Do Golf OEMs Spend Enough On R&D?
Every Monday, I write a newsletter breaking down the business in golf. Welcome to the 70 new Perfect Putt members who have joined us since the last newsletter. Join 8,364 intelligent and curious golfers by subscribing below.
Read Time: 5 minutes.
Today’s newsletter is powered by TruGolf.
Meet TruGolf, a Global Leader in Golf Technology.
From Launch Monitors, Golf Simulators, and the industry-standard E6 CONNECT software, TruGolf develops innovative solutions to make it easy to Play, Improve, and Enjoy the game of golf.
This Is Virtual Golf.
•      APOGEE – This camera-based Launch Monitor is the best tool on the market for golfers looking to improve their game. APOGEE does not require marked clubs or specialty balls.
•      E6 APEX – Meet E6 APEX, the ultimate golf software solution. E6 APEX features real-time course data, in-depth shot analysis, and graphics you have to see to believe.
•      The Future of Indoor Golf – E6 APEX and APOGEE have set the bar for realism. The jaw-dropping visuals and lag free gameplay are the new standard for virtual golf.
Meet the Next Generation of Virtual Golf at the 2024 PGA Show – Booth 1913.
Hey Golfers —
Golf has a strong history of innovation.
In the past 40 years — the golf industry has been granted thousands of patents. And golf has twice as many as football, baseball, basketball, hockey, tennis, swimming, bowling, soccer, lacrosse, and skiing combined.
From the 1960s to the 1990s, golf went through an innovative period.
1960s — perimeter weighted putter
1970s — graphite shafts
1980s — cavity back irons
1990s — oversize drivers
Two of the above products were designed by arguably the most significant entrepreneur in golf history — Karsten Solheim.
Since then — we’ve seen a new golf ball and adjustable drivers.
Have we reached the law of diminishing returns with golf equipment, or are we not innovative enough?
Acushnet and Callaway are both public companies — we can look at their R&D expenses over time to see if they tell us a story.
Since 2013 — Callaway has more than doubled its money on R&D. While Acushnet has increased its R&D expense by 33%.
Callaway’s significant jump in R&D could be attributed to the acquisition of Topgolf. But even before that — they were trending upward. From 2019 to 2018 — they spent 24% more on R&D. Acushnet’s largest jump in the period above was 12% in 2021.
While the increases in R&D spending are positive, they don’t tell us the whole story.
From 2013 to 2018 — Callaway spent more on R&D as a percentage of revenue than Acushnet. Acushnet has since flipped the script. But there is an interesting trend with both companies — their R&D expense as a percentage of revenue has been declining in recent years. Callaway peaked in 2015, while Acushnet peaked in 2019.
So, how do Acushnet and Callaway stack up against other industries?
Below are the top five industries where research and development are spent as a percentage of revenue.
Biotechnology — 30%
Software — 19%
Interactive media and services — 19%
Semiconductors — 17%
Communications equipment — 17%
There isn’t necessarily an easy comp for golf when comparing R&D expenses with other industries — automotive is a well-established manufacturing industry. Let’s take a look at the top five automotive companies.
General Motors — 6.25%
Mercedes - Benz — 5.67%
Volkswagen — 5.13%
Ford — 4.93%
Honda — 4.87%
Here’s a quick example of how Callaway uses some of its R&D money.
Callaway has made a big push to gain golf ball market share. And they have been rewarded for their efforts — resulting in the fastest-growing golf ball company since 2013. They own around 20% of the golf ball market share.
Callaway acquired Top-Flite in the early 2000s for $125 million. And just a few years ago, Callaway announced it was investing $50 million into its golf ball plant.
The golf ball market is valued at around $1.3 billion — so this has been a good move for Callaway to return value to shareholders. But has their investment in the golf ball fundamentally changed the game like graphite shafts or cavity back irons?
This begs the question — will we see meaningful innovation from the larger OEMs in golf? Or will the next big breakthrough in golf come from a smaller company?
Golf has seen relatively significant innovation in the last few years. Most of it is coming from off-course golf — or in non-traditional golf. Companies like Sportsbox AI come to mind. As well as the continued innovation of indoor golf companies and golf simulators.
The golf industry is seeing an influx of golf entrepreneurs enter the space — they are attracted to the opportunities the game presents itself from a business standpoint. Golf’s next breakthrough will come from a smaller company — just like when Mr. Solheim created the perimeter weighted putter in his garage.
Have yourself a great Monday. Talk to you next week!
Your feedback helps improve Perfect Putt. How did you like this week's newsletter?
If you enjoyed this week’s newsletter, please share it with your friends!
Are you interested in partnering with Perfect Putt? Click the button to learn more about sponsorship opportunities.