports belong to Sumitomo Rubber Industries, Ltd. The company makes a wide range of rubber based products, including automobile tires, golf balls and tennis balls.
SRI is the first player in Japan and owns two of most important brands in golf market: Cleveland and Srixon.
Cleveland is known in golf by its wedges (a subset of the iron family of golf clubs designed for special use situations such as bunkers or short distances).
SRI golfers: Hideki Matsuyama, Shane Lowry or Brooks Koepka.
With a naked eye we may think that Topgolf venues compete directly with traditional golf course. However, I think that Topgolf is making a new TAM, a new market.
Traditional courses provides to its members driving ranges what equipped with distance markers, clubs, balls, and tees for practicing golf shots.
Market size of the golf driving ranges & family fun centers industry in the United States.
Personally speaking Topgolf player is a different concept respect to the green grass player. Topgolf is a global way to enjoy golf (Food, drinks, events, music, etc.) and traditional golf is sport strictly speaking or a social and exclusive activity in many cases.
Traditional on-course golf.
Traditional driving range.
We can say that Topgolf user is not necessary the same that green grass golf, but traditional golfer could be a Topgolf client.
In addition, Topgolf is a marvelous way to start to play golf.
Thus, there is not a cannibalization effect, on the contrary, the synergies are very strong between off and on-course golf.
Topgolf venues compete with other driving ranges or leisure centers such as establishments offering simulated golf or multi-sport experiences, arcades and entertainment centers, movie theaters, sporting events, bowling alleys, nightclubs, and bars and restaurants.
Toptracer competes with other technologies:
Black Box golf.
High Definition Golf.
The company is the owner approximately 4,800 U.S. and foreign trademark registrations and over 1,800 U.S. and foreign patents relating to the Company’s products, product designs, manufacturing processes and research and development concepts.
The Company’s patents are generally in effect for up to 20 years from the date of the filing of the patent application.
Units sales have grown around 12% CAGR since 2018, above the industry, and the customer base has become stronger year by year. Pricing power is possible due to the protection that intangible assets provide.
Callaway has a innovative research and development team. They have constantly develop products that have a substantial advantage over other players.
Topgolf has created a new ecosystem where the brand is synonymous of Golf & Entertainment.
Topgolf is easily recognizable in U.S. as Jacuzzi, Jeep, Velcro or Post-it. Topgolf is a brand that gives a name for a product.
“We're a sports entertainment complex that features an inclusive, high-tech golf game that everyone can enjoy. Paired with an outstanding food and beverage menu, climate-controlled hitting bays and music, every Topgolf has an energetic hum that you can feel right when you walk through the door”. [Topgolf]
Toptracer could have a certain level of switching costs for golf professionals and televisions that broadcast LIV Golf, DP World Tour, PGA, Ryder Cup, Solheim Cup and other high competitions.
The company is focused in growth through two pillars:
Same venue sales (SVS).
Margin expansion in its development pipeline.
“On sales and comp growth, if we look back a few years ago at Topgolf, the business and strategy was focused on walk in which was really walk up players. The concept started, we started selling a bucket of balls, and we built the corporate events business selling and executing larger events”.
“Over the last couple of years, we've listened to our players, studied the consumer and developed a comprehensive strategy to allow for reservations and their desire to plan ahead and to serve smaller group occasions. We started offering a smaller group event as an extension of our event sales team and we are in the process of migrating that into a digital product”.
“PIE our popularity inventory engine enabled us to better cater to the needs of our players. We can offer easier access, provide more value and better meet more of our player's needs. And we are seeing this with our digitally booked two bay players returning more often than through traditional events booking. This also frees up our events team to go after the largest, most profitable bay utilizing events. 2-bay bookings are now 10% of our business and growing. And broadly, all of its corporate and social 2-bay we view as our Happy Meal. It's like the introduction to the brand and the Topgolf experience in the same way we all got at McDonald's when we were kids”.
“In addition, we sell our game play in the form of time. And while many players were walking up the cost, group size and specialness of the Topgolfer occasion, it's clear players were planning. We just weren't allowing them to do so. There had to be a digital solution for this. That's a win for the player, a win for our playmakers and our teams. That would also provide incremental economics and allow us to grow faster with greater flow through”.
PIE provides to Topgolf the ability to charge different reservation fees based on time of day, and provides more predictability for operators and how to staff. Currently only 36 venues are equipped with PIE.
FY 2023 Guidance assumptions:
Total revenue around 4,440 M for FY 2023 (+11% YoY).
Topgolf segment revenue of approximately 1.9 B (Around +23% YoY), representing around 43% of total revenues.
Golf equipment flat compared to FY 2022.
Active Lifestyle segment revenue to increase low teens compared to 2022.
In my opinion Topgolf is the long-term growth driver, and will be the main source of revenues for the company.
“Our confidence in the growth model has increased over the past year as the strategy of focusing on the bay experience. What you see right behind me is working and we have significant runway ahead as evidenced by our enhanced new venue return Targets”.
Toptracer and games represent a small quantity of Topgolf revenues. However, Toptracer has a strategic rationale in Topgolf business. The ball-tracking technology and games are a cornerstone is a key in the Topgolf entertainment offering.
Topgolf Opened 11 new owned and operated venues in 2022. According to the company same venue sale grew by 7% in FY 2022. SVS represents sales for the comparable venue base, which is defined as the number of Company-operated venues with at least 24 full fiscal months of operations.
“The increase in same venue sales was primarily due to a balanced increase between walk-in traffic at the venues and price increases, in addition to strong performance in Topgolf’s corporate and social events business”. [Topgolf Callaway AR 2022]
In 2021 Callaway and Topgolf announced that the companies have completed their previously announced merger, following approval by shareholders of both companies.
Under the terms of the merger agreement,, Callaway issued approximately 90 million shares of its common stock to the shareholders of Topgolf, excluding Callaway, which previously held approximately 14% of Topgolf’s outstanding shares. Immediately following the merger, Callaway shareholders owned approximately 51.3% and former Topgolf shareholders (excluding Callaway) owned approximately 48.7% of the outstanding shares of the combined company.
Topgolf was acquired by Callaway as “a leading tech-enabled golf entertainment business”. Callaway has integrated to Topgolf creating “The modern golf ecosystem”.
Callaway completed the acquisition for $2.6 billion in stock. Topgolf segment generates $ 235 mm adjusted EBITDA for 2022.
Retribution to shareholders.
The company does not pay dividends to shareholders.
“In May 2022, the Company’s Board of Directors authorized a $100.0 million share repurchase program under which the Company is authorized to repurchase shares of its common stock in the open market or in private transactions, subject to the Company’s assessment of market conditions and repurchase opportunities”.
“The 2022 Repurchase Program does not require the Company to acquire a specific number of shares and will remain in effect until completed or until terminated by the Company’s Board of Directors. As of December 31, 2022, no repurchases have been made under the 2022 Repurchase Program”.
“During the first quarter of 2022, the Company completed a share repurchase program (the “2021 Repurchase Program”) in which the Company’s Board of Directors previously authorized the repurchase of up to $50.0 million of shares of the Company’s common stock in the open market or in private transactions. Under the program, the Company repurchased a total of 2.0 million shares of its common stock at a weighted average purchase price per share of $24.80”. [Topgolf Callaway AR 2022]
Arthur F. Starrs
Mr. Starrs is the key person in Topgolf’s global businesses. Prior to Topgolf, Mr. Starrs was the Global CEO of Pizza Hut, a division of Yum! Brands from July 2019 until April 2021. He was President of Pizza Hut U.S. from April 2016 to July 2019, and General Manager of Pizza Hut U.S. from October 2015 to April 2016.
He was previously Executive Vice President and Chief Financial Officer of Rave Cinemas from March 2005 to July 2013 and began his career as a Financial Analyst and Associate at Dresdner Kleinwort Wasserstein.
Oliver G. Brewer III
Oliver G. Brewer III is a Director and President and Chief Executive Officer of the Company. served as a Director of Topgolf since
Mr. Brewer also served on the National Golf Foundation’s Board and was President and Chief Executive Officer of Adams Golf, Inc.
Stock Ownership Guidelines
Chief Executive Officer 5x Base Salary.
Other Executive Officers 2x Base Salary.
Non-Employee Directors 5x Annual Retainer.
CEO´s retribution for FY 2022:
Base Salary $ 1,050,000
Targeted Long-Term Incentive $ 5,500,000
Target Shares Underlying PRSUs 171,518
Shares Underlying RSUs 57,173
Mr. Starrs retribution for FY 2022:
Base Salary $ 750,000
Targeted Long-Term Incentive $ 1,500,000
Target Shares Underlying PRSUs 34,304
Shares Underlying RSUs 28,067
Bonus and incentives depend on EBITDA, what is a Non-GAAP measure subjected to judgement.
Adjusted EBITDA company is calculated as earnings before interest, taxes, depreciation and amortization expenses, non-cash stock compensation expenses, and non-cash lease amortization expense.
Adjusted EBITDA from investor lens should include non-cash stock compensation expenses and non-cash lease amortization.
These differences could overstate incentives amount.
The impact potential future outbreaks of infectious diseases or other health concerns, could adversely affect the business operations.
The integration of the Topgolf business, or the failure to realize the expected benefits and synergies of the transaction.
High exposure to retailer purchasing activity.
Future consumer discretionary purchasing activity.
Changes in foreign currency.
Venues sales could be affected by adverse weather conditions and seasonality.
Changes or other actions taken by the United States Golf Association or other golf association that could have an adverse impact upon demand or supply of the Company’s products.
Decrease in participation levels in golf.
Global economic trends.
Golf is difficult to play. Topgolf is a entertainment business and occasional users could be discouraged.
Construction costs are financed by debt. Decreasing of operating results could jeopardize principal and interest payments and value of the company.
Financial Statements as reported
Company adjusts EBIDTA as earnings before interest, taxes, depreciation and amortization expenses, non-cash stock compensation expenses, and non-cash lease amortization expense. EBITDA company USD 558 mm FY 2022 .
EBITDA from the lens of Eloy Fernández Deep Research is adjusted as earnings before interest, taxes, depreciation and amortization expenses.
Capital structure analysis
CAPEX for FY 2021 and FY 2022 was around 322 mm and 532 mm.
The company estimate 255 mm for FY 2023 net of reimbursements related to venue financing, including 175 mm from Topgolf.
EV=Market Cap+Net debt
I calculate Net debt ex-Operating lease liabilities that represent around 1400 mm for FY 2022.
EBITDA 2027 around 1000 mm
EV 2027 USD 16B
EV 2023* USD 7.64B
If we assume the same level of debt for 2027 (the company will reduce leverage year over year), the stock is undervalued.
*EV keeping in mind Operating lease liabilities.
Next report: July 15, 2023.
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