Chit Chat Stocks - Callaway (ELY) with Greenwald Capital

Episode Date: May 19, 2022

Callaway Golf Company (ELY) designs, manufactures, and sells golf equipment. Callaway also owns and operates the Topgolf brand. The company's main segments are Topgolf, Golf Equipment, and Wearables. Listen as Brett and Ryan ask Greenwald questions about the company, its business model, and valuation. Enjoy the show! This episode is sponsored by Potential Multibaggers. Multis are looking for stocks that have the potential to go up 10x in 10 years. Check-out the service here: https://seekingalpha.com/checkout?service_id=mp_1308 Subscribe to 7investing with the code "Money" and get $100 off: https://7investing.com/subscribe/aff/4/ Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Interested to see more of Greenwald's work? Find him on Twitter here: https://twitter.com/LeoGreenwald?s=20&t=y1lD1NEjoOUOrySO0yW98Q Contact us: [e-mail]  Timestamps Callaway | (4:08) Toptracer | (15:37) Free Cash Flow | (27:50) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. This is our Thursday deep dive episode. And today we have on Jason Greenwald. You may also know him as Greenwald Capital. And we're talking about Callaway. I should say that on this show, we analyze a single stock. We interview an expert or an analyst that is covering that stock. So we're asking the questions. They've done the research. And that's basically how the show goes. Do you have any highlights from this interview? Yeah. So Jason was in kind of a golf world. He's pretty avid golfer. His handicap is pretty low. I guess he plays a lot, all that good stuff. So knowing kind of the ins and outs of the equipment industry, knowing how all those certain pieces that Callaway owns might fit into everything, you know, do player sponsorship matters? Is that Netflix show going to mean anything? And then talking about Topgolf, just some anecdotal evidence and the numbers around that, how packed the complexes are, do they have pricing power, how many locations can they get to, what type of golfers, if even any golfers, are Topgolfs for, like who's going to them. Lots of good information around that.

And we're going to get to that interview. But first, let's talk about our sponsor today, Potential Multibaggers. They've been a sponsor with us for a long time. the aim of the potential multibagger service is to find stocks that can go up 10x over the next 10 years or compound at 26% per year. We've talked about a lot of the points here, but I'm going to go to a different one here. There is a chat community within the service where you can ask questions to Chris, who has been on the show before, who runs the service directly or to other multis. And that's what the members call themselves. You can share your doubts, successes.

You can share anything you're looking at about a business, your own portfolio. It's a great community, especially for the high growth investors out there and what they're trying to talk about and figuring out their portfolio, figure out what's best for them, figuring out an earning support, all that good stuff. Plus the potential multibanker service is sending out research reports and updates on a weekly basis. So if you want to become a multi, you can go to Seeking Alpha and look for From Growth to Value, Google it, or go to at From Value on Twitter. I want to also add, in this current market, it's Shopify specifically, their stock is down now 80% roughly from their highs. And it's still, I want a multi-bagger that there is the term of the service for the service. So they picked it at $77. It's at $330, despite an 80% decline. So it's kind of indicative of their style. They buy and hold really good businesses,

and they keep you updated with everything that's going on. Without further ado, let's get to the interview. Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Okay, today we are welcomed by Jason Greenwald, second time on the show,

first time, I believe we talked about, what was it, Costco? And Redfin, maybe, real estate. I think like just foreclosures, real estate, Redfin, which I have to say have been crushed. So I had that one right. And that was before we made the transition to focusing on an individual stock. So it'll be a different format this time. Should be fun. And if people don't know, you are like you said this, you know, you are Greenwald Capital on Twitter.

Yes. So if anyone is, you know, like, oh, is that the same one? It is. Yes. And today we're talking about Callaway. I know you are quite the golfer from your Twitter feed, so hopefully something you've dealt with, I guess, in your golfing experience. So how did you come across, I know you've probably heard of Callaway in golfing, but how did you come across it as an investment? Well, I guess I should just start off by saying I appreciate the two of you having me on here.

Uh, I've, I've heard about it, you know, kind of in the Twitter grapevine, uh, predominantly because of top golf, right? Like that's more what you hear about rather than clubs. Um, so for me, it's kind of interesting because before this deep dive, I, I had, I didn't really have a ton of experience with it. I had experience with it on the consumer side, but when I was growing up playing golf, Callaway was kind of the old people clubs, like young people didn't really use Callaway in like the mid nineties, like the mid to late nineties, you know? And, uh, so I really didn't use their

clubs a bunch growing up. Um, I was more like a title list guy, but as they've been pushing into top golf more and more i kind of have it has piqued my interest some um so i guess to just say for full disclosure i don't own the stock i so i do not have a position in it but after researching it some it's certainly interesting it there's a lot more to it than than clubs right and if i'm not mistaken you did play golf in college right so you're not just uh Yes, I played in high school and tournament college golf. I was never that I was probably the best I ever got was probably a two or three handicap. So I was never that. I mean, I was good, but not that good. Like I wasn't good enough to play on tour, which if you can play on tour, then it doesn't really matter, I guess. So, so I played on, you know, like tournament college golf. So I kind of know what I'm talking about. I probably know more about golf than business. So I think, I think we'll be okay. that's a good pitch for people to listen to this, but no, I can't. I think, well, I mean, my, I mean,

I'm going from a 10 out of a 10 of knowledge to like a 9.9 out of a 10. So it's not, you know, too far down. There we go. The, I think an important question I wanted to ask you that I think anyone looking at like golf equipment stuff might not know. And especially anything that's not buying golf equipment, which is just a small subset of the population. Do golfers have brand loyalty from what you've seen?

so that's very interesting I would say it's not like tobacco where like if you smoke Marlboros you smoke Marlboros and if the store doesn't have one you'll walk across the street to grab one I would say in golf there is for certain parts of equipment like for putters scotty cameron is and up to now to my knowledge like is the is kind of the gold standards of putters i would say as it's transitioned guys from more of a i like the way a club looks to more technical because now you know when you go on like a top tracer or other equipment you can tell how far each club goes where in the mid 90s like that technology didn't exist so now people are going with the clubs that they hit the farthest not necessarily the clubs that they've

always played with or the clubs that may be the most appealing so i think to answer your question I think as more technology comes in, you probably find people that are buying the clubs because of what they can do for them rather than I've always bought Callaway. Okay. And do you think that gives a little bit of an advantage to the scaled players like TaylorMade, Titleist, and Callaway? I might be missing one name there. Well, Nike's not in it anymore. There's Ping, there's Titleist, Callaway, mizuno was always i mean it seems like the big three kind of have an advantage at least from the technology brand where they're like oh that we got the highest tech we researched the most on that type of stuff to be completely honest with you i would say for the mass majority of people

they're not that good anyways so like the difference between a club for a 12 handicap cap is really not gonna I mean it's important that you have the right lie you know if you're flat or if you're standard or if you're upright but I would just say like it definitely helps the large guys because if you can get into the stores then you have them right and especially like I just don't know in terms of the R&D how much that equates to yardage right so if Callaway spends 20 million dollars on on r&d and a tailor-made spends 25 i don't know if there's the incremental 20 of of of help but i would definitely say that it's tough for the smaller guys um it's certainly tough for the small guys to compete unless you have like a d to c

like a D to C offering, but then you'd have to have them fit it anyways. So I would definitely say it's easier for the larger guys. A hundred percent. Yeah. If anything, if the technology isn't even that much better or if it doesn't even matter for 99% of players, there's the perceived, I feel like the perceived technology advantage.

Right. And there's also been a lot of consolidation in the industry. Like there's been so many companies like Orlamar or Adams was, dead practically like nike um stopped their equipment so it's it's it's definitely been a consolidation of of companies there 100 which which should help them yeah i want to talk about top golf because that's obviously a huge part of the business now um do you i guess what do you think about top golf more is it like from a customer standpoint and then do you think it's a model that someone else could replicate do you think there could be competitors in their space right i mean i've been to a couple and they are extremely cool i have to admit i i've gone to

some like for very casual things like i'm not really going over there to practice you know i'm going there to hang out with people it's kind of driving ranges never had food and if they did it was crap and it's not even a driving range it's more entertainment that has a golf component right so what you can do is you can really um attract people that that would not ever go to a driving range because like you know that's boring for people um drive shack has tried to but they only have four locations from at least the research I've done. And Topgolf has 70. And I guess on their last call, I read that they're pushing into Germany. So they definitely seem like they're the first person there. The CEO of Callaway Brewer has been on the board there

for 10 years. So that should be helpful, I would think. But they kind of seem like the first person to do it. And it might be something that someone else can replicate. But if you're the first person and if someone has that thought, you know, kind of in their minds, it could be tough to, um, to, um, replace that. Yeah. And they're, they're so expensive to build too. I think maybe for a listener context, because I, there are, there are 70 around the country, but a lot of people probably haven't gone. Can you maybe give a little context of like what you would do there with a group of people? Like what makes them so lucrative? Right. So I went there for a birthday party or a couple, and they're just a lot of fun. I mean, you pay for the stall, which I'm assuming

is expensive and the food is not like hot dogs and hamburgers like they have real food and real drinks so you you know you just you come in you have your party the the whole place was packed i mean it's not like you can just go up there and hit balls like from from from the people i spoke with i think you had to call three hours prior and so you check in and you have a party and you go to your stall and there's five six people and you get food and drinks and people just hit and you have a certain, I think you have a certain time period that you can hit it. And it's just a very fun time. And we were there for two and a half hours and the two and a half hours went by quickly. I mean, you know, you have five, six people and, you know, one person hits, two people

talk, two people, you know, eat, two people drink. And it's a pretty fun time. It's not something I ever thought about but after seeing it for the first time it is pretty great i mean like it's pretty unbelievable um it's not golf the way i'm used to a driving range it's really entertainment with a sports component and i just think they're attracting many more people than they would have yeah it's really not for it's for people that don't golf it's the biggest it's really not right right 100 do you think it could be potentially a good funnel for those people becoming golfers like more regular golfers oh do we want to add on the conversation about selling like apparel and equipment at the yeah locations i guess do you think they could maybe because

callaway obviously owns the equipment and right that's just a way that they can push everything Right. Like with Travis Matthew, with Calloway, I mean, it really seems like it's a pretty good vertical. Right. That they're trying to accomplish there, especially. Just the fact that they can keep in whoever they would like to keep in and they can take out whoever. Right. I mean, so they could have 80 percent Callaway, 80 percent, you know, Travis Matthew and also have top tracer there and kind of see if they can put all three things. You know, together, it certainly is something that and the CEO talked about this, that inflation hasn't hurt them yet. Um, they've said a couple of times on the last two calls, especially the last call where they've just passed it on.

So I guess the demand is there. Uh, the only thing that they were worried about was Omicron, but I guess to kind of bring it full circle. Yes. It seems like if you have the club part, the apparel part, the top golf part, you can kind of, you have a funnel there. And Brewer's been a CEO there since 2012. So I would think he knows what he's doing, hopefully.

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Thanks to advanced security included with Cox panoramic Wi-Fi. Advanced security must be enabled in the panoramic Wi-Fi app. Restrictions apply. Yeah. And we want to talk about Top Tracer too, because that is a very interesting part of the business that's growing quickly. But first on Top Tracer, I want to ask, do you think at the locations, at the Topgolf locations,

does that, I don't know, technology, how they use it to be, you know, those cool games and stuff like that, does that give them an advantage over a drive shack or anyone else that doesn't really have that technology? Yeah. I mean, as a golf nerd, I love top tracer. It's, it's the coolest thing in the world. I mean, I wish I had it for high school golf, but you had, right. You had the technology that you had. I don't know. And I don't, and I couldn't find this, um, like how much that cost would be for someone to use top tracer on there. That may be information that the two of you have. I couldn't find that. I will tell you just as an aside, like Topgolf is kind of expensive. I mean, it's not a cheap, I mean,

it's not a cheap entertainment. So how much more can they add additionally if someone is paying those prices? I mean, that I really, I don't see a golf novice wanting to use Top Tracer because if they're terrible, I mean, right. You know what I mean? For, for, for a golf nerd like me, it would be something that I would use a hundred percent of the time, but I don't know if I would use it in a social party type atmosphere. I would use it in more of a practicing kind of atmosphere. Okay. And then, um, uh, the next question, sorry, did you have something else to add on that? No, but I just want to say like, I mean, that could just be me, right? I'm, yeah. Okay. That, uh, that leads into the next question. When I go to

my local driving range, they have a top tracer and this isn't a top golf. So at the local driving range, they have a top tracer at two or three of the bays and rent them out. And Callaway's kind of pitch to investors is that top golf has top tracer and they're going to license it out to all these driving ranges. Do you think the majority of driving range, I mean, maybe not majority, but a good amount of driving ranges would benefit from that. The ones where people that are trying to get good are actually going to practice too. And that can be pretty lucrative with those software margins. I would think so. I mean, I would have loved to use a top tracer in college or like high school golf. Now, granted, I don't know what they would charge. I'm assuming

it's not cheap. I think it's about 30, 30 an hour, something like that from the place that I went. The, uh, the driving ranges have the choice. I think it's up to them. So it varies 30 bucks an hour for someone who's really competitive about golf and it's an expensive sport to begin with so you know like that's not i mean that's something that i would use 100 i would think a top tracer would be more beneficial for like competitive tournament college golfers i would just assume that if you're a hack it's not something that you would spend a lot of time with but they did say and i did read that they're trying to push that in in ranges I think it would be lucrative. What do you think of Callaway's other

business segments? And for any listeners that don't know what else Callaway owns, could you go through some of that? Right. So they have three segments from what I could gather. They have equipment, Topgolf, and apparel. And equipment was 45% of revenues. Topgolf was 31% and the others were 24%. But it seems pretty clear from the CEO and just the way growth is going, that Topgolf will be their top revenue segment. I think the CEO said by 2025, but don't quote me on that. So it definitely seems like they guided to high single digit growth. So it just seems like they're really pushing Topgolf and it seems obvious to me that They don't want to be just a equipment company.

They want to be more than that. It's a very hard business. And like in 2008, they all died. I mean, the crazy thing is Callaway in 2007 was about $17 a share. And in 2009, they were about $525, which you would say they're down 65%. But there's a lot of companies that were down way more than that. right i mean so it was pretty interesting that even in the in the 2009 they got crushed but it's not like they went to zero also so so i guess the answer question is you have equipment

you have top golf travis matthew seems like the clothing apparel that they're pushing pretty hard um and it's and the and the equipment is the number one goods brand in the u.s which was actually interesting so it's more than just equipment um the ceo really just seems like he's pushing that hard compared to titleist you know which is a more strictly golf equipment playing have you uh tried on any travis matthew apparel i have not have you i've heard good things i have i think i have one i have one pole that uh my work i had an internship like five years ago and at work we all got these polos and travis matthew so hey i mean i think they're pretty well known like people it's not like a luxury fashion or anything like that but it's

like something that i don't know groups will buy for i mean they know it's yeah and they're pretty popular on tour i mean you see them a lot on um you know just people playing with them but i haven't uh i haven't tried them on yet yeah and i guess i guess my invitation it got lost or something in the book yeah they're not they're not sending you out for the the brand marketing not yet i was only a two pay me cap guys yeah the uh um okay well i guess the quite like the question i have with the uh the equipment stuff the golf balls i guess the putters are in that too and equipment and the apparel is how much is that really worth because they seem like fine businesses but not i don't know the equipment one like it's a hard business apparel is less hard

but it can be a little bit trendy and like you don't know when something will come out of style how much like would are you buying this at all for well you aren't buying it i guess but are Are you interested in this at all for the equipment or is it all on the top golf growth? You know, it's interesting. I mean, I have a couple of views. If you look at Titleist and it's the only comparable that I could really find just off the top of my head, they trade significantly cheaper than Callaway. If you just look at the EBIT to EBIT, if you see the PE, I mean, it's pretty significant.

So the market is definitely giving it a lot more credence. um i mean their revenue just on equipment alone is probably going to be a 1.5 billion in 2022 i mean that's not anything to sneeze at the only issue i have with golf equipment is just from my perspective like i've had the same three wood for 12 years so i'm not buying a new three wood every year so the problem is you have like people like me that if they have a piece of equipment that they love they don't really ever replace it um so that's the only downside that i would have on equipment is like people it's not like a coca-cola where people buy you know to a day i mean you have people that don't buy them for 10

12 years so um the prices of equipment and especially golf balls also they haven't really changed since 2003 or 4 um i'm assuming the technology has increased margins over time but like a 12 pack of pro v1s are the same price in 2004 that they are in 2022 to so you don't even have i mean you would think in an industry like golf where people are pretty affluent you could have pricing power and you could really push prices hard that's not something that you see here so i wouldn't i mean i would buy it for the other stuff and the equipment could kind of be your margin of safety in quotes which i hate to even use that here but i think you guys understand that. I mean, it's not, I mean, it's still a two billion, I mean, it's still going to

be a $2 billion revenue business. Like that's not anything to sneeze at. It's just that I've seen so many equipment companies fail. Yeah, exactly. And it scares the hell out of me because you have a company like Callaway that I think is levered like 3.5 times. And Titleist, I think is about one. So they're very different companies with very different profiles and, and leverage profiles. So that's the only part that scares me is if we do get into a recession, like people are not going to be buying Callaway. Um, but the top golf helps a lot. I mean, that, that would be the reason why I would probably purchase it. Yeah. And it seems, uh, hopefully the equipment, if it's cash flowing, it's more mature hopefully that can help fund the top golf um you know a bit if it's generating

some cash for the business right right all right oh randy have some i was just how would you go about valuing callaway kind of some of the parts or yeah i mean what's interesting just as a side is like since 2011 Callaway has cagered at 13 percent and the SPY has cagered at like 11 which kind of was incredible to me I never would have imagined that so in terms I mean what I would use and granted I am not I mean I don't own the stock I would i see what titlist is being sold for i add a premium to that i mean right now it seems like it's 12 times ebita if my number or titlist callaway okay 12 and a half times i don't have the numbers i'm sorry i don't have the numbers in front of me but yeah that that seems yeah i

mean 12 and a half times ebita i mean i would i before this deep dive would not ever buy a company like this probably in a thousand years after doing it i would consider it i would just be very cognizant of the economy that i would assume would not help a company like this at all i'm not trying to not respond to your question, but to be completely frank, I mean, I don't know. I mean, right now it's 25 times earnings. And it's growing at high single digits. I mean, so it's something that if it were to fall, I think I would probably consider. So I know I'm not answering your question like a hundred percent uh it's just that a company like this is just out of my periphery just because um there's just a lot of question marks like it's something that

i would think in a recession i mean they've been able to pass on inflation so far but let's see how that changes over time we'll see yeah i want if consumer purchasing power goes down a lot if How that occurs, how Topgolf holds up. They never had to go through that. That is a great point. This episode is brought to you by State Farm. There are some monthly expenses you just can't get away from, like insurance. You might be looking at your expenses thinking you're going to have to pause on your DIY project,

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For surprisingly great rates, like a good neighbor, State Farm is there. Call or go to statefarm.com for a quote today. um i guess one other thing that i think maybe any listener should consider is that they're plowing all and more of their operating cash flow or ebitda into capex for top golf expansion so this company is probably not going to generate any free cash flow for you over the next five years i know you're not some you know um financial analyst doing all these models or whatever but How do you think about valuing that like a company in general, like top or not top off like Callaway that might not be generating cash flow, but hopefully we'll get good returns on that invested capital as to pouring all this money into new locations? To answer your question, like quickly and easily, I usually avoid them, you know, but good.

I'm sorry. Good rule of thumb, usually. Yeah, no, I mean, I just it's tough for me. And like, I don't want to get into a tangential argument of companies that have cratered this year that don't have free cash flow. Right. But I would think I would view this as an entertainment play. And it's very obvious, like you said, that the CEO or the the the previous call, like they're putting everything from free cash flow, operating income. And they said this, we are putting this into higher margin businesses. Right. I mean, they realize that. Clubs have like you can't really do it with clubs. um how i would value this and i'm kind of like doing this as i talk is i would probably have i mean to have some sort of growth rate in my mind let's say it's high single digits and if you can buy it at 15 times earnings it means you have a peg of like 1.5

how about that yeah it seems yeah that's kind of there's a lot of variables at play with there's so many variables in there i mean this company could outgrow more than i think i mean they like they are really trying to push it and um i think if they can do what they would like to do it will be worth a lot more it's just because of my history with golf i i just i still see them as a club company and that's wrong and i just have to change my mind on that i guess a big question too is what are the steady i may not steady states the wrong word what kind of store level operating margins no store sorry unit level operating margins does a top golf have because you know they're they're still kind of i think they had two percent operating margins the

last quarter it was negative in 2021 given covid and all that stuff well i mean is it 10 is it 15 i feel like it would be in that range but that's a big question given how it's a huge question yeah yeah right and what's interesting is title list has higher margins than galloway you know what i mean which you would think that's not possible um but i just think it's because of their push in top. I mean, if you have time to wait this thing out and especially if you've seen the product in person, which helps a lot. I mean, I wouldn't mind maybe putting a little flyer on this thing. I mean, I think it would have to fall a little bit more just because I'm cheap and stupid, but I definitely see what they're trying to do. I've tried the products out. It's just,

it takes a lot for me to get out of like clubs and equipment. And, but if, I mean, I would probably invest in this, then, then Titleist probably. Yeah, for sure. It is one of those ones. I would not have been interested in it without having visited a Topgolf, but it's one of those businesses where like you go and you realize how idiosyncratic, just how different it is. and it's so different and like the thing i said to my friends is how is this place not making a ton

of money right well i think i mean i mean every place i'm sorry i think they might be but like i mean they're just right i mean every state i mean everything was full and i mean i know how much we paid for two and a half hours and you multiply that by how many bays i mean it's it's It's it's definitely something there. I mean, I hope we can revisit this conversation in twenty twenty eight and see how because I have a feeling unless something weird in the economy happens, which you can't plan for these things. It's an interesting play. Well, OK, here's one more before we get into maybe valuation and some sort of ancillary stuff about Phil Phil Mickelson. oh yeah let's get which is it well we'll get to that in a few but i think the last one i have on top golf is how many locations can there be in the united states 150 is it well they're at 70 right so i mean florida and texas are really big states we don't have any in seattle where they're

building one right now yeah one's being built still there's we can have three in this greater yeah i mean i don't think they're anywhere close to being topped out i mean i see them all the time but there's a lot of warm states that have a lot of land. You know, you look at Texas, you look at Georgia, you look at Florida. I mean, there's a lot of states there where you can put them in and the land's a lot cheaper. You know, it's not like you're putting this in Manhattan. I mean, I don't think I'm fit to give you a true answer, but I think the number is probably more than we think.

yeah and they're saying 10 a year that could be for the next 10 years maybe right so they're at 100 so then they're at 170 yeah i mean i don't i don't think space would be the problem i mean you could put these in very cheap parts of the country where it's warm all year round where there's no problems with cold there's no problems with snow i mean that's a huge advantage i mean being in minneapolis i mean that's not quite as uh uh profitable i would think the margins might be a little lower i know i still think it could work if they have good heating and stuff it would just like right it's just a cost of like the snow out of there and i just yeah but oh yes sure and it's also it's a place where you don't have to be you don't have to have ideal real estate i think

people will come to you even if you're 30 minutes outside of the city agreed it's kind of it's yeah i mean agreed i mean we went to this in maryland that's like people were from dc virginia and maryland i traveled the shortest and i traveled a half hour so people i mean yeah i mean if you build it they will probably come what do you think about the i mean maybe brett's more equipped to ask this question because i don't keep up with golf news as much but the phil mickelson news i believe they're one of calloway's he's one of calloway's biggest was or maybe was but he's he had that thing about the saudi arabia thing it was yeah yeah yeah i mean i'm not breaking any news but like he joined calloway because he had gambling problems like

that's pretty well known in like the golf world so I don't think people were buying Callaway because of Mickelson I mean maybe people like me that loved him and they wanted to use like his wedges and you know and so on and so forth I don't think it I don't think it has any effect on the company yeah and what about in general the athlete sponsors those they're expensive like how very expensive do you think it's a worthwhile investment i know how much the tailor-made guys used to get paid and i'm assuming it's the same now just because i have some friends on tour i mean they pay him a lot of money i don't know if they're ever getting that roi back um but they're probably afraid they're afraid to they're probably afraid

to like say Callaway's like oh we're not gonna force anything on people but then okay we have no athletes or hats or whatever on tour like I feel like they get afraid like oh what's that gonna do to our business because we don't want to make that mistake yeah I mean Ping I don't think Ping pays their players to to like 2022 I mean certain come Ping and Mizuno I don't think pay their players uh but TaylorMade and Callaway do I mean that's very well known I I think it has very little influence on the company I think people are buying the drivers that they hit the farthest and if Phil wants to play in Saudi I just don't think it really affects it the other question though is like the endorsements that Callaway pays um they are very expensive but a decent

amount of that would be clubs and clothes and balls and that doesn't cost them anything right so um you do have that cost there but I think it's just their cost of doing business frankly i mean unless you're ping or mizuno you have to do it so i mean it's just um advertising and it's expensive and usually when you give someone a big contract like that they don't play that well yeah it makes sense i mean when rory went from titleist i mean he went to you know crap i mean not crap but usually when you give someone that much money they don't really perform all that well so the roi is probably not that great but it's just what you have to do yeah and i'm thinking about when i purchased my clubs to last year i purchased a driver um

and they had nothing to do with the sponsor the athlete sponsors or whatever i was seeing on the tour i went to the store they had the simulation area where you can hit some balls and i tried different clubs and this person whatever the pro there or maybe not even a pro the guy who all the clubs like hey this callaway maverick kind of fits what we you know you're looking for and i was like yeah it looks good feels good all right that's it like that's it's really the people at the shop that kind of leads me into like thinking that the top golf advantage of could have 20 million people yeah we're like testing stations oh you you kind of fell in love with golf let's try some clubs for you oh wow coincidentally we got some callaway mavericks

here for you. Wow. That's a big coincidence. Huh? Yeah. I mean, even when I started playing in the late nineties, golf retailers had arrangements and you could tell that they were pushing certain brands harder. And this was before you had like track man and couldn't know how far a club was going. You could just tell that if they sold a Callaway or Titleist, they got, you know who knows the cut right if there is yes i mean it's a huge advantage uh especially when you have i mean especially when you can push something um and i'm assuming with those track mans or with those equipment things like i'm not saying that the yardages are wrong but like i wouldn't be surprised if if they know when a certain retailer is right like if like they know

when a callaway is being hit they know i mean that could be wrong but i would just assume there's some play there but i could only imagine that having that vertical golf um structure whatever you want to call it i mean that has to be huge i mean the more top golfs they have the more equipment clubs that they can sell. That seems like a very good thing. Yeah, just simple. Yeah, it seems like an easy logic there. Oh, yeah.

100%. I believe it's either been announced or it's been rumored that Netflix is coming out with a new golf series. Filming right now, I think. It's supposed to be sort of similar to their Drive to Survive type of show. Do you think that could potentially

spur increased adoption for golf? And maybe be a catalyst for Callaway? I hope so. I mean, I can't wait for it to come out. I didn't watch the Formula 1 one, which I know is like, you know, heresy practically. What was that?

I'm sorry. I said, yeah, it was very popular. Yeah. Yeah. Yes. But the golf one, I can't wait. I think, and this seems crazy. I think if Tiger Woods is playing, then people would like to play.

and if he's not playing it i mean he is i mean that may be old and i may be stretching but i don't think i'm stretching like if you look at tv ratings when he plays and when he doesn't play it's not even close and i could tell you as a kid like when he played all you want to do right after he plays is just to head out there and play so you see that and it's just something instinctual but the one thing to keep in mind is like the people that are going to top golf are not big like they're not golfers per se so I don't know if I mean I think if they watch the show it will help I don't know I think it's more of something that if you find out that there's a party at Topgolf you go to I don't necessarily know and I could be wrong on this that if you

watch a show like that you're gonna want to just want to go into Topgolf yeah but I could be wrong on that like i would think someone like that would be a more observant golfer no i would go and play not necessarily you know what i mean because top golf is like a group thing i don't know if it's necessarily um where someone goes to just practice one-on-one skills but i could be wrong on that yeah the i think the only way maybe it could be a little beneficial to equipment sales If more people are adopting it, which is a small part of the business now, or at least, you know, going to be a smaller part of the business going forward and potentially top tracer at the other driving ranges. If someone gets inspired to become more serious about it, but that's, you know, that's just slightly, that's a huge part of the, those usually don't last very long either. I mean, it certainly doesn't hurt things, right?

Yeah, exactly. Yeah. But I would think that's a short term, right. Kind of like you were saying, like a short term bump. Yeah. Don't be buying this because of the Netflix show. That's what, please don't guys. yeah all right last question here unless ryan has something else no no go ahead one

why like i mean you already mentioned that the valuation is not crazy cheap although there's a lot of different variables you can look at i mean what what do you think you go wrong here for poor returns from whatever the stock price is at like 21 or something 22 what do you think yeah poor returns going forward i would just say either economy or if they overbuild top golf and people don't want to head there anymore which is something that's really hard to forecast i mean i could only imagine the only thing that goes wrong like i said is if people if the economy goes to crap or they just over grow top golf more than the demand is there but i gotta tell you every time i've been to one it's packed yeah so as long as they're smart with how they add them

which, right? I mean, he's been doing it for 10 years. So I would think he's pretty smart with this. I think if they're smart and methodical with how they add to them, that should be erased. I guess the only other thing that I would say is just debt. I mean, they do have a pretty high debt profile i don't know the maturity on those i really didn't like look them up but they do have a fair amount of debt at 3.5 times so i would just put that in there but i do know that they have that debt to grow right so it's not like it's just there but it's it's something to think about yeah and yeah compared to Titleist yeah just as yeah just as an aside they finance their own location so they're very expensive so the cap I don't know that just for any listeners

like they're not a lot of these I believe are not operating leases they're like I don't know investing all of it yeah like and they cost 40 or some million to to put in so it's just there's a lot of capital expenditures because when we're saying 70 locations like some people are like Well, it's not that much, but these are giant things. Oh, yeah. I mean, if you haven't seen one or drove past one, they're huge. They're hard to miss. Yeah, they're hard to miss, and they've got to be really expensive to build.

Yeah, definitely. For sure. All right. Any other questions? No. All right. Is there anything that you think is important to Cali that we didn't talk about? um to be honest with you i just enjoyed this guys i learned more about

calloway than i knew before and i've and i've been pretty familiar with them just from the periphery um i did see that they purchased some shares or they have a repurchase program yeah it's pretty small but it's there i think it was like yeah did you guys have any thoughts on that then? I mean, I mean, I mean, I know that they have a lot of debt and they're trying to grow. So I just would think like for someone that's trying to grow and has some higher debt to repurchase shares is somewhat atypical. Yeah. I don't really like it just because I'd rather say typical. Yeah. Yeah. I'd rather just have them have a nice balance sheet. Nice as a balance sheet as they can while they're growing and they have some SBC stock-based

compensation um okay that's fine if the share count's going up a bit but we're fine it's a heavy growth period i if they're gonna keep the balance sheet this lean it makes me slightly nervous the buybacks aren't that important at those type of levels like you know right and it's not even that heavy i mean i mean it's not like they're buying back that much and they can't just seemed um it was just interesting yeah i guess i think it's cheap so that's nice i did see brewer and the cfo were buying some shares personally as well it wasn't like a ton but i did see that i think he owns like 30 million dollars of stock did they tweet about it though well if it didn't tweet then i don't think it happened yeah it's a green flag if the ceo's not

on twitter now yeah if they if they bought the stock and didn't tweet that they bought it that's Oh, that is. Oh, yeah. Hundred percent. Yeah. All right. I think that's all the questions we have. Awesome, guys. Thank you for joining us. What about the if anyone's interested in, you know, foreclosure, real estate, your Twitter. Yes. Yes. Greenwald Capital on Twitter. Greenwald Capital. Just like it sounds. Perfect. All right. We got to get a got to hit the disclosure. So we want to remind our listeners that we are not financial advisors. Anything we say or discuss here on Chit Chat Money is not formal advice or recommendation. We are, however, general partners at Arch Capital so clients may have positions in the securities discussed in this podcast.

Thank you all for listening. We'll see you next time.