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Drive Shack is Transforming its Business
Pivoting away from its traditional golf business to golf entertainment.
Every Monday, I write a newsletter breaking down the business in golf. Welcome to the 46 new Perfect Putt members who have joined us since last Monday. Join 1,549 intelligent and curious golfers by subscribing below.
Hey Golfers -
Golf entertainment company, Drive Shack, announced full-year 2021 and fourth-quarter financial results last Friday. It was the highest total annual revenue in three years for Drive Shack.
Drive Shack has three core business units that they operate.
American Golf is essentially the legacy business of Drive Shack. They have 55 golf courses in nine states. One golf course is owned, 32 are leased, and they manage 22 golf courses. American Golf sold a majority of their golf course portfolio to pivot and fund Drive Shack and Puttery.
Drive Shack is golf entertainment in its purest form. Technology-enabled driving ranges provide a competitive and unique golf experience - think Topgolf. Drive Shack has two additional venues in its pipeline. Drive Shack currently has four locations.
West Palm Beach
Puttery is the newest of the three business units operated by Drive Shack, with its first venue opening in September of 2021. Puttery is indoor mini-golf at its core, but it leverages technology to enhance the customer experience - similar to what we see at Drive Shack venues. Drive Shack plans to open seven additional Puttery venues in 2022. Puttery currently has two locations.
Let’s look at some numbers.
Drive Shack trades under the symbol $DS on the New York Stock Exchange. Here is a look at their stock price since 2019 - it isn’t pretty.
March 2019 - $4.54
March 2020 - $1.81
March 2021 - $3.14
March 2022 - $1.34
Drive Shack’s stock price is down 57% over the last year. For reference, the S&P 500 is up 6% over the same period. Presently, Drive Shack’s market cap is $123 million.
Drive Shack’s total revenue in 2021 was $281.1 million, up 28% versus 2020. Over 84% of Drive Shack’s revenue was recognized from its American Golf business. American Golf’s revenue grew 21.6% versus 2020, and Drive Shack’s revenue grew 64% versus 2020.
American Golf - $236.8 million
Drive Shack - $41.5 million
Puttery - $3.6 million
Here are a few other highlights from the earnings call.
2021 adjusted EBITDA - $16 million
American Golf Public Course - up 29%
American Golf Private Course - up 15%
Drive Shack states they are transforming their business; let’s look at how they are doing that.
Drive Shack has sold over half their American Golf portfolio to fund the development of entertainment businesses - Drive Shack and Puttery. For example, Drive Shack sold its Rancho San Joaquin course in 2020 for $16.6 million. The capital Drive Shack requires building a Drive Shack, and Puttery venue isn’t insignificant. Below is a breakdown of its venue economics.
Here is the interesting thing. It seems that Drive Shack has pivoted within its golf entertainment strategy by focusing on Puttery venues instead of Drive Shack venues. They plan to build 50 Puttery venues by the end of 2024 and only add one Drive Shack venue in the same period.
This strategy does make sense when looking at the unit economics. The development cost and development time are more attractive, and it returns a higher development yield. It is also worth noting that Topgolf owns this space with over 70 venues and an average venue brings in around $20 million. Drive Shack venues brought in an average of $10 million in 2021.
During the earnings call, Drive Shack CFO, Mike Nichols, stated they will need approximately $75 million of additional capital to finalize the 2022 development and partially fund the development of 2023 Puttery venues. Considering Drive Shack’s revenue of $281 million, investing $75 million in a developing business unit representing 1% of total revenue is significant.
Two quick things about Puttery:
Rory McIlroy’s VC firm, Symphony Ventures, has invested $10 million in Puttery.
Puttery has a competitor - Puttshack. They have six locations worldwide, with nine in the pipeline. It will be a race for market share.
The strategic pivot by Drive Shack begs the question - is it the correct business move? American Golf and Drive Shack had exceptional growth years in 2021. Time will tell if this was the right decision.
Have yourself a great Monday. Talk to you next week!
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