Determining the long-term value of a party-like driving range company in its early stages is difficult to do. Especially when Topgolf International Inc. was planning its IPO at $4 billion earlier this year but put those plans on hold due to COVID-19. Now, Callaway Golf Co. has announced that it plans to buy the remainder of Topgolf Entertainment Holdings.

Bloomberg says the deal values Topgolf at roughly $2 billion, a significant drop from the $4 billion price tag it was searching for in its IPO earlier this year. Callaway, known for its drivers and other golf equipment, already owned about 14% of Topgolf. The Wall Street Journal reported that the acquisition was already in the works.

Why Callaway Wants to Buy Topgolf

Topgolf driving ranges appeal to almost all audiences. The ranges feature loud music, food, drinks, and micro-chipped golf balls that track players’ progress as they hit range targets. Topgolf’s existence vastly contrasts with golf’s suffering from aging demographics and the closing of hundreds of courses in recent years. With the merger, Callaway hopes to acquire new customers and add a more significant digital component to golfing.

“We have thoughts about being the Peloton of golf,” said Callaway Executive Officer Chip Brewer. Brewer also said that the company might offer more microtransactions in the future, charging for personalized golf content. Callaway says they expect revenue of about $2.8 billion and can see it growing to $3.2 billion by 2022, projecting 10% annual growth after that. They predict that the deal will close early next year.

Perfect Timing By Callaway

Over Topgolf’s lifetime, very few copycat facilities have popped up, and none have come close to becoming significant competitors. That would mean this deal will make Callaway Golf Co. a golf industry behemoth.

Back in January, I wrote an article breaking down my thoughts on the initially planned Topgolf IPO. In that article, I stated that I would consider looking into investing in Topgolf, were it to IPO. Now Callaway, combined with Topgolf’s positioning, has a very competitive moat considering its brands and fast-moving businesses.

How Topgolf Could Become The Peleton of Golf

1.) Topgolf will expand its business by selling its Topgolf Swing Suite, a simulated version of Topgolf, often placed in casinos and hotels, to more consumers than companies.

2.) Using its growing entertainment team, Topgolf will create the content needed to build an everyday subscription platform for the Topgolf Swing Suite.

3.) Topgolf owned World Golf Tour (WGT) will continue to dominate the golf video game industry that earns revenue through high-profile online tournament sponsors, ads, and in-game microtransactions.

According to Front Office Sports, there are only about 200 Swing Suite bays in 70 locations across 26 states. This number of bays has taken some time for Topgolf. Still, the switch to at-home subscription-based digital recreational activities has been growing for quite some time. Peloton has shown this with its massive growth, ending its latest quarter with roughly 3.1 million connected fitness subscribers. Now, Peloton says it thinks it can grow to 100 million subscribers.

Peloton is not a unique story for selling products that run with content subscriptions; Apple is also moving that way with its Apple Watch and Fitness+. All Topgolf would need is to create a more personal and streamlined version of their Swing Suite bay. Then sell that version of the bay to the everyday consumer and create a subscription-based golf content model to sell to the new Swing Suite bay users.

The Peloton Model Applied to Topgolf Swing Suite Bays

• Offer a high-quality golf/sports simulator at a reasonable consumer price.
• Use branding, marketing, and consumer relationships to expand product reach.
• Sell the new users on the idea of “play and improve your game at a new golf course every single day” as a subscription-based content model.
• Repeat.

While many other golf simulators exist, none have the brand scale and content power to compete with Topgolf. That is if they nail down this subscription-based personal golf simulator model.

This article has been reprinted with permission from Hayden Barnes’ Medium page.

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