Here are just a few of the golf industry's morbid headlines from recent years:
- Business Insider: "Adidas and Nike are signaling the death of the golf as we know it"
- Bloomberg: "Golf in the Rough"
- Men's Journal: "The Death of Golf"
Despite these eye-catching titles, the sport of golf isn't "dying" and is greatly misunderstood. Like every other sport, golf has certain dynamics and faces its own unique challenges. But the game has tremendous international reach, an array of young stars, and continues to innovate toward growth.
Golf generates an estimated $68B for the US economy alone, and after clarifying several common misconceptions, you'll see that those dollars aren't disappearing anytime soon.
Misconception 1: Nike & Adidas Equipment Shakeup
Adidas sparked headlines when it decided to sell its golf subsidiary, TaylorMade, in May of 2016. Nike intensified the industry's alarm bells when it withdrew from the golf equipment business altogether. Yet these announcements shouldn't be so shocking and are sound strategic decisions for both apparel conglomerates. The golf equipment business, particularly golf clubs, can be fundamentally challenging because the products last for many years; most golfers have little incentive to frequently purchase new clubs. Not surprisingly, both companies will continue to make golf apparel and footwear, where they can better leverage their commanding vertical integration and economies of scale.
Nike's Decision to Exit
The reality is that Nike never became truly relevant in golf equipment. With single-digit market share, it took a backseat to the likes of Titleist, TaylorMade, and Callaway. And if Nike can't become a category leader, it often exits. We saw this in recent years with its wearables offering, FuelBand. Nike's departure didn't mean that the wearables industry was "dying." It just meant that Nike wasn't going to dominate it, so it got out of the space.
Adidas' Effort to Sell
Similarly, adidas looks to shed noncore assets and keep focused on its main businesses. And while TaylorMade maintains greater market share than Nike, its financial performance has been hurt by its over aggressiveness. TaylorMade has often flooded the market with a seemingly endless array of new products expecting consumers to keep buying. Comparatively, its major competitor, Titleist, tries to better control inventory and heighten demand by only introducing new drivers in odd years (2015, 2013, etc) and irons in even years. This practice helps maintain a healthier cadence and subsequent financial performance, en route to its initial public offering in 2016.
Misconception 2: Golf Course Closures
Golf courses are part of the real estate industry which is subject to booms and busts, so course closures shouldn't be astonishing either. Just as there were once too many Starbucks locations, golf courses have closed because they were overdeveloped and needed pruning. This doesn't mean that the game is on the brink of collapse. It simply means that certain landowners have sought a better utilization for their specific properties but that the enduring courses will likely get stronger.
Two common factors have driven course closures. First, newer courses cannibalized existing ones. If developers could build a better golf club and overtake others in the market, they did so, which left some preexisting courses in trouble. Second, the newer courses that have failed were often fringe developments, missing the mark of where people wanted to live or frequent.
A positive trend is that contemporary golf course developers, like Discovery Land Company, have introduced a range of properties offering a differentiated membership experience, with music blasting on the driving ranges and no dress codes in idyllic locations; the company continues to add to its portfolio, soon opening destinations in Nevada and New York.
Misconception 3: Reduced Participation
The number of US golf participants has reportedly diminished in recent years, from a peak of 30M golfers in 2005 down to 24.1M in 2015. While this decline isn't ideal, it shouldn't be panic-inducing either. There's no question that Tiger Woods' absence hasn't helped participation, being the sport's biggest star. Woods brought the game to new heights, leading to record TV ratings and sponsorship dollars.
With Woods playing less competitive golf, has there likely been a retraction in the short-term, aggregate excitement for the sport in America? Yes. But is golf dying? Not even close.
In the US alone, there are strong indicators of growth on the horizon:
Second only to millennials in headcount, baby boomers are one of the most influential generations in US history. With the roughly 77M baby boomers entering retirement, many predict that they will play more golf and spend significantly on the sport. Jeffries analyst, Andy Barish, estimates that this will more than double the current number of retirement-age golfers.
When you talk to golfers, many will tell you that they "only wish they'd started playing earlier." This is happening. In 2015, over 2M new golfers took up the game, many of whom were junior-age. Bolstered by nonprofits like the First Tee and the Drive, Chip & Putt Championship, young golfers of all backgrounds can access the game. Golf also benefits from a stable of young stars, like Jordan Spieth, Rickie Fowler, Rory McIlroy, and Justin Thomas, which galvanizes interest from kids. Meanwhile, social media provides them with unprecedented access to such stars, enabling kids to see their daily lives and study their golf swings.
Perhaps the greatest catalyst of golf will be increased play from millennials. With a headcount of roughly 92M, it is the most influential population in the US. Though some millennials are bogged down with their careers and young families, they are beginning to play more golf than ever before, according to sports attorney, Darren Heitner. Over time, more millennials will discover that golf can be enjoyed for the duration of their lives and that it can provide vocational advantages unrivaled by other sports.
Aside from growth in the US, it's also important to note that golf is truly a global game. While it's a reach for the NFL to hold a game in Mexico City, marquee professional golf events take place annually all over Europe, Asia, Australia, and South Africa. Furthermore, there are burgeoning markets abroad, especially Korea.
Innovation Enabling Growth
New and innovative offerings are poised to grow the golf industry as a whole, increasing ways to experience the game. Such offerings expand the total market size for golf, as participants still require golf equipment, even if they aren't playing on traditional courses. With a wide range of leading technologies and immersive experiences, here are just three examples:
- Trackman is a data capturing device that has become a mainstay on the PGA Tour, at golf clubs, and even in some households across the United States. Never before have golfers been able to access such vast amounts of information about their swings, which helps them improve and score better.
- TopGolf raced to a billion-dollar enterprise by allowing people to experience golf in a new way. By re-inventing the driving range, the entertainment company allows avid golfers and complete novices to enjoy the game together, along with their favorite food and beverages. Most recently, the company introduced the TopGolf Tour, where a field of national competitors vie for a $50,000 prize.
- The Major Series of Putting (MSOP) could be yet another way of expanding golf (despite a quirky name). Backed by the billionaire founder of Cirque du Soleil, Guy Laliberte, MSOP claims to be the "biggest putting competition in history," promising "millions in prize money." Time will tell as the inaugural championships won't take place until late 2017, but it's another way of growing the game of golf.