Inside The Rise and Fall of Topgolf (And Why Callaway Is Walking Away)
Callaway thought Topgolf would transform its business. Instead, rising costs, shrinking returns, and failed synergies turned a bold bet into one of golf’s biggest strategic misfires.
Less than five years after agreeing to acquire Topgolf for $2 billion, Callaway is selling a 60% stake in the business to private equity firm Leonard Green & Partners. Callaway will maintain a 40% minority stake in the business, but the deal is being finalized at an enterprise value of $1.1 billion — a 45% decline from Callaway’s 2020 purchase price.
In simple terms, Callaway just completed one of the golf industry’s most significant value destruction events ever. While competitor Acushnet Holdings Corp — the owner of golf brands such as Titleist, FootJoy, and Vokey Design — has seen its stock price rise more than 100% over the last five years, Callaway’s stock price has dropped 45% over the same period, from $37 per share in May 2021 to just $10 per share today.
This is (obviously) not what Callaway had in mind when its management team announced the Topgolf acquisition in 2020. At the time, Topgolf was growing like crazy. Its entertainment-first model widened the sport’s customer base by targeting non-golfers and casual participants, creating a social atmosphere that encouraged group outings and corporate events. Customers were only committing to a 1-2 hour experience, versus 4-5 hours for a traditional round of golf, and the construction of climate-controlled venues with heating and cooling eliminated weather concerns.
Value propositions aside, the financials also made sense: Topgolf built its business by targeting large and wealthy metropolitan areas with more than 1 million residents.
Including the acquisition of 10-15 acres of land, Topgolf spent about $30 million to $40 million building each venue. With only one-third of a venue’s sales coming from gameplay (food and beverage, corporate events, and technology licensing made up the rest), the average Topgolf customer spent $36 per visit. And with hundreds of thousands of unique visitors per year, Topgolf’s largest venues were generating $20 million to $30 million in sales, resulting in an estimated payback period of 2.5 years.
On paper, everything pointed in the right direction. But the closer you get to the numbers behind this deal, the more obvious it becomes that something was deeply off from the start.