The Fall of The TopGolf Empire

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In 2021, Callaway acquired TopGolf in a merger deal that cost the golf brand 2 billion in stock options – since then the company has seemingly succeeded together. However, the financials and companies are now telling a different story, one we are going to dive into today.

footage credits go to:
@ClaireHogle
@GoodGood
among others

this is Top Golf we all know it for being this flashy fun golfing experience where long drive hitters and Instagram girlies go to film content for their platforms and is generally a very fun experience but a few years ago the story changed a little bit when Callaway decided to partner with the entertainment-based golf experience making it at that point the largest golf brand in the world by Revenue but now just 3 years later Callaway wants to separate from or sell Top Golf completely but let’s figure out why it all happened because it turns out I think it was all pretty predictable all right so historically speaking golf has never really been that accessible high prices snobby snap and Incredibly timec consuming in nature the sport has always felt exclusionary and only available to the few who could afford the time off from their jobs and family and the financial burden the sport could bring that is exactly where the idea of top golf came in in 2000 two British brother wanted to start something new and bring something new to the golf game they would with new upgraded golf ranges they wanted to create a more engaging and entertaining driving range experience so they patented a game and made golf balls infused with tracking devices to measure distances and so they H to do exactly that it wouldn’t exactly catch on immediately with only one location for 2 years until a partnership with 2002 Ridder Cup winning Captain Sam Torrance and then other Financial backers came in with a 15 million pound bid around 40 million in 20 23 to open up 10 additional sites across the UK and then in 2005 the growing brand would finally make its jump across the ponds to Washington DC where the first Top Golf USA location would open from that point on generally in the United States top golf expanded very quickly and they stuck to their original Promise by providing a golf game to as many people as possible and making what could be generally a dull sport for many well flashy fun and exhilarating at times some of the most viral videos online are from Girls messing up a top golf or long drive hitters smashing balls over the fence and getting in trouble there and that shows just how impactful top golf can be after over a decade in the United States in 2017 top gol’s annual revenue was at 630 million but in 2023 that number nearly tripled ending the year at 1.76 billion and for golf brands that is an insane number putting that companies Revenue alone right alongside the largest golf Brands including tidalist and Callaway in terms of Revenue partially because those top golf sites are decently profitable the general contract that Top Golf uses for most of its sites are rental agreements often tax advantaged allowing their landlord small increases in rental prices over the few decades and that allows Top Golf to limit the costs and liabilities of purchasing a property I’ve heard stories about how McDonald’s isn’t just in the fast food business because it’s a real estate company owning I think about 40% of all McDonald’s locations worldwide and the land they sit on but Top Golf is completely different and that makes sense because Top Golf takes up so much more space than McDonald’s it would be much more costly to invest and probably much more difficult to grow the brand but now with rental agreements instead of purchasing the land all they have to do is pay to build their range which is often put in place where a range has already been and then they can pay that off relatively quick now this Canon has led to a lot of problems for topall as those tax advantages are often offered by Town boards while actual citizens in the town can be upset or dismayed at the introduction of a relatively unsightly building with 30ft Nets and bright lights all around that bring a lot of young people but for the most part that’s not really an issue as the company continues to plan more sites over and over and more growth is being seen inside the company every single year and that growth is one of the reasons that I think Callaway got into bed with top golf in the first place Top Golf is now open at their newest location in Midtown there’s a new top golf just opened up today on the peninsula new top golf in Charlotte is opening on Friday one of the biggest equipment manufacturers in the golf game Callaway almost always has been a very marketing focused company doing everything they can to get their products and name in front of as many people as possible be that with groundbreaking Innovations like the Callaway big birth of metalwoods from the 9s or outrageous advertisements like this one have you ever felt better than you do right now sure last Sunday was on the ninth hole it’s Par Four I took out my great big birth and I teed it up I let loose they saw something that they could take advantage of with Top Golf and jumped at the opportunity but the truth is Callaway’s relationship with top golf has been a lot longer than just recently because Callaway first became an investor in top golf in 2006 they saw the potential for the brand to increase the popularity of golf and really wanted to cement a connection with a brand that could connect them with more new golfers and that’s exactly what it seemed motivated them to invest yet again in 2020 when they announced a full acquisition of or or sort of partnership with top off for over 2 billion in stock options for the new combined company to come together and the moment that happened that made Callaway not only the largest golf brand by Revenue but one of the larger sporting Brands altogether Callaway CEO at the time ship Brewer told golf.com this at the time about the move Top Golf is the best thing that happened to golf since Tiger Woods it’s transforming the game and it’s going to be the biggest source of growth for our industry that’s a bold take and and we’re going to come back to all of that in a little bit because I think there are some real flaws with their thought process around this purchase but before we get into that we need to properly understand that thought process to see how they got into that relationship and the golf climate at the time the move was made 2020 the world World goes dark and sporting events across the United States including professional golf are suspended completely for the first time since 2005 Callaway experiences a dip in revenue year-over-year and feels pressed to make a move one that could spark interest and Spike sales especially with the golf Market seemingly stalling now there are generally a few ways companies can do this when they’re in these situations they could innovate in the market and provide their customers with a totally new experience something fresh and new like they did back in the day with the big birth of metal woods and then again this year along with Taylor Made through the reintroduction of the mini driver but instead however they decided to take another path one that we are very familiar with from the biggest companies in most markets acquiring another company that is growing in an area Untouched by them with top golf their immediate access to Consumers grew immensely as they can now drop Callaway clubs into over a 100 locations and espec especially considering that Top Golf was accessing primarily non-golfers while Callaway was in theory giving themselves a major step up from the competition because they would be the first and potentially only golf brand that any of these customers would know likely giving them a little bit of a better chance at converting a sale in the future and after all I was going to criticize the Callaway CEO at the time but I I think he was right to some extent because Top Golf was the most viral thing to happen in golf since Tiger Woods in my opinion back in the day tiger’s name appeared all over newspapers and everything when he went to cities the world stopped there for a little while and everything covered him and in 2020 and and the years prior top golf’s videos showing these long drivers or or girls in skirts went crazy online for one reason or another and that likely drove a lot of intrigue into the game by the people viewing the content because they saw the game doing well online being exciting online or being fun to watch for some reason in the Tik Tok and YouTube and Instagram so why not try it out themselves so up until Callaway’s merger with top golf the company had seen a very consistent rise to the top for for top continuing to open up locations every year and innovating each of the spaces sometimes abandoning older locations like they did with the original in the US when they ceased operating in their dcard or Alexandria Virginia location but for the most part they were incredibly successful and drove a lot of money around this game of golf or this game of top golf for the reason I’ve said so many times that it appealed to a lot more people than a relatively Niche game and so this merger was supposed to be huge and I really think Callaway believed it would be I recently had a conversation with someone who was at a talk with Callaway’s CEO during the PGA Merchandise Show a few years ago and he said that Callaway fully expected top golf’s Revenue alone to exceed Callaway’s own in just a few years after the merger that much growth is a lot but with the boom that that Golf and and golf Brands were seeing at the time I could imagine that that after pandemic Rush well they could see it happening for Top Golf as well according to the National Golf Foundation the amount of golf rounds played in the US Rose 60 million in 2021 and then almost 30 million again in 2022 they could see it happening in golf maybe they could see it happening in Top Golf and spoiler they were right it did by the end of 2023 top golf’s total revenue had reached 1.76 billion bringing Callaway’s total revenue including equipment and clothing sales to well over $4 billion but to be fair that wasn’t the only thing Callaway was doing at the time to drive more sales especially in trying to reach new golfers like their partnership with good good not only were they putting clubs in the hands of these very influential people but but they were also actually coming out with clubs directly in partnership with the boys and I think that is such an incredible step forward they’ve also partnered with five iron which is one of the largest indoor simulator businesses in the United States and is a partner of the channel so use my link in the description to check it out and you know buy anything I’ll get a kickback but that gave golfers access to Callaway clubs in in ways we’ve never really seen before and all of that likely contributed to an increase in success of the golf equipment and apparel sales over the past few years that Callaway was experiencing and the whole point of that was just to show that Top Golf isn’t necessarily the reason that Callaway was being successful and the truth is I honestly don’t think it was at all because I think something was going on inside the two companies or one company now that wasn’t necessarily visible to everyone else see the big reason for this partnership at all that was emphasized Time and Time Again by Callaway Executives was the reach and then conversion potential that Top Golf could bring to Callaway’s business and because Top Golf doesn’t have a ton of Assets Now out outside of their top trace or technology that they are able to license out to golf ranges and bring in Revenue that way well in theory that’s really the only driver for the partnership from Callaway’s point of view because otherwise it’s not really related to golf or not necessarily and it turns out despite a few years of very impressive growth for Top Golf and Callaway Top Golf wasn’t really converting enough and finally in 2024 sales for Top Golf have remained very stagnant over the year prior and the only real growth has occurred at all because of their opening new stores with same stores sales declining 8% during quarter to 2024 and not expected to rise much more and now with those very less than impressive numbers the now partnered company had seen their stock price limit from a high in 2021 despite the fact that Callaway’s numbers were going up throughout that entire time and after a strategic review of Top Golf earlier this year Callaway didn’t see much use for the business being tied so clearly to Callaway and quickly after that came an announcement saying that Callaway was looking to spin off top golf into its own entity or sell it entirely where Callaway wouldn’t be any longer directly affected by the rise and fall of the entertainment business and the truth is it should have been more clear that that was going to happen from the very start honestly now it’s easy for me to say that but every time I hear someone describe top golf today they say it’s like a bowling alley an event that you can go on with your friends order a bunch of bar food and play a little game that you aren’t very good at for a little while before splitting honestly a relatively expensive bill with your friends and then going on your Merry way and I’d wager 90% of those people that have bowled have never bought a bowling ball before and yeah maybe I’m wrong and those numbers are General but I would be willing to bet it’s kind of close to that so Callaway was right that it would open up the door to customers that may never have touched golf before but problem was that it doesn’t really matter how wide open that door is if no one steps through it and then the door closes quickly on itself anyway and I say that because the very high prices of top golf are probably closing this door for most people unless you are with a very large group because we might also be entering a tricky Financial period in the United States which spells a bad time for entertainment-based events like top golfs because they’re considered luxury in the lives of consumers while the golf equipment might not necessarily be affected as much the stock price has been falling for years same location revenue is falling and conversions aren’t happening so yeah I’d kind of say that Top Golf failed at least in its ambitious partnership with Callaway that helped them bring in for a little while Far and Away more Revenue than any golf brand has ever seen and genuinely might ever see again does that mean Top Golf is going to close everywhere and you’re going to stop seeing the internet girlies and long drivers smashing balls in front of the Pretty Lights no not at all but it’s time as a golf company is suppressed for now thank you to my you for watching