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Home WAKE UP CALL!

In case you missed it in making an early exit into the Labor Day holiday weekend, Phil Knight was on ESPN’s Mike and Mike show. The co-flounder of Nike Inc was questioned about the decision to exit selling golf equipment and he said this: “It was kind of an easy financial decision [to shut down Nike golf]. It was a really tough emotional decision. It was hard emotionally. It was hard emotionally for Tiger. I spoke to him a couple times. He was upset, and I was upset. It was something we would have rather not have happened, but the financial reality just led us to it.”

Since the news broke, more than a month ago, no one has come forward and made an argument that Nike is making a really bad decision that it might regret one day. In fact, you don’t get to $32 billion in annual sales and net income of nearly $4 billion making a lot of dumb decisions or for that matter hiring a lot of stupid employees. It was purely a financial decision, based on nearly two decades of operations. The first reason for going into business should be to make money. Once that is accomplished it becomes an exercise in attempting to make more. But that doesn’t seem to resonate with very many in golf. 

Here’s the really bad news behind Knight’s candid comments. The competition doesn’t seem to be picking up on this. This isn’t intended to imply everyone should pull up stakes and exit golf. However, the harsh reality is that its lack of growth prospects has made it even more challenging to make money not only today but in the future. If you don’t acknowledge there is a problem, its impossible to over come it.

In a Bloomberg article, Callaway Chief Executive Officer Chip Brewer is quoted as saying, “Golf is not going anywhere. It’s never going to be for everybody. But the energy around the sport now I believe will be appealing to millennials, and will continue to grow.” Nike Inc, respectively, believes otherwise. Considering its annual revenue base is 32 times greater than Callaway’s along with its $5.4 billion sitting in cash, its figured out a thing or two over the years. In Callaway’s 2016 second quarter it realized a one-time gain of $17.6 million from the sale of a portion of its investment in TopGolf. In 2015, Callaway’s entire bottom line was $14.6 million. In 2014, it was $16 million. Does that tell you anything? Callaway made its original investment in TopGolf in the fourth quarter of 2006, when it had George Fellows as its Chief Executive Officer. It was never anticipated to deliver a financial windfall let alone surpass net income from continuing operations. It was hoped that it would give the company an inside track into new players entering the game and therefore give it a leg up when it came to future equipment purchases! How’s that been going?

For those keeping score at home, Callaway’s net sales in 2006 were $1.018 billion with net income of $23.3 million. In 2015, revenues were $844 million and a net profit of $14.6 million.