Topgolf is the Greatest Golf Business

Topgolf is just scratching the surface.

Every Monday, I write a newsletter breaking down the business in golf. Welcome to the 210 new Perfect Putt members who have joined us since last Monday. Join 2,718 intelligent and curious golfers by subscribing below.

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Hey Golfers —

Callaway recently held its 2022 Investor Day. I reviewed the 150-page document over the weekend. Topgolf is a wildly fascinating business; in my opinion, it is the greatest golf business ever.

Before we get into why — here’s the backstory on Topgolf. 

Topgolf was initially founded under the name of ‘Target Oriented Practice Golf’ by twins Steve and Dave Jolliffe. The entrepreneurial brothers sold their business in 1997 and were looking for a new business venture.

The duo concluded that driving ranges were dull and uninspiring — why not disrupt the space? So, in 2000 they opened their first location in Watford, United Kingdom, about 20 miles northeast of London.

(Photo Credit: Topgolf)

Their secret sauce? Implanting an RFID chip in each golf ball to provide exact distance and location — a proprietary technology to Topgolf. This allowed Topgolf to gamify the driving range experience.

Initially, the brothers struggled to get adoption. Golfers and equipment companies weren’t necessarily enthusiastic about the business. It was challenging to find investors — they received countless rejections.

In the early 2000s, a handful of partners licensed the technology and founded ‘Topgolf International’. Subsequently, they opened three locations in the United States. Alexandria was the first location that opened in 2005.

• Alexandria, Virginia

• Chicago, Illinois

• Dallas, Texas

In 2006, Callaway made its first investment in Topgolf, and in 2009 Topgolf International acquired Topgolf UK.

Topgolf’s growth started to boom — in 2014, sales exceeded $160 million. Topgolf-owned and operated venues continued to explode. In 2017, Topgolf had 40 venues — at the end of 2021, Topgolf had 70 venues and did $1.2 billion in revenue.

(Photo Credit: Callaway Golf)

Callaway closed on the acquisition of the remaining 86% of Topgolf (Callaway had already owned 14%) in March of 2021. The deal was valued at $2.6 billion.

I think Topgolf is the greatest golf business ever for these two primary reasons.

• Market penetration opportunity

• Introduction of golf to new players

It is estimated that Topgolf makes up 85% of the off-course play, an enormous number in the high-growth golf-entertainment space. Yet, Topgolf only touches 20% of the United States population within a 25-minute drive of a Topgolf venue.

By the end of 2023, Topgolf estimates that it will have a venue within a 25-minute drive of 26% of the United States population, leaving a staggering 74% of the United States population for future growth.

(Photo Credit: Callaway Golf)

But it doesn’t stop there.

Topgolf has four international franchised venues and will ramp to at least 22 venues by 2025.

Topgolf has identified around 450 venue opportunities globally. Using the 2021 venue number of 70 — Topgolf is only 15% of where they think they can be venue-wise; that is incredible.

Golf has been booming the last two years, in large part due to the pandemic. According to the National Golf Foundation, a record 3.2 million Americans played the game on a golf course for the first time in 2021. The 2021 growth was on the heels of 3 million Americans playing golf for the first time in 2020.

(Photo Credit: NGF)

But Topgolf might have something to do with that number.

Topgolf utilized the National Golf Foundation to conduct a survey. Topgolf learned that they introduced golf to millions of new players. In fact, 75% of non-golfers who engage with Topgolf are now interested in playing on a course.

Of the 30 million guests that visited Topgolf in 2021, 50% identified as non-golfers. Meaning Topgolf likely introduced the game to 15 million people last year. And of those 15 million people, 75%, or 11.25 million people, are interested in playing on a course.

This is what growing the game of golf looks like.

Let’s take it a step further.

Topgolf breaks its business into three units.

• Topgolf

• Toptracer

• Topgolf Media

Toptracer is incredibly interesting. Topgolf acquired Protracer in 2016 and re-branded it to Toptracer. Toptracer provides us with the technology to trace the golf ball on TV while watching professional golf.

Toptracer is the technology in Topgolf venues and many other driving range venues.

Here is Toptracer’s crazy stat. They have a dominant market share with 15,000 bays but only meet 3% of the total addressable market.

Toptracer’s CAGR for bay installs from 2019- to 2021 is greater than 60%.

(Photo Credit: Callaway Golf)

The best thing about Toptracer? Topgolf competitors are utilizing the technology in their venues. A quick example, Suite Shots is opening a location in West Des Moines, Iowa, and will be installing Toptracer in its 60 bays. Absolutely fascinating.

Let’s wrap it up with some quick numbers.

Depending on Topgolf’s venue size, development costs range from $15 million to $60 million per build — with the average venue development cost coming in at $30 million.

• Average Topgolf venue revenue — $17.5 million

• Adjusted EBITDAR — $5.6 million

• Adjusted EBITDAR Margin — 32%

• Cash Flow — $3.7 million

• Cash on Cash Returns — 45 - 50%

Topgolf is a winning business and is an incredibly impressive golf business.

Providing some context of Topgolf’s $1.2 billion in revenue.

• Callaway’s revenue, less Topgolf in 2021, was $2.045 billion.

• Acushnet’s revenue in 2021 was $2.147 billion.

Seeing golf-related businesses succeed is a win for the industry. But witnessing a golf-related business that is succeeding and introducing the game to millions of golfers excites me the most.

Have yourself a great Monday. Talk to you next week!

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