In Compass Point’s annual Golf Industry forecast, SLRG Golfer Omnibus data supports the thesis that while the golf industry continues to enjoy strong performance, consumer insights suggest that expectations for 2025 are somewhat tempered.
Notes From the 2025 PGA Merchandise Show
Last week we attended the 2025 PGA Merchandise Show in Orlando FL. Before we start to examine our findings from the Show, it makes sense to level-set the current environment and how we see it moving forward from here.
Undeniably, the golf industry in the US has enjoyed a full-on renaissance in terms of participation. Exhibit 2 shows that US golf rounds have increased in five of the last six years.
Exhibit 2. US Golf Rounds Played Annual Change 2019-2024
Source: Golf Datatech, National Golf Foundation, Compass Point Research
Against this backdrop, we can calculate that annual rounds played are now 25% greater than they were in 2018. What we also know is that there are surprisingly fewer eighteen-hole equivalents today than there were in 2018. As demonstrated by the Pellucid Corp. 2025 State of the Industry report, the current capacity utilization of rounds played at the facility level has risen from the mid-50% level to the mid-70% level. Given the practical limitation of how rounds played capacity is measured, we believe that facilities are at or near their functional capacity. Without a significant positive weather dividend, it will be very difficult for rounds played to increase from the current level. As such we believe it makes sense to project a modest decline in US golf rounds played in 2025, and proceeded on that assumption in our views on the golf equipment companies.
There is some supporting evidence for that position coming from the 2025 Golf Business Pulse Report authored by Jon Last of the Sports & Leisure Research Group (SLRG). Based upon surveys taken from thousands of golfers SLRG has found that 13% less golfers plan to play the same or more in 2025 than they did in 2024 (see Exhibit 3).
Exhibit 3. Golf Playing Expectations
Source: SLRG 2025 Golf Business Pulse Report, Compass Point Research
The decline in expectations for how much golfers expect to play in 2025 also impacts their expectations for equipment spending in 2025 (See Exhibit 4)
Exhibit 4. Expected Golf Equipment Spending
Source: SLRG 2025 Golf Business Pulse Report, Compass Point Research
As Exhibit 4 shows, the percentage of survey participants who expect to spend more in 2025 has declined by 13% YoY and the percentage who expect to spend less has increased by 15% YoY.
Our immediate conclusion is that any decrease in rounds played has a direct impact on sales of consumables such as golf balls and gloves, etc. This disproportionally impacts Acushnet (GOLF — Neutral, $77 PT) and Topgolf Callaway (MODG — Buy, $13.50 PT). With over 70% aggregate market share in golf balls, a decline in rounds played can only be replaced by increasing prices or increasing market share.
It seems worthy noting that the stock of new golf courses is not likely to rise materially anytime soon. As Pellucid pointed out, the cost of land, the complexities of zoning and permitting, and the environmental issues that must be overcome to create a new golf course make the economics hard to overcome. It seems like the often criticized strategy of tying new courses to new residential housing developments may reoccur as course builds can only be affordable if the cost is spread across a wider profit center (the development) and the cost to join gets incorporated into a mortgage instead of an out-of-pocket initiation fee expense.
Acushnet and Topgolf Callaway also have leading market shares in hard goods and reduced spending plans will again make it difficult to match 2024’s performance without either increasing prices or increasing share.
Meetings With GOLF and MODG Management Teams. We spent time with the senior management teams for both GOLF and MODG while at the show. We will share some of our observations about those meetings.
Topgolf Callaway. Noting that the team from Topgolf was not in attendance at the show, our meetings centered on developments at the legacy Callaway (which we will define as ELY). Central to ELY expectations for 2025 is the rollout of the Elyte Woods and Irons platform.
ELY hopes to hold onto its #1 hard goods position with this launch. In the driver category, Titleist launched its new GT drivers last fall so Elyte will have some runway as the newest equipment on the block.
On the golf ball front, ELY will also be introducing the Chrome Tour Triple Diamond ball, adding to the Chrome Tour golf ball franchise. ELY recorded record market shares during 2024 and the Chrome Tour Triple Diamond is expected to solidify that market share position.
ELY will be dealing with additional headwinds from potential tariffs (Mexico club assembly) and forex. The US Dollar conversions have almost religiously been negative year after year.
It was also our observation that the ELY team is rapidly working towards the spin-off of Topgolf and determining the best path for moving forward post the spin-off (See our report Spinning the Spin-off; Reduce Price Target to $13.50 & Reiterate Buy Rating). As we discussed in our report, ELY will be retaining ~19% of Topgolf shares after the spin-off, and we learned that ELY will have one year to dispose of those shares. The proceeds from the Topgolf share sales will go to debt reduction designed to bring leverage down to ~3.0x within a year of the spin-off.
Acushnet. The Acushnet team had an informative group meeting with a candid discussion about 2025. The obvious major product introduction is the new iteration of the Pro V1 golf ball franchise. The Pro V1 franchise is the most important product line at Acushnet, and we learned that Acushnet does not plan to take incremental price increases this year. We believe Acushnet has resolved many issues within the supply chain logistics since the last Pro V1 introduction that makes holding the line on price still margin accretive.
Acushnet suffers from many from the same forex issues that ELY does. We see tariffs as a somewhat lesser issue for Acushnet because all Pro V1 balls made for US consumption are made in the US, thus avoiding tariffs on this most important revenue source.
An additional headache for Acushnet is political instability in Korea. Korea is a key market for Acushnet where it holds a leading market share. The jailing of the Prime Minister of Korea has instilled a degree of market instability that could impact how sales go in 2025 in Korea.
Many people we spoke to believe that the USGA’s planned rollback of golf ball distance capabilities is unlikely to ever come to fruition. We already knew the PGA Tour was not in favor of the proposed changes. The new CEO of the PGA of America has quickly taken the stance that not only do the members of the PGA of America not support the rollback, but that their opinion was barely considered in what he described as a pre-ordained decision. If this proposed rollback is pulled, that would be a decided positive for both GOLF and ELY.
Importantly GOLF is signaling the continuation of its well-regarded capital returns program. We would expect another dividend increase when GOLF reports 4Q24 results, and the share repurchase program continues unabated.