Topgolf: Is the cash cow running low on milk?

We noted the news that Callaway and Topgolf were looking to get a divorce here on the last Topgolf post.  I didn't fully catch that the financial struggles were on the Topgolf side instead of the equipment (Callaway) side, but a WSJ piece lays it all out.  The entertainment center business (i.e. the hi-tech driving range) is good--just not quite as good as it has been.  There are big hopes in City Hall that Topgolf will drive serious tax revenue allowing the city to shoot for the green with a smooth pitch and sink some long putts.  But.....

Serious golfers are reliably showing up on golf courses, spending money on their equipment and golf balls. But recreational players are no longer as keen on shelling out some $70 an hour on a driving range for fun these days.  Lately, the Topgolf business has been hit hard by slowing consumer spending. Same-venue sales fell 8% in the second quarter from a year earlier, the fourth consecutive quarter of declines. The sales drop was even worse for big-group events because of “corporate belt-tightening,” according to the company.  (Ed:  think Westin, Hyatt, Marriott).

The company initially thought that visitors to Topgolf would become newbie golfers who might seek out its products after trying them out at those venues, which carry Callaway equipment. As it turns out, hitting a few balls at a recreational driving range isn’t enough to convert people into Callaway faithful.

The steeper price tag might be one contributor: In its location in Edison, N.J., for example, it costs about $155 to reserve one bay for a two-hour session during peak hours. And that doesn’t include food or drinks. Topgolf is trying out different ways to lure customers, including variable pricing, tweaks to its promotions and adding concerts and live DJ nights.

Here's the bottom line

Topgolf itself isn’t a lousy business—it is profitable and generated a 15.5% margin on the basis of earnings before interest, taxes, depreciation and amortization last year. Its top line grew at a healthy 27% compound annual growth rate between 2021 and 2023 before the recent slowdown, and it still has a long runway of new locations. (Ed: especially our little B'game location).  It will, however, first need to prove that it can bring customers back after the first handful of visits.

Now, let's chat about those "DJ nights".  I never went to the movie nights at the old driving range during Covid, but I recall they did draw a bit of a crowd to Boringame.  What's the curfew policy these days on the Bayfront?

Comments

[Bruce Dickinson]

Well well well, Bruce Dickinson would be darned if his prescience didn't strike again! Top Golf had Peak Bubble written all over it, just as I had predicted some of these posts circa 2017 and 2019

https://www.burlingamevoice.com/2017/07/15-million-is-a-lot-of-golf.html#comments

https://www.burlingamevoice.com/2019/04/top-golf-offers-a-preview.html#comments

2017: "Guys, listen, before the council pats each other on the back in self adulation and felicitations, even prior to any ink being put to paper on a final agreement, we gotta ask ourselves, is this something that Burlingame really wants??

This TopGolf operation is growing extremely rapidly (as are some competitors), popping up everywhere, and in addition to potentially being a product of a tech and economic bubble, Bruce Dickinson's talented staff has unearthed a bad fact pattern for this company. In just a matter of a few months, TopGolf has been involved in encouraging a city to break its own zoning laws, not adhering to another city's contract to hire minority workers, building a location on a former slave burial ground, and two instances of patrons falling from the 3 story driving range within one month! Truth is stranger than fiction:

http://www.chron.com/news/nation-world/article/Slave-cemetery-found-at-Topgolf-development-site-11255513.php

http://www.wcnc.com/news/two-more-men-injured-after-falling-at-topgolf_/453711963

http://www.al.com/news/birmingham/index.ssf/2017/06/birmingham_gives_topgolf_30_da.html

http://www.denverpost.com/2017/07/03/topgolf-thornton-proposal-halted/

Given this council's abysmal track record of negotiating or sniffing out any good deals for Burlingame, Bruce Dickinson thinks this TopGolf gig will last 5-7 years, tops.

Don't say that I didn't warn everyone to duck by yelling "Fore!" so that a microchipped golf ball won't hit ya on your noggin'!

2019: "Looks like Top Golf places Bottom Priority on Burlingame residents and businesses.

This concept, while sounds kind of cool, reeks of being at or near the peak of a bubble. Basically a more adult version of Chuck E Cheese's or Dave & Busters.

Top Golf has a sordid history in operating in other communities. Not sure this is the greatest business for Burlingame.

[Bruce Dickinson]

Just as a post-mortem for my friends in Burlingame, the Top Golf concept actually had many prior failures. How you ask? Well time for a good ol' Bruce Dickinson teach-in!

Top Golf, while seemingly new, is actually a failed business model, it's just that the product is golf instead of something else. Dave & Busters (which busted several times) and Chuck E Cheeses were both these entertainment concepts for kids that required a lot of investment in real estate, were subject to fickle consumer behavior and had high ticket prices relative to the value received. You go do these places maybe 1-2x a year tops, one being for birthdays. The price point makes repeat visits pretty crazy and too expensive.

At $70 an hour at Top Golf, you can go to a real driving range instead and hit a couple of buckets of balls for $30. $70 x 5 hrs = $350 can buy you an 18 hole round of golf at some pretty nice courses. The value proposition doesn't make sense.

The exact same issue is with Peloton. Sure a stationary bike is great and it's kind of fun having a hot instructor in spandex motivate you ( I kid, I kid). But think about it..why pay $300 for a real bike that can take you places when can you pay $2,000 for a Peloton that doesn't take you anywhere. Plus you'll have the privilege of paying $40 a month to stream motivational instructors giving you a sense of purpose and belonging for the same price as an OnlyFans subscription, but with more family friendly content! While everyone wants a fit, sculpted body, why use inexpensive effective exercise techniques such as running and lifting weights when you can use an ineffective expensive stationary bike which will probably turn into a clothes hanger after three months!

Top Golf is just the latest manifestation of all these businesses just with a slightly different product. It just takes a "Titan of Industry" like yours truly, Bruce Dickinson, to suss it out early and before anyone else!

[Cassandra]

And no loud music or noise bouncing off the bay and into the hills as happened with the last council mis-step…