Don’t underestimate the power of entertainment to keep the pandemic-fueled golf recovery humming.
That’s the takeaway from the latest financial results turned in by two companies trying to capitalize on the trend.
Dallas-based Topgolf continues to be a bright spot for longtime golf equipment and apparel maker Callaway Golf Co. It now makes up a hefty share of the company’s sales, accounting for more than $403 million of Callaway’s $1.12 billion in revenue from April through June.
Drive Shack Inc., another Dallas company, operates two entertainment golf ventures — Drive Shack, a competitor to Topgolf, and Puttery, a luxury indoor putt-putt course that serves food and drinks to customers 21 and older. While American Golf, the company’s branch that operates 53 golf courses, still brings in most of its revenue, Drive Shack Inc. is serious about expanding the Puttery concept it launched in The Colony in 2021.
CEO Hana Khouri stressed to analysts on a recent conference call how important the concept is to the company’s growth.
“A large addressable market exists for a venue-based entertainment business, and we continue to capitalize on this large-scale opportunity as we maintain our focus and development plans on new Puttery venue openings,” Khouri said.
There are now three Puttery locations, with openings in Charlotte, NC, and Washington, DC, following the local debut, and the company plans to open four more this year in Houston, Chicago, Pittsburgh and Kansas City. It hopes to have 50 puttery locations by the end of 2024.
“We are gaining a clear proof of concept for our Puttery brand and know it presents the best path forward to our near-term growth and profitability,” Khouri said on the call.
Part of the reason for the positive outlook is the low startup cost and higher returns of Puttery locations, which cost considerably less to build than the company’s four Drive Shack restaurant-bar and driving range venues. It costs $7 million to $11 million per Puttery, while Drive Shacks cost $25 million to $40 million and take at least twice as long to build.
Existing Puttery locations brought the company $4.4 million in the most recent three-month period, with healthy profit margins. Traditional golf courses accounted for $71 million of Drive Shack’s $87 million in quarterly revenue.
Callaway is going through a similar change. Topgolf, which the company acquired in October 2020, is becoming increasingly important to the 40-year-old golf brand.
“If some investors initially look at the Topgolf business as either risky or unproven, I believe the string of consistent results since our merger should soon begin to change perspectives and valuations,” said Callaway president and CEO Chip Brewer during the call.
Topgolf, with over 60 locations globally, insulates Callaway from being too hurt by a dip in golf rounds played, according to JPMorgan analysts. The entertainment venues also posted a big recovery in hosting corporate events, recording its first quarterly increase in same venue sales since before the onset of the pandemic.
Callaway projects that Topgolf will be the largest chunk of its 2022 revenue. Topgolf has already outperformed equipment sales on a quarterly basis, accounting for more revenue in the third and fourth quarters of 2021.