Topgolf's Issues
Same venue sales are declining.
Every Monday, I write a newsletter breaking down the business in golf. Welcome to the new Perfect Putt members who have joined us since our last newsletter. Join 10,000+ intelligent and curious golfers by subscribing below.
Read Time: 6 minutes.
Today’s newsletter is powered by Holderness & Bourne.
H&B's Fall 2024 collection is now live on hbgolf.com. Drawing inspiration from Scotland's distinctive colors and rugged natural beauty, this season’s styles feature a range of patterns and textures originating from the home of the game.
Their popular knit shirts and layering are joined by a number of new releases, from classic sport shirts to an expanded range of pants and outerwear, each considered down to the finest detail.
P.S. I recently bought some H&B shorts. Best golf shorts I have ever owned — and it is not close.
Hey Golfers —
I’ll get right to it. In my newsletter, I generally try to avoid opinions. I try to present facts and data and let you make your own decision.
I am conflicted about Topgolf. I am a fan of what Topgolf is doing to introduce people to the game of golf. Topgolf is one of the driving forces that bring new golfers to the game, and most everyone in the industry benefits from that.
A 2022 study conducted by the National Golf Foundation found the below relationship between Topgolf and green grass golf.
~10% of current green grass golfers credit their Topgolf introduction for getting them them out on the golf course.
On the other hand, Topgolf’s business model requires a significant amount of capital to grow, making it extremely difficult to build and grow.
Topgolf is at a crossroads. Here is what Callaway said two weeks ago in their earnings report.
We are in the process of conducting a full strategic review of Topgolf. This review includes the assessment of organic strategies to return Topgolf to profitable same venue sales growth, as well as inorganic alternatives, including a potential spin of Topgolf.
So how did we get here?
Callaway and Topgolf have a nearly two-decade financial relationship. It isn’t like Callaway did this deal on a whim. Callaway knew Topgolf’s business as well as anyone.
Callaway initially invested in Topgolf in 2006. Below is a good timeline of Topgolf’s history.
Callaway invested in Topgolf three different times. Here is a look at how many Topgolf venues were built at the time of each investment.
2006 — first investment. Topgolf had four venues
2017 — second investment. Topgolf had 40 venues
2021 — third investment. Topgolf had 73 venues
It took Topgolf 21 years to reach 73 venues.
Since the Callaway acquisition in 2021 — Topgolf has added 27 venues. Over 25% of its venues have opened in the last three years.
Topgolf venues require a significant amount of capital to build. They have them in two categories.
Small to medium
Medium to large
A small to medium venue's construction cost is $20 to $27 million before financing, and a medium to large venue's cost is $30 to $40 million before financing.
While going through Callaway’s recent earnings report, I found a rather interesting graphic.
This is the most troubling graphic I have seen related to Topgolf’s business. Here is what it means.
Same-venue sales refer to an established venue’s sales, meaning they don’t include the sales of a new venue that comes online. This metric is important to understand how popular and sustainable a business is.
Topgolf 2024 same venue sales versus Topgolf 2019 same venue sales in the second quarter are flat. They’ve grown 0%. And even worse — 3+ Bay sales (corporate events) were down 5% in Q2 of 2024 versus Q2 of 2019.
Now — it is just one quarter. But showing no increase in same venue sales versus 2019 (pre-acquisition) begs the question. What has Callaway done to organically increase traffic to Topgolf?
Topgolf same venue sales have declined for four straight quarters.
Q2 2024: -8%
Q1 2024: -7%
Q4 2023: -3%
Q3 2023: -3%
If we couple the accelerated decline in same-venue sales with the lack of growth in 2024 compared to 2019, we can understand investors' hesitation and wonder why Callaway is investing tens of millions into a business with struggling sales.
This leads me back to the earnings release a couple of weeks ago. Callaway will evaluate organic strategies to get same-venue sales back on track.
I’d be curious to understand what that looks like. And what will be different from the acquisition date three years ago?
It’s always easy to armchair an analysis after the fact. And it wasn’t too long ago that Topgolf posted an 11% quarterly same venue sales growth.
Topgolf states that around 30 million people visit a venue each year. It is an important part of the golf ecosystem and is important to getting a golf club into prospective golfers’ hands.
Topgolf’s primary issue is its declining same-venue sales. The rapid growth of new venues makes this even more concerning.
I am interested to see how this will unfold. I am not in the prediction business — and I don’t think Callaway even knows what direction it will go with Topgolf. But I do know one thing — I am rooting for Topgolf to bring same venue sales back to an acceptable level.
Have a great Monday. We will 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.
Do you think PIF will buy it?